Investors are on the forefront of financing the future of energy, and entrepreneurs want to know who has the money, noted a panel during the UNC Kenan-Flagler Global Innovations in Energy conference.
Paige Ouimet, assistant professor of finance, moderated the panel composed of David Kirkpatrick (MBA ‘91), managing partner of SJF Ventures; Ben Kallo (BSBA ’87), vice president of clean technology research for Robert W. Baird & Co.; Tony Boon (MBA ’83), managing director of Gulf Advisory & Execution (USA) Inc.; and Val Smith (MBA ’02), vice president of corporate sustainability for Citigroup.
Cleantech venture capital comes in two styles, Kirkpatrick said: today markets and tomorrow markets. Today markets have the advantages of being lower risk, capital efficient, geographically diverse and have current market ROI and viable niche markets. Drawbacks include lower exit multiples, less proprietary technology, smaller markets and low margins. Tomorrow markets have high margins and transformative technologies that attract media attention and are rapidly scalable, though they are higher risk, require more capital and face global competition.
Breakthrough investments by the large funds in solar, smart grid, efficiency, transportation and biofuels have the potential to be transformative and lucrative, he said. “Solving societal problems is the driver for financial success.”
Abu Dhabi in the United Arab Emirates serves as an example. A major supplier of the world’s oil, Abu Dhabi has nonetheless set aside $22 billion to invest in renewable energy, said Boon, whose consulting business is based there. Through its Masdar Initiative, Abu Dhabi established sovereign wealth funds to diversify and created Masdar City, the world’s first carbon-neutral, zero-waste city. “The West said it wants to be independent from foreign oil,” Boon said, “and Abu Dhabi listened.”
But even small funds can play in the big cleantech industry, Kallo said, because mega-corporations see small companies as a way to grow their business. Public policy solutions can help overcome the hurdles to investing in clean energy, Smith said. Government incentives can play an important role in making alternative energy projects economically viable.
Kallo, though, was skeptical of stimulus funding that promised matching grants to utilities. Government funding might shore up startup technologies that should be cleaned out by the market, he noted.
Projecting to the future, Smith recommends incorporating carbon pricing in models. Right now, in legislation being considered by Congress, the price of carbon is collared from $10 to $30 per ton. She noted that many municipalities are looking at Property Assessed Clean Energy bonds that pay for energy efficiency projects over time.
As for investing in domestic vs. international clean energy, Europe is still investing in U.S. public companies, Kallo said, and “that points to our ingenuity.” However, Kirkpatrick noted that the U.S. lost its top seat in photovoltaics to China during the recession. “It’s a global supply chain,” Kirkpatrick said. “We have to find our expertise and value add.”