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Google Invests in Asteroid Mining Company

Google Invests in Asteroid Mining

In a plot seemingly out of a James Bond movie, a startup that is backed by Google folks Larry Page and Eric Schmidt and X-Price creator Peter Diamandis plan to mine asteroids for valuable materials. But one of the really surprising things about that wild idea is that it could actually lead to valuable energy resources for the future of batteries, fuel cells and other electronic devices.

Named Planetary Resources, the startup is embarking on a bold (some would say crazy) venture to explore and extract materials such as water and platinum, nickel, iron and other metals in asteroids that fly near Earth. The company’s emergence marks a moment in history when there is a serious attempt to find resources in space because the resources on Earth are depleting.

“It can be done and yes it’s difficult. No question,” said Diamandis, co-founder of Planetary Resources during a press conference, adding “the economic returns and benefits to humanity are extraordinary.”

The startup, founded in 2009 and based in Bellevue, Wash., recently raised a round of funding and the infusion of money prompted the company to hold a big press event to outline key aspects of its plan. The company plans to launch a spacecraft called Arkyd-100 Series within two years that will be able to fly in the Earth’s low orbit and look for asteroids of a certain size.

The spacecraft will be able to take images of the asteroids to figure out their mining potentials. The company plans to develop two subsequent series of spacecrafts.

Water is a particularly valuable commodity because it’s got hydrogen and oxygen, two important sources of fuel for powering rockets and supporting life in space, said Chris Anderson, another co-founder of Planetary Resources, during the press event. Thomas Jones, a former NASA astronaut and an advisor to Planetary Resources, said the cost of bringing water to the International Space Station when he was there was $20,000 per liter.

“We will create a network of gas stations that opens the roadway to the solar system. It will dramatically decrease the cost of deep space exploration,” he said.

Platinum and related materials also are valuable and used widely in catalytic converters, fuel cells, batteries, medical devices and various other electronic devices. Platinum in batteries and fuel cells costs around $1,500 per ounce. The plan is to ship these precious metals back to Earth.

To illustrate the huge mining potential of asteroids, Diamandis said an asteroid that is 50 meters in diameter and made of carbonaceous chondrite could provide enough hydrogen and oxygen to power every space flight that has existed in the history of the space shuttle program. The Earth is surrounded by nearly 9,000 asteroids.

The day-to-day operation of the startup will be led by Chris Lewicki, its president and chief engineer who was the flight director for NASA’s Spirit and Opportunity rovers. He also has an asteroid named in his honor, according to his biography.

Planetary Resources also has filmmaker James Cameron and former Microsoft chieftechnology officer David Vaskevitch as advisors.

Asked whether science fiction has played a big part in inspiring the company’s mission, Anderson said, “Science fiction is fiction right up to the point that is fact, and that’s what we are here to make it happen.”

Harnessing Braking Energy

Electric-powered trains have been capturing the energy from regenerative braking for years now. But besides reducing power bills, they haven’t done much with the energy they’ve saved.

Philadelphia-based startup Viridity Energy is seeking to put a grid value on that energy with a new battery-backed, grid-connected system installed with the Southeastern Pennsylvania Transit Authority (SEPTA) train system. After a year and a half of work, Viridity is now turning on the 800-kilowatt battery backed system, and will soon start bidding its energy reductions into demand response and frequency regulation markets.

It’s the latest move by Viridity into the world of so-called microgrids, virtual power plants, or other systems that allow buildings (or trains, in this case) to share their power with the grid. SEPTA’s project taps regenerative braking power at five downtown train stations along the Market-Frankford line, the city’s most-used, using power equipment from Envitech and Viridity’s “VPower” optimization software, and feeds it to an 800-kilowatt, 400-kilowatt-hour battery from Saft at the substation serving the five stations.

That’s a pretty small battery, compared to the multi-megawatt wind power backup systems being installed around the world. But Kevin Morelock, Viridity’s managing director of technical sales and partnerships, said in a Wednesday interview that Viridity’s ability to manage and optimize the interplay of battery, train power system and grid interconnections should yield returns that make it worth the effort.

How does it work? Well, when trains use their electric motors to slow down (usually approaching a station), that sends voltage down the “third rail” or overhead power line that supplies the trains their power. If there’s a train ahead, it can capture that voltage itself — but if there isn’t a train, that over-voltage is generally dissipated as heat, Morelock said.

Viridity’s system, on the other hand, taps the third rail and captures that voltage to charge the battery, he said. From there, the battery can be used either to power trains when power prices are high, to cushion substation loads to manage peak power moments, or to bid back into grid power markets, he said.

Those markets include so-called “economic” demand response — turning down power use when the grid is at peak demand, usually at day-ahead or hour-ahead increments — as well as frequency regulation markets, which require assets (usually gas-fired power plants) that can react in minutes, if not seconds, to balance fluctuations of grid frequency.

Viridity is already bidding battery-backed power into frequency regulation markets with partner and battery supplier Axion Power, which has installed Viridity’s system at its New Castle, Pa. manufacturing plant.

Saft and Envitech are financing the SEPTA project, helped along with a $900,000 Pennsylvania state grant that Viridity landed last year, Morelock said. With that grant, Viridity is expecting a return on investment of about 2 to 3 years on the project, he said.

Building a similar system without a grant would likely double that payback period to four to six years, he noted. SEPTA is working on a second, similar project, backed by $1.2 million in federal grants, that will use a different set of batteries from an as-yet unnamed supplier, he said. Other companies looking to capture train braking power and apply it to grid needs include flywheel maker Vycon Power and ultracapacitor maker Maxwell Technologies.

Viridity raised $14 million in January 2011 and is balancing and storing power at severaluniversity campus microgrids, a wind power storage management project in Pennsylvania, and other locations. While batteries play a part in some of its projects, others are concentrating on building energy management systems that pre-cool libraries, turn down lights in unused corridors, or adjust thermostats during peak power times to shave energy that can be bid back into power markets.

In February of this year, Viridity launched a partnership with big energy services company ConEd Solutions that could see its technology deployed in offices and other buildings. It’s also working with the developers of the Tres Amigas project, a multi-billion dollar effort to link the United States’ three main power grids via a high-voltage direct current transmission hub in New Mexico.

Investing in Digital Startups

Young, early-stage green-focused startups are a rare breed these days. The demo day on Wednesday in downtown San Francisco for the green digital-focused accelerator Greenstart (which I called theY-Combinator for greentech a year ago when they launched) was one of the first times in a long time that I’ve seen a grouping of new young green-leaning startups looking for their first round of funding.

At the event at the Greenstart offices, five startups focused on using software to change energy and transportation, showed off their ideas to a packed house of hundreds of investors, potential partners and the media. The startups seemed as excited to present their ideas as the investors were to hear their pitches.

But just don’t call the crop of five companies greentech firms. There’s a lot investors that came to look at these five companies because they are just interested in technology and software, not necessarily in greentech, explained Greenstart partner Dave Graham to me. Greenstart shifted its strategy from incubating broad greentech companies last year to solely focusing on working with digital green companies this year.

And the move has paid off. Greentech or cleantech, as an investment class has a become a dirty word these days. There’s just been too many missteps and investors and entrepreneurs that have lost a lot of money. And, at the same time, there’s been a rush of web and mobile-focused folks that have started to make a real killing (Instagram). As I wrote in this article, I’m not even sure cleantech as an umbrella moniker will survive for too much longer.

However, the overarching trends of a growing population, constrained resources (energy, food and water), people moving to cities, and information technology as a way to manage these resources, won’t go away for decades. And the class of companies that presented at Greenstart’s Demo day all fit into this digital green description.

The digital green players

One of the most buzzy and fun ideas came from Scoot Networks, an electric scooter sharing network, which I covered last month, and which we’ll post a Green Overdrive show around this week. Scoot Networks is still in alpha phase, but is starting to roll out its e-scooter network to companies first (think big Internet companies and co-working spaces) as a way to test the concept and the market. Later on — and after they get the required insurance coverage — the company will eventually open up the network to everyone else, in the hopes of becoming the Zipcar for electric scooters.

Scoot Networks is looking to continue to raise a seed round of $700,000 (it’s raised $300,000 of that) and eventually wants to raise $5 million in a Series A round. The low cost of the electric scooters (they come from China), and the fact that they use an iPhone app as the bulk of their scooter control system (your phone fits snugly into the dashboard) means that Scoot Networks will have high margins, said Scoot CEO and co-founder Michael Keating during his presentation.

Another company that stood out was GELI (Growing Energy Labs Incorporated), which is developing software that can control and monitor batteries for the power grid — think the Android for batteries. The system can help companies and utilities make money off of using batteries for various applications like buying and selling energy, demand response, and energy load shifting. GELI is looking to raise a seed round of $750,000 to ship product to its first customers.

The other three companies that Greenstart picked and which pitched to investors on Wednesday included Ridepal, a startup organizing Google-style commuter buses for companies, kWhours, which has developed an iPad app for building energy efficiency professionals, and finally Smart Grid Billing, which makes software to enable real time pricing for utilities. Looks like “digital green,” “cleanweb,” “collaborative consumption,” “green IT,” or whatever people want to call it these days, is going to be the leading way that investors and entrepreneurs will be able to lead to more sustainable changes — and even make a little money.

Greentech Policy

greentech policy

It’s clearly political silly season yet again, and we can all expect that the rhetoric will continue to be dog-gone bad. We can also tell, unfortunately, that federal clean energy policy will be a lightning rod for a lot of that mendacious rhetoric this year. So I don’t expect anything significantly good or bad to happen this year on a federal energy policy front. Just lots of shouting and lies, and maybe some small token legislative actions.

So it seems like a good time to step back and reflect on the choices the cleantech sector has made, in terms of how we position ourselves with regard to policy. Thus, I’ve come up with four basic questions I think everyone should be asking themselves right now. These aren’t rhetorical questions — these are intended to prompt discussion. The first two questions are kind of complementary to one another. The final two questions are, at least on the surface, in conflict with each other. Do with this what you will.

1. WHAT IF WE’VE BEEN TOO FOCUSED ON OURSELVES?

The argument we’ve made as a sector so far goes like this: Clean technologies (or green technologies or advanced energy or whatever the heck is the latest punchless label du jour) are going to be big in the future, so clean technologists should be considered vital for America’s economic future. Thus, governments (federal and state) need to support them at this nascent stage of development.

I agree with this statement. But is the phrasing and perspective the right way to go about it?

Critical question: Why should the 99% of Americans not directly involved in clean technologies care about any of the above? Because of somewhat vague and distant arguments about future climate change and future economic leadership? Perhaps that’s not really compelling for most.

But look at it this way: If we in the clean technology sector are successful, if we can bring everyday Americans solutions in their home and workplace that are economically compelling, what will that mean?

Lower energy prices. Period.

Cleantech leaders and our political allies keep talking about our own jobs, the “green jobs”. But perhaps we should be focusing instead on what we can do for everyone else’s jobs.

What would it mean if manufacturers in the U.S. had a near-zero marginal cost of energy input, because we (in a very targeted way) helped them get cheap distributed generation like solar, via capex or tax incentive support? It would mean a whole lot more manufacturing jobs, because our manufacturers would be more competitive.

What would it mean for commuters and small business owners if all these advanced biofuels manufacturers could succeed in bringing <$2/gallon gasoline substitutes to the American public?

What would it mean if homeowners had significantly lower energy bills, via better efficiency retrofit programs and easier solar financing?

Beyond economic arguments, if we stopped being so focused on our own types of jobs, and started focusing our message on how our efforts put more money in the pockets of everyone else, it also becomes easier to bring arguments like energy independence into play. If we don’t make it all about ourselves, for example, it’s easier to see the domestic natgas revolution as an ally in bringing cheap domestic energy to the U.S. economy. Crystallizing our message in this less self-centered way also makes it easier to partner with others who can support the same message, even if they’re not in 100% alignment with us on other things.

Lobbyists don’t get paid to serve the general public, I understand. Washington, D.C. doesn’t work this way. But at least in how we frame the problem and our role in solving it, we in the cleantech sector might think about focusing less on what others can do for us, and more on what we can do for our country.

2. WHAT IF WE’VE BEEN TOO FOCUSED ON PROMOTING PRODUCTION, AS OPPOSED TO PROMOTING DEMAND?

I get it: VCs and other investors have mostly backed startups that are involved in the production of cleantech products. So when the industry lobbyists, backed by VCs and other investors, go to DC and ask for support, it ends up being an ask for support of production capacity and production-centric R&D. And certainly, there are cogent arguments to be made about how it’s valuable to support the production capacity of strategic and nascent industries so that we don’t get left behind in the race to dominate future markets.

Is that the best way to attract political allies? To win general public support?

Is that even the best way to build domestic markets and domestic production industries?

It’s certainly not the best way to grow generic “green jobs,” if that’s your ultimate goal. Jobs involved in the production of a commodity can be more easily automated and more easily exported. Downstream distribution and installation and service jobs are much harder to export, and the economic activities themselves are inherently more labor-intensive, and yet dollar-for-dollar result in even better energy- and carbon-savings results, anyway.

It’s certainly not the best way to avoid political backlash. Loan guarantees and state-level incentives given directly to cleantech manufacturers have, even if they’ve only rarely failed, quickly become political conflagrations, because they’re easily characterized as handouts to very specific recipients. Meanwhile, ARRA block grants to promote energy efficiency retrofitdemand have very quietly been a huge success, helping a lot of homeowners in communities across the country.

And as important politically, if the investors drive the political ask to be supported for their production-oriented startups, that leaves a lot of the most likely allies among the traditional industries out in the cold. Yes, we saw positive rhetoric in support of clean energy policy from the CEOs of major utilities and capital equipment manufacturers. Well, I’ve seen how the lobbyists for some of those very same CEOs then quietly worked behind the scenes to gut clean energy legislation — or at very least, didn’t actively help. Why? Because they didn’t really see how these policies would directly help their company’s bottom line.

By focusing on production, we could very well end up sending mixed messages to Americans about how valuable we are to them. Solar is a prime example. The storyline right now is that the U.S. solar industry is in trouble, and along with the political scandals, mainstream journalists and most Americans asked would declare governments’ support of the solar industry to have been a failure.

In truth, it’s been anything but. For the vast majority of Americans, the collapse of solar panel prices is a wonderful thing. The drop in ASPs, and supportive demand growthpolicies at the state level, have prompted the rise of a wave of innovation in solar financing that means a huge number of Americans can now get solar panels on their rooftop for zero or little money down, and get net savings on their total electricity bill. That is a wonderful outcome. Yes, individual panel manufacturers (and their investors, like me) have been very hurt, and probably unfairly so, by China’s pumping of cheap capital into their domestic production capacity. But meanwhile, the end solar market in the U.S. is one of the fastest-growing sectors of the economy, there’s significant job growth in installation and other supportive technologies, and homeowners are getting cheaper power.

When we focus on production and how its been hurt by the booms and busts of capital cycles and political inconsistency, do we fail to make the more important point, namely, that the price declines are an inevitable result of the success of our efforts, and that this is a really, really good outcome for 99% of Americans? As a sector, we should be celebrating the collapse of solar panel prices, not lamenting it.

The cleantech sector remains small and mostly populated by entrepreneurs who don’t have a lot of cash to throw around on political donations — as long as we define ourselves so narrowly, which focusing on ourselves, and especially on our production-oriented startups, really does. Perhaps it’s time to place even more emphasis on demand-creation policies, and de-emphasize asking for policies that support production.

3. WHAT IF WE’RE BEING TOO PURE?

It’s a simple fact: There is indeed an energy revolution going on in this country. And it’s being driven by cheap natural gas, not by renewables.

While certainly not universal, I continue to see many within the cleantech sector making political arguments based around aspirations of effectively zero carbon energy. It’s the environmentalist side of the sector, as well as a reaction out of frustration that low natgas prices are lowering our price-competitiveness benchmarks.

I’m an environmentalist who started my career at an environmental NGO. I’ve had a lifelong passion for these issues, and I know that those who work at environmental NGOs and foundations often don’t get nearly as much credit as they deserve for taking low-paid, low-profile roles in their dedication to helping society and the planet. But I also know the environmental NGO community has always been fractious, territorial, at times ineffective politically, and generally not good at compromising in order to achieve a good outcome.

The environmental community (and its foundation backers) has been the cleantech industry’s best friend, among established political constituencies, and the one most relied upon to carry the water for the sector in the halls of Congress when it comes to specific legislation like cap and trade. But they haven’t been a reliable ally. Nor should they be — desert tortoises, etc. illustrate that the goals of an environmental NGO and the goals of a cleantech entrepreneur can’t ALWAYS be in alignment. And that’s as it should be. But when you rely upon an ally who often doesn’t share your goals on specific issues, of course you won’t be happy with the results.

Furthermore, this alliance and this vocal dedication to a pure clean energy future alienates other potential allies, ones who are more powerful and also aligned with profit principles like we are. The purist positioning doesn’t leave room for win-win relationships with more established and well-funded sectors’ lobbyists. There’ve been some sporadic efforts made by some cleantech trade groups to reach out to the natgas community, for example, but I continue to see many people involved in the cleantech sector attack that industry and cheer every piece of bad PR it gets, so those outreach efforts go nowhere.

My argument isn’t that cleantech entrepreneurs and investors should abandon our core principles or our aspirations to help the planet. Nor am I trying to take sides in any debate around natural gas regulations.

But I’m asking if some more horse trading, and more strategic alliances with traditional energy players, might not help advance the goals of the cleantech industry net-net, versus the more purist stance that sometimes dominates our sector’s political rhetoric. Again, remember that our sector is small, dwarfed in financial resources by the traditional players, and still learning how to effectively message our positions. I’ve now seen several specific projects by cleantech trade associations and similar groups to raise money for big PR campaigns, and they’ve all fallen flat, because our sector simply doesn’t have the financial resources to support such efforts on our own. Within that context, can we afford to be pure, when it comes to the daily battles of policymaking?

4. WHAT IF WE’RE NOT BEING PURE ENOUGH?

Perhaps asking for realistic and incremental policy shifts hasn’t done anything other than to politicize the issue and stonewall progress. Asking for small changes makes the same enemies just as mad as asking for big changes, after all. And short-term policy wins that engender long-term resentment may miss the bigger picture.

Most of the time when there has been a very significant policy shift in America, it has come about in one of two ways: either as a very rapid reaction to a very significant and disruptive event that forced immediate action, or as a result of many years of parallel exercise of all three levels of what John Gaventa calls “dimensions of power.” To paraphrase:

First dimension: The ability to control a decision on a particular issue.
Second dimension: The ability to decide which issues are up for a decision.
Third dimension: The ability to affect the mindset and moral playing field upon which all these issues and decisions exist.

A three-dimensional strategy has clearly been deployed, for example, to eventually create “critical political mass” in favor of small government and anti-tax perspectives, attitudes and policy in the U.S. And it relies upon really emphasizing the long-term strategy of that third dimension, as driven by repeated and insistent very purist pronouncements and aspirational mission-driven think-tank-type activity. If you win on the third dimension, you’ll reliably win on the first two dimensions as a matter of course.

The type of energy policy shift we need is indeed pretty significant. So according to this line of thinking, we can either hold our breath for that very significant and disruptive event (which I, for one, sure don’t want to root for), or tackle this longer-term strategy.

But if so, to be effective, it needs to be done with a consistent message. And audaciously. And without shame. And without compromise.

Forget complicated cap-and-trade schemes designed to triangulate support from a sufficient number of constituencies to barely pass the Senate, with a lot of pragmatic horse trading involved. Instead, propose a very simple revenue-neutral, phased-in pollution (i.e., carbon) tax, described even more simply: “Make polluters pay, and send me the check.” Something so simple in design that every cable news watcher can instantly understand it — no more 1,400-page-long bills. Admit that it’s going to fail to pass at the federal level. But make it a mission to get it passed wherever possible at the state and local level. Advocate passionately in the name of future generations and for our men and women in uniform. Enlist allies from the agricultural and tourism and re-insurance industries, and others directly affected by climate change. Pull no rhetorical punches.

This is not a strategy designed to “look clever” or make friends or (definitely not) to succeed in the near term. But it’s designed to eventually completely change the terms of the debate. Can that work here? Can the cleantech sector survive long enough for such a long game to play out?

Again, the above questions are just intended to prompt your thinking. Because it’s time to rethink the sector’s political positioning, in my opinion. This year, you’ll see a lot of useless campaign rhetoric and a lot of rear-guard legislative battles trying to preserve one highly technical piece of policy or another. But if what we’ve seen so far is the best that this sector can do in terms of winning over the average American voter, and in terms of getting significant energy policy change to happen at the federal level, there’s not a whole lot of room for optimism on this front. So let’s take a step back and rethink all our political assumptions and strategies.

Solar Banking Opportunities

Solar Banking

Bank money remains available for utility scale solar photovoltaic (PV) and concentrating solar power (CSP) projects, bank officers from CITI and Deutsche Bank agree, but not all the banks that participated in project financing in 2011 will return.

“I am somewhat afraid of what happens to these banks as we move into 2012,” said Deutsche Bank Director Vinod Mukani at the Smithers APEX San Diego solar event.

“Europe had a leg up because renewables had a head start there,” the German-based bank’s renewables authority said. “Investors were familiar with this asset class. Now, as they delve into the challenges that Basel III poses, they will have to curtail their activities. That is quite apparent if you look at Q4 of last year.”

Deutsche Bank (DB), Mukani said, “underwrote about a billion dollars’ worth of wind and solar assets in Q4, but the bank group that we started with was not the bank group that we ended with.”

And macroeconomic trends, he explained, such as “southern Europe in crisis, a slowdown of the economy in China, and Basel III regulation” will force banks to face “a very daunting task of deleveraging and meeting the requirements of capital ratios,” Mukani said.

But “large-scale solar assets continue to attract more and more capital,” he added, because of “attractive risk and reward profiles.” All in all, “it’s a good environment,” Mukani said. “There is a tremendous amount of capital that still is available. The question is, how do you get it?”

Mukani named five key considerations in large-scale solar financing: technology risk, construction risk, operating risk, resource risk, and risks associated with the physical structure.

In technology, he called crystalline PV projects “easy” but said a thin-film PV project is “somewhat challenging and requires a structure like [the 550-megawatt Topaz Solar project], where the amount of equity was tremendous compared to the debt and leverage ratios were low so the rating agencies felt very comfortable with that.”

There is little construction risk as long as there is “a full fixed-price, fully-backed EPC contract.” But for CSP projects, “there are issues about the credit risk of particular EPC providers.” The question, Mukani said, becomes “what kind of liability structure is built into that EPC contract?”

Operating risk “is reasonably muted as long as there is a good O&M contract” with a good-sized maintenance reserve and warranties, he said. “Warranties,” he added, are “quite interesting, because manufacturers offer 25-year warranties, although there is no certainty those manufacturers will exist for that full period.” Nevertheless, Mukani said, “rating agencies and project finance lenders are comfortable with that.”

Resource risk is much better than “other asset classes,” Mukani said. “There are 30-plus years of data on solar insolation” and lenders and investors take assurance, he explained, from the fact that “inter-annual variability is rather low.” Also, because of their power purchase agreements (PPAs), solar projects are “contracted at cash flows. There is no commodity volatility risk.”

Mukani’s fifth risk consideration is the structure. “What rating agencies are looking for,” he said, are “high cover ratios.” Project finance managers “probably look at lower cover ratios.” But for both, he said, “the covenants, the security package — all of that has to be well thought out to mitigate that risk.”

Solar, Mukani said, “fares much better than other asset classes within the renewable arena. There is a lot of capital available,” he noted, “as long as the proper discipline in development and structure are followed.”

Big projects come with big challenges, Lund explained. And “any problem that comes with an explanation is not a good problem,” he said. “Go fix it first. That’s not the kind of conversation you have with a bank.”

In answer to a question about current low natural gas prices, Mukani explained that it is not “in competition” with solar. “We are working on a significant number of natural gas projects,” he said, “If the project is good, that’s a project that you are able to finance.” DB has “not made the decision not to finance renewable energy because natural gas prices are coming down.”

Utilities award PPAs to renewables projects because of state renewables standards, Lund added, so “a cheaper PPA for gas will not affect the price on a solar PPA, and in terms of project viability, they’re not directly related.”

In answer to a question about the sharp drop in panel prices, Mukani said he expects vertically integrated companies like SunPower to benefit most. “If you are a vertically integrated company, you have a better line of sight into how prices are going to move, so you are able to take on certain projects that might be passed over by developers without the same access to panel supply or forward pricing.”

Investment Gap in US Grid by 2020

investment gap in us grid

Here’s another grim reminder that doing nothing fix the United States’ power grid will be a lot more expensive in the long run than spending hundreds of billions of dollars to bring it up to 21st-century technological standards.

This one comes from the American Society of Civil Engineers, which on Thursday released its latest “Failure to Act” report on the country’s deteriorating infrastructure, this one focused on the power delivery system. In simple terms, ASCE’s report finds a gap of $107 billion dollars between today’s trends on grid investment and what the country needs to investbetween now and 2020.

If U.S. utilities and regulators don’t work to increase spending trends to make up that gap, the result will be a “combination of aging equipment and capacity bottlenecks that lead to the same general outcome — a greater incidence of electricity interruptions,” the report finds. Those may come as equipment failures, voltage surges and power quality irregularities, or blackouts and brownouts due to demand exceeding supply — and all of that carries costs.

ASCE’s estimates of current 2012 costs to such grid problems are about $6 billion for U.S. households and $10 billion for U.S. businesses. But by 2020, they add up to $71 billion for households and $126 billion for businesses, the report finds. Added up, that $197 billion in costs is nearly twice as much as the $107 billion in investment needed to fix the problem.

This isn’t the first report making this point. The Electric Power Research Institute (EPRI) predicted last summer that smart grid investment of $338 billion to $476 billion could yield $2 trillion in benefits by 2030, but that failing to invest could cause power prices to quadrupleover the same period of time.

ASCE’s report breaks out a whole host of negative indicators that accompany its “failure to act” scenario. Without needed investment in the grid, U.S. GDP will fall by a total of $496 billion by 2020, the U.S. economy will end up with an average of 529,000 fewer jobs than it otherwise would have have, and personal income will fall by a total of $656 billion from expected levels.

If this sounds like a doomsday scenario, it’s important to note that ASCE’s estimates are actually lower than many that come from studies conducted in the 1990s and in the first half of the previous decade. The massive Northeast blackout of 2005 led to a spurt of new investment in grid reliability, which has mitigated some of the most pressing grid reliability problems those earlier studies found, ASCE reports.

So where are the investment gaps that need addressing? ASCE’s report breaks out a gap of $12.3 billion in power generation, $37.3 billion in transmission lines and $57.4 billion in distribution grid systems through 2020. In other words, the distribution grid — the neighborhood power delivery system — will require more investment than generation and transmission combined, at least in the next decade.

Regionally, ASCE finds that the Southeastern U.S. has the most catching up to do, with about $29.7 billion in grid investment gaps. The Western U.S. has about $25.5 billion in gaps, the Mid-Atlantic about $18.2 billion, and Texas, which runs its own grid that operates somewhat independently of the rest of the nation, has $14.6 billion in investment gaps.

The Real Reason for the Greentech IPO Missteps

greentech IPO investment

While the green technologies industry was certainly hoping for an IPO revival this month, the sector unfortunately appears to have reached a higher level on the FUBAR charts. Three companies withdrew their IPO plans in the 11th hour (BrightSource, Luca Technologies and Enerkem), while the one made that it out priced at the low end of its projections (Enphase Energy).

But does this necessarily mean that greentech startups eyeing the public markets in the coming year simply shouldn’t waste their time? Well, take a quick look under the hood of most of these companies and it’s clear that the problem isn’t really about being green or selling into the energy sector, it’s the lack of profits and, in some cases, revenues.

As the co-founder of Lux Capital, Peter Hébert, tweeted Friday morning (@peterjhebert):

“Lot of hand-wringing about #cleantech IPOs. No morals in mkts. Should not expect willing buyers of unsustainable, profitless businesses.

If you’re curious just how little these firms have been taking in terms of revenues and profits, here’s a quick summary table:

Company Type of company Revenue 2011 Net Income Investors
BrightSource Solar thermal $159.10M $110.96M loss Alstom Power, Draper Fisher Jurvetson, VantagePoint, Morgan Stanley
Enerkem Waste to fuel No revenue $26.18M loss Rho Ventures, Braemer Energy, Waste Management
Luca Technologies Gas farming $1.06M $18.02M loss Kleiner Perkins, One Equity Partners, Oxford Bioscience Partners, BASF Venture Capital
Enphase Energy (did IPO) Solar micro inverter $149.52M $32.30M loss ThirdPoint, RockPort Capital, Madrone Partners, Kleiner Perkins, Applied Ventures

The reality is that Enerkem and Luca Technologies really had no business going public with their current financials — the moves seemed like attempts to raise money to build their operations, and the markets just didn’t want to support that. As soon as BrightSource pulled their IPO plans, likely Luca and Enerkem just saw the writing on the wall.

BrightSource on the other hand, has a growing, though clearly, for the time being, a money-losing business. When (and if) the company builds out its first solar plant, Ivanpah on time and budget, then the firm will start moving into a more financially lucrative position. BrightSource was likely also hampered by the fact that the solar panel markets are really struggling, even though BrightSource builds solar thermal plants and doesn’t make solar cells or panels.

Enphase Energy was the one company that actually went through with their IPO and it’s not surprising that they have the most sound financials. Enphase Energy is growing pretty dramatically, but that firm, too, has a lot of new competition in the marketplace, so has a big year ahead of them.

Morgan Stanley Funds Solar Solutions

jp morgan fund solar

Fueling the rush into the residential solar leasing business, Morgan Stanley (NYSE: MS) subsidiary MS Solar Solutions Corp. is partnering with Clean Power Finance (CPF) to help fund up to $300 million in residential solar leases. MySolar is the new solar lease provider.

Solar developer and power purchase agreement (PPA) provider Main Street Power Co., a Morgan Stanley partner in previous utility and commercial scale solar projects, will take on some of the wide range of compliance and reporting activities and responsibilities associated with deployment.

The basic idea behind CPF, CEO Nat Kreamer explained, is “to connect the capital market with the solar market.” This deal adds “major financial institutions” to the CPF list of backers that includes Kleiner Perkins Caulfield & Byers and Google Ventures.

The Morgan Stanley/MS Solar backing will provide equity capital to and beyond the amount of the federal investment tax credits (ITCs). Zions Bancorportation’s Zions Energy Link will provide debt capital.

CPF Senior Vice President Kristian Hanelt said this is a deal of unique and possibly unprecedented scale and complexity. “These are sophisticated and well vetted financingstructures,” Hanelt explained, that “have been used extensively in commercial and utility development.” Now they “are being incorporated into residential solar because its volume is starting to add up.”

CPF was founded in 2007 as an online tool to connect solar buyers and sellers with financial products and help them design solar systems. By 2010, forty percent of all residential and small- and medium-sized commercial solar sold used the CPF software platform. Subsequently, CPF has moved to make the full spectrum of financing opportunities available in its software.

The large array of CPF “channel partners, people who sell and install solar,” Kreamer explained, will carry this financing product out to a consumer and they’re going to say ‘I have a leasing option for you.’”

By partnering with CPF, Kreamer said, “Morgan Stanley, a major money center bank, was able to decide to offer residential financing and come, with its partners, to CPF and offer that tomorrow.” Big players in the solar leasing market like SolarCity and SunRun, Kreamer said, “control the access to that deal flow, but we’re basically saying to large investors like Morgan Stanley, ‘you can come right to this market and we will help you get right into this business.’”

Solar space quality control authority Burnham Energy will continue to do provider inspections as a consultant to CPF, assuring Kreamer’s channel partners do dependable installation work. “They randomly inspect before we underwrite,” Kreamer said. In addition, a two percent holdback is required of CPF’s channel partners, further guaranteeing their work.

Rooftop solar, Kreamer said, is a low-risk, high-reward investment in what is essentially a long-term asset. In addition, with the ITC available through 2016, as much as 45 percent of an investor’s capital outlay comes back as a tax benefit in the first year of the loan. And the overall return on investment in residential solar is “anywhere from the high single digits to the mid-teens.”

Initially available only in California and Arizona, the MySolar twenty-five year lease will extend the variety of products offered by CPF and its network of installers. CPF is also active in Colorado, New Jersey and Massachusetts.

The twenty-five year term, Kreamer said, brings added value to the solar lease market. “Most solar financing has been done as twenty year products,” he explained. “What you’re seeing here is product differentiation that fits differing consumer demand.”

Even among CPF offerings, terms vary. Google’s product, backed by its $75 million 2011 investment with CPF, is a twenty year PPA. Some consumers will prefer the more standard twenty year lease, Kreamer said, but the longer term MySolar lease may appeal to customers with a different set of risk and reward concerns.

The time of “two products, one credit score, very few product choices,” is disappearing, Kreamer said. CPF’s “different products that fit different customers” is part of an expanded marketplace. But “the reality is that the market penetration rate is small compared to the opportunity,” he said. More and more diverse products “can attract more consumers to the marketplace.”

The diversification of available products is also expanding the kinds and degrees of riskinvestors can choose, Kreamer pointed out. “As the finance market grows and risk based pricing evolves and more capital and sophisticated investors come into the marketplace,” he said, “you will see more capital and more competitive capital.”

The entry of players like Morgan Stanley and Zions demonstrates, Hanelt agreed, a new level of interest in residential solar “as a form of consumer credit underwriting” like that already done in auto loans, credit cards and home mortgages.

“The right capital,” Kreamer said, “will go to the right people. That’s capital asset pricing theory in a nutshell applied to residential solar financing. This is what happens in auto loans and mortgages. It just hasn’t happened yet in solar.”

The Morgan Stanley deal brings the total amount of money CPF has available to put into solar assets to approximately half a billion dollars. Kraemer said his company is channeling money into solar at the rate of $1 million per day and, in March 2012, had their “highest level of applications ever.”