Cleantech Venture Investing Still in its Infancy

On Monday, Topline Strategy be releasing our new report on the trends in Cleantech venture investing. When I first started on this report, I was expecting to find the dotcom bubble 2.0. With all of the hype and reports of phenomenal growth in Cleantech, I didn't see any reason to suspect anything different.

What I found was quite surprising - Quarter over quarter, Cleantech investing for the last four quarters, Q2 2006 to Q1 2007 was basically flat. Furthermore, with just a couple of exceptions, the leading VC firms have been just dipping their collective toes in the water.

What does this mean? From a venture capital perspective, we have barely left the starting gate of a 30 year project to build a sustainable economy and that this project is so different than what VCs have become accustom to in high tech and life sciences that it is going to take a while for them to figure it out.

Our report, chock full of data on who is investing how much in what, provides an in depth analysis of what makes Cleantech different and what VCs will need to do to be successful in the space. While the report will be formally released on Monday, you can download it now from our site.

Verde Energy

If you haven't heard of Verde Energy, you should get to know them. Verde is solving one of the most difficult components of buying a renewable energy system - searching for a reliable, trustworthy installer.

Putting in a renewable energy system, from wind to PV to solar thermal, is like renovating a house - only worse. Like renovating a house, installing a renewable energy system involves finding a contractor who will do good work, on time, and at a fair price. This is never an easy task, but is even harder when with renewable energy projects because the purchaser:

• Is dealing with unfamiliar, emerging technologies.
• Does not know enough people who have installed an renewable energy system that they can ask for referrals - a very common way to find a contractor.
• Does not know where to turn for information (if there is anywhere).

Even Google is of little help. I searched for "Solar Power Installers in Massachusetts" and there was only one solar power installer in Massachusetts in the results. I did get links to the Sun Microsystems website, a non-profit providing solar power in Ethiopia, and an article on a recently installed solar power system in Cambridge, MA.

Verde Energy makes this process a whole lot simpler. The company uses the Lending Tree model to help you find a contractor - you fill out a form describing your project and they refer you to several prescreened, qualified contractors in your area. (For the record, they were also the top search result in my Google search).

In our recent study, What the Solar Industry can Learn from Google and Salesforce.com we identified lowering search costs as one of the key ways that the solar power industry can accelerate adoption. Verde Energy is a critical piece of making that a reality.

Why I Love Carbon Offsets

A few months ago, I seriously investigated installing a 2 kilowatt solar electricity system. I chose 2 kilowatts since that is the size system that would fit on my roof. We have a limited amount of space with the right orientation and access to direct sunlight. Here are vital statistics on the system that I was considering...

The 2 kilowatt system would have cost approximately $19,000 installed and have covered a 10' by 15' section of my roof. I would have received $2,000 back from the federal government when I filed my taxes and assuming I could get them, another $5,500 in rebates from the state. That would have put my out of pocket costs at $11,500. If I financed that amount using a home equity loan, my annual payments, net of taxes, would have run approximately $500 per year, almost exactly washing with the $500 in annual electricity cost savings I would have realized (2,900 kilowatt-hours generated x 17.2 cents/kilowatt hour at Massachusetts's prevailing rates).

On the global warming front, for my effort, I would have eliminated 5,800 pounds of carbon dioxide emissions per year, or 2.6 metric tons. That sounds like a lot, but Carbon Offsets currently run approximately $5 per ton, making the total cost of achieving the same amount of carbon reduction about $13 per year.

This analysis isn't meant as a condemnation of solar electricity. I think it is an important technology that will be increasingly critical as prices fall and it delivers real electricity cost savings. However, a home solar panel project is not easy to do. That is why today, as a way to help the environment, it doesn't hold a candle to Carbon Offsets. In our new report, we take a look at the current state of the market for Carbon Offsets and discuss what it will take to take them to the mainstream. To download the report, click here.

A Call for a Solar Salesforce.com

If there are any entrepreneurs or investors out there looking for an idea, you might think about starting or investing in the Salesforce.com of solar power. Solar power is unique among electricity generation technologies. Where economies of scale mean that gas and coal fired plants, wind turbines, and nuclear power will all be owned and operated by utilities (I don't think anyone has plans to install a 400' high wind turbine capable of powering a few thousand plasma TVs on their roof), solar power costs about the same per kilowatt if you install 10 kilowatts - the average usage of an American homeowner - or 10,000 kilowatts - the size of a commercial power plant.

The table below shows a comparison of the price of solar energy and traditional electricity for utilities and residential and commercial customers in $/kilowatt-hour. 

	Price of Conventional Electricity	Price of Solar Electricity*
Residential/Commercial	$.137	$.131
Utility	<$.03	$.131

*California prices. Solar Electricity costs are calculated post subsidies and rebates.

As you can see from the numbers, While it never makes sense for a utility to install a large solar farm (it would cost them over $.13 per kilowatt-hour vs under $.03 to buy electricity on the wholesale market), it is theoretically possible for solar power to be cost effective for a homeowner or small business operator to install. I use the term theoretical since if you have ever tried to buy solar electricity equipment, it becomes evident that the pain of acquiring it well exceeds the modest financial benefits of doing so.

That is why we are calling for entrepreneurs and investors to start and invest in a solar Salesforce.com. Just as Salesforce.com made CRM accessible to the mainstream market by making it simple to acquire, configure and use, someone needs to do the same for solar power. Since I am planning on installing solar electricity at our house in the spring, I'd appreciate if someone could get this started before then.

Download our paper - What the Solar Power Industry can Learn from Google and Salesforce.com to learn more. Or: Read the Red Herring article.