Tuesday, November 29, 2011

China's Cleantech Success: Threat or Opportunity? - Part I

Today, China is the world’s cleantech manufacturing leader, and its innovation capacity is rising.

This phenomenon is a cause of angst among many in the U.S. watching China's heavily subsidized research, development, and manufacturing ventures increase market share. That anger toward China grew this year as the global solar industry suffered a glut of goods that exceeded market demands, and U.S. solar tech firms saw profits plummet.  Resentment then morphed into action, as petitions were filed with the U.S. International Trade Commission and the Commerce Department to demand investigations of Chinese companies allegedly flooding the U.S. market with solar cells and panels at below market prices.

But is China more of a threat or opportunity for companies in the solar supply chain? That perspective depends on where you are in that chain.  If U.S. companies can learn how to piggyback on Chinese production, the perceived threat would become an opportunity.

Take, for example, Innovalight Chief Executive Officer Conrad Burke.  When the floor fell out from under solar panel prices Burke turned from producing panels using his firm's patented technology to licensing that technology directly to Chinese solar cell producers.  Innovalight leveraged expansion of solar manufacturing in China, and Burke thinks other large U.S. corporations should have the sense to follow suit.  

Seen in this light, China's production is a sourcing opportunity rather than a threat.  According to the Organization for Economic Co-operation and Development (OECD), 55% of China's exports are attributed to production and assembly, and 58% of those are driven by foreign enterprises, of which 38% are entirely foreign-owned.  This is a reason why there is not one Chinese company among the world's top-10  high-technology firms in terms of revenue.  China's export performance can often be attributed to efficient assembly operations, with value-added inputs imported from US and European producers who see those opportunities.

And while anger abounds at a Chinese government subsidizing both cleantech R&D and commercialization, the financial landscape for Chinese cleantech innovation goes far beyond state funding. There is a huge influx of new venture capital and private equity funds focused on Chinese cleantech.   According to analyst Shawn Lesser, limited partners around the globe are increasing their exposure to China.  38% of European LPs plan to have more than a tenth of their PE exposure in the Asia-Pacific region in the next two years; 41% of North American LPs and 87% of Asia-Pacific LPs aim to have a similarly high proportion.  And, Stephen Marcus of the Cleantech Group estimates that 86% of cleantech joint ventures with a Chinese company involve a foreign partner.

American-financed cleantech is penetrating Chinese markets in new ways, with opportunities created by superior US innovations matched to Chinese manufacturing prowess.  

China needs these collaborations with foreign companies and investors.  U.S. firms bring a wealth of innovation as well as experience adapting technologies to servicing the needs of myriad industries.  Chinese firms hungry for these partnerships are growing rapidly. 

Where do you see opportunities or threats in China's emerging cleantech sector?  I'll explore a few emerging opportunities in our next installment.

Sunday, November 20, 2011

Energy Storage Solutions Leading Cleantech Investment

 "The report of my death is an exaggeration."
- Mark Twain

After three quarters of investing in 2011, last year's rumors of the death of cleantech investing seem quite exaggerated.

Innovators in energy storage produced some stunning cleantech deals during the third quarter of 2011, raising a total of $514 million in capital across 34 deals.  This represented 23% of the 2.23 billion in capital investments across 189 cleantech deals worldwide (followed by 16% in solar, 10% in energy efficiency and 8% in transport).

"Advanced storage technologies have gone from nice pilots to actual deployments. And the other thing that has changed is the level of interest among big corporates – big players on the grid are making equity investments in these companies", said Sheeraz Haji, CEO at Cleantech Group.

The top 3 venture capital deals in energy storage were either fuel cell or lithium ion battery companies:
  • Bloom Energy, a California-based developer of solid-oxide fuel cell technology, raised $150 million.
  • Boston-Power, a Massachusetts-based producer of lithium-ion batteries, raised $125 million.
  • ClearEdge Power, an Oregon-based manufacturer of silicon-based stationary fuel cells, raised $73.5 million.

$150 million was raised by Bloom Energy, maker of  solid oxide fuel cells.

Bloom also  assembles these fuel cells into an energy server it calls the Bloom Box, which converts natural gas or biogas into electricity. The Bloom boxes have attracted high-profile customers including Google, eBay, Adobe, and Walmart to successfully compete against a crowded field that includes FuelCell Energy, Ceres Power, ClearEdge Power, and others.

This $150 million round was funded by Kleiner Perkins Caufield & Byers, New Enterprise Associates and others in September.  The deal was marketed as a “pre-IPO” round at a $2.7 billion pre-money valuation.  This latest round would push Bloom’s private financing somewhere around $600 million.

New funds should help the company scale up manufacturing, lower costs, and potential expand its operations beyond the subsidized California market.

$125 million was raised by Boston-Power, is a startup producing lithium-ion batteries in  Westborough, Mass.

The largest and fastest growing market for these batteries is electric vehicles, thought the product is capable of many applications.  Saab has agreed to use Boston-Power's batteries in its electric car projects.  Good news for Boston, considering that competition, in the EV market is fierce, with competitors including LG Chem, A123, Panasonic, and Sony now getting into the game.

Dr. Christina Lampe-├ľnnerud, says their lithium-ion battery has the highest energy density, and fastest charge, and is safe and green."

The $125 million round was led by GSR Ventures, a VC firm with operations in China and offices in Beijing and Silicon Valley. Existing investors Oak Investment Partners and Foundation Asset Management also invested

Investment will enable Boston-Power to build a factory in China capable of producing 400 megawatt-hours of batteries or 18 million units of the "matchbox-sized" prismatic lithium-ion cells. The funding will be used to build the factory along with a technical development center helped out in no small part by generous subsidies from China's government.  In concert with this investment, Boston is moving a number of positions and responsibilities from its Massachusetts offices to China.

$73.5 million invested in ClearEdge Power

ClearEdge was already the global leader in stationary fuel cell production (uninterruptible power supplies (UPS), combined heat and power (CHP), and residential power). These funds will be targeted toward growing customer adoption in key markets, as well as developing and commercialize new products.

This news comes on the heels of 480 percent growth in year-over-year revenue for ClearEdge, which has created over 150 high tech jobs in the last three years.

The largest contribution came from investor Artis Capital Management, followed by Austrian Gussing Renewable Energy, Southern California Gas Company, and Kohlberg Ventures.

A recent Pike Research report estimated that the stationary fuel cell industry has seen a 27 percent compound annual growth rate in the past two years, as technology costs are continuing to fall, new companies are coming into the space and adoption is gathering steam.  The report estimates sales will exceed 1.2 million units per year by 2017.

Tuesday, November 1, 2011

Cleantech Investment Shifts in Q3 2011

Across the world, governments hit hard by recession are scaling back their subsidies for clean energy. This ephemeral funding and its influence over modern energy markets is causing concern among cleantech investors.

For casual observers, doubts about clean energy seemed to be confirmed this fall when solar panel maker Solyndra filed for bankruptcy after bringing in over $1 billion in venture capital and $528 million in government loans.  This was unwanted news for the sector in a year of low-confidence for investors and declining investments in cleantech start-ups.

Still, there were bright spots in the cleantech investment picture for the third quarter of 2011, even if the Solyndra bankruptcy added to the jitters of venture capitalists wary of returns from new technologies or basic research.

The result?  Investments in cleantech have been slowly picking up steam after a slow 2010, energy storage investments led the sector in Q3, and investments in technologies that conserve energy or manage its use are coming on strong.

Q3 Results

According to a new report by the Cleantech Group, cleantech venture investments rose in the last quarter despite market volatility and the collapse of Solyndra.

"While financing remains constrained, it's still growing," says Sheeraz Haji, CEO of Cleantech Group. "Energy Storage emerged as our top sector, indicating continued strong interest in advanced technologies for grid-storage as well as for electric vehicles."

$2.23 billion in capital investments across 189 clean tech deals were made across the globe in Q3, a 12% increase from the last quarter, and a 23% in the same quarter last year.

North America was still the leader in terms of capital investments with $1.69 billion raised across 128 deals, followed a distant second, surprisingly, by the UK with $184 million raised in 23 deals. India's clean tech companies raised $165 million in 16 deals and China came in fourth with $138 million invested in 15 deals.

Distribution of Investments in Q3

Energy storage investments topped other cleantech sectors in amount invested ($514 million), followed by solar ($350 million) and energy efficiency ($223 million).  Energy efficiency saw more deals than other sectors, with 34 funding rounds, ahead of solar (33 deals) and energy storage (19 deals).  As for regional distribution, Asia Pacific ($303 million across 21 deals) passed Europe & Israel ($230 million) for the number two spot behind North America ($1.69 billion across 128 deals).

Both the IPO and M&A market were a bit slower in 3Q 2011 compared to the first half of the year. China was home of the most cleantech IPOs, with 11 of the 14 IPOs in 3Q.

North America accounted for 76 percent of the total amount invested, Asia Pacific for 14 percent and Europe & Israel for 10 percent.

North American companies raised $1.69 billion, up 17 percent from 2Q11 and up 59 percent from the same period a year ago. The 128 deals disclosed marked a record high for cleantech VC rounds in North America.  California led the way with $654 million investment (39 percent share), followed by Massachusetts ($176 million, 10 percent) and New Mexico (175 million, 10 percent). Canada saw a drop in terms of VC funding with $33 million invested across 8 deals.

Trends Emerging

Despite concerns, investments rose in the last quarter in the cleantech sector despite market volatility and the collapse of Solyndra.  Meanwhile the software sector enjoyed its strongest quarter in almost 10 years.

What does this mean for entrepreneurs and investors?  Cleantech investment is not yet entering the decline that many have predicted.  Yet in this uncertain investment environment, money is moving to safer bets.

Big winners currently are software companies that are applying their technology to the energy industry.  According to the New York Times, this year venture capitalists are on track to invest more this year than in 2010 or 2009 in start-ups that make software and other technologies that conserve energy or manage its use.