Green Tech Shows Progress but Not Prosperity

One of USA TODAY series of articles exploring how green-tech innovations are changing everything

USA Today
March 26, 2013

USA Today is run­ning a series of arti­cles explor­ing how green tech is impact­ing every­thing from how we vaca­tion to defense.  This arti­cle, by Tim Mul­laney includes DBL Part­ners’ port­fo­lio com­pa­nies Bright­source Energy, Tesla and Solar City.  The full USA Today ver­sion of the piece can be found here.  Be sure to also watch the pre-​​roll video story syn­op­sis, too.  We can’t embed that here and it’s worth a minute of your time.  

Is this a good time to be John Woolard or not?

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Image from Bright­Source Energy of a solar mir­ror being moved into posi­tion at one of BrightSource’s solar plants.

By one stan­dard, the CEO of solar-​​technology com­pany Bright­Source Energy is near­ing suc­cess. Bright­Source is plan­ning to open its $2.2 bil­lion elec­tric­ity plant, which it is build­ing with part­ners NRG Energy and Google, near Las Vegas. Known as Ivan­pah, it’s the world’s biggest solar facil­ity of its kind, and its juice is presold to util­i­ties for 20 to 25 years.

But Woolard still scram­bles for money to build Bright­Source. Last year, he can­celed an ini­tial pub­lic offer­ing after investors balked at the still-​​unprofitable company’s $1 bil­lion val­u­a­tion. Instead, he raised $86 mil­lion pri­vately and has cut his plan to build 2.4 gigawatts of gen­er­a­tion capac­ity — six times Ivan­pah alone — though he won’t say by how much.

“The mar­ket is going through a much-​​needed cor­rec­tion,” said Woolard. “It’s clean­ing out a lot of things that are not going to make it.”

The clean tech­nol­ogy busi­ness is at a cross­roads. Never have so many green prod­ucts been as close to ready for prime time as they are now, tech­ni­cally fin­ished and increas­ingly cost-​​competitive. As this USA TODAY series will explain, green inno­va­tion is chang­ing every­thing from vaca­tions to war-​​making.

Yet cap­i­tal needed to bring clean tech­nolo­gies to mass mar­kets is still much harder to get than before the 2008 finan­cial cri­sis. IPO mar­kets are all but dry, venture-​​capital invest­ment is shrink­ing, and gov­ern­ment stim­u­lus that sup­plied a $1.6 bil­lion loan to build Ivan­pah has run out. Glob­ally, invest­ment in clean elec­tric­ity dropped 11% last year to $269 bil­lion, accord­ing to Bloomberg New Energy Finance. Pri­vate invest­ment in the U.S. dropped 32%.

To cope, start-​​ups are mak­ing deals with cor­po­rate part­ners, which sub­si­dize build­ing plants to make power or chem­i­cals from renew­able fuels. Exam­ples include BrightSource’s deal with NRG, which now owns a major­ity of Ivan­pah, and bio­fu­els maker Solazyme’s pacts with com­pa­nies from Archer Daniels Mid­land to Mitsui.

Money is espe­cially short for com­pa­nies just start­ing up now, threat­en­ing new inno­va­tions, said Ray Rothrock, a ven­ture cap­i­tal­ist at Ven­rock in Menlo Park, Calif.

It’s pretty bad,” Rothrock said. “Start-​​ups are down 85% from a year ago.”

Why the appar­ent con­flict between prod­ucts that are ready to go and finan­cial mar­kets that are risk averse? Green techs can get money only when their busi­ness mod­els are as sharp as their tech­nol­ogy. And most aren’t yet.

Hun­dreds of green start-​​ups have dis­ap­pointed venture-​​capital investors — and nearly all green com­pa­nies that have gone pub­lic have seen shares sag.

Ven­rock com­mis­sioned a 2012 analy­sis of 380 com­pa­nies VCs have funded since 2006, and con­cluded only about 40 had clear signs of mar­ket momen­tum, with another 60 still too imma­ture to tell whether they will suc­ceed or not, Rothrock said. And just three of 19 green-​​tech com­pa­nies that have gone pub­lic in the U.S. since 2009 are trad­ing above offer­ing prices, said Renais­sance Cap­i­tal ana­lyst Paul Bard.

The keen­est exam­ple is elec­tric cars.

While Fisker Automotive’s Karma plug-​​in hybrid has strug­gled and Chevrolet’s Volt costs about $15,000 more than com­pa­ra­ble gas-​​powered cars, Tesla Motors’ Model S elec­tric sedan is cost-​​competitive with con­ven­tional BMWs. That drove Tesla’s 678% fourth-​​quarter sales increase, which made the com­pany cash-​​flow pos­i­tive in Decem­ber. Its shares have dou­bled since its 2010 IPO.

Tesla Model S

 Mean­while, Fisker has failed to finance a Delaware fac­tory to make more mass-​​market cars than the six-​​figure Karma.

The solar busi­ness is another exam­ple where only a few com­pa­nies have paid off for investors, even though the num­ber of megawatts of solar power installed in the U.S. rose 76% last year.

SolarCity was able to launch a 2012 IPO after Bright­Source backed off, Bard said. SolarCity, which installs solar sys­tems on houses, saw its cus­tomer base dou­ble in the first nine months of last year as it approached its first profit before non-​​cash charges.

The difference-​​maker has been SolarCity’s abil­ity to absorb the upfront cost of solar sys­tems, let­ting con­sumers buy cheaper elec­tric­ity with­out a five-​​figure invest­ment. The model works like a cell­phone con­tract, where car­ri­ers sub­si­dize phones to land ser­vice con­tracts, giv­ing SolarCity a pre­dictable rev­enue stream for years and cut­ting share­hold­ers’ risk, CEO Lyn­don Rive said.

Even so, SolarCity cut its IPO price 40% to get investors to bite. Shares soared past $20 after the $8-​​a-​​share IPO in Decem­ber. Then SolarCity missed fourth-​​quarter sales fore­casts, send­ing the stock down 18%. Though Gold­man Sachs ana­lyst Brian Lee said adop­tion grew rapidly, he said SolarCity’s risks still include its future access to capital.

There’s a polit­i­cal dis­cus­sion about how bad solar is, but it’s not affect­ing adop­tion,” said Rive, whose cousin Elon Musk is Tesla’s CEO.

With stock and bond mar­kets side­lined, entre­pre­neurs are turn­ing to cor­po­rate part­ners for money.That means pri­or­i­tiz­ing lower-​​risk prod­ucts, which the part­ners can help turn into money-​​makers sooner. Even ven­ture cap­i­tal­ists are learn­ing this trick: A $160 mil­lion venture-​​capital green fund, announced last week by Sil­i­con Valley-​​based Westly Group, included invest­ments from a large Ger­man util­ity and from Cit­i­group. The giant bank it can win busi­ness financ­ing deals to install green-​​building man­age­ment and advanced light­ing sys­tems, using finan­cial mod­els sim­i­lar to Solar City’s, man­ag­ing part­ner Steve Westly said.

One exam­ple is Solazyme, a South San Fran­cisco, Calif., start-​​up that makes chem­i­cals from algae. It’s best known for air­line fuels tested by the Pen­ta­gon and United Airlines.

But most of Solazyme’s short-​​term rev­enue comes from chem­i­cals for prod­ucts from nutri­tion drinks to skin mois­tur­izer, man­u­fac­tured using money from partners.

There are mar­kets that are high-​​profit and low-​​volume,” CEO Jonathan Wolf­son said. The much-​​larger fuel busi­ness, with nar­rower profit mar­gins and much-​​bigger cap­i­tal demands, can wait, he said.

Part­ner­ships make com­pa­nies develop busi­ness dis­ci­pline, because part­ners know exist­ing mar­kets for fuels and chem­i­cals cold, said Mark Bunger, an indus­try ana­lyst at Lux Research.

Woolard agrees — and is putting his company’s future where his mouth is.

On March 15, Bright­Source announced a deal with Aben­goa, a $10 bil­lion a year Span­ish renewable-​​energy com­pany, to finance its sec­ond power plant near River­side, Calif. Build­ing will begin late this year, cre­at­ing 2,000 con­struc­tion jobs, Woolard said. Once it starts, Bright­Source will turn a profit before non-​​cash account­ing charges, and its prob­lems get­ting cap­i­tal will end, he said.

It’s all good for the con­sumer over time,” Woolard said, “because tough times make tough companies.”