Top 10 cleantech stories of 2009

In no particular order, here are my top 10 cleantech stories of 2009. Any other interesting stories that you think should be on this list?

1. Copenhagen Accord: From Hopenhagen to Nopenhagen
The widely anticipated UN climate talks at Copenhagen in Dec 2009 ended with a whimper. After spending much time haggling about the main issues, world leaders could only come up with a kind of letter of intent. In fact, it was US President Barack Obama who brokered the final deal with China, India, South Africa and Brazil. Europe, which was left out, was apparently angered with this move. For now, the goalpost has been shifted to Mexico in 2010.

2. Global Cleantech Stimulus
Though we’re facing the toughest financial crisis yet, several governments around the world managed to announce multi-billion dollar stimulus packages for the cleantech sector, underscoring the importance of the sector to deal with climate change and energy supply issues. US, China, South Korea, Japan, EU, Germany, Australia and UK are among the biggest contributors.

3. A123 Systems IPO Soars
Lithium ion battery company A123 Systems was clearly the star of cleantech IPOs this year, with its shares soaring more than 50% on the first day of trading in Sep 2009. A123 Systems has not made any money, yet its stock price is still trading above its offering price with currently $2 billion market cap, even though Chrysler cancelled its electric vehicle plans which included A123 batteries. Doesn’t this remind you of the tech boom in the late 1990s? More IPOs are expected to come with Solyndra already filed for IPO in Dec 2009 while we’ll just have to keep guessing when Tesla Motors, Silver Spring Networks and Codexis will make their debut.

4. Khosla Ventures Raises $1.1 billion Cleantech Funds
Even as VC/PE cleantech investments slumps in 2009, Khosla Ventures raises the bar with its $1.1 billion funds raised in Sep 2009. It was the largest amount raised by a VC firm since 2007 and the largest first-time fund raised since 1999. This was also the first time Khosla Ventures has raised funds from outside investors which included the CalPERS. It was a rare feat to raise a fund of this size and Vinod Khosla has definitely proved it.

5. Cleantech Investments Shift from Solar to Energy Efficiency
Indeed 2009 proved to be tough on solar companies where declining orders, excess inventory and project financing problems were accompanied with massive layoffs. While Spain’s removal of government subsidies and the financial crisis contributed to the solar slump, China continues to provide state funding to the Chinese cleantech firms via low-interest loans from big state banks to fund their growth. It is no surprise that investment is seen shifting from capital-intensive cleantech such as solar and wind to less capital-intensive cleantech such as energy efficiency, storage, transportation and smart grid sector. Have you heard of the Jevons Paradox – the more efficient we become in our use of energy, the more we will use? Ironically, energy efficiency may lead to more energy consumption as the cost of energy resource reduces.

6. Electric Vehicles: Electric Dreams Come True
It’s no doubt that Obama’s stimulus package has jolted the US electric car industry into life. Anything from electric vehicles, fuel cells, battery technologies, hybrid vehicles to charging stations have turned into golden opportunity for investment. Even the Big Three, GM, Ford and Chrysler were pressured by the US government to make electric cars. The stakes are high here, as we look forward to reduce oil dependence. Yet this has caused another “gold” rush, i.e. rare metals which are important components in making the fuel cells and batteries and China is the main producer of rare metals. Meanwhile, expect the Japanese Toyota and Honda to continue to lead in the hybrid car sector.

7. Biofuel Flights Sizzle
With biofuels craze fizzling out this year, a good news from the industry appeared. Biofuel flights were tested successfully by 3 different airlines this year. In Jan 2009, Continental Airlines tested flight with 50% jet fuel, 47% jatropha, 3% algae in 1 engine (the first to use algae). In the same month, Japan Airlines tested flight with 50% jet fuel, 50% biofuel (of which 84% is camelina, 16% jatropha, less than 1% algae; the first to use camelina). In Nov 2009, KLM demonstrated the first passenger flight with 50% jet fuel, 50% camelina. Previously, Virgin Atlantic was the first to test flight with biofuel mix with 50% jet fuel, 20% mix of coconut and babassu oil in Feb 2008 (some people were mocking Richard Branson at that time!) while Air New Zealand tested flight in Dec 2008 with 50% jet fuel, 50% jatropha (the first to use jatropha). No doubt, we will see more of these biofuel flights realizing in the future.

8. Algae is Oil’s Best Friend
It seems like algae is the new biofuel. Exxon Mobil invested $600 million in Synthetic Genomics, a biotechnology company founded by none other than the genomics pioneer J. Craig Venter, in July 2009 to produce fuel from algae. BP, already an early investor in Synthetic Genomics, invested $10 million in Martek Biosciences in Aug 2009. Though it is applauding to see oil companies to look at alternative energy sources, Exxon Mobil’s latest $31 billion acquisition of XTO Energy, the largest natural gas producer in US, in Dec 2009 is a bet that alternative energy is not viable enough to meet US energy needs for the next few decades while hoping that the cleaner fossil fuel will reduce possible carbon tax in the future.

9. Smart Grid Gets Smarter
The smart grid has been hailed as the electricity Internet and it is such a big play that even the big IT players IBM (via its IBM Venture Capital Group) and Cisco are eyeing for a piece of it. In Obama’s stimulus plan, it calls for the creation of a smart grid and 40 million smart meters to be deployed in American homes. Smart grid may be the largest cloud (computing) and expensive but it will be lucrative for smart grid players. Silver Spring Networks, GridPoint, Trilliant, eMeter, Grid Net and SmartSynch are just some of the players that should benefit from the stimulus.

10. Water Splashes With Osmotic Power and Reverse Osmosis Desalination
In Nov 2009, Norway’s state-owned power company, Statkraft opened a prototype osmotic power plant which is the world’s first that generates energy by mixing fresh water with sea water. The idea of generating power from osmotic pressure gradients is actually an extension of reverse osmosis (RO) desalination. RO desal is used for water and wastewater purification, and such large plants are usually found in Middle East nearby power plants where they can easily get their electricity needs from oil. While the Middle Eastern plants consume oil to generate power for its desal process, Norway’s plant generates power from its desal process. I wish I could say much more for the water space but it is noteworthy that Kleiner Perkins has made its first water-related cleantech investment in APT. Hopefully we will see more VC investments in water-related cleantech next year.

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China the New OPEC for Rare Earth Elements?

If it is a daunting thought that the OPEC controls 40% of the world’s crude oil supply, think again. China has 95% of the world’s rare earth elements (REE) leading the late Deng Xiaoping to presciently remark that “the Middle East has oil, but China has rare earths.”

While oil gets a lot of attention, what does REE have in relevance to consumers? REE, which include 17 hard-to-pronounce names of chemical elements (e.g. praseodymium, yttrium, europium, dysprosium, erbium), are important ingredients in many high-tech devices and clean technologies. You need them in iPod, laptop, cell phones, TV, hybrid cars, batteries, wind farm facilities, military applications etc.

Until the mid-1980s, a single US mine was the world’s main source of REE. It was shut down due to environment concerns and low prices and China cornered the market. Outside of China, there are 3 big potential sources of REE – in California, Canada and Australia. The California mine has not produced since 1998, the Australian mine was due to start production in 2011 but has just lost its financing and the Canadian mine is aiming at 2011. Together their annual production could amount to one third of China’s.

It is no surprise then that Chinese companies have bought stakes in the Australian and Canadian projects but were so far unsuccessful in buying the Californian project. China’s State Council, or Cabinet, recently was considering tightening export restriction or even banning the export of certain elements and closing mines. While this will increase prices, secure supply for its own needs and create jobs for its own people, this will cause fear among foreign companies and governments as they may not have access to the metals and this will lure more foreign companies to the country to set up manufacturing plants there.

But foreign and Chinese industry sources doubt Beijing’s dominant goal is to create an Opec-like price cartel as China has flooded the world market with cheap REE for more than a decade. Now, Beijing needs to ensure that it has enough materials to grow its own advanced and clean technology industries, especially in Inner Mongolia where it contains 75% of China’s REE deposits.

However, foreign companies and governments know that if the supply is suddenly stopped, production outside of China will be stopped as well. While the Pentagon has raised alarm over the US military’s vulnerability in the event of an armed conflict with China, the US has been slow in focusing on securing the supply of REE as compared to its supply of oil. Meanwhile, the Japanese firms such as Sumitomo Corp and Toyota Motor Corp have begun developing alternative sources of REE in Kazakhstan and Vietnam. The Japanese has great incentives to explore new sources and diversify its supply risks because it imports over 90% of REE from China. It would be interesting to see how these countries’ resource strategies will work out in this new century.

Sources:
Will China Tighten ‘Rare Earth’ Grip?
China predicts rare earths shortage
Beijing may tighten grip on rare earths

Pentair Analyst Day 2009

Last week, on 3 Sep 2009, Pentair had its Analyst Day 2009 in New York. I listened to it via webcast and I’ll highlight (in memo format) some of the points made during the presentation. You can view its presentation or listen to its webcast again (this time its presentation is available together with its webcast simultaneously. I was listening to the webcast without the presentation).

The CEO Randall J. Hogan made the following points:
1. Pentair is leader in 2 business segments
2. The Water segment is a $2bn sales business
3. The Technical Products segment is a $1bn sales business
4. 35% of total sales is international
5. Pentair Water is involved in all the water cycle from the sources to the waste water
6. Technical Products serve many verticals with wide range of products
7. Technical Products have been more cyclical than the Water biz but it’s getting better with time
8. Sales is more global and more emerging. 75% sales in US in 2005 will be 65% in 2009. Emerging markets which takes up 8% sales in 2005 now takes up 15% sales in 2009. CEO expects this market to take up 20-25% sales in near future.

Some key messages:
1. The economic situation was worse than originally anticipated
2. Pentair introduced Global Business Unit (GBU) structure a year ago which was realigned to better position Pentair for stronger growth going forward
3. Provided an innovation roadmap which was maintained and expanded
4. Outlined aggressive cost rationalization plan which was accelerated and driving Ops Excellence improvements daily via Lean
5. Cash is King, Pentair is generating lots of it and expect this to continue

The CEO continues…
1. Residential markets impacted half of its Water biz during the crisis
2. Industrials remain weak and record low, big inventory drawdown
3. Actions taken: accelerated 3-year “footprint” plan into 18 months (closed 15 out of 18 plants so far), accelerated G&A reduction plan (reduced G&A headcount by 30%)
4. However, it maintained investment in growth: R&D, sales & marketing
5. Result: Cashflow is very good, Pentair is positioned for the Stimulus. Company EPS is maintained at $1.40 for 2009 with sales forecast of $2.7bn in 2009.

Key Drivers/Key Growth Focus Areas:
1. Emerging market growth is key – continued development and investment for past 5 years, China/Southeast Asia is key
2. Developed countries invest in infrastructure – stimulus monies being deployed, positioned to win fair share of developing infrastructure
3. Sustainability & green solutions – companies that can be sustainability partners will win, leverage on green practices
4. Starting from low base-position businesses – residential/industrial/commercial record low readings, positioned for growth

CEO summarizes:
1. Growth strategies – initiatives are robust, organized to win, trends in our favor, GBU structure the right organization
2. Productivity remains key – much more to do, executed 3-year cost plan in 12-18 months, Lean and ops excellence opportunities and traction
3. Exciting innovation – future looks bright, new products doing well and more to come
4. Financial outlook – solid expectations; growth, margin and ROIC “model” appealing
5. Sustainability highlighted – internally and as a partner, launched citizenship council/report internally, partnering with organizations to transform their environment

A short summary on technology by the Technology VP Dr. Phil Rolchigo:
1. We imagined new solutions with breakthrough performance: innovative prefiltration solutions; high efficiency point-of-use RO (reverse osmosis) systems; breakthrough performance point-of-use UF purification solutions; fully integrated water treatment systems with process water and reuse; low energy, membrane technology for oil dehydration and reuse
2. Now imagine the future – high efficiency commercial and industrial RO desalination solutions; even higher efficiency softening solutions, perhaps salt-less solutions; breakthrough purification technologies for reuse and desal solutions, advanced membrance and disinfectation solutions.

Comment:
1. Listening to the webcast, it sounds positive overall as the market has reached the bottom and so they’re starting from a low base, and meanwhile, more cost cutting is ongoing.
2. One good thing is that they’re maintaining their investment in R&D and they’re in good position for the Stimulus package though they may need to share the pie with other companies. See their Stimulus White Paper.
3. They’re also looking at emerging markets as future growth as those countries improve their water infrastructure.
4. At this moment, the demand for technical products has not risen and they’re still focusing in US due to its affordability and reliability.
5. For this year, they’re trying to maintain its good cash flow, hopefully for good investments (and not to raise dividends again next year!)
6. Some of the new technologies are still in stealth mode but its 4 current technologies – ultrafiltration, reverse osmosis, membrane bioreactors and UV light disinfection – are their focus now and they’re continuously improving on it.

Israel – the Silicon Valley of the water industry?

There is an article in the November 2007 issue of Global Water Intelligence (you may need subscription) about Israel gearing up to be the “Silicon Valley” of the water industry. Here’s the list of Israel’s water technology VC investors, albeit an old list back in 2007:

Israelwatertechnology

(In text: Arison Water Initiative, Aqua Agro Fund, IDB Holdings (Elron), BHCO Group, Israel Cleantech Ventures, Terra Venture Partners, Gemini Israel, Greylock Partners, Aurum Ventures, L Capital, Ashkelon Incubator, Kinrot Incubator, LN Incubator)

Also, the Watec conference in Tel Aviv list top 10 technologies 2007 (you might discover I just covered Bio Pure Technology in my previous blog but I can’t guarantee the existence of others after the financial crisis!):
israel water technology

(In text: Atlantium, Blue I Water Technologies, AqWise, Bio Pure Technology, Pervasiv, CheckLight, Toxsorb, TreaTec21 Industries, En Gibton, Aquilyzer)

Israel’s Bio Pure Technology raises $12m for clean water technology

On 2 Sep 2009, Bio Pure Technology (BPT), a provider of industrial waste water streams treatment solutions, has raised $12 million in Series B financing led by US Venture Partners (USVP) and Pitango Venture Capital, with participation from existing investors Aurum Ventures and Elron Electronic Industries.

BPT specializes in chemically-stable membrane-based separation solutions intended for use in the water and wastewater treatment industries. BPT’s technology targets customers in the landfill, mining, chemical, biopharma and food sectors, allowing them to filter their wastewater to comply with environmental regulations.

“Cleantech is an area of growing concern to the world market. BPT’s technology and tremendously experienced R&D group are well positioned to play a significant role in the application of nanotechnology to water technology,” Ittai Harel, partner at Pitango Venture Capital.

“USVP has been investing in cleantech for over six years and this is our first cleantech investment in Israel. Water treatment and recycling are critical elements of adapting to climate change,” said Jacques Benkoski, venture partner, “BPT clearly stood out as a unique player with differentiated and leading technology to solve critical waste water recycling issues for key industrial processes.”

BPT said it will use the funds to expand its manufacturing facilities, continue R&D and further develop sales and marketing infrastructure to meet increased worldwide demand. In conjunction with this round Christopher J. Rust, USVP partner and Jacques Benkoski, USVP venture partner will represent USVP on the BPT board and Ittai Harel, Pitango partner, will represent Pitango Venture Capital.

BPT was founded in 2000 by Dr. Motty Perry, the company President. Perry previously founded and served as CEO of Blue Green Environmental Technologies and its subsidiary Nitron, which focused on purification of ground wells. BPT is headquartered in Rishon LeZion, Israel.

Sources:
Bio Pure Technology raised $12 million from USVP, Pitango, Aurum Ventures and Elron
Israel’s BPT Raises $12M For Clean Water Technology

Goldwind rushes to list in HK

China’s largest maker of wind turbines, Xinjiang Goldwind Science & Technology Co, has announced plans on 2 Sep 2009 to float shares worth about $1 billion on Hong Kong’s main board. Goldwind joins more than 30 companies announced in Hong Kong in the past month to raise estimated $25 billion in the coming months in the territory and on the mainland.

Goldwind will issue shares no more than 15% of its enlarged equity capital after the HK share offer to overseas institutions, corporate and individual investors. Goldwind has total capital of 1.4 billion outstanding shares now. Proceeds would be used to fund 3 wind power projects in the country and supplement the firm’s working capital.

In Dec 2007, Goldwind launched its $244 million IPO on Shenzhen Stock Exchange.

Comment: As the equities market look favourable to raise funds, Goldwind will be able to tap the markets for its aggressive expansion especially after the Chinese government’s pledge to fight climate change and look to increase its renewable energy sources. Watch out Vestas, Goldwind may strike the golden No. 1 spot within a decade.

Sources:
China’s Goldwind plans to list in HK’s main board
Xinjiang joins rush to list in HK

AltaRock suspends test project

On 2 Sep 2009, geothermal startup AltaRock Energy said it has suspended drilling at its demonstration project in California due to geologic anomalies. The startup said it encountered a number of physical difficulties at the site while drilling its first well.

However, the company said it will keep developing its engineered geothermal systems (EGS) technology and is evaluating alternative well locations, both at the Geysers, a site north of San Francisco, and elsewhere. The news comes as a blow to AltaRock’s demonstration project, which is backed by $6.24 million in funds from the U.S. Department of Energy, with the possibility of $2.76 million more.

In 2008, AltaRock raised $26.25 million from Google.org (which contributed $6.25 million), Khosla Ventures, Kleiner Perkins Caufield & Byers, Advanced Technology Ventures and Vulcan Capital.

Cleantech Group reports “Today’s problem isn’t the first controversy to stem from the project. In June, The New York Times raised questions about the Geysers project, comparing it to an effort in Basel, Switzerland, that some scientists say caused a large earthquake, followed by thousands of small quakes. Both projects aimed to fracture rock deep underground to generate steam, but AltaRock disputes the similarities of the projects.”

After the New York Times report, the DOE and Bureau of Land Management informed AltraRock that it would not be allowed to fracture rock until the department completed a new review of whether the project would be safe. The company was allowed to keep drilling, however, down toward the depth at which it would begin the fracturing. The review, which likely to be released within few weeks, is expected to compare the Basel and California projects and determine whether AltraRock’s effort is safe.

Sources:
AltaRock suspends drilling at DOE-backed project
Google-backed geothermal company suspends test project

See the New York Times reports:
Deep in Bedrock, Clean Energy and Quake Fears
Drilling Ordeals Said to Delay Geothermal Project