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After Solyndra: Cleantech Investing Still Makes Sense

Friday, September 23rd, 2011

Given the recent bankruptcies of U.S. solar manufacturers Solyndra, Spectrawatt and Evergreen Solar, some are asking if cleantech investing is viable. At SJF, our cleantech portfolio companies are achieving good results, particularly utilizing capital efficient, innovative business models that can thrive in the U.S. market. These firms are applying new business models to a variety of well established sectors that have been slower to apply new ways of conducting business. These business model innovations drive efficiency gains and create economics that work today particularly in recycling, asset recovery, infrastructure, and agriculture.

Likely we will see more failures in upstream U.S. solar technology companies in the coming year, given the relentless price declines being driven by the scale up of Chinese PV module manufacturers, fueled by national and regional government subsidies. In 2006, SJF conducted a webinar on the merits of investing in downstream solar in the U.S. (installation, development, finance) in comparison to upstream manufacturing which must compete globally. We reprised this analysis in March 2010 with a discussion of the two models of cleantech VC investing, the ‘today markets’ approach of SJF Ventures as compared to the ‘tomorrow markets’ approach of much larger cleantech funds working on breakthrough technologies. Later in 2010, SJF Ventures led a Series A financing in Community Energy to carry forward that theme in the solar markets with a company that innovatively combined a downstream utility scale solar project developer with a proven wind developer and REC marketing firm scaling up its solar development business.

The global trends for companies with cleantech innovations are very strong – resource scarcity; climate change; energy volatility; population growth; aging infrastructure; and popular, corporate and governmental support. There will certainly be cleantech technology winners for US investors. Witness, for example, the recent spate of IPOs in early 2011 of U.S. biofuel technology companies: KiOR, Codexis, Solazyme, and Gevo. Just as in the early days of internet investing there were some spectacular failures, so too will we see such failures in cleantech investing, particularly in segments which are competing against Asian industrial policy mandates like solar panel manufacturing. That said, the opportunities to apply U.S. wireless, internet, biotech, and other innovations to the energy and materials intensive sectors is huge.

One segment where SJF is finding multiple cleantech innovation opportunities is in recycling, asset recovery and reuse. SJF has several successful companies in the segment, including Salvage Direct (auto recovery), eRecyclingCorps (cell phone recovery and reuse), CleanScapes (municipal recycling, organics and waste collections), Optoro (returned retail goods recovery), and Living Earth (organics composting). These firms and many others like them are using business model innovations to capture significant value from used goods that previous were wasted in landfills, generating incremental additional jobs, wealth, resource conservation and carbon reduction for the U.S. economy.

These companies are good examples of SJF’s ‘capital efficient expansion’ strategy of cleantech investing, characterized by:

Significant commercial revenues
Business model innovation that are execution plays
Selling to existing markets
Incremental change
Capital efficient with raises <$15MM
Venture returns through strategic sales
Includes broader definition of sustainability beyond energy generation

This capital efficient, business model innovation approach to building high quality companies across the U.S. is sometimes lost in the media focus on the big technology bets by large cleantech funds typical in Silicon Valley, including:

Frequently pre-revenue
Big technology AND execution plays
Assume new or emerging markets
Transformative change
Capital intensive with raises >$50MM
Require exits via IPOs
Energy focused

We will need both approaches for the cleantech transformation needed in large segments of our economy – energy, infrastructure, food, transportation, buildings, and materials. However, the latter investing approach will sometimes result in spectacular failures such as Solyndra as well as some spectacular successes, such as First Solar. It is important that the success of capital efficient cleantech investing across a broad array of industry verticals is not lost in the conversation. – David Kirkpatrick

Tags: cleantech, community energy, recycling, solar, solyndra
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SJF Leads Series A Investment in Community Energy, Inc.

Tuesday, October 5th, 2010

SJF Ventures led a $4M Series A round for Community Energy Inc. (CEI) this week, see the press release below. We are thrilled with the CEI investment and its alignment with SJF’s mission and strategy. We call our cleantech investing strategy ‘capital efficient expansion’ as versus the ‘large technology bet’ approach of many larger cleantech funds. (I have previously written about this as a ‘today’ vs ‘tomorrow’ strategy.)

Here are my ‘top ten’ reasons that CEI is a good SJF cleantech investment:

1) Proven team – The CEI management team of Brent Alderfer, Eric Blank and Brent Beerley have worked together for nearly ten years and have recently been joined by David Giordano and Tim Heinle, who bring top-class project finance and renewable development expertise. The CEI team developed some of the first commercial wind farms in PA, NJ, IL, NH and MO, generated a nice return for previous investors in the company sale to Iberdrola, and have now spun back out the firm to ‘do it again’ in large scale solar development.

2) Commercial revenues – CEI has built a renewable power marketing business in partnership with utilities in 21 markets serving 17.5 million electric customers throughout the Northeast and Mid-Atlantic, including ConEd Solutions, National Grid, PPL, NYSEG, PSEG, and PECO. This operating business provides the scale, credibility, utility partnerships, and profitability that has allowed CEI to build a robust solar development pipeline.

3) Capital efficient – The CEI team is very focused on leveraging the development capital markets effectively for their solar and wind projects and keeping corporate capital (bolstered by this Series A raise) separate and focused on growing their overall enterprise and pipeline.

4) Utility partners – Unlike many energy tech companies we see at SJF that either are looking to ‘replace the utility’ or just starting to figure out how to market to utilities, CEI has been a partner in helping utilities market, develop, and utilize renewable power for more than a decade. They realize that utilities have a huge incumbent advantage and to achieve scale it is best to help the utilities find a way to make renewables and efficiency profitable.

5) Proven, existing technologies – CEI is not betting on a particular solar (or wind) technology, but rather leveraging the best of class technologies globally into their projects. CEI’s proprietary advantage is rather their access to utilities and their customers, project finance capability, state and PUC policy expertise, IPP power development experience and pipeline, brand, and team.

6) Leverages SJF and co-investor expertise – SJF brings solar expertise to CEI (I co-founded and ran a solar thermal company in the early 1980′s and SJF led the Series A for groSolar in 2006) and renewable energy project expertise (Cody Nystrom with SJF previously was with Ewing Bemiss and worked on several large scale renewable project finance transactions.) Secondly, we are partnering in this Series A financing with NGP Energy Technology Partners, a large, successful energy fund with deep solar expertise (investors in Satcon, Xunlight) and have been a strong partner with SJF in groSolar.

7) Fits SJF’s ‘Alignment Advantage’ – In addition to companies with the merits described above, at SJF we look for companies that align well with SJF’s philosophy of pursuing cleantech and positive impact innovations that ‘change the world for the better’ and drive business success. CEI certainly had multiple corporate financing options, but the SJF and CEI teams were well aligned both on the core business objectives and the broader mission and values.

8 ) Off the beaten track – SJF specializes in investing in companies that are in areas not overrun with VCs (Silicon Valley, Boston.) For example, a recent successful cleantech exit for SJF, Salvage Direct, is based in Titusville, PA out in western Pennsylvania. While CEI is headquartered on the mainline west of Philly (Radnor, PA) which is certainly an area with other VC financed companies, they are developing large scale solar farms in regions of the Northeast, MidAtlantic and Midwest that have yet to see utility scale solar on this scale… unlike the very competitive CA market, with active players like Recurrent, Solar Power Partners, SunPower, First Solar and others .

9) Policy engagement – At SJF we have launched the SJF Institute to help ‘entrepreneurs change the world for the better’ and in part this is through changing state and federal policies to accelerate a green economy. CEI is also active in promoting policies to implement the clean energy transition more rapidly.

10) Sense of humor – One of our core values at SJF is to ‘Take our work seriously, but not ourselves’ and in the multiple diligence meetings with the CEI team, it was clear they share this SJF cultural quirk of having a sense of humor combined with an intense focus on results.

Thanks to Cody Nystrom of SJF Ventures worked alongside with me on the CEI investment, bringing her deep experience in renewable energy and project finance. Thanks also to AJ Dye, SJF’s MBA Associate this year from UNC Kenan-Flagler Business School, who worked especially hard on CEI due diligence this summer.

If you see any cleantech companies raising equity capital that sound a lot like the CEI example above, send them on! Here is the official press release:

===============================================

SJF Ventures and NGP Energy Technology Partners Invest in Community Energy, Inc.

Leading Renewable Energy Developer Closes Series A Investment

(Radnor, PA October 5, 2010) – SJF Ventures, joined by NGP Energy Technology Partners (NGP ETP), completed a Series A Preferred Stock investment in Community Energy, Inc. (CEI), a leading renewable energy developer and marketer. The investment will fund CEI’s plan to expand its pipeline of utility scale solar generation projects under development in the Northeast, Mid-West, and West. In announcing the Series A funding, the Company emphasized the strategic relationships with these two firms as it moves to expand its solar project pipeline. “SJF and NGP ETP bring the industry-leading credentials and depth in the energy industry that we were seeking as we scale up our solar development plan,” said CEO Brent Alderfer; “We have a 10-year track record of building on strategic partnerships to develop renewable energy projects, and these two investment partners are among the best in the business.”

“In the past, we’ve looked at the renewable energy project development space, but haven’t found a match until now,” said Chris Sorrells, Managing Director at NGP Energy Technology Partners. “We are pleased to join SJF Ventures in backing a very proven management team to aggressively pursue utility scale solar development in their target markets.”

SJF Ventures led the Series A investment totaling $4 million, with an option to invest another $2 million. “We liked the seasoned leadership team at CEI, and their 10-year track-record of success in early-market renewable energy development and renewable power marketing,” said David Kirkpatrick, Managing Director of SJF Ventures, who has joined the CEI Board of Directors. “The solar power market is just opening up at scale, and we look forward to advancing that market with Community Energy.”

About SJF Ventures.

SJF Ventures is a venture capital fund with offices in Durham, NC, New York and San Francisco. SJF has an eleven-year successful record of assisting visionary and talented management teams in building industry-leading firms. SJF provides strong expertise and networks in the cleantech, sustainability and technology enhanced services sectors, including particular experience in renewable energy. SJF portfolio firms include groSolar, CleanScapes, eRecyclingCorps, Fieldview, MediaMath, ServiceChannel, and Ed Map. For more information, visit www.sjfventures.com.

About NGP Energy Technology Partners.

NGP Energy Technology Partners established in 2005, is a leading private equity firm investing equity capital for growth and buyout transactions for companies that provide products and services to the oil and gas, power, energy efficiency, and alternative energy sectors. NGP ETP, with $496 million in capital under management, is managed by investment professionals with extensive experience investing in virtually all types of energy technology and a strong track record of identifying strong management teams and working with them to create significant value. NGP ETP is affiliated with NGP Energy Capital Management, a $9.5 billion firm that has been a leading investor in the natural resources sector since 1988. NGP ETP is headquartered in Washington, D.C. and has offices in Irving, TX and New Orleans, LA.

About Community Energy, Inc.

Community Energy, Inc. (CEI) has been leading renewable energy development since its founding in 1999. By launching the market for direct sales of renewable energy to retail electric customers, CEI first leveraged electric choice to build demand for new renewable projects, and went on to deliver wind energy at significant scale. In 2009, CEI expanded into solar project development, focusing on utility-grade projects in advancing solar markets. CEI continues to lead the industry by offering the full economic and environmental advantages of solar and wind energy to its array of customers and utility partners. The Company has a proven track record of delivering on its mission of a renewable energy future that works for its customers, partners and investors. For more information, visit www.CommunityEnergyInc.com.

Tags: cleantech, impact investing, positive impact, renewable energy, SJF Headline News, solar, utility scale solar, venture capital
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Intersolar & Need for US Policy in Global Marketplace

Monday, July 19th, 2010

I am just back from the Intersolar conference in San Francisco and came away further convinced that the US needs to set forth a strong long term national policy to reduce emissions and foster renewable energy. German and Asian companies were quite well represented on the trade floor, as renewable and industrial policies have helped them scale rapidly. Pricing for photovoltaic (PV) modules has stabilized from the steep downward trend in 2008-2009 as demand in Europe is stronger than expected. For a sense of scale, Germany will install about seven gigawatts (GW) of solar in 2010 as vs. about one GW being installed in the U.S., despite our size and much better sunlight. Similarly, the Ontario market, with its feed in tariff (FIT) similar to Germany’s, is taking off as well. In the U.S., there is uncertainty if the ITC grant will be extended beyond December 2010, or revert to a tax credit, resulting in a rush to get at least 5% of commercial solar systems ‘in the ground’ by year end. This rush is colliding with the lower availability of PV modules as manufacturers shift product to more lucrative European markets.

The market outlook underscores the need for a long term US policy to put a price on carbon and establish a renewable portfolio standard (RPS) so that U.S. solar companies can have longer term certainty. Such policy would also encourage international firms to open operations in the US with more confidence that the market will be truly national… not just driven by state based RPS measures (which to date have been the key drivers for market growth in CA, NJ and increasingly now in PA, CO, MD, NC and other states.) Here is a good piece on the need for US policy in context of global climate change negotiations and the BP oil spill from Jeff Wolfe, CEO of groSolar, an SJF portfolio firm: http://www.renewableenergyworld.com/rea/news/article/2010/07/in-light-of-the-gulf-spill-why-we-need-climate-legislation

Other trends in evidence at Intersolar were:

• Skepticism of large scale CA and SW solar thermal power plants and interest in 3 MW to 20 MW solar PV plants sited close to utility substations

• Innovation in ‘balance of systems’ given how much PV panel costs have dropped, including…

• Inverters – both microinverters (Enphase and other entrants) and maximum power tracker (MPPT) approaches (eIQ Energy, Satcon)

• Racking and tracking system innovation for lower cost, more flexibility, less labor

• Multiple new Chinese PV suppliers looking for entrant partners for the US market, but questionable on their bankability for US projects

• Interconnect concerns with CA ISO seeking to remove small PV power producer connection set-aside

• CA utilities publicly bullish on their ability to meet next step up in RPS standards with solar, and favoring hybrid approach of some utility owned and some private PPA provided solar for next phase of growth

• Finance freeing up somewhat for solar projects, but big rush to get 5% in ground prior to ITC grant expiring at year end (unless renewed)

• Overall strong commercial interest in US market by global players but large scale deployment and investment still awaiting more stable, long term national renewable and solar policy

The market outlook underscores the need for a long term US policy to put a price on carbon and establish a renewable portfolio standard (RPS) so that U.S. solar companies can have longer term certainty. Such policy would also encourage international firms to open operations in the US with more confidence that the market will be truly national… not just driven by state based RPS measures (which to date have been the key drivers for market growth in CA, NJ and increasingly now in PA, CO, MD, NC and other states.) Here is a good piece on the need for US policy in context of global climate change negotiations and the BP oil spill from Jeff Wolfe, CEO of groSolar, an SJF portfolio firm: http://www.renewableenergyworld.com/rea/news/article/2010/07/in-light-of-the-gulf-spill-why-we-need-climate-legislation