Clean Tech Investors, Entrepreneurs Look to Energy Storage, China

Energy storage and investing in China were hot topics for discussion at this year’s Cleantech Forum, the annual gathering produced by the Cleantech Group that took place in San Francisco in late January. Meanwhile, new data shows that cleantech investors favored sectors like agriculture, transportation and energy efficiency in 2015.

Experts, investors and entrepreneurs at this year’s conference showed a high level of interest in energy storage, according to Richard Youngman, CEO of the Cleantech Group. He says a growing number of investors believe that “game changing” storage technology is getting closer to reality, and there’s excitement about the combination of energy storage and distributed energy generation.

Andrew Beebe, managing director at Obvious Ventures, sees similarities between energy storage today and solar a decade ago. “Energy storage is just like solar panels were 10 years ago,” he said at the conference. “We are at an early stage of that process, but what we are about to see in storage is what in solar did a few years ago.”

Green Charge Networks CEO Vic Shao thinks 2016 “will be the year of deployment for storage,” he said at the Forum. Shao is well-positioned to know: last month, his company — which provides smart energy storage solutions to reduce demand charges and help businesses save money — announced that it had raised non-recourse debt financing of $20 million for planned projects, and another $30 million awaiting new projects in 2016, from Ares Capital.

Green Charge will use the financing to fund its no-money-down financing packages. The company uses a shared savings model, called a “Power Efficiency Agreement,” in which it takes on the upfront capital and installation costs of the system and then shares in the resulting savings with its customers over the next 10 years.

Green Charge has now raised over $90 million in equity project finance capital to fund its financing packages. It also recently won the 2015 Energy Storage North America Innovation Award for program to reduce energy costs and streamline utility programs in California schools, including the installation of energy storage and electric vehicle charging systems.

Partnerships Critical for Cracking the Chinese Market

China has seen many major policy developments related to climate change and clean energy lately. The US-China climate agreement, President Xi Jinping’s announcement of a cap and trade system, and a leaner and greener five-year plan have created a new model of economic development which could not only curb energy usage, but also provide opportunities for clean tech entrepreneurs.

Alex Shoer, CEO at Shanghai-based Seeder, is one such entrepreneur. His company provides a marketplace that connects building owners and managers in China with green contractors for retrofits aimed at increasing a building’s energy efficiency, and his panel discussion “Cleantech in China” attracted a full house at the Forum.

“There’s a huge amount of development [in China], but while there are mandates in terms of efficiency targets and sustainability in buildings, there’s a knowledge and access gap between available solutions and qualified providers,” Shoer said.

He pointed out that entrepreneurs looking to enter the Chinese market need to pay special consideration to building partnerships and relationships.

“In China and in many other developing countries, trust is the most important thing,” he said. “It takes time to develop these ‘trust’ relationships. One way to speed up the trust-building is to work with, or work through, an existing trusted party or marketplace already on the ground.”

In terms of raising capital from Chinese investors, “I think the best thing is to get real pilot case studies done, by showing that you can deliver on your results makes raising money much easier,” Shoer said. “Having a team in place that has experience in China and strong relationships will go a long way. Lastly, aligning your strategy with the government goals and market trends will ultimately be the tipping point for investors to commit.”

Shoer says he’s currently looking at U.S. energy efficiency business models that can be applied to China, citing demand response, “peak shaving,” and PACE (property assessed clean energy) financing models as having big potential in China.

Overall, Shoer believes there are lots of misconceptions about doing business in China, and he sees a big need to educate people about the country. There’s currently a lot of interest and government support for cleantech and the intellectual property (IP) issues are not as bad as they used to be, he says.

Cleantech Group’s Youngman has similar words. He thinks the perceived high risks of doing business in Asia are overdone, including the IP risk. He says that companies that are actually going to Asia to meet with potential customers are increasingly “believing that deals can get done over there.”

He believes that western technology companies should be looking at developing customers in Asia to drive their business forward, as Asia is actively addressing their pollution problems and cleantech is “so important there,” Youngman says.

Beebe of Obvious Ventures, who worked in China during his time at PV manufacturer Suntech earlier in his career, believes it is very hard to make successful investments in China unless you are committed to spending half your time there as well as having a local partner. He says he is very “pro-China in the role it must play both as a creator and as a customer of these technologies,” but his fund is focused on U.S.-oriented businesses. Although, he adds, he will be “a fan of making sure our companies can get over there to China.”

Cleantech Funding Trends in 2015

Some of the sectors that saw great interest from investors last year — such as agriculture, smart cities and connected buildings — also saw a lot of buzz at this year’s Cleantech Forum.

Troy Ault, Cleantech Group’s director of research, says he’s seeing a shift from venture investors looking mainly at energy efficiency software, which has been a big trend, to investing in buildings and smart cities holistically, driving interest in themes such as connected buildings and how it interfaces with the Internet of Things. He is also seeing seen renewed enthusiasm for energy storage.

Global cleantech venture capital investment activity was up 11% in 2015, to $10.8 billion versus $9.7 billion in 2014, Ault says. The average venture deal size was $13.5 million in 2015, up sharply from $8.8 million in 2014. The higher overall investment and average round size in 2015 seems to correspond with early signs of renewed vigor and enthusiasm in the space, according to Ault.

In terms of percentages of total deals in 2015, the sector breakdown looked like this, according to Cleantech Group: Transportation (18.7%), Agriculture (15.6%), Energy Efficiency (11.9%), Advanced Materials (8.8%), Solar (8%), and Energy Storage (5.3%).

However, new cleantech investments may not be coming from “traditional VC firms,” Ault points out. Though there were more than 25 “traditional” VC firms in attendance at the Forum this year, the general feeling seems to be that, by and large, that group of investors still views cleantech a bit skeptically, and remains hesitant to over-commit or even to get back in. This could be because many of the deployment-stage and hardware-based technologies are just not right for them, or perhaps because time-to-market doesn’t align well enough with their fund cycles.

Instead, Ault says, investments are moving more towards corporate VCs. “We’ve seen more activity than ever with corporate VCs in the sector,” he says. According to Cleantech Group, the top corporate venture investors in 2015 included GE Ventures, Intel Capital, Samsung, E.ON, Air Liquide, Engie, Google Ventures and Tencent.

Project Financing of Sustainable Infrastructure

New funds and companies focusing on project financing of sustainable infrastructure, such as energy storage and energy efficiency, is a key industry trend.  Many of these sustainability projects face a capital gap, as they are too small to be attractive to banks, and new financiers are stepping up to help to fill this funding gap for these projects, which are typically under $25 million in deal size.

One such new fund is the Sustainable Asset Fund, a $430 million vehicle by Vision Ridge Partners and Capricorn Investment Group, which focuses on clean energy and sustainable resource use. The fund’s investments have included an electric vehicle fleet provider, energy efficiency financing for commercial and industrial customers, and solar projects in the U.S. and Japan.

And Generate Capital, a new specialty finance company, recently announced over $150 million of innovative, sustainable infrastructure programs established in 2015, the company’s first year of operations.  Its financing products include asset-backed lending, project finance, asset warehouses and other short-term financing, as well as other custom financing products.

Generate’s “resource-related” projects include solar PV, solar thermal, energy efficiency, biomass, agriculture and wastewater. The company is also seeing a growing number of opportunities to finance projects in energy storage, says Generate Capital co-founder Jigar Shah, the founder and former CEO of SunEdison.

Another example of a new capital provider is Joule Assets, which is raising a $100 million fund to finance the installation of energy efficient retrofit technologies to generate energy savings in buildings, such as building controls, LED lighting, efficient HVAC systems, and programmable thermostats. Joule is targeting projects of less than $500,000.

Overall Impressions of the Forum and the Industry

Cleantech Group chief Richard Youngman says he thought this year’s event “was the most buoyant San Francisco Cleantech Forum I’ve been to since 2008,” he tells CleanTechIQ. One thing that stood was the corporate strategic presence at the forum. “On the corporate side particularly, there’s an encouraging stream of new players taking interest, setting up open innovation programs and venturing programs,” he says.

Andrew Beebe of Obvious Ventures, who has been attending similar gatherings for more than a decade, says he’s been struck by “the radical reductions in cost, which has really transformed the industry, and the extraordinary levels of investment.”

And he’s seen an increase in the caliber of clean tech entrepreneurs.  He credits that to large businesses being built, such as Solar City and Sunrun, and large companies such as GE committing to the space.  “You start to attract the best and brightest people that realize they can merge profit and purpose,” Beebe says.

Obvious Ventures raised a $123 million investment fund in 2014 to invest in early stage companies. Key investment themes include “people power” with information tools in finance, healthcare, and education, health and wellness, and clean technology. One of his partners is Evan Williams, a co-founder of Twitter, and some of the fund’s major investments include Planet Labs, Magic Leap, and Beyond Meat.

Beebe said the fund has received a lot of interest from limited partners, and they are considering launching a second fund soon. He believes institutional investors are increasingly interested in having “exposure to these systemic challenge investment opportunities,” such as cleantech, that will “design a more resilient future.”

One reason he likes Planet Labs – whose CEO spoke to a packed room at the Cleantech Forum — is because the company collects and visually maps massive amounts of real-time agricultural data to help farmers monitor crop yields, water efficiency, crop nutrition, and transportation systems. “I think the question of how to mold big data is going to be really important,” Beebe says.

An impressive water technology company that Beebe saw pitch during the Forum was Sweden’s Orbital Systems. It developed a showerhead that can recycle 100% of the water and capture heat for reuse. It was one of the “wow products” at the forum, he said. “The exciting thing to me is the heat savings… you’ve got pre-heated water. And if that can really work, that is a game changer in so many ways.”

When it comes to investing in water deals, his fund is mainly looking at water efficiency technologies that can be applied in agriculture and aquaculture, Beebe says.

Internet of Things to Improve Resource Efficiency

Joe Costello, CEO of Enlighted, was also impressed by this year’s Cleantech Forum. “I think we are really getting nicely back on track” after some “wild swings” in sentiment over the years, he says. “You can feel the energy coming back from the people. This next wave of the technology is coming along.”

The potential for Internet of Things solutions to be deployed in the energy sector means opportunities for greater efficiencies, increased productivity and economic growth. Costello, whose company was named to the 2015 Global Cleantech 100 list and also won the “North American Company of the Year” award, said he believes IoT is not only good for the environment and reducing costs, but also for creating innovative tools for doing business.

Enlighted offers lighting control sensors and analytics platforms, and its corporate client list includes Google, LinkedIn, Hewlett-Packard, Tesla, ATT, Oracle and Uber. “Our clients who use the sensor technology save 50% to 75% of their energy costs,” Costello said.

Costello pointed out that the capital-intensive aspect of implementing sensor technology has hindered growth. Enlighted had to find an innovative financing model for its customers.

“This type of technology does require a large amount of capital,” he said. “Small companies would require around $10 million, and large companies $100 million to implement our system. This was our biggest constraint to growth. So we put all the money down for our customers with no money down, and they pay us back with shared energy savings for the installations.”

Through this financing model, Enlighted’s customers receive full energy benefits and have a sensor network that enables them to optimize commercial space without upfront cost, Costello said.

Even for large companies, IoT is gaining importance and being incorporated into their daily business activities. IBM, for instance, has made IoT “a major priority” for its business with a strong focus on cyber-security, said Chief Technology Officer Peter Williams.

“IoT is a major priority for IBM, and is one of the new businesses that we have created as the company reshapes itself. As you might expect, the cyber security needs of the IoT are also a major focus for us,” Williams said.

“IBM is a heavy user of the IoT in our buildings, manufacturing and in particular in our data centers, to optimize HVAC loads and building performance,” he added.

 

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