Green Tech Shows Progress but Not Prosperity

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?

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.”