Cleaning up in clean tech?

10 December 2007

The clean energy field got a boost last month when Nobel Prize winner Al Gore teamed up with a VC firm and Google jumped into the fray. But sceptics still fret about the sector's commercial viability

Oil prices may have been peaking on the markets this year, but in Silicon Valley, the full implications of America's dependence on the black stuff were driven home in a very different way last month. For once, it wasn't complaints about the cost of petrol going through the roof - it was about a thick, black, foul-smelling contaminant that poisons the environment, kills wildlife, and takes years to get rid of. Because that's what happened when a container ship hit the Bay Bridge during thick fog and dumped 58,000 gallons of fuel oil into one of the most varied and fragile eco-systems in the world.

For Silicon Valley, the accident provided yet more impetus for its drive into clean technologies, which is now the biggest sector for US VC funds. The region hasn't lost its IT bias, of course - particularly when it comes to technologies such as Web 2.0 and the huge potential to make money from easy-to-use, user-generated content. And the big biotechs with operations in the Valley aren't about to pack up and move away. But clean tech is where the buzz is, from supporting wind, solar and tidal energy sources, to researching energy storage breakthroughs and mass-producing ethanol.

The momentum behind the green movement continued to grow last month thanks in part to the actions of a high-profile individual and an even higher-profile company. First off was Al Gore, the former presidential candidate turned Nobel Prize-winning environmentalist who takes much of the credit for waking America up to the reality of global warming through the book and documentary 'An Inconvenient Truth'. His London-based investment company, Generation Investment Management, struck an alliance with Kleiner Perkins Caufield & Byers (KPCB), one of the top Valley investment firms, to fund 'green business, technology and policy solutions'.

Under the deal, the former US vice-president joins Kleiner Perkins as a partner, while KPCB's John Doerr - who's credited for backing early Internet start-ups such as Google and Amazon - joins Generation's advisory board. As well as Doerr, Gore will also find himself in the company of Ray Lane, former president of Oracle who has also positioned himself as an evangelist for climate change. It's Lane who argues that all of the US' power needs could be met by building a 150sq km solar park in the Southwestern US - a practical if somewhat ambitious idea, and certainly a preferable alternative to a 150sq km Disney theme park.

Not surprisingly, the tie-up met with a slightly cynical response from the business media. Under the heading 'Global Warming, Inc', The Wall Street Journal warned Gore against monetising his Nobel Peace Prize 'by securing permanent government subsidies for nonmarket science projects'. It pointed out that at least two of Kleiner Perkins' clean tech portfolio companies are involved in ethanol production, which is heavily subsidised, and another two in the solar field will benefit from potential legislation requiring some utilities to generate 15 per cent of their power from alternative sources. The paper concluded that Gore may have been hired 'for more than his technological know-how, investment acumen or global vision. His new partners may have hired him for the more prosaic task of getting... Senate votes to keep those taxpayer greenbacks coming.'

For its part, the FT conceded that it's easy to be cynical about politicians who affiliate with businesses, but went on to point out that buying into green technology doesn't necessarily make financial sense. 'Wind companies, the most mature sustainable power source, are already trading on inflated multiples,' it sniffed. '[Gore] insists that getting business on board is the only way to solve a problem as big as global warming. If he is right, he should seriously consider putting down his halo and picking up his calculator.'

But while many in the traditional business world remain sceptical about the clean tech revolution, non-traditional businesses like Google aren't holding back. At the end of November, the internet search giant surprisingly announced that it would throw millions of dollars into R&D for energy sources to help cut our reliance on coal, and planned to invest hundreds of millions in renewable energy projects. Intriguingly, it also said it expected a payback of hundreds of millions of dollars from in-house energy savings and licensing the technology. For a company whose founders still chant their mantra of 'don't be evil', clean tech is a perfect focal point - save the planet, and perhaps save some money in the process.

Ironically, while they come from very different places, Google, Gore and the media sceptics all reinforce the same key point. A lot of clean tech activity is still in the deep science phase, particularly in nanotech and biotech, and several key sectors still rely heavily on subsidies. Ultimately, however, the 'R' in 'Research and Development' will have to be balanced against the 'R' in 'Return on Investment'. For entrepreneurs, it's not just about developing breakthrough technologies - it's about developing technologies that are commercially viable.

By Keith Rodgers, Webster Buchanan Research