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Summary:

Cleantech investment is not dead, it just requires new approaches and a recognition that the traditional oil and gas industry may very well be the best patron for cleantech development and deployment. At least for now.

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An idea that would have seemed blasphemous five years ago is coming into vogue for the battered cleantech sector: rather than displace the fossil fuel industry, embrace them. Increasingly companies selling energy efficiency and clean power technologies are looking to the oil and gas sectors as potential customers, instead of competitors.

The evidence of that was ample at the Cleantech Forum in San Francisco this week. Through keynote speeches and panel discussions, the conference emphasized opportunities in the traditional energy industry and a growing symbiotic relationship between cleantech developers and big energy companies.

Behind the trend

Several forces have emerged in recent years that have been contributing to this trend. First off, venture capitalists have been shying away from investing in cleantech startups in areas like new types of solar panels, or biofuels. Many of the investors have yet to make their money back, due to the long timelines and large capital requirements needed for the companies to mature. It could also be that “righteous investing” gave them blinders to good investments.

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With the lack of investments from VCs, startups are increasingly looking to corporations to help them with funding. And the companies that tend to be interested in investing in next-generation energy technologies, are — not surprisingly — the traditional energy companies. For example, natural gas provider Encana recently backed thermoelectric tech startup Alphabet Energy, Shell has been hunting for startups through its GameChanger program, and Total has made a variety of investments into cleantech companies over the years, including SunPower.

Meanwhile, the emergence of abundant and cheap natural gas has changed the energy game in the U.S. It’s providing traditional industry jobs to many states, and has been embraced by the Obama administration as a clean energy opportunity. There will be massive opportunities when it comes to selling next-generation technologies to natural gas firms and helping natural gas providers avoid environmental problems.

The growth of the renewable electricity sector will be tied to natural gas. Solar and wind generation can’t produce power around the clock, and utilities will have to match clean power with 24/7 energy like natural gas. Natural gas proponents have stepped up efforts to form alliances with renewable energy players, some of whom see the pairing as a practical approach to promote clean power generation.

Cleaning up fossil fuels

Energy executives “are all excited about the unconventional oil and gas in North America, and they know it will only take one or two environmental disasters for the game to be over,” said Wal van Lierop, co-founder and CEO of cleantech venture capital firm Chrysalix Energy Venture Capital, when I caught up with him at the Cleantech Forum.

To gain public confidence, comply with regulations and, in some cases, reduce risks and production costs, oil and gas producers are hunting for technologies that clean up wastes, recycle water and boost production. And if any of these technologies can earn a low-carbon designation and help with public relations, then all the better. The Texas Tribune ran an interesting story this week that looked at oil companies attempts to recycle dirty water from oil production.

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Chrysalix is fond of backing companies that can serve oil and gas, as well as mining, companies. It’s invested in GlassPoint Solar, which designs steam generation equipment to help oil companies boost production; Axine Water Technologies, which offers a way to get pollutants out of wastewater from industrial operations and cities; and Seair, a public wastewater treatment company whose CEO, Ric Charron, spoke about his experience working with oil and gas companies at the cleantech conference.

While helping oil and gas producers boost production and win public support isn’t the same as saving the planet, van Lierop argued the results are no less worthwhile: “It’s a very important goal to ensure that you clean up traditional energy sources.”

Fossil fuels not going anywhere

The oil and gas industry is here to stay for a very long long time. Strong federal support for oil and gas exploration — part of President Obama’s “all of the above energy strategy” — continues to protect entrenched energy players and allows oil and gas companies to continue their grip on transportation and electricity generation. These companies operate at such a massive scale that it’s hard to a tiny startup to compete with them.

Fossil fuel companies are partly investing in renewable energy sources as a defensive move. It’s a hedge against any quick change in government policy and public sentiment. Chevron made some small investments in renewable energy technologies, and probably was glad it didn’t invest more when it realized later that its investments weren’t as lucrative as it had expected. The growth of the biofuel business, in particular, will require the support of major oil industry players.

Some venture capital investors maintain that cleantech investing is still a financially viable option — that a cleantech 2.0 investing wave will come some day in the future. But for now, in a year when “cleantech” has become a dirty word, it makes sense for cleantech companies to go make friends with the dirty fossil fuel industry.

  1. Kazuya Mishima Friday, March 22, 2013

    Cleantech investment is not dead, it just requires new approaches and a recognition that the traditional oil and gas industry may very well be the best patron for cleantech development and deployment. At least for now.

    An idea that would have seemed blasphemous five years ago is coming into vogue for the battered cleantech sector: rather than displace the fossil fuel industry, embrace them. Increasingly companies selling energy efficiency and clean power technologies are looking to the oil and gas sectors as potential customers, instead of competitors…http://bit.ly/YHCpQp

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  2. Thanks, interesting piece.

    Following Durban climate change conference in 2011 countries agreed to to develop a legal protocol in December 2015 to assess the risk of excessive investment in fossil fuel assets (and borrowing off the back of them) if we’re to stay below the agreed 2 degrees global warming scenario.

    So, between now and 2015, financial analysts, regulators and fossil fuel companies will be getting a wake-up call that the vast majority of fossil fuel assets are already ‘stranded’ – or unburnable – in which case, it makes even more sense for dirty to make friends with cleantech alternatives. @naughtster

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  3. We launched SURGE Accelerator a few years ago under the hypothesis that in order to change the industry, we must be inclusive and embrace both clean and traditional. A massive, century-long, global investment legacy in traditional energy infrastructure creates enormous opportunities for nimble new companies to make it cheaper, cleaner, and faster to deliver traditional energy sources. But we also understand that the evolution of clean energy production and delivery—driven by technical, regulatory, and consumer trends—creates completely new avenues for ambitious startups to grow. We’ve funded about a dozen cleantech and cleanweb companies, and we’ve looked at hundreds more. Since May 2012, SURGE’s first class of 11 companies have raised over $10M in funding and landed over a dozen enterprise customers. It currently takes 16 years for a technology to reach market acceptance in the energy industry. We believe SURGE can dramatically cut reduce this timeline. Please join us. Maybe the transition can be accelerated even faster.

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    1. Thanks, Kirk. It is sobering to think that a new tech will likely take that long to reach the market in the energy industry. That would’ve been a good reality check for many investors seven years ago.

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      1. The good news is that software today has a chance to move much faster. There are two trends that we are seeing. First, GenY/Millenials are starting to replace the Baby Boomers as decision makers. The industry calls this the “Great Generational Crew Change in Energy or Silver Tsunami in Power.” And GenY demands consumerification of IT. Second, enterprise platforms and powerful systems can be built quickly and at a low cost. It’s happening.

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  4. excellent article on the recent Annual Cleantech Group Meeting in San Francisco….thank you…..Walter Schindler

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  5. This is not a good news story. The probable end result of Big Energy money controlling alternative energy development will be similar to the fate of large format NiMH battery patents held by Chevron (after they gained control of the patents they never licensed any company to use the technology, even Panasonic, which had already built a factory and produced a substantial number of large format NiMH battery packs). Big Energy will crush any potential competitive technology that might impact their extractive, centralized business model. Rooftop solar panels charging electric cars could pretty much end household gasoline consumption. Big Energy knows how to make money with their current model. It’s doubtful they’ll be willing to risk much that changes the situation. They’re smart guys that are going to protect their rice bowls, no matter the cost to the future, the environment or the planet.

    I’d look into the Tax Code for their real motives. I think you’ll find the American taxpayer is subsidizing the oil companies to obstruct future progress in alternative energy.

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  6. Thanks for the thought, quiviran. Wal van Lierop and I discussed the point you made, that big corporations will foremost want to protect their existing markets. The example Wal gave was a pharma that bought a drug formula only to shelve it so that the drug will never come to market and compete with the one the pharma is making good money from. That’s why setting the right policy to force changes is so important.

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  7. Martin O'Malley Tuesday, April 30, 2013

    A little known technology now exists which has the potential to change all of the liquid or gaseous fuel production game rules. CELLULOIL has been generated as an efficiently produced chemically reduced version of any cellulose without consideration given to sugar content, fermentation, or biochemical reduction. This has been proven with batchwise chemical reactors but can also be accomplished through a continuous “on-line” production process as well. Enhancing of the energy density and purification is accomplished using petroleum, natural gas, and hydrogen. Several competing reaction mechanisms have been proposed using either strict thermodynamic/kinetic catalysis or conversely electrochemical reduction similar to recent advances made with “Brown’s Gas.” The resultant product not only represents a renewable carbon-neutral energy source but can be likewise employed for the production of durable goods such as plastics and organic chemicals currently generated from petroleum feedstock. Turning one gallon of petroleum into two using carbon-neutral CELLULOIL means the resultant carbon footprint of usable fuel is cut in half. The chemicals needed to affect the reaction are renewable being derived from water, electricity, and naturally occurring plant matter organic substances.

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