Clean energy 2011: Musk, Crane, Khosla and Jurvetson brighten gloom

This year ends on a downbeat note amid the gloom of the US debt and eurozone crises. In 2011, financial commitment to renewable energy stood at £2.5bn. Although the Department of Climate Change and Energy tried to spin this as a boost to the UK economy, it's a sharp fall from the £7.1bn invested in 2009. It is also a long way off from the £200bn required to stimulate the development of low carbon energy generation and tackle the perhaps more pressing energy capacity gap facing the UK.

This is also more than the entire global investment of $185.1bn in wind, solar and biomass according to Bloomberg New Energy Finance figures cited in Ernst & Youngcountry attractiveness indices (CAI) for national renewable energy markets.

Take a look at Ernst & Young's polls on pages nine and ten, which show where investor confidence has been undermined the most. It would seem that the $50trn budget deficit is small beer compared with the eurozone crisis.

The UK still holds it own at joint fifth (dubiously with Italy) in the top 10 all renewables index. E&Y report quarterly. I can't help but feel these rankings will change again come the next report for the UK and its European neighbours.

Figures soon to be published from the Cleantech Group show that $8.398bn was invested globally in cleantech VC last year. That's a drop from 2008's high point of $9.556bn but it's still an improvement on the past two years.

Most of that VC money is being spent in the US, with investment levels in Israel, India and China dwarfing those in Germany, Britain and France in the last quarter.

These are the kinds of figures I quote at people when I tell them that I report on clean energy - most of the time they exhale in sympathy, assuming the worst in the industry given the difficulties facing the renewables industry in the US, UK, Spain, Italy and Germany.

But such pessimism is not necessary - it's a bit like diagnosing terminal cancer in a patient with a broken leg. At some point, the broken economy will recover. We should be reassured that there is less capital in the industry - discipline and due diligence have to be more stringent than ever. The last thing the energy industry needs is a dotcom boom and bust cycle.

Companies such as Vestas might wax and wane on its commitment to manufacturing in the UK and feed in tariff schemes are being trimmed across Europe.

But venture capitalists such as Vinod Khosla and Alan Salzman are not about to give up on clean energy. Capital invested has a forcing effect on the rest of the industry - investment in innovations is where energy technology begins. For example, without Elon Musk and the success of Tesla, I'm pretty certain that the Volt and Ford's electric Focus would still be in the R&D lab.

Musk's optimism is well founded, even though his claim that Tesla's new Model S would be profitable by 2013, just months after the first deliveries of the $49,900 car.

But for Musk, the success of Tesla is a more earthly reward than his ambition of populating other planets with life which he dreamt about at college, before founding PayPal with Peter Thiel.

Musk's optimism is earned despite not quite turning a profit at Tesla, although its stock trades higher than the traditional automakers.

But Musk is not unique. He kicked off last year's west coast clean energy conference season at the Cleantech Summit. These conferences offer flashes of optimism that flare brightly amid the economic gloom.

If you'd like to cheer yourself up, spend some time listening to what these upbeat "thoughtleaders" have to say about their industries.

In this first one, Musk compares starting a company with "eating glass staring into the abyss of death…" but predicts that electric transport will be widespread - cars, trains and even planes.

In April, NRG Energy's David Crane explained how electric vehicles would take off in the US - and why as an electricity generator and retailer, it made sense for his company to stay ahead of the curve.

In August, Jesse Berst gave the best explanation I've seen so far as to why the US needs smart grid at the National Clean Energy Summit. Secretary Chu and Mabus are also worth listening to …

At the Going Green Conference in September, Vinod Khosla talked about his $1bn in profits so far from advanced biofuels, and Steve Jurvetson gave an almost evangelical exposition on synthetic biology.

However you end the year, hopefully these clean energy visionaries will be a source of inspiration for 2012.

Steve Jurvetson and the invisible innovation that will change the world

What venture capitalists really think and what they say aren’t always the same thing. Intellectual excitement doesn’t always correspond with bets they place on the gambling tables of early stage investments.

Steve Jurvetson, from Draper Fisher Jurvetson, this week gave his overview of disruptive innovation in cleantech at the Always On Going Green conference in San Francisco. The man who famously invested $300,000 for 30% stake in Hotmail and made $250m for his VC firm when Microsoft bought the company two years later enthused this week about the “explosion of possibilities” of synthetic genetics in clean tech.

In August, one of Jurvetson’s portfolio companies, Genomatica, filed an S-1 form with the US Securities and Exchange Commission. The company uses computerized biotechnology modelling to design high-volume chemicals from renewable sources such as cellulosic biomass. 

DFJ joined a consortium of investors including VantagePoint in raising $84 million in financing Genomatica. Tate & Lyle and Mitsubishi list among its partners. 

Biofuels have bucked the downward clean tech IPO trend this year, not least because the oil incumbents have a huge interest in replacement fuels.  

But apart from a scattering of clean energy plays, DFJ hasn’t done a great deal to promote itself as a VC leader in the field since 2008 – perhaps as the economic crisis matured into the great recession. DFJ’s portfolio of “companies that are changing the world!” reveal a curious lack of clean tech companies, with BrightSource, CoalTek and Tesla among the exceptions. Furthermore, DFJ’s star clean tech venture partner, Raj Atluru earlier this year announced his move to George Soros’s $1bn clean energy fund, Silver Lake Kraftwerk.

Although Jurvetson’s clean tech portfolio is fairly modest: Genomatica, Tesla and synthetic biology company Gen9, he made a robust case to claim that these investments were made in “disruptive innovations.”

He said: “First let’s define innovation: by innovation, I mean things that matter. Not sustaining innovation, but disruptive innovation – what will history books be written about. 20 years from now what will people remember as a seminal advance for the human race? And that will not be some marginal improvement buried deep in some large company. It’s always startups.”

In what sounded almost like a explanation for his scarcity of clean tech investments, he said: “If you think 20 years out, and ask what’s the most important company on the planet, it is not any company you could write down today. The most important company 20 years from now has not even been founded yet and doesn’t have a name. That’s a bit disconcerting for anyone who thinks about the trajectory of technology progress. That is always obvious in retrospective, eg Google Facebook didn’t exist 20 years ago. It’s not so obvious when you plan into the future.”

He argued that large companies by their very nature were incapable of being disruptive. “I’ll go further and say that no large companies does disruptive innovation in any sustained manner – not even Apple. If you think about the personal computer what have they done over the last 10 years in personal computing?”

Economic crises were an engine of change and could be an advantage for startups because it was cheaper to get established when markets are depressed, he said

“Two thirds of the Dow Industrial Average was formed during recession or the great depression. Companies tend … to build their business in more sustainable ways when they are formed in a down market. The odds might be in your favour. Why might this be?

“What is it about market disruptions and economic disruptions that make markets thrive? One example might there hasn’t been a car company IPO here since Henry Ford.

“But it got a little easier – Teslsa was able to buy a new manufacturing plant for pennies in the dollar. Who could have predicted that 5 years ago?

“When you have debt crises and pension plan disasters in large companies within our broader portfolio even outside of clean tech it’s those startups that are focusing on automotive, financial services real estate that are thriving. Exactly the things that you read about in the headlines have been the most destructive economically.

“But if you look at electric vehicles there maybe a few people buried deep within large companies who don’t realize that every vehicle in the future will be electric. Every train, automobile, etc. Big companies wouldn’t lead that disruption. It takes a startup to lead that challenge but it is happening.

“The future will be less predictable, forecast rises will shrink, company lifetimes will shrink, new entrants will proliferate and it’s going to just get more unpredictable. If you thought financial crises came and went, just count on them – another economic collapse, it’s almost going to be like not news any more. But for startups this is great, because it’s a perpetual driver of disruption.”

However, what really excites Jurvetson, it seemed, are not flashy electric cars or sophisticated IT services to manage energy domestic demand or across smart grids, but “genetic alchemy” also known as synthetic biology.

Life sciences were entering a renaissance that would converge with clean tech thanks to computational biology, he said.

“It’s an interdisciplinary renaissance… think about ideas mating in new and interesting ways across academic disciplines to greater effect than within one.

“IT is now reaching out to fuels and chemicals, energy and clean tech, rockets, all kinds of bizarre industries that formerly didn’t face much competition.”

Drew Endy, assistant bioengineering professor at Stanford University and cofounder of Gen9, one of Jurvetson’s portfolio companies put our “partnership with biology” in perspective at a later panel discussion.

“Our work is a radical departure from the past generation (35 years) of biotechnology which has tended to be overdriven by applications, given that we typically turn to biology as a technology partner of last resort to solve pressing problems (cure this disease, give me a drop in fuel now, etc.). This has resulted in a collective and persistent underinvestment in tools supporting biotechnology. Most practice the details of genetic engineering today no different from how it was done in 1980.

“We can project that we’re going to get better at constructing [synthetic DNA]. What does that mean 10 years from now? We should not be surprised to see another 10 fold increase in our capacity to print genetic material.

“In 1980 Genencor took the enzymes that are used in laundry detergent and re-engineered them to work at cold water wash temperatures and the net impact of that if you distribute those enzymes in laundry detergent throughout the US you can realize up to 10% decrease in domestic hot water heating requirements. In 1980 that was the equivalent of around 100,000 barrels of oil a day, 5x the Gulf of Mexico oil spill. That’s one protein integrated into human existence to reduce environmental energy needs.

“You typically don’t think of what’s in your soap or the enzymes that are in your ice cream that prevent ice cream crystals from growing too big in the thermocycle coming in and out of your freezer – I know this is a first world problem – but biology exists with us everywhere. And I see how to partner better with it to reduce loads on the environment and energy that’s where we’ll see a lot of disruption.

“The key is going to be how to figure out how to sustain the investments in the told. If we try to implement the future with the tools of the last 35 years, we’re dead in the water. We’re going to get another handful of things we can celebrate.”

The most powerful gamechanging disruptive innovation is likely to be invisible, said Endy. “We’ll make some biofuels - they are important we need to have agility in terms of replacement petroleum. But we’re also going to change how we exist to reduce our energy loads and footprints. That’s probably where I would expect to see a lot of disruption. It’s likely to be invisible.”