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The State of Green Tech Investing: One VC’s View

by Benjamin Abram | December 12th, 2008
posted by Erica Rowell (Editor)


Permalink | 2 comments

Many green companies are starting to take their products from the lab bench to the production line. But real environmental impact requires widespread adoption. Will Tesla Motors get the credit it needs to scale this electric roadster?

I’m a Duke grad, working for a venture capital firm that’s focused on finding and funding the next generation of renewable fuels and clean technologies. We’re called the Westly Group. Dr. Chameides, who is in Nepal this week, asked me to blog about the effect of the credit crisis on green tech investing.

Fundamentally, I agree with Bill’s earlier post: our global energy prices are unreasonably low because they do not internalize pollution costs.

No doubt, except where regulations mandate cleaner, safer fuels, the market pushes providers toward low-cost energy that pollutes. Take China, for instance. The Chinese are building approximately one or two coal-fired power plants every week with no small consequence to Americans: up to three quarters of the black carbon particulate matter heating the atmosphere above Los Angeles originates thousands of miles across the Pacific Ocean in China.

An Unfortunate Edge in Down Times

Where Bill and I perhaps diverge is whether the crunch will help the renewable energy industry. While you need a credit line to build a new power plant – regardless of what kind – the manufacturing facilities to build coal-fired generators are ready to go. Solar manufacturing lines, at least for the most promising set of technologies, are yet to be built. In today’s environment of expensive capital, that extra barrier can easily mean the difference between a greenlight and a no-go.

Green Technology on the Rise Globally – and Good Deals in the Mix

Still, now is a fantastic time for the renewable energy industry. Governments around the world are adopting tax credits, mandates [pdf], and incentives.  Major pension funds are spurring innovation further by directing a percentage of their capital towards green technologies.

From my seat, as a VC, good deals abound. Where six months ago prices on investment opportunities were prohibitively expensive, today we’re seeing many companies come back to us looking for cash at 90 percent reductions from their summer highs. Now, there are two catches here. First, just as in the stock market, prices could continue to drop, so maybe we’d be wise to wait. Second, if and when technologies are developed to successfully bring these companies to scale, most will need massive debt financing – a bleak prospect these days.

Now, everyone needs credit to do business – it’s part and parcel of growing a company. Whether building a new manufacturing line or needing working capital (to purchase raw materials until your buyer pays you for the installation), credit is crucial. For obvious reasons, lots of smart Washingtonians and others are burning their compact-fluorescents late into the night to solve this conundrum.

Promising Technologies Are Moving from the Lab to Production

The companies I know best are ones we’ve invested in, so let me tell you about two.

Amyris Biotechnologies has developed a synthetic alternative for jet fuel, which is rapidly approaching their $70/barrel target price (roughly equal to the price of jet fuel today).

Tesla Motors has designed an electric roadster that competes effectively among the world’s best cars – currently, 15 of these roadsters are being built every week, a number expected to double by spring. While such production pales in comparison to Ford’s or Toyota’s, demand is up. This sleek electric vehicle with high-threshold performance-standards is a big deal. Tesla’s less expensive S Series sedan is also in development. We’ve doubled down on the company in recent weeks.

There is no question that as the world grows, we must find green replacements for our existing fleets and fuels. Whether it’s to meet future energy demands without choking ourselves to death or to forestall climate change, we’ve got a long way to go, and it’s going to take an entirely new set of non-polluting technologies to get us there. Let’s just hope that the Obama administration and our bankers can help the rising stars of the green tech boom secure the credit they need.

Benjamin Abram (Duke 2007) is a venture analyst for The Westly Group. He leads the firm’s practice in infrastructure investments with an eye towards energy savings through efficient systems management.

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2 Comments

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  1. Justin Wickett
    Dec 12, 2008

    Hi Ben, Could you tell us a little bit more about how core the anti-malaria treatment is to Amyris’s business model? Also, what kind of impact would real-time electricity pricing plans have on Tesla’s future success? PG&E offers most of its residential customers a tiered rate structure centered around a baseline amount that doesn’t factor in time-of-use (to my knowledge at least). I know they do offer some TOU and RTP, but they aren’t widespread. Is Tesla focusing on pushing regulatory commissions and utilities to adopt real-time electricity pricing plans for residential customers? Thanks, Justin Wickett Duke 2010 ” title=”Thanks Ben!

    • Benjamin Abram
      Dec 12, 2008

      Justin, Great questions. First, Amyris’ success in synthetically generating arteminisin is a great example of the ability for modern science to advance, given appropriate funding. In this case, Prof. Keasling at Berkeley garnered $40M from the Gates Foundation, prior to founding Amyris, to take the anti-malaria drug from an expensive culture-based process to one that can be produced inexpensively in mass. To answer your question, they have handed off the compound completely to their pharma-partner, and the team of scientists are now focusing full-time on fuels… it is a part of their business model only insomuch as the core expertise helped them launch Amyris. And on the TOU issue, you’re exactly right that the owner of a car with a 200+ mile range will prefer to charge her roadster at night, when it’s cheaper — but it doesn’t really change the fundamental economics (it costs about $2.50 to $5.50 to charge your Tesla, depending on your energy rate). To the lobbying question, many utilities are heading in the direction of TOU pricing on their own; while it’s another benefit to the company, we’re not encouraging them to spend on that. Back to the thrust of the post, their main focus is necessarily on production/scaling right now, to meet the backlog/demand. //Ben” title=”Great questions, Mr. Wickett

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