The Chorus from Last Week's Cleantech Events: "Solar's Hot, Hot, Hot" (PBW, SPWR)

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Includes: PBW, SPWR
by: Rob Day

I attended several good cleantech investing events last week: The AAMA's very well done clean energy panel in Palo Alto, a strong cleantech investing panel at Larta, and a fun roundtable discussion which should be out in the September VCJ. Also participated in a few category judging calls for the California Clean Tech Open. The cleantech space is getting a whole lot of attention these days.

The AAMA panel session was moderated by John Denniston of KPCB, and also included Bryant Tong of Nth Power, Vikas Desai of SunPower (NASDAQ:SPWR), Dave Pearce of MiaSole (as always when I mention MiaSole, I'm compelled to note that I've got a minor vested interest in seeing them succeed), and David Wooley of The Energy Foundation. Given this group, the conversation naturally focused on solar markets and investment opportunities, but also touched on a wide range of clean energy topics.

The Larta panel was moderated by Ira Ehrenpreis of Technology Partners, and also included David Aslin of 3i, Nick Parker of the Cleantech Venture Network, John Rockwell of Element, and Bryant Tong of Nth Power.

A busy few days, and we'll try to synthesize all of it, in jumbled fashion. The following are some random thoughts, reactions and quotes from all four events, in case it is of interest to those who follow cleantech investing:

Solar is hot, hot, hot

In all four settings, solar was a dominant topic of discussion. The recent IPOs, and the promise of more IPOs yet to come, are focusing a lot of entrepreneurs' and investors' minds to the market. There were so many solar-based applicants in the Cal Clean Tech Open [CCTO], for instance, that it was tough to weed through them to get to the other applicants in the Renewables category. Solar concentrators, in particular, seem to be getting a lot of entrepreneurial efforts right now.

In the AAMA event, it was interesting to see the strong silicon-based performer SunPower (SPWR) side by side with the upstart thin-film MiaSole, to see the similarities and differences in outlook. The clear message heard in all of this week's events is that a rising tide will raise all ships in solar, and the tide is rising incredibly quickly in solar. But it's not to say that people don't have their concerns as well.

Some notable solar-related quotes (aggregated from various events, and as always note that these are paraphrased, this is not a journalistic website):

Vikas: "Solar is the only viable distributed generation technology. It's easy to think about it being on your roof. No other distributed generation tech can really claim that."

Bryant: "A lot of people talk about when solar is judged as an investment without subsidies it falls flat. But there are so many subsidies for oil and gas. We've seen how important state policies like California's are for helping to create this market. It's very difficult to make investments in the cleantech area where your investment is totally dependent upon subsidies. But we've also seen how important they are in the timing of the market."

Vikas: "What could slow the solar market... Despite getting close on a cost basis, we're not there yet. So the biggest risks are in policy. Need to see supportive policies in place, and stable, for a few more years, while the costs continue to come down."

Pearce: "I don't completely agree. The industry threatens to kill the goose that's laying the golden eggs. Solar system prices keep getting driven up because of demand driven by policies. In my opinion that has to change, I think regulators are looking at this trend. In terms of innovations, we need to move the module to truly integrated building integrated PV, so it's part of your roofing product, for example. That will help it be ubiquitous with every new building. We need to attack every part of this value chain to get the price down to grid parity."

Vikas: "The rising of pricing in crystalline silicon is because the supply of the raw material is short due to strong demand. Silicon production is an industry that has not made money over the last few years, and they're now taking the opportunity of a silicon shortage to make money. But capitalism works, it's a short term problem, there's a lot of capacity coming on." (Some are saying it will come on in full force by the end of 2008.)

Biofuels are also hot

Biofuels are also hot, but the venture capital investment opportunities aren't as clear, according to some. Much more of a capacity game, using tried and true technologies; but with potential for innovation to help drive the market. Supportive policies are clearly a critical part of this market as well.

Notable biofuels quotes:

Bryant: "We're seeing an amazing growth in the number of business plans for biofuels in early development stages. It's encouraging to see, but we're looking for business plans that we're supposed to make money off of, and it's tough. Literally hundreds of new business plans in this area. I don't think ethanol will take a big share of the fuel market, you'll run out of corn as a feedstock. But you'll also see a lot of waste to energy opportunities. Ethanol is getting into a lot of debates about whether it's worth the energy you put into it."

Wooley: "There will be ups and downs of energy prices, that's why we need policies to keep biofuel technologies from going under during these times. It's important at the federal and the state level, both."

Cleantech vs. "Greentech," and other investment areas to consider

It was kind of silly to see the difficulty everyone at the AAMA event had keeping things straight, given some efforts now to try to differentiate "greentech" from "cleantech" without it being clear why such a rebranding is necessary. All evening, panelists and audience members asking questions had to continually remind themselves to mention both phrases in the same breath: "So in this cleantech, er, or greentech, or whatever you call it, space, what are the key market drivers?"

Regardless of what this investment area is called (cleantech, greentech, creentech, gleantech, the label really doesn't matter), it's clear that there are a lot of good opportunities out there for entrepreneurs and investors in energy, water, materials, and other related areas. Across all these very disparate industries and markets and technologies, panelists seemed to share the consensus that "this time it's for real," that looming natural resource shortages are raising the value of the cleantech investment thesis, and that a number of other critical and supporting factors are coming together at the same time.

Nevertheless, judging simply from the numbers of applications in general categories of the California Clean Tech Open, renewable energy sources are getting a lot of entrepreneurs' mindshare right now, with transportation-related energy technologies and energy efficiency technologies a distant second- and third-place, and water and other non-energy clean technology areas very far behind. It's unclear why this is, because certainly there are huge opportunities in water and other cleantech areas, just like there are for energy. And it's not like water is not a compelling investment area-- Just read this story.

General cleantech/greentech investment area quotes:

John R.: "One thing that's different now is the quality of the entrepreneurs. Also, there didn't used to be enough capital to be able to adequately address the huge needs in this space; and thus, there weren't enough of the supporting services like recruiting, specialized for the needs of cleantech."

Bryant: "Batteries are an important area for investment. Allowing people to be able to store enough energy for non-peak times is the goal here. There are a lot of techs aiming at this, and I think you'll likely see the change that comes is evolutionary, not revolutionary."

Ira: "There are potentially big opportunities in water. Some exciting opportunities in the water area, including the use of sensors."

Nick: "In water in particular, we're seeing strong corporate activity, which is an important factor for demonstrating to investorsthat this is a compelling opportunity. We continue to need more entrepreneurial focus, however."

Bryant: "I said a few years ago that energy efficiency is not an area for venture investment. I wish I could take those words back. The market has gotten a lot more receptive to energy efficiency. I've gone a complete 180 degrees."

The B-word

Are we now in a clean energy bubble? The question came up several times during the week, and is clearly being asked elsewhere as well.

The consensus of panelists in these events was a clear "no." But that's when viewed across all energy sectors, and especially all cleantech sectors. Panelists described the market opportunities versus the amount of capital deployed and noted that it still falls short.

Nevertheless, in the audience it was clear that not everyone is comfortable with recent venture deal valuations in a couple of sectors, such as solar and biofuels. Certainly a case by case thing, and none of the experts up on stage seemed very worried about the overall industry. But stories like this are also pretty telling.

The implication, therefore, as we've talked about before, is that the investment community will quickly move beyond solar and biofuels to the next thing, and the next thing after that, within cleantech.

[Editor's Note: The ETF PBW covers a cross section of the clean energy market.]