Where the money is in cleantech: oil and gas
By Ucilia Wang, March 21, 2013
Cleantech investment is not dead, it just requires new approaches and a recognition that the traditional oil and gas industry may very well be the best patron for cleantech development and deployment. At least for now.
An idea that would have seemed blasphemous five years ago is coming into vogue for the battered cleantech sector: rather than displace the fossil fuel industry, embrace them. Increasingly companies selling energy efficiency and clean power technologies are looking to the oil and gas sectors as potential customers, instead of competitors.
The evidence of that was ample at the Cleantech Forum in San Francisco this week. Through keynote speeches and panel discussions, the conference emphasized opportunities in the traditional energy industry and a growing symbiotic relationship between cleantech developers and big energy companies.
Behind the trend
Several forces have emerged in recent years that have been contributing to this trend. First off, venture capitalists have been shying away from investing in cleantech startups in areas like new types of solar panels, or biofuels. Many of the investors have yet to make their money back, due to the long timelines and large capital requirements needed for the companies to mature. It could also be that “righteous investing” gave them blinders to good investments.
With the lack of investments from VCs, startups are increasingly looking to corporations to help them with funding. And the companies that tend to be interested in investing in next-generation energy technologies, are — not surprisingly — the traditional energy companies. For example, natural gas provider Encana recently backed thermoelectric tech startup Alphabet Energy, Shell has been hunting for startups through its GameChanger program, and Total has made a variety of investments into cleantech companies over the years, including SunPower.
Meanwhile, the emergence of abundant and cheap natural gas has changed the energy game in the U.S. It’s providing traditional industry jobs to many states, and has been embraced by the Obama administration as a clean energy opportunity. There will be massive opportunities when it comes to selling next-generation technologies to natural gas firms and helping natural gas providers avoid environmental problems.
The growth of the renewable electricity sector will be tied to natural gas. Solar and wind generation can’t produce power around the clock, and utilities will have to match clean power with 24/7 energy like natural gas. Natural gas proponents have stepped up efforts to form alliances with renewable energy players, some of whom see the pairing as a practical approach to promote clean power generation.
Cleaning up fossil fuels
Energy executives “are all excited about the unconventional oil and gas in North America, and they know it will only take one or two environmental disasters for the game to be over,” said Wal van Lierop, co-founder and CEO of cleantech venture capital firm Chrysalix Energy Venture Capital, when I caught up with him at the Cleantech Forum.
To gain public confidence, comply with regulations and, in some cases, reduce risks and production costs, oil and gas producers are hunting for technologies that clean up wastes, recycle water and boost production. And if any of these technologies can earn a low-carbon designation and help with public relations, then all the better. The Texas Tribune ran an interesting story this week that looked at oil companies attempts to recycle dirty water from oil production.
Chrysalix is fond of backing companies that can serve oil and gas, as well as mining, companies. It’s invested in GlassPoint Solar, which designs steam generation equipment to help oil companies boost production; Axine Water Technologies, which offers a way to get pollutants out of wastewater from industrial operations and cities; and Seair, a public wastewater treatment company whose CEO, Ric Charron, spoke about his experience working with oil and gas companies at the cleantech conference.
While helping oil and gas producers boost production and win public support isn’t the same as saving the planet, van Lierop argued the results are no less worthwhile: “It’s a very important goal to ensure that you clean up traditional energy sources.”
Fossil fuels not going anywhere
The oil and gas industry is here to stay for a very long long time. Strong federal support for oil and gas exploration — part of President Obama’s “all of the above energy strategy” — continues to protect entrenched energy players and allows oil and gas companies to continue their grip on transportation and electricity generation. These companies operate at such a massive scale that it’s hard to a tiny startup to compete with them.
Fossil fuel companies are partly investing in renewable energy sources as a defensive move. It’s a hedge against any quick change in government policy and public sentiment. Chevron made some small investments in renewable energy technologies, and probably was glad it didn’t invest more when it realized later that its investments weren’t as lucrative as it had expected. The growth of the biofuel business, in particular, will require the support of major oil industry players.
Some venture capital investors maintain that cleantech investing is still a financially viable option — that a cleantech 2.0 investing wave will come some day in the future. But for now, in a year when “cleantech” has become a dirty word, it makes sense for cleantech companies to go make friends with the dirty fossil fuel industry.