Introduction and Pioneers

Hello and welcome to my blog! 

In my maiden post I will provide a brief high-level intro for the benefit of an equity investor looking to learn about the sector, and provide a brief profile of some of the leaders in the field.

Comments and feedback are more than welcome.

Cleantech Overview

I will divide ‘Cleantech’ into several subsectors: renewable energy (wind, solar, fuel cell, biomass, water); battery storage; energy efficiency; and electrification. Each subsector has an ecosystem of technology providers / manufacturers, project developers, asset owners / capital allocators, and service providers. There is considerable overlap as many companies are involved in two or more of these subsectors at the same time since they naturally fit together, but I believe they are distinct enough such that it is useful to create these buckets just for the frame of reference.

As my tagline indicates, the industry is young. The table below is a list of many of the largest pure-play publicly traded cleantech companies. Only four companies fit the typical definition of large-cap (>$10 billion market capitalization).

I emphasize ­pure-play above because these are companies that are, by and large, exclusively focused on cleantech. There are certainly plenty of very large companies that derive significant portions, but maybe not a large majority, of their revenue from cleantech: utilities around the world that invest in renewable energy; essentially all of the auto manufacturers are investing in electrification; diversified suppliers like GE, ABB, and Emerson Electric provide major components of electricity generating and transmitting equipment.

The takeaway is that cleantech has a long way to go to match up to other “major” industries, and there is yet to be a major champion. The popularity of Tesla probably makes it the closest to date, but it has a ways to go before it can be considered an established ‘giant’ that one might consider making a cornerstone of a long-term investment portfolio.

Industry Pioneers

The following profiles are about a few entrepreneurs and leaders in the space. It is certainly not an exhaustive list of all of the major pioneers, but the names below may not be familiar to the typical investor being introduced to this space and therefore I thought it would be useful to discuss the contributions they have made which have helped shaped the industry to date.

Michael Polsky

Credit: Invenergy

Michael founded and runs Invenergy, the largest independent renewable energy provider in North America. He was probably the earliest to be bullish and invest significantly in utility-scale wind, developing his first wind project in 2003. Now Invenergy has an $8 billion portfolio of 78 wind farms around the world plus solar, natural gas, and battery storage plants.

Michael arrived from the Soviet Union in the 1970s as a refugee, speaking no English. He developed expertise in cogeneration technology – power plants which run on natural gas and generate both electricity and heat – by working at the large engineering / construction firms Bechtel, Fluor, and the precursor to ABB. Sensing the opportunity brought forth by deregulation via the passage of PURPA in 1978 which broke up local utility monopolies, he began entrepreneurship in the early 80s by starting a company which owned cogeneration plants. The second company he founded, SkyGen Energy, expanded into gas peaker plants and was eventually sold to Calpine for $650 million in 2000.

In the early 2000s he once again sensed and jumped on the opportunity arising from government action. This time it was government mandates and incentives in the form of state RPS (renewable portfolio standards) and the federal production tax credit for wind. He founded Invenergy in 2001 to buy distressed gas plants, but then moved quickly and forcefully into developing wind projects. A key early relationship with GE enabled Invenergy to procure large numbers of turbine in anticipation of future growth. In the middle of the decade, the rise of natural gas prices combined with a maturing wind market (i.e. improving technology, falling costs) created a favorable environment which made his big bet on wind pay off in spades.

Dick Swanson

Credit: SolarPowerWorld

Dick was on the faculty at Stanford in the 70s and 80s where he helped develop solar cell technologies that set energy conversion efficiency records. He founded the company that eventually came to be called SunPower in 1985 with some of his students and lab techs with R&D funding from the government and a small amount of venture capital.

The markets for solar panels at that time could be politely described as "off-grid": offshore oil rigs, lighthouses, mountaintop repeaters, marijuana farms. One of SunPower’s first sales channels was freeway call boxes. SunPower intended to focus its efforts on concentrated photovoltaics, but that market did not gain traction. To survive, the company built products for other companies such as telecom equipment, bar code readers, optical retinas, and CAT scanners for companies like GE.

Eventually SunPower found its footing by leading the way in technology development in high efficiency monocrystalline solar cells. Initially used for applications like solar-powered race cars and aircraft in the 90s, the company moved into large-scale manufacturing for utility-scale power generation after a large investment from Cypress Semiconductor in 2002. In 2005, SunPower became the first solar company to issue an IPO in the U.S..

Since that time, the dramatic decline in the cost of solar has defined the industry and enabled its spectacular growth but also put extreme pricing pressure on manufacturers like SunPower. An investment from French giant Total in 2011 secured SunPower’s position, which in hindsight was likely necessary given the fierce competition versus lower efficiency polycrystalline cells from China and thin-film cell technology from First Solar.

Dick made an observation in 2006 that solar cell prices decline by 20% for every doubling of solar panel industry capacity. This has made it into the industry lexicon as Swanson’s Law – not coincidentally akin to Moore’s Law, and both of which are probably better described as rules of thumb which have held true for a remarkably long time.

Jigar Shah

Credit: PV Magazine

You could say Jigar pioneered SaaS – if you replace “software” with “solar”. He wrote the business plan for SunEdison while in business school in the late 90s but was discouraged from pursuing the plan at the time because no one wanted to invest in infrastructure during the dot com boom. After a stint at BP Solar he founded SunEdison in 2003 (with a home equity line of credit!), bringing the third-party ownership business model to the solar industry. In an industry where the biggest financing challenge was high upfront capital costs, the innovation unlocked the market’s potential by providing a “no money down” PPA (power purchase agreement) option to those who wanted to go solar to reduce electricity bills and/or be environmentally conscious but could not or would not allocate significant dollars of their capex budget to procure it.

In the early years, most of the demand for clean energy was from utilities which were incentivized by new state renewable portfolio standards (RPS) requiring them to procure certain amounts of clean energy, and early adopter types who were willing to pay a premium to go green. SunEdison built and financed the first utility-scale solar project in 2007 in Alamosa, Colorado. However, the market would have remained limited if it had to rely only on these channels because a) many RPS targets were met quickly or are on track to be met earlier than planned; b) utilities can always choose to build their own renewable energy plants and earn their regulated rate of return on the assets; and c) those willing to pay a “green” premium never were and never will be a significant industry driver. Instead, the true potential of the PPA model has been realized more recently as demand has organically arisen from the C&I, municipal and residential sectors. A vast majority of these customers come in search of immediate and long-term savings on their utility bills, and have found third-party ownership via PPAs (or leases, essentially the same product from the customer’s perspective) to be a great option.

A great many PPA providers came out to copy SunEdison, no doubt a sign of a great business model but perhaps also of one without a real “moat” in an age where lots of capital is looking to be deployed. SunEdison itself didn’t survive for idiosyncratic reasons, but the third-party ownership model continues to drive growth and remains the best option for many if not most customers.

Art Rosenfeld

It is not often that the birth of an entire industry can be attributed to one person. Art was described as the “godfather of energy efficiency” and has been credited with being personally responsible for billions of dollars in energy savings. While teaching physics at UC Berkeley during the oil embargo years of the early 70s, he turned his attention to energy and environment and developed a broad range of energy efficiency standards and technologies. These include key components of compact fluorescent lamps, insulating coatings for window glass, and software used for building energy analysis and design.

In the mid-70s, utilities had big designs for adding power plant capacity in California – up to 17 GW were under development. Art worked with legislators, regulators and the then new California Energy Commission to implement much less-expensive efficiency policies that made much of the utilities’ request superfluous. This may have avoided at least $75 billion in wasted investment according to Berkeley Lab.

A recent report indicates that the energy efficiency industry employed 2.25 million Americans last year. This sector continues to grow under the radar within the overall cleantech space since it is not represented by any single sexy product (notwithstanding the Nest thermostat perhaps), and is difficult to finance as there is often no real equipment to pledge as collateral and measuring performance is not as straightforward as counting kilowatt-hours on a meter. Nevertheless, although I don’t have numbers to prove it, the cumulative impact of energy efficiency programs to date on carbon emissions, and maybe even in terms of total dollar impact in the economy, is likely far greater than for any of the technologies from the other subsectors which have gained traction much more recently.

Art died in 2017 at the age of 90.

Even for an incomplete list I would be remiss in not mentioning Elon Musk. Via Tesla, his contributions to the commercialization of electric vehicles, battery storage and solar to date have brought the industry forward much more quickly than any single effort before him. As he is already well-covered in the press I will not spend more time covering his background here.