We’re at risk of absent out on some of the most profound opportunity offered by the technology rebellion that has just begun.
Yet many are unaware to the signs and are in danger of scrutiny this become a period of noisy turmoil rather than the full-blown rebellion needed to launch us into a green market. What we require is not a new rotating wheel, but fabrics woven with nanofibers that produce solar power. To make that happen, we need a radically reformulated way of considerate markets, technology, financing, and the role of government in accelerate change. But will we understand the opportunity before they disappear?
Seeing the Sixth Revolution for What It Is
We are seven years into the start of what analysts at Boa Merrill Lynch Global study call the Sixth Revolution. A table by Carlotta Perez, which was presented through a recent Boa Merrill Lynch Global Research luncheon hosted by Robert Preston and Steven Milunovich, outlines the revolutions that are unforeseen in their own time that lead to the one in which we find ourselves.
- 1771: Mechanization and improved water wheels
- 1829: Development of steam for industry and railways
- 1875: Cheap steel, availability of electricity, and the use of city gas
- 1908: Inexpensive oil, mass-produced internal combustion engine vehicles, and universal electricity
- 1971: Expansion of information and tale-communications
- 2003: Cleantech and biotech
The Vantage of retrospection
Looking back at 1971, we know that Intel’s foreword of the chip marked the start of a new era. But in that year, this meant little to people scrutiny Mary Tyler Moore and The Partridge Family, or listening to Tony Orlando & Dawn and Janis Joplin. People would remember humanity’s first ladder on the Moon, opening relatives between US and China, perhaps the successful conclusion of the Human Genome Project to 99.99% accuracy, and maybe the birth of Promethean, the first horse cloned by Italian scientists.
According to Ben Weinberg, Partner, Element cohorts, “Every day, we see American company with promising technologies that are unable to deploy their crop because of a lack of debt finance. By filling this gap, the direction will ignite the mass use of innovative technologies, allowing technology ranging from industrial squander heat to pole-mounted solar PV to prove their finances and gain integrity in the debt markets.”
Flying under our collective radar was the first floppy disk drive by IBM, the world’s first e-mail sent by Ray Tomlinson, the launch of the first laser printer by Xerox PARC and the Cream Soda processor by Bill Fernandez and Steve Wozniak (who would found the Apple processor company with Steve Jobs a few years later).
Times have not distorted that much. It’s 2011 and many of us face a similar cut off with the events happening around us. We are at the equal of 1986, a year on the cusp of the personal computer and the Internet basically changing our world. 1986 was also the year that marked the commencement of a major financial shift into new markets. Venture assets (VC) skilled its most substantial finance-raising season, with about $750 million, and the NASDAQ was recognized to help create a market for these companies.
Leading this charge was Cleaner Perkins Caulfield & Buyers (KPCB), a firm that turned technical skill into possibly the most successful IT venture wealth firm in Silicon Valley. The IT model looked for a proportion of big successes to offset losses: an asset like the $8 million in Cement, which was sold to Cisco Systems for $6.9 billion, could make up for a lot of huge ideas that didn’t quite make it.
Changing Financial Models
But the VC model that worked so well for in order and telecommunications doesn’t work in the new revolution. Not only is the finance scale of the cleantech revolution orders of scale larger than the last, this near the beginning in the game even analysts are stressed to see the future.
Steven Milunovich, who hosted the Boa Merrill Lynch Global study lunch, remarked that every revolution has an novelty phase which may last for as long as 25 years, followed by an completion phase of another 25. Most money is made in the first 20 years, so real players want to obtain in early. But the query is: Get in where, for how much and with whom?
There is still market scepticism and uncertainty about the stay power of the clean energy revolution. Milunovich estimates that many institutional investors don’t believe in global warming, and adopt a “wait and see” approach complicated by government impasse on energy safety legislation. For those who are looking at these markets, their motivation range from concerns about oil shortage, supremacy in the “new Sputnik” race, the shoring up of mother country security and – for some – a worry about the effects of climate change. Many look askance at those who see that we are in the midst of a fundamental altering in how we produce and use energy. Milunovich, for all these reason, is “cautious in the short term, bullish on the long.”
The Valley of Death
Every new technology bring with it needs for new financing. In the sixth rebellion, with financial plan needs 10 times those of IT, the confront is moving from idea to prototype to commercialization. The Valley of Death, as a recent Bloomberg New Energy Finance whitepaper, crossing the Valley of Death pointed out, is the gap sandwiched flanked by technology creation and commercial adulthood.
But some investor and policy makers carry on to hope that private capital will fuel this gap, much as it did the last. They state concern over the debt from government program like the stimulus funds (American Recovery and Reinvestment Act) which have invested millions in new technology in the clean energy sector, as well as serving states with transformation infrastructure and other projects. They question why the traditional financing models, which made the United States the world leader in information technology and telecommunications, can’t be made to labor today, if the Government would just get out of the way.
But analysts from many sides of finance believe that government support, of some kind, is necessary to move projects forward, because cleantech and biotech project require a much better input of capital in order to get to commercialization. This gap not only affects commercialization, but is also moving savings in new technologies, because financial interests are worried that their asset might not see fruition – get to commercial scale.
How new technologies are very diverse from the computer revolution.
This revolution is highly needy on an existing – but age – energy communications. Almost 40 years after the start of the telecommunications revolution, we are still stressed with a communications infrastructure that is split, redundant, and incompetent. Integrate new sources of energy, and making improved use of what we have, is an even more complex – and more vital – task.
According to “Crossing the Valley of Death,” the Bloomberg New Energy Finance Whitepaper,
“The events of the past few years confirm that it is only with the public sector help that the Commercialization Valley of Death can be address, both in the short and the long term. Only public institutions have ‘public benefits’ obligations and the associated mandated risk-tolerance for such classes of investments, down with the capital available to make a difference at scale. Project financiers have exposed they are willing to pick up the ball and finance the third, 23rd, and 300th project that uses that new technology. It is the initial technology risk that credit committee and asset managers will not tolerate.”
Everything runs on fuel and power, from our homes to our cars to our industry, schools, and hospitals. Most of us have skilled the disconnect we feel when wedged in a blackout: “The air-conditioner won’t work so I guess I’ll turn on a fan,” only to realize we can’t do either. Because energy is so vital to every aspect of our economy, federal, state and local entity regulate almost every feature of how energy is developed, deployed, and monetized. Wind farm developers face a patchwork quilt of municipal, county, state and federal regulations in getting projects to scale.
Incentives from government sources, as well as utilities, pose both an chance and a threat: the market rises and falls in direct proportion to funding and incentives. navigate these challenges takes time and legal expertise: neither of which are in abundant supply to entrepreneurs.
Though microchips are creating ever-smaller electronics, cleantech components – such as wind turbines and photovoltaic’s – are huge. They can’t be urbanized in a garage, like Hewlett and Packard’s first oscilloscope. A new generation of befouls that utilize nanotechnology isn’t likely to take place out of a dorm room, as did Michael Dell’s initial business selling modified computers. What this means for sixth revolution projects is that they have much larger backing needs, at much earlier stages.
Stepping up and behind innovation, universities – and increasingly corporations – are partner with early stage entrepreneurs. They are as long as technology resources, such as laboratories and technical support, as well as organization expertise in marketing, product growth, government processes, and financing. Universities get funds from technology transfer planning, while corporations invest in a new technologies, increasing their product base, opening new businesses, or if cost-benefit and risk-analysis of various approaches.
But even with such help, venture assets and other private investors are needed to add to costs that cannot be born alone. These investor look to some assurance that projects will produce revenue in order to return the original asset. So concerns over the Valley of Death affects even early stage funding.
Time line to completion
So many of us balk at two year contracts for our cell phones so as to there is talk of making such requirements illegal. But energy projects, by their size and difficulty, look out over years, if not decades. Commercial and trade customers look to spread their costs over ten to twenty years, and contract cover contingency like future business failure, the sale of properties, or the view of renovations that may affect the long term viability of the original project.
Kevin Walsh, running director and head of Power and Renewable Energy at GE Energy Financial Services states, “GE Energy Financial Services ropes the creation of CEDA or a similar institute because it would expand the ease of use of low-cost capital to the projects and company in which we invest, and it would help expand the market for technology full by other GE businesses.”
Michael Holman, analyst for Lux study, noted that a $25 million asset in Google morphed into $1.7 billion 5 years later. In difference, a leading energy storage company started with a $300 million asset, and 9 years later valuation remains unsure. These are the kinds of barriers that can stall the drive we need for 21st century technologies.
Looking to help viaduct the gap in new cleantech and biotech projects is a proposed government-based solution called the Clean Energy Deployment direction (CEDA). There is a house and senate version, as well as a house Green Bank bill to provide gap finance. Recently, over 42 companies, on behalf of many industries and organization, signed a letter to President Osama, supporting the ruling body version, the “21st Century Energy Technology Deployment Act.”
Both the house and senate bills propose to make, as an office within the US section of Energy (DOE), an direction which would be tasked with lending to risky cleantech projects for the purpose of bring new technologies to market. CEDA would be the viaduct needed to ensure the successful organization of the green economy, by partner with private investment to bring the backing needed to get these technologies to scale. Both versions capitalize the group with $10 Billion (Senate) and $7.5 Billion (House), with an likely 10% loss reserve long term.
By helping a new technology move more efficiently through the pipeline from idea to operation, CEDA can substantially increase private sector investment in energy technology development and use. It can create a more successful US clean power industry, with all the assistant economic and job creation benefits.
CEDA funding could be seen as useful for even the most unlikely corporation. Ted Horan is the Marketing and trade Development Manager for Hydrate, a company that sells a rainproof concrete. Hardly a company that spring to mind when we think about clean technologies, he lately commented on why Hydrate CEO, Richard Guinn, is a party on the letter to Osama:
“The allocation of funding for rising clean energy technologies from side to side CEDA is an important step in solving our power and climate challenges. company on the cusp of large-scale commercial deployment will benefit really and help accelerate the adoption of clean energy practice during our economy.”
In his opinion, the developed and construction that is needed to push us out of a stagnate economy will be supported by novelty coming from the cleantech and biotech sectors.
Google’s Dan Richer, Director of Climate Change and Energy initiative has been a supporter from the inception of CEDA. He has testify before both houses of Congress, and was a party on the letter to President Osama. Google’s interest in clean and renewable energies dates back several years. The company is actively involved in projects to cut costs of solar thermal and enlarge the use of plug-in vehicles, and has urban the Power Meter, a product which bring home energy management to anyone’s desktop-for free.
Financial support includes corporation like GE Energy Financial Services, Silicon Valley scheme Capital such as Cleaner, Perkins Caulfield and Byers, and Mohr Davidson Ventures, and Energy Capital counting Hudson Clean Energy and Element Partners. Can something like the council version of CEDA leap the Valley of Death?
As Will Coleman from Mohr Davidson Ventures, said, “The Devil’s in the details.” The council version has two major changes from previous proposals: an stress on breakthrough as opposite to conventional technologies, and political independence.
Neil Acerbic, running Partner, Hudson Clean Energy
The clean energy sector can be a lively growth engine for the US economy, but not without considerate government hold up for private capital formation. **[Government policy] promises to serve as a valuable bridge tool to go faster private capital formation around companies opposite the challenge, and can help ensure that the US remnants at the forefront of the race for supremacy in new energy technologies.
Coleman said that “get through” includes the first or second deployment of a new approach, not just the game changing science-fiction solution that finally brings us limitless energy at no cost. The Bloomberg New Energy white paper uses the term “First of Class.” Bringing astral efficiency up from 10% to 20%, or bringing developed costs down by 50%, would be a breakthrough that would help us begin to compete with threats from China and India. Conventional technologies, those that are rival with existing commercialized projects, would get less stress.
Political sovereignty is top of mind for many who spoke or provided an psychiatry of the bill. Michael Holman, analyst at Lux Research, spoken the strongest concerns that CEDA doesn’t focus sufficient on incentives to bring jointly inventive start-ups with larger recognized firms.
“The government itself taking on the blame of deciding what technologies to back isn’t likely to work-it’s an move toward with a dreadful track record. That said, it is vital for the federal government to lead – the current financing model for bring new energy technology to market is broken, and new approaches are badly needed.”
For many, the senate bill has many reward over the house bill, in providing for a decision making process that include technologists and private sector experts.
“I think both sides [of the aisle] know this is an important program, and must enable the rule to be flexible and employ a number of different approach. The Senate version empowers CEDA to take a portfolio move toward and manage risk over time, which I think is good. In the House bill, CEDA has to undergo the annual misuse process, which runs the risk of politicizing every asset decision in isolation and before we have a chance to see the portfolio mature.” – Will Coleman, Mohr Davidson.
Michael Depose, Managing Director of Element Partners added,
“The framework must ensure the selection of sensible technologies, optimization of risk/return for taxpayer dollars, and suitable oversight for project selection and expenses. **Above all, these policies must be intended with free markets principles in mind and not be subject to following process.”
If history is any indication, rarely are those in the center of game-changing events aware of their role in what will one day be well-known for their sweeping influence. But pardon? we can see clearly now is the gap flanked by idea and commercial maturity. CEDA surely offers some hope that we may yet see the cleantech age grow up into maturity. But will we act quickly enough before all of the drive and hard work that has bring us this far falls flat as other country take control roles, leaving us in the dust?
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