FEATURE STORY

The Next Tech Revolution

By Meryl Davids Landau

 

 

I f you think of solar power, a rigid, acres-long array of solar panels undoubtedly springs to mind. Which is why even industry veterans were thrilled when, at a nanotechnology and renewable energy conference in Denver last year, what looked to be a rolled-up car floor mat was revealed to be a thin, flexible photovoltaic. Suddenly, the crowd envisioned a technology that might not only be incorporated into roof shingles or vinyl siding, but could even be sewn into a jacket or cap to warm a frigid skier. That presentation (during a conference co-hosted by the University of Denver, the University of Colorado, Colorado State University and the Colorado School of Mines) was one of many bringing the enthusiastic attendees to their feet.

 

If you think of solar power, a rigid, acres-long array of solar panels undoubtedly springs to mind. Which is why even industry veterans were thrilled when, at a nanotechnology and renewable energy conference in Denver last year, what looked to be a rolled-up car floor mat was revealed to be a thin, flexible photovoltaic. Suddenly, the crowd envisioned a technology that might not only be incorporated into roof shingles or vinyl siding, but could even be sewn into a jacket or cap to warm a frigid skier. That presentation (during a conference co-hosted by the University of Denver, the University of Colorado, Colorado State University and the Colorado School of Mines) was one of many bringing the enthusiastic attendees to their feet.

 

Industry insiders aren’t the only ones juiced up about the prospects for what’s being called the “cleantech industry” or the “clean energy economy.” No less than President Barack Obama has touted its potential to “create new industries and revive old ones… open new factories and power new farms…lower costs and revive our economy.” In his State of the Union speech this past January, Obama went so far as to declare that “the nation that leads the clean energy economy will be the nation that leads the global economy,” concluding that “America must be that nation.”

 

Of course, the United States remains far from that ideal. China is much further along in its implementation of cleantech projects. Europeans have understood the value of developing and supporting this industry for years. Plus, the Great Recession—and the resulting credit crunch—has forced some American companies to scale back their efforts.

 

But with its large pool of talent, money and enthusiasm, the U.S. cleantech industry is drawing plaudits for innovation and growth. “There’s an excitement here that hasn’t been equaled in decades,” says Carolyn McIntosh, a Patton Boggs partner in Denver who specializes in solving complex environmental problems. “Cleantech is becoming the new Silicon Valley, but in some ways even better: It’s not limited to one geographic location, and the benefits can be understood by people outside the field.”

 

Barely a blip on the radar screen a decade ago, cleantech has become the darling of the finance world. Venture capital funding in the U.S. soared from $74 million in 1995 to $4 billion in 2008, before scaling back a bit due to the recession (see chart).

 

“Cleantech is a win-win concept,” explains Patton Boggs partner Scott Stewart, an authority on environmental litigation and regulation and a former trial attorney for the Environmental Enforcement Section of the Justice Department, explaining its growing popularity with investors, manufacturers and consumers. “The belief is that it will add economic value by raising productivity or lowering costs, or by reducing a user’s consumption of resources with the ancillary benefit of being better for the environment. Although some technologies clearly aren’t there yet, the idea is that customers will eventually get something that performs as well or better for less money, and has a softer environmental footprint.”

 

Projects included under the cleantech rubric stretch well beyond renewable energy. According to the Cleantech Open, a San Francisco-based organization that nurtures industry startups, it includes all technologies that improve resource availability and pollution control, boost energy efficiency, reduce the impact of building construction and operation, provide power innovatively, link information technology to electricity delivery (the so-called smart grid), and advance the transportation of goods and people. These technologies affect nearly every industry and Main Street American, adding to cleantech’s widespread appeal.

 

Playing to America’s strength

In many ways, the expansion of this industry plays right into America’s strengths. Some companies that might have been based overseas are settling in the U.S. instead. Global Energy Options is a prime example. Founder John Dee had created several environmentally oriented companies in his native Australia over the years. Dee had long been intrigued by the promise of hydrogen fuel cell technology, and several years ago he decided to seriously pursue it. But Dee wasn’t looking to create a technological showpiece; he wanted to make a successful, commercial venture. “The Australians are extremely inventive, and Europe is very progressive environmentally,” Dee says. “But it was clear to me that the U.S. is the best place to launch new technology because of its relentless focus on business and financing.” Four years ago he moved from Australia to Denver and set up shop.

 

Using proprietary technology in conjunction with their own patented, friction-reducing lubricant, GEO’s engineers have spent the past three years developing their hydrogen-enhanced retrofit technology for various commercial diesel engines. “In laboratory settings, hydrogen has long been shown to improve fossil fuel use and greatly reduce carbon emissions. But no one had been able to make it work reliably in the outside world,” Dee says. Until now, that is. Recent testing of GEO’s HHarmony System confirms that it reduces fuel use by 17 percent, simultaneously dropping toxic emissions like nitrogen oxide by 30 percent and particulate matter by 80 percent.

 

While this technology offers promise for America’s vast trucking fleet, GEO has set its sights on railroads, the largest fuel consumer in the country and one that currently faces increasingly stringent air emissions limitations. GEO has entered into a business deal with two major railway companies to fund and conduct independent testing of the technology. “If the tests are as successful as we expect them to be, the railways will save enough in fuel to pay for our equipment in just one and a half years,” Dee explains.

 

A level playing field

It’s no surprise that major corporations like BP, Samsung, Walmart, Siemens and others are looking to make a mark in clean technology. But one unique aspect of this business is the ability of a new generation of small and midsize companies to compete on a level playing field. “Lean entrepreneurial ventures are entering this sector and thriving,” says Alain Castro, president of Akuo Energy USA, a 55-employee, Chicago-based renewable energy subsidiary of Akuo Energy. The Akuo Energy entrepreneurs previously founded Perfect Wind, which became the second-largest generator of wind energy in France, and then sold the business to Iberdrola. In the U.S. since 2007, the Akuo USA team will be financing and commencing construction over the next nine to 12 months on several wind projects totaling 400 to 600 megawatts of clean energy capacity (representing a $750 million investment). Furthermore, within the next three years, Akuo expects to finance and build at least 1,100 megawatts of clean electricity plants around the U.S.—enough to provide power to 1.5 million households. Akuo’s plans for power generation largely involve wind, the company’s specialty, but also hydroelectric, biomass, solar photovoltaic and solar thermal energy (a technology that uses mirrors to amplify the power of the sun).

 

Castro, an American who spent several years in Paris, is excited about doing business with his home country. “People in Europe always wondered why the U.S. wasn’t waking up to clean energy, but I knew that when it did, it would fast become the leader,” he says. “When the U.S. decides to take a new direction, it’s amazing how dynamic its people and companies become. In Europe, there are very old ways of doing business. They don’t easily shift or reinvent themselves like they do here.”

 

Still, the biggest challenge in the American market for Akuo remains the lack of unified support from the federal government. “Each state has its own plan, so it’s like doing business in 50 separate countries,” Castro explains. “The variety of programs will help Congress identify the best incentives when it develops national legislation. But for us, each time we enter a new market we have to relearn the rules of the game.”

 

Localized support

Given the fragmented nature of federal assistance, it’s not surprising that some states have taken it upon themselves to attract and buoy cleantech companies inside their borders.

 

The Colorado legislature, for example, has passed several laws offering financial and regulatory support; recently, it enacted the Colorado Innovation Tax Credit to provide credits for investments in innovative state-based companies involved in new technologies. The state’s universities also provide opportunities for companies to capitalize on their research. With the backing of corporate partners, for instance, Colorado State University is ramping up an algae fuel farm in the state, a fuel source that the National Renewable Energy Laboratory (itself headquartered in Golden, Colorado) estimates could produce up to 10,000 gallons of oil per acre per year—100 times the output of canola or soy.

 

Meanwhile, the State of Colorado is working to attract more cleantech companies. As part of this effort, a nonprofit supported by both Patton Boggs and the City of Denver called CORE, the Rocky Mountain sustainable business practices trade association, recently conducted a cluster study of the industry. “A wind farm not only needs the manufacturer of the blades and the equipment that turns them, it also needs the company producing the electricity transmitting cable and its copper wiring,” says McIntosh, who currently serves as the group’s president. “CORE’s study aimed to identify those gaps so the state can attract all parts of the supply chain.” In addition to Colorado, other hot spots for the industry include Virginia, Texas, California (especially Silicon Valley), the Boston area and the Pacific Northwest (Seattle/Portland). In those places, some of the necessary legal, technical and financial assistance are more firmly in place.

 

Such assistance recently proved crucial to Magnum D’Or, a small rubber recycler. The company had opened a rubber recycling facility in Canada in 2008 and wanted to expand into the U.S. Magnum discovered a huge collection of discarded tires in Colorado. Known as the Hudson Tire Landfill, the site had been an environmental problem for years.

 

Like many rubber recyclers, Magnum turns recycled rubber into powders and nuggets that can be molded in various shapes to produce recycled floor mats, bumper stops and other products. But the company’s proprietary technology also allows the rubber to be ground into very fine powder, making it suitable for paint dyes, toner cartridges and the like, explains Magnum COO Bryan J. Brammer. Recent tests by Malaysia’s equivalent of the U.S.’s Underwriters’ Lab found that products with up to 30 percent of Magnum’s recycled rubber performed as well or better than virgin products. “Prior to this, products with more than 5 percent recycled rubber were degraded in performance, so this is a significant improvement,” says Joseph J. Glusic, Magnum president and CEO.

 

Obtaining such a large source of recycled rubber was a perfect fit for the company, but the state had already taken steps to shut down the site before Magnum arrived. “We had to work hard to convince the state that the sale was in their interest, that the site could be an asset, not an eyesore,” Brammer explains. After eight months of active effort, Magnum acquired the site last August.

 

Understanding the myriad environmental issues involved in cleantech projects is a major challenge for companies in the field. For each renewable energy project Akuo undertakes, for example, it must ensure zoning compliance, acquire numerous permits, secure bank financing (plants cost from $25 million to $500 million), lease large parcels of land from private sources (at the moment, renewables require more land to generate a given amount of energy than a traditional fossil fuel power plant), and structure contracts to sell the electricity to the consumer.

 

Following the money

With their vast infrastructure and/or valuable intellectual property protection needs, early-stage cleantech companies find it more difficult than their predecessor technology cousins to get adequate and competitive private funding, Stewart notes. “Cleantech is a lot more expensive than investing in four guys with a computer,” he says.

 

A growing number of cleantech companies are turning to Uncle Sam in the search for cheaper capital. The Energy Policy Act of 2005 provided for loan guarantees and other funding for cleantech, and the American Recovery and Reinvestment Act of 2009 added more funds to the kitty.

 

It’s an investment the Obama administration is happy to facilitate—and publicize. Last summer Vice President Biden traveled to Detroit to announce that 12 companies in Michigan had been awarded more than $1.35 billion to develop and manufacture electric vehicles and their batteries. The state estimates this will create tens of thousands of jobs in the field within the decade.

Successfully navigating the mix of private and public funding and harmonizing business planning with developing public policy will be key for companies in the next few years, Stewart believes. “Some will do it successfully. Others will not, even if they have good ideas. Private money is only going to follow something that people believe will be successful.”

 

Those that navigate well can expect to be amply rewarded. Products that are cleaner, more productive and efficient, cheaper, or provide renewable and sustainable energy will be good not only for those in the cleantech sector, but for every industry in the country and around the world.

 

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