Posted: October 01, 2011
No pure path to growth for cleantech companies
Developing energy startups takes more capital - and time - than it does for IT
A funny thing happened on the way to Sundrop Fuel's solar reactor. The Louisville-based company had plans to use a concentrated solar tower to produce heat of more than 2,000 degrees, vaporizing biomass instantly into synthetic gas.
The gas could then be converted to diesel and what company officials called renewable or "green" gasoline.
That was in 2010. But in July, Chesapeake Energy, the giant Oklahoma-based natural gas driller, announced a new clean energy tech fund, Chesapeake NG Ventures, and intentions to invest up to $1 billion into technologies that can use natural gas instead of oil - or, in the case of Sundrop, solar energy. Chesapeake's $155 million investment gives it a 50 percent stake in Sundrop.
In cleantech, there is no pure model for growth. Some, like Thornton-based Ascent Solar, see alliances with Asian companies as the way to growth. And "clean," in almost every case, is a relative term. The goal broadly is to reduce greenhouse gases and other pollutants. But as Sundrop is making clear, the path to cleaner fuels may best be achieved by going through the gas patch.
Several major energy companies, including Royal Dutch Shell, have also formed divisions to invest in cleantech enterprises, and Exxon, Chevron and BP have also made minor investments in biofuel companies. GE Energy Financial Services, NRG energy and ConocoPhillips have also teamed up for a joint venture fund focused on investing in emerging energy and water technology companies.
As the New York Times noted in a July article about the Chesapeake fund, many of the companies the large corporations are investing in are risky, but the investment "is often times relatively small compared to its massive balance sheet"
Sundrop spokesman Steven Silvers dismisses the alliance as untraditional for a cleantech company. "When a company has proved its technology, and the question is scale, the difference between an energy startup and, say, an Internet startup is about $400 million. It takes a lot more money - and an infinitely more sophisticated business model - to create a biofuels company than it takes to create a dot-com that sells silverware. You have all these other factors in place: raw materials, tons and tons of biomass that have to be acquired, and you have the siting of buildings, and then you have all the issues around getting your product to market."
Even last year, Sundrop chief executive Wayne Simmons acknowledged challenges to his company's business plan. Plentiful biomass is not necessarily found near the best solar resources, in the Mojave Desert of the Southwest. Natural gas infrastructure can be found almost everywhere.
"We represent what a lot of biofuels companies are attempting to do, or have to do, which is have a very large energy partner for whatever business reasons. Our reason was that we needed the funding, we needed the natural gas, the distribution, the political - all the things that a company like Chesapeake brings to the partnership," Silvers says.
Is it clean? Sundrop Fuels argues that its "green" gas will be meet the Environmental Protection Agency's criterion of top tier of biofuels, 60 percent less polluting in its lifecycle than conventional petroleum. But, as Silvers concedes, "Sundrop Fuels probably shifted the business model more dramatically than others."
For cleantech altogether, investments during the last several years have been difficult, by most accounts more challenging than other businesses. Still, some have perked along. OPX Biotechnologies, a Boulder-based firm founded in 2007, was able to get financing in late 2008. "We believe that was a reflection of people putting a great deal of value in our technology," says Dan Muehl, chief financial officer.
OPX has just completed new financing, getting $36.5 million in the first closing of its C-round private equity financing led by US Renewables Group, along with DBL Investors, Mohr Davidow Ventures, Braemar Energy Ventures, Altira Group and X/Seed Capital. OPX needed the money to accelerate development and commercialization of the company's product, an alternative and less expensive product that uses renewable feedstocks to produce a non-petroleum-based acrylic acid. It is partnering with Dow Chemical.
Muehl says the public capital markets have been thawing somewhat, as is evident in the multitude of companies in the same chemical, renewable and fuels sector that OPX occupies that have done IPOs. Among those companies he noted is Gevo, which his headquartered in the Denver Tech Center.
"There certainly has been more financing of many companies in the last six to nine months, although it's a volatile market in general. It's always a challenging environment. But it certainly has improved from where it was a couple of years ago."
Ascent Solar Technologies demonstrates yet a third model for investment. The model, says Ron Eller, the chief executive officer since March, mimics that of the biotech and medical devices sector. Instead of pharmaceutical products, Ascent develops thin-film photovoltaic modules that can be more flexible, and affordable, than most traditional solar panels.
But Ascent suffered in the last year as the price of photovoltaic panels plummeted, at least partly the result of reduced subsidies for solar in Europe. Ascent pulled back production of roof-top models, cut its work force to 85 from 167, and began rethinking its business model. The rethinking led it to Asia and a $450 million deal with TFG, a partnership with a Singapore financial firm, Tertius Financial Group, and a Chinese comapny, Radiant Group. Together, they bought 20 percent of Ascent stock for $7.63 million.
The deal is based on the expertise of TFGs in metal roofing and construction in one of the world's largest markets. TFG will build a fabrication plant in China, with a license to distribute the photovoltaic modules in China, Taiwan, Hong Kong, Malaysia, Indonesia, Thailand, Korea and Singapore.
Ascent gets a licensing fees that could yield $250 million from East Asia, but retains all rights in the United States and the rest of the world. ∴