by Anissa Dehamna

It’s easy to become discouraged about cleantech when headlines focus on one company after another that fails to make it work. Frequently the issue is not technology, but rather management, the supply chain, or the business model. Cleantech companies often have the added burden of creating value where there was none before. Being visionary is riskier than being mundane. Frankly, it’s surprising that more cleantech companies don’t fail.

Thankfully, there are still investors that are willing to bet on visionary and innovative solutions, particularly in energy. Two well-known venture capital funds have been active in this space recently. Braemar Energy Ventures announced that it closed its third fund, Braemar Energy Ventures III, LP, at the maximum amount of $300 million on June 19, 2012. Blue-chip Silicon Valley VC firm Khosla Ventures, meanwhile, said it’s raising a fund called Khosla Ventures Seed B. The firm’s first seed fund raised $300 million and closed in 2010.

These are on top of Goldman Sachs’ May announcement that it will create a $40 billion fund for cleantech investments.

What’s promising about these announcements is that, while the Braemar fund is focused on relatively mature, venture and expansion-stage energy technology companies, the Khosla Seed B fund will be focused on what the company terms “a crazy idea that may have a significantly non-zero chance of working.” Not exactly a vote of confidence, but the purpose of the Seed B fund is to target very speculative technologies, aiming to hit it big.

Why are venture capitalists still funding cleantech? Because the big picture, global challenges and opportunities have not changed. There are too many people and too few resources. It’s time we shared our prosperity with the 1.3 billion people living in extreme poverty. (Current data is difficult to come by; this figure refers to 2008 World Bank data for people living on less than $1.25 per day.) Energy is the engine of growth. For most of the developed world, cyber security has surpassed physical security as a primary concern. Venture capitalists understand these challenges. The purpose of Braemar Energy Ventures III is to “help deliver cleaner, cheaper, more efficient and reliable energy solutions.” Khosla Ventures is focused on several cleantech sectors, including alternative energy, energy efficiency, energy storage, and advanced materials.

Are there solutions that could address these big picture challenges in other ways? Certainly. They just won’t be getting funding from Braemar III or KV Seed B or Goldman Sachs. Being visionary still pays.

by Kerry-Ann Adamson

What a week!

At the start of the year we forecast that one of the big trends in 2012 would be the return of the private equity markets to the fuel cell and hydrogen industry. In fact, this trend has been far larger and is now having an impact on the entire cleantech sector.

The last week has seen an announcement from Goldman Sachs that it plans to invest a $40 billion fund in clean energy and Pangaea Ventures Ltd. achieving a first close of Pangaea Ventures Fund III, LP, having attracted the initial $50 million into the target $100 million fund. The Pangaea Ventures Fund will also be targeted at energy storage, energy efficiency technology, and energy generation. In Europe, the United Kingdom’s $5 billion bet, the Green Investment Bank, became a commercial reality. (It was also the week though when T. Boone Pickens, the U.S. industrialist and of late clean energy supporter, pulled his backing of wind power development in the U.S. citing low natural gas prices that have reduced his profit margins in wind.)

Does this mean we are in for a new hype cycle with government R&D being replaced by easier to acquire private equity? And if so, is this a bad thing? Although it’s unlikely that we will see a return to the days when investors lily-padded across the supposed Next Big Thing en masse, we should see the average deal increase in dollar amount as well as the number of deals increase.

Series A funding is likely to remain the largest hurdle for cleantech companies, with more and more emphasis being placed on commercial viability of the product, rather than on a concept. But once through that gate, the pool of available investment is growing and the number of companies investing larger. Investors are still looking for the same things as in any other sector, including a good management team. If the startup is small and stacked with R&D types, but with strong intellectual property, we are more likely looking at acquisition by a large corporations rather than investment by the private equity sector. For companies that are clearly on the commercial track, with a viable and well developed business plan, getting the next level of funding should be easier.

So what has changed to bring investors back into the sector? The clear major shift in the last twelve months has been the exit from the market in many countries of government based intervention. The second factor is the increased number of technologies that now fit into a standard private equity model of a five-year exit strategy. Fuel cells, wind, and biopower, as well as a range of energy efficiency technologies, now all are strong enough markets to sustain the traditional investment and exit model.

Finally, if we do have another hype cycle, will it be as counterproductive as the last? Unequivocally yes. The cleantech market cannot sustain another boom and bust. To be a sustainable, growing part of the global energy market, cleantech cannot afford another gold rush.

Given the uneasiness investors have expressed about investing in capital intensive solar businesses since Solyndra, the recent bankruptcies, and industry woes, it's noteworthy that three solar companies raised funds in the last week or so.

California-based Solexel raised $25 million to build a pilot plant for its manufacturing process, which employs silicon gas to make solar wafers. SunPower (SPWR) is an investor, along with Kleiner Perkins Caufield & Byers (KPCB), Technology Partners, DAG Ventures, and others.

They need to show the manufacturing process is scalable, having been proven on a small scale.

Solexel's technology produces "ultra thin" solar cells with an entirely different process: instead of making silicon ingots in furnaces and slicing them into wafers, it deposits a gas to grow wafers. Much less silicon is used and wasted, cutting costs, and the resulting solar cells are more efficient.

The company plans to scale at a 100-acre Malaysia plant, starting with a 200 megawatt (MW) production line.

SolFocus also completed a capital raise of $10.75 million for its Concentrating Photovoltaic (CPV) technology, after raising $77 million in 2009.

They won their biggest contract to date in Mexico - a 450 MW project in Baja that starts construction later this year. Finally,

And Sopogy, based in Hawaii, raised $1 million for its Micro-scale Concentrating Solar Power Concentrators, smaller versions of the systems used in large scale projects. The systems come in pre-engineered kits in 1MW, 5MW and 10MW increments.

The first quarter was a mixed bag for solar companies seeking venture capital, reflecting a more cautious approach to the industry on the part of investors.

5 companies raised about 60 percent of the total funding in Q1 2011, led by SolarCity with $81 million, followed by CIGS companies MiaSole, Nanosolar and AQT Solar, which raised a combined $94 million.

Reprinted with permission from SustainableBusiness.com

Investors are figuring out they can get safe, reliable returns and get four times what they can earn on US Treasuries when they put their money into solar plants.

When a solar plant signs a Power Purchase Agreement to sell the power produced by the plant that's like gold to investors. Those agreements lock in the sale of electricity for 20-plus years, which means investors can rely on safe, guaranteed returns for a long time.

"A solar power project with a long-term sales agreement could be viewed as a machine that generates revenue," Marty Klepper, an attorney at Skadden Arps Slate Meagher & Flom LLP, told Bloomberg. "It's an attractive investment for any firm, not just those in energy."

Until recently, investors viewed these projects as too risky without government backing, but now they see they can earn returns of 15 percent and are eager to jump in.

And with the price of solar panels dropping so sharply - 50 percent last year - returns are getting even more lucrative. Once the capital investment is made, solar electricity is free with very low operating costs.

Those high returns, calculated by Stanford University's Center for Energy Policy and Finance, are higher than those for infrastructure projects from toll roads to pipelines. And they sure beat 30-year Treasuries at 3.4 percent returns.

Buffet's entree into solar is a great example. His energy arm, MidAmerican Energy, bought one of the world's largest solar plants, the Topaz Solar Farm in California last December.

The over-subscribed bond to finance the $2.4 billion project is expected to generate a 16.3 percent return on investment for selling the electricity to utility PG&E for $150 per megawatt-hour for 25 years, according to New Energy Finance calculations.

Google's been investing in solar plants for years, and took a stake in the mid-Atlantic offshore wind transmission system, and Walmart's looking at buying plants too.

Last year, MetLife and John Hancock Life Insurance invested over $500 million in renewable energy, the most spent yet by companies outside the small group of specialist lenders that traditionally back solar energy, says Bloomberg New Energy Finance.

Once a project starts producing power, investors can earn a return that's higher than most bonds. But in terms of bonds, investors are getting more choices now that Climate Bonds are hitting their stride.

Interestingly, we reported last week that tax professionals lag in their knowledge of clean energy investment opportunities and aren't guiding their clients to them.

Putting it in Perspective

It wasn't very long ago that solar technology was unfamiliar and considered to be very risky. Even in 2009, few banks would back projects - they required billions in upfront investment and wouldn't produce revenue for years.

The US Department of Energy (DOE) has been providing loan guarantees for renewable energy projects for exactly that reason - so that projects that find it hard to attract financing would have an easier time because of government backing. It supported almost $35 billion in financing before the program ended last September.

The DOE is still being pummeled by the GOP for these activities. They are now moving beyond Solyndra to question whether the agency should have supported First Solar's plants because they aren't "unique."

Last year, the U.S. Treasury's Federal Financing Bank was the biggest asset-finance lender for renewable energy companies, arranging 12 deals worth $11.2 billion, according to New Energy Finance. It was followed by BNDES, Brazil's development bank, and Bank of America and Banco Santander SA.

This is just the beginning. Institutional investors such as pension funds, insurance companies, corporations, utilities are all seeing the benefits

Investors also benefit from the renewable energy Production Tax Credit (PTC), which expires at the end of this year for all renewable energies other than solar. The Senate voted down an amendment to the Transportation bill which would have extended the PTC for another year, and it will come again for a vote.

The boom and bust cycle for the PTC, approved for several years and then allowed to expire, has been holding back growth of the US renewable energy industry.

President Obama includes a permanent renewable energy PTC in his corporate tax reform plan.

Of course, all the benefits for investors also apply to other kinds of renewable energy, particularly wind.

Banks would rather lend to wind projects that can be built in 12-18 months than to nuclear plants, which take 10-15 years to build. And wind plants don't have the very real long term safety issues that nuclear plants do.

by Pete Danko

Earlier this month Bloomberg New Energy Finance said global clean energy investment in 2011 shot up to a record $260 billion – a 5 percent increase over 2010 and almost five times the total of $53.6 billion in 2004. Now the news and analysis service has pegged the firms and individuals who were the biggest players in making that happen. And it’s a whole different cast than the one that led the way in 2010.

“This is the seventh year we have prepared annual league tables showing the most active deal-makers in the sector,” Michael Liebreich, chief executive of Bloomberg New Energy Finance, said in a statement. “What is striking is the amount of change among the leading players, reflecting the turbulent year we have just been through in the clean energy sector.”

The leaders (see them all in this PDF) were a diverse lot, as well. Among them, Blomberg said, was the U.S. Federal Financing Bank in arranging asset finance, U.K.-based Terra Firma Capital Partners in venture capital and private equity investment, and China-based Global Law Office in the public markets.

The U.S. Federal Financing Bank was especially dominant in asset finance, providing $10.14 billion in credit in 13 deals, adding up to just shy of a 20 percent share of the market. Which might reasonably prompt this question among many readers: What or who is the U.S. Federal Financing Bank?

Well, to Fox News it’s a “Secret Government Bank That’s Financing More Solyndras.” Hmm. While it’s not widely known, “secret” seems not to be quite the right word for an institution that puts out monthly reports detailing its doings.

As the bank explains on its website, it is a government corporation that, among other activities, “borrows from Treasury and lends to Federal agencies and private borrowers that have federal guarantees.” For years, that meant being involved heavily in rural utility financing – and it still does, with around half of the bank’s $58.4 billion holdings in that category, as of Oct. 31, 2011. The post office is in for $13.1 billion, as well.

But what’s raised the ire of some conservatives is that the bank, during the Obama administration, became the lender for the companies getting money through the U.S. Department of Energy’s Advanced Technology Vehicles Manufacturing direct loan program ($5.1 billion as of Oct. 31), and also did some of the lending for the Section 1705 guaranteed loan program ($2.2 billion) for clean energy development.

Bloomberg cited the loan guarantees for the BrightSource Ivanpah concentrating solar plant and the Agua Caliente solar PV plant (which Warren Buffett recently bought into) as boosting the Federal Financing Bank to a leadership position in clean energy finance in 2011.

There was a caveat to the list of the top 20 asset financing arrangers, however: “Chinese (and other) state owned banks have also been active in this period and may have featured more prominently than shown in this table, but transparency on these deals is often limited.”

Also notable in the Bloomberg tallies was NRG Energy, the Princeton-based utility, taking the top spot in grabbing ownership stakes in projects, with $6.46 billion poured into five investments. All were in the solar sector.

The 2011 Clean Energy and EST League Tables are based on the largest database of financial transactions in these sectors, Bloomberg said. It’s white pair with the full listing of leaders is available online as a 26-page PDF.

BrightFarms, Inc., which has an innovative model to bring local foods to supermarkets, raised $4.3 million in a Series A equity financing round.

It's a great idea and taps into increasing consumer demand for locally grown foods: they finance, build and operate hydroponic greenhouse farms at supermarkets, eliminating the time, distance and cost involved in transporting food from a supply chain.

The BrightFarms model offers food that's more flavorful, safe and environmentally sustainable. Since there's no transport involved, it should result in lower prices for customers and higher margins for supermarkets.

And as the model is scaled, it would reduce the cost of agriculture and water.

There is no cost to the supermarket retailer, only an obligation to purchase the produce.

NGEN Partners led the round, which also included investments from Emil Capital Partners and BrightFarms founder Ted Caplow.

"I am delighted to join my partners in commercially deploying our vision of building-integrated agriculture. The upcoming BrightFarms projects at supermarkets build upon our prior rooftop greenhouses, extending the same principles that guided my original design for the Science Barge: local food production that is both high yield and ecologically sustainable," says Ted Caplow, BrightFarms founder and Chairman.

Website: brightfarms.com/

Photo by BrightFarms

Warren Buffett is getting into the solar business by buying one of the world's largest solar PV plants - the $2 billion Topaz project under development in southern California.

Buffet's utility, MidAmerican Energy Holdings, is making the acquisition - the 550 megawatt (MW) project is being developed by First Solar using its thin-film solar panels. First Solar will also operate the plant after it comes online in early 2015.

First Solar was unable to get a Dept of Energy (DOE) loan gurantee for the project.

Topaz "demonstrates that solar energy is a commercially viable technology without the support of governmental loan guarantees," says Greg Abel, MidAmerican CEO. "The utility will seek to add more assets of this type to its unregulated portfolio."

"The reason for the move from wind to solar is very simple," says Gerard Reid, an analyst with Jefferies told Bloomberg. "Tax credits for wind in the U.S. expire at the end of next year, while solar ones run till 2015."

He notes that solar is a much safer bet than wind because there's less maintenance and weather risk.

MidAmerican, on the other hand, says the Topaz purchase is a "strategic move" that builds on its experience with wind energy, reports Bloomberg. The company has become one of the larger wind producers - it owns over a dozen US wind farms that produce at least 1.5 gigawatts of electricity. It also has a stake in Chinese electric car manufacturer BYD.

Photo by Forbes

Smith Electric Vehicles, which recently unveiled the first electric school bus, has filed for an IPO, hoping to raise $125 million.

It will trade under the ticker (SMTH).

Smith produces electric vehicles (EVs) for commercial uses - vans, buses and trucks - for companies and municipalities. It sold 320 vehicles over the past year and says it has written letters of interest for 2200 vehicles.

Frito-Lay says it's building the largest fleet of commercial electric trucks in North America. It plans to roll out 155 trucks this year - all designed by Smith Electric.

And Duane Reade, the largest NYC drug store chain, is conducting a pilot with Smith to electrify its truck fleet.

Smith is based in Kansas City, Missouri where it has an assembly plant, and has another plant in Newcastle, UK. Today, they announced a third manufacturing plant in NY State, where it will produce the Newton electric truck starting next year.

Smith is second EV manufacturer to go public after Tesla (Nasdaq: TSLA), which makes cars for the retail market.

Investors will need confidence in the future of electrified transportation because Smith isn't profitable. Although it's landed some high-profile clients, the company operates at a loss, with $37.6 million in revenue for the first half of 2011. They reported revenues of $35.6 million for 2010.

Smith had a net loss of nearly $21.3 million for the first half of 2011, compared with a loss of almost $30.3 million for 2010.

Smith raised $58 million in equity funding this year, in one of the larger rounds. The company was formed in January 2009, and its senior management team has been in place only six months.

However, California-based Fisker Automotive and Coda Automotive, raise more, $150 million and $76 million respectively. Fisker makes luxury plug-ins and Coda makes EVs for the retail market.

Last week, the EV industry in Europe got a boost by a €220 million loan from the European Investment Bank to fund Nissan's development of new production lines for the LEAF in the U.K.

China also announced plans to stimulate electric vehicle purchases, including 25 major pilot cities that will offer a variety of incentives from reduced tolls, parking fees, and utility bills. China is also building out an EV charging structure with more than 6000 stations by year end.

Photo by Smith Electric Vehicles

Better Place, which is developing a worldwide electric car battery charging infrastructure, raised another $200 million in a Series C round (later stage funding), bringing its total to $750 million.

Better Place owns and operates networks of stations where electric vehicle drivers can quickly swap their battery for a fully charged one, eliminating the charging process. It also plans to offer batteries charged using renewable energy, wherever possible.

In 2010, five of the six largest venture capital fundraising rounds went to cleantech companies, and Better Place, with a $350 million raise was the largest. It even raised more than Twitter's $200 million round.

The company's first commercial nationwide electric car networks launch in Israel and Denmark early next year, to be followed by Australia later in the year, starting in Canberra.

Better Place is installing networks in Hawaii, Northern California, Ontario, Canada, Southern China, and Japan, and says it will use the proceeds from this latest funding round to expand further into Western Europe.

By the end of the year, Better Place will have demonstrated its solution across four continents including locations in Europe, the Middle East, the U.S., Australia, China and Japan, with each project providing unique insights into these markets.

"We've worked hard over the past four years to engineer and build a technology solution that competes with oil-based transportation," says Shai Agassi, Founder and CEO. "We are entering the next phase of growth for our company where we prove that our solution works, that it's in demand, and that it scales, as we begin to push into new markets and attract new investors and new partners. I believe that our investors should be applauded for having the vision to finance the future of transportation."

General Electric, which has a joint venture with Better Place, and UBS AG invested for the first time along with existing shareholders, including Israel Corp., HSBC Group, Morgan Stanley Investment Management, VantagePoint Capital Partners and others.

"With this round, our shareholder base now includes the world's largest banks, blue chip asset managers and leading industrial holding companies," says Idan Ofer, Chairman, Better Place. "Our Board and investor base are committed to leveraging their vast networks, experience, and diverse set of skills to accelerate the global adoption of electric cars."

Launch in Denmark, Israel

Better Place will launch initial commercial service to a select group of customers in Israel and Denmark in the first quarter of 2012, expanding to full commercial operations over the following months.

In Denmark, Better Place has agreements with 50 of the country's 98 municipalities, covering 69 percent of the population to deploy its infrastructure and transition fleets.

Earlier this year, Better Place opened a visitor center where people can order Renault's Fluence Z.E. electric car ($38,300)and subscribe for "mobility services." It costs $556 a month for unlimited mileage, for example, but much less for people who drive less. The subscription incudes a home charger, electricity use as well as unlimited access to public charging stations.

Better Place and partner DONG Energy are working to leverage Denmark's 20 percent energy production from wind turbines to charge the electric vehicles with clean energy.

In Israel, over 400 corporations, representing a potential 80,000 employee cars, have signed letters of intent to begin switching their fleets to Better Place as the cars and the service become available.

In Australia, it has agreements with Renault, GE, Lend Lease, and the Royal Automobile Club of Victoria for the introduction of electric cars and the rapid deployment of an electric car network.

By the end of 2013, Better Place says it will have the largest electric car network in the world in Australia, rivaling other competitive efforts underway in the U.S. and China.

Photo by Better Place/flickr/Creative Commons

by Pete Danko

After a worrisome second quarter, cleantech venture capital bounced back in the recently concluded third quarter, according to Ernst & Young. The accounting firm, again crunching data from Dow Jones VentureSource, said U.S. VC investment in cleantech companies increased 73 percent, to $1.1 billion, compared to the year-ago quarter, and that the number of deals jumped 36 percent.

The energy storage sector drove activity, raising $421 million. Within the sector, fuel cells led the charge, totaling $225.5 million in investment. Bloom Energy accounted for a good chunk of that change, raising $150 million.

“Confidence in cleantech investing continues despite the challenging investment market,” Jay Spencer, Ernst & Young’s Americas Cleantech director, said in a statement. Spencer said the hot quarter for energy storage “reflects a growing corporate focus on proactively managing their energy mix.”

Regionally, California, as is typically the case, was the top spot for cleantech investment. In fact, more than half the capital invested in cleantech in the third quarter – $583 million – went to California. Massachusetts was next at $170.4 million. Other big movers among the states were Pennsylvania and Oregon, Ernst & Young said; those states saw investments more than triple since the third quarter last year 2010, “bringing their Q3 2011 investment levels to $85.4 million and $73.5 million, respectively.”