Jim de Wilde
March 2006

Some starting thoughts about investing in new energy:

Dubai Oil’s a Means, Not an End, at Dubai Inc. (www.nytimes.com)
By Heather Timmons February 17, 2006 this provides an excellent view of a diversification strategy, relevant to discussions of Alberta and Norway in the kind of debates going on right now. Written before the Dubai Ports World debate became a global page One story, this shows the way in which significant capital market performers are exploring diversification strategies for a world of declining oil

Samsoe, A Danish island moves to clean power by Mary Jacoby (www.wsj.com) February 9, 2006 This article shows the effect of removing the Danish government subsidies on the development of alternative energy (biomass, wood chips) on one of the Danish archipelago islands.

Gulf Venture Capital Association Malaysia and Bahrain (www.gulfvc.org) shows diversification strategies for Gulf economies

GE’s energy strategy Investors are Tilting Toward Windmills by Claudia H. Deutsch (www.nytimes.com) February 15, 2006 An excellent discussion of the strategies required by GE to develop profitable alternative energies besides wind power, Biofuels create logistical difficulties, biomass is developing as an area of focus.

Alternative fuel attracting venture capital February 2, 2002 www.wsj.com
Amp Resources, Nanosolar (Focuses on Vinod Khosla, partner at Kleiner Perkins in looking at ethanol and the shift of other venture capital firms towards alternative energy investing. Cites the success of AmpResources being acquired by Raser Tech www.rasertech.com for its geothermal expertise and Nansolar www.nanosolar.com

LEARNING FROM BEST PRACTICES: ALTERNATIVE ENERGY VENTURE PORTFOLIOS

Portfolio NORSK HYRDO www.ntv.hydro.com
Portfolio Nth POWER www.nthpower.com
Portfolio ENERTECH www.enertechcapital.com
Portfolio CHEVRON TEXACO www.chevron.com/technologyventures

The development of the new energy technology market has grown in great rapidity in the past two years. One of the most important categories of venture capital investing is energy alternatives, and the category needs to be extended to include all those areas of energy usage which can be reengineered or “disrupted” by technological innovations. New areas of lighting technologies have created a category of investment which can radically transform product areas. The success of Canadian companies like Carmanah (www.carmanah.com) shows how innovations in a space like solar-based warning lights can create a dynamic company. Under the broad category of energy efficiency, innovations in lighting technology receive considerable attention. Advanced Lighting Technologies www.adlt.com constitutes another case study of this kind of investing in energy efficiency.

One can look at a number of companies which exist outside the usual paradigms of investing in solar power, grid management technologies and fuel cells and flywheels. The search for the new categories of cleaner or cheaper power under categories like distributed generation, portable power are creating a demand for newly commercialized innovations in a variety of portfolios, including the extremely interesting and relevant portfolio strategies of Siemens, whose venture capital investments (www.siemensventurecaapital.com) includes a growth portfolio which I recommend as critical to the understanding of new patterns of technological innovation and economic growth.

CONCLUSION

If we look ay these four companies’ portfolios, I think we can achieve some kind of a discussion of the venture capital strategies for alternative energies and what patterns are shaping the new global market. I think it is important to understand that innovations in China and India like the development of the miniaturized Chinese nuclear reactors have the potential to add new disruptions to the contemporary energy mixture. I think it is also important to add that a radical change in activities like the nanotechnology-driven research on flywheels have the potential to reshape the market if they come on-line more quickly than is currently anticipated.

I assume that the key issues confronting investors these days require more engineering analytical skills than I possess. But these skills do exist within the Canadian investment community. The question of how we sell decentralized portable power back to the grid in a profitable business model is extremely significant. The question of how we use environmentally-sound incineration to replace landfills in municipal waste management also is in search of the right business models. There are many emergent players in this area.

But these portfolios reveal a great deal about emerging and converging growth markets:

There is ample opportunity to go around for aspiring venture capitalists. I have written elsewhere that three underexploited areas of investment about which I am bullish is

(i) incineration technologies,
(ii) commercialization of electrochemistry which looks to new kinds of batteries, building on flywheels, whose primary commercial application is as a short-term power storage to manage power disruptions in manufacturing or energy-critical activities, and
(iii) Strategies that facilitate power-choosing through the web and power inversion by selling small amounts back through the grid.

My suspicion is that in the 2016 science fiction projection, incineration technologies will be widespread and organized though municipal activities and that there will be significant usage of batteries as energy storage technologies. Private windmills and photovoltaic cells will commonly be used to offset energy costs by selling back to the grid from portable and small scale producers. None of this is intended to denigrate investment in solar power, wind and wave turbine technologies or innovation in turbo designs, especially mircoturbines. It is just that these areas are already the recipients of significant strategies investment. GE has a commitment to solar power which will build significant new product opportunities within its development portfolio.

The current focus is on solar power. The hottest IPOs in the tech sector this year are solar power related Suntech (www.suntech-power.com) Q-Cells (www.q-cells.com) and Conergy (www.conergy.com) are the best performing technology IPOs of the year. Two of these are German, one Chinese.

If one does a cluster map of the Nth Power, Enertech, Chevron and Norsk Hydro portfolios above and eliminates the strategic investments (oil exploration technologies, for example), one sees three distinct patterns: (a) distributed energy, which is consistent with grid inversion; (b) smart metering and technologically enhanced energy efficiencies; (c) new materials that are a play on nanotechnology with the assumption that nanotechnologically-designed new materials will find more efficient forms of conducting and transmitting energies.

Other companies demonstrate the range of investment plays in new fuels and energy efficiency space:
www.comverge.com (energy metering)
www.adventsolar.com (solar power)
www.enerwise.com (enhancing energy efficiency including lighting)
www.intellon.com (intelligent networks)
www.currentgroup.com (the search for smart grid and single home port-of-entry)

AN IDEAL PORTFOLIO

A mixed portfolio starts with smart metering, smart grid, solar power, wind and wave turbines, but takes its risks in areas like:

Portable power and grid inversion - selling back to the grid: In terms of decentralized power, some very interesting work being done in California, with Scott Mize of the Foresight Institute (www.foresight.org) worth reading. A good recent discussion is in the San Jose Mercury News.
http://www.mercurynews.com/mld/mercurynews/business/12684496.htm?template=contentModules/printstory.jsp .

Incineration technologies: A good analysis of how far Scandinavian engineering has come in making this technologically viable can be found in the following article:
http://www.i-sustain.com/learningCenter/Publications/District%20Energy%20Systems%20-%20DJC%20Article.htm

Flywheels and early-stage longer term energy storage: Some of the more interesting research in new battery sources includes the following: Energy Innovations, Pentadyne, Angstrom Power, Beacon Power and Manhattan Scientifics. The potential for a seriously disruptive technology exists in this science although the risks of each area of commercialization are obvious and significant. Manufacturing reliable battery source abased power is one obstacle to commercialization and the technology for lengthening the period of storage remains elusive, but with all the imperatives to develop a clean, reliable power, this category of innovation is key to a longterm growth horizon.
www.energyinnovations.com , www.pentadyne.com , www.mhtx.com, www.angstrompower.com , www.beaconpower.com