This is the last of my articles taking cleantech investing to task sector by sector (keep the hate mail coming, hippies!). The next few will focus on some areas I really like, including storage, solar thermal, water, and others. But first, a bit more constructive bludgeoning.

This is a bit of a “two for one special” looking at biofuels and wind—two forms of clean energy poised to wreck the environment they are purported to save. These dual titans of uselessness are powered by hype and corporate sugar daddies using influence on Capitol Hill in ways that would make even oil company executives blush. The VC community has avoided wind pretty well (with PE and traditional investment firms more than picking up the slack) but man, they have got quite the teenage crush on biofuels.

I’ll note from the top that some of these arguments are the very same ones I have with solar, and they apply to some extent to all new energy technologies. They’re about the cost of potential entry, if you will.

First wind, which has been getting a lot of attention lately, partly due to those late-night TV commercials from Texas oil baron T. Boone Pickens (who seems to have taken the place of Ron Popeil and the rotisserie-oven ads I so love). Pickens has a huge investment in wind and a plan to replace natural-gas-produced electricity that’s so ambitious that even the Sierra Club’s number crunchers find it unrealistic.

Wind power is rather straightforward: build a big propeller and put it up on an even bigger pole. The spinning of the blades generates 1 to 2 megawatts of power per turbine; wind farms generally consist of hundreds of turbines. But behind this simplicity is a highly engineered and heavily maintained system. Much like power from solar photovoltaic cells, wind power has serious downsides—such as being ugly, land-intensive, hugely dependent on subsidies, and unreliable.

How unreliable? Current industry estimates claim wind “can” work 30-40 percent of the time over the course of a year. But actual output is all that matters, and real-world experience shows that annual outputs of 15 to 30 percent of capacity are more typical. The wind just doesn’t blow as often at the right speed as a grid power system needs. The Searsburg wind farm in Vermont, for instance, produces no electricity at all 40 percent of the time.

Wind farms also require huge amounts of land, which is then rendered fairly useless for other purposes. Some wind farm proponents counter this by noting that monstrous wind turbines are actually a tourist attraction. Yes, and what family vacation isn’t built around a three-day drive out to rural Texas to watch giant blades create noise, vibrations, and seizure-inducing strobe effects, while slicing up bats and birds in a manner that would warm the hearts of the Khmer Rouge? Screw Disneyland, kids, we’re going to Uncle Boone’s Wonderiffic Wind Farm for vacation!

And more often than not, wind farms are built in pristine wilderness, on ecologically fragile ridgelines—places that, without the wind farm, might actually be attractive hiking or nature-observation areas. Getting the leviathan-like wind turbines out to these remote and beautiful locations requires huge trucks running over new roads ripped through the forest or prairie.

And at the beginning of this whole circle of destruction, don’t forget that wind turbines need to be manufactured. Football-field-length propellers don’t grow on trees. As with solar, it takes lots of energy to power those factories, which also use huge amounts of mined metals, petroleum-based plastics and lubricants, and tons and tons of concrete. And you ‘d be hard pressed to find dirtier industries than steel, plastics, and cement production and mining.

I know what you’re saying: “Well, every new energy source is going to need manufacturing and industrial development.” I agree, but the point is that we shouldn’t forget to factor that into the overall environmental impact. The oil, gas, and coal industries are already built out. It’s just like looking at the overall sustainability of buying a new Prius, when keeping your five-year-old Celica well tuned and on the road is actually better for the planet.

When you look at the portion of our energy requirements covered by wind power—less than 1 percent—it ends up being the most heavily subsidized of all energy sources. Ed Feo of Milbank Tweed recently noted that two-thirds of the economic value of wind projects come from tax breaks and subsidies from the federal government. And he was being generous, not adding that a wind farm operation can get another 10 percent in breaks from the coffers of state governments. That ‘s quite a racket.

It may not surprise you to learn the wind industry as we know it was structured by a little company called Enron (Enron Wind is now GE Wind, by the way). And investors know it’s just a giant subsidies racket. Navigant Consulting, which advises on renewable energy technology, estimated that investments in wind and solar power in 2009 would amount to $26.6 billion with government handouts, but would fall to $7 billion without them. Ultimately the cost of these tax breaks and subsidies shifts costs from wind farm owners to ordinary taxpayers and electric customers.

And the biofuels industry. Urgghh! It’s little more than a scam perpetrated by … Next Page »

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The other day the Boston Globe had a piece on solar technology coming of age in which Caltech chemistry professor Nathan Lewis stated: “We’re not in a hype cycle…If you go to Silicon Valley and around Route 128, everyone and their brother who used to make computer chips are now trying to make thin-film solar cells.”

Dr. Lewis seems to ignore that he gleefully gave a textbook definition of a hype cycle. And an out-of-control hype cycle is literally what we’re in when it comes to solar energy.

There are dozens of separate subsectors of research, development and production that fall under the solar energy banner. I am going to skip passive solar, solar water heaters and solar thermal (which I actually like) and cut right to the solar energy sector most encumbered with hype, technical issues, mad money, and conflicts with reality—photovoltaics.

Photovoltaics (PVs) convert sunlight directly into electricity. Basically, they are those ugly glass boxes you see over at the Porter Square Plaza in Cambridge. Production of photovoltaic cells has been doubling every two years, since 2002, making it the fastest-growing energy technology sector in the world.

PVs break down for the most part into crystalline silicon PV, inorganic thin film, multi-junction PV, and organic and Gratzel PV systems. In a nutshell, you have the old, thick, expensive ones and newer, thinner, cheaper, often flexible ones. The issues making them problematic as an energy solution are that PVs cost too much to make, install, and maintain—oh, and they also only work when the sun is out.

To the cost issue of PVs, you hear a lot about companies working toward “price parity” and “grid parity”—i.e. a cost per megawatt on a par with electricity from fossil fuels—but nearly any number you see in print is half baked. Over and over again, companies have failed to translate the efficiencies achieved in lab experiments into durable solar panels that can be mass-produced cost effectively. Miasolé, for instance, has been getting 8 to 10 percent efficiency in the lab but only 4 percent or so in a mass-production form. Once you account for installation, maintenance, and repair costs for homes and business—which often add more than 50 percent to the base cost of PV panels—it’s clear that PV solar is never going to be cost-effective as a replacement baseload power source.

So if you were to go the Al Gore route of building a national, grid-replacing, mega solar farm in Nevada, we’d all go broke and die. It’s an inconvenient truth (ouch!) that besides destroying 5 million acres of land (about seven times the size of Rhode Island; wait until the environmentalist hear about that!) and another 7.5 million acres of adjoining land to support the system, it would cost around $21 trillion dollars to build a solar farm large enough to meet U.S. power needs—and we’d still have to keep the current energy grid up and running and ready to go for the two-thirds of the time when the sun isn’t doing its job.

In addition, though solar has this reputation of being a green technology, the reality is that PVs are full of gross pollutants, gnarly residues and nasty chemicals. Making PVs requires toxic heavy metals such as lead, mercury and cadmium—and throw in silicon tetrachloride to boot. Then there’s the mining operations needed to get many of the materials. And for good measure, don’t forget that PVs are made in factories. The plant at Suntech, one of the world’s biggest PV makers, is powered by a coal plant. Oh, the delicious irony.

On top of all of this, the PV industry is truly dependent on subsidies. The government now pays 30 percent of the cost to businesses to invest in solar to meet their energy needs. For consumers, there’s a Federal tax credit of $2000 for your renewable energy system (solar or wind) after rebates. States throw in a hearty helping of additional incentives, as in the case of California, which offers a subsidy for residential solar of as much as $2.50 per installed watt, depending on a system’s expected performance.

Even with all those subsidies, and even with oil at $140 a barrel, and even when you add in the federal and state taxes on oil production, solar still doesn’t reach break-even with fossil fuels, except in some start-up’s PowerPoint presentation.

Worst of all, this hype is bad for the environment. Focusing so much on PVs means that we’re moving investment dollars away from other clean energy technologies that have much more potential. I often hear folks at clean energy forums state that the United States needs to emulate Germany by creating more incentives to build PV farms. What’s not mentioned is that it takes six years for a German PV plant to generate the amount of power used to make the PV cell.

So PV solar costs too much, isn’t exactly green, isn’t as good as claimed, and depends on government support. What else can be wrong with it? Investors—and their bad habit of … Next Page »

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I feel the need to start off with a disclaimer, because when you start pouring A-1 sauce on sacred cows people tend to get a wee bit irrational. Let me state for the record that I do indeed believe that global warming is a real threat. I also think that our over dependence on foreign oil is a bad thing that imperils our nation’s economy. I also believe that cleantech is an investment area of great promise with new technologies that will profoundly change our world for the better.

That said, the cleantech field—as it currently stands—is a disaster in the making, with dumb money chasing dumb investments and with shoddy science experiments being grossly over-hyped as panaceas for all that ails our environment, gas tanks, and wallets.

We all know the score—basically, we have is a planet warming from CO2 emissions, record fuel prices, near or at peak oil, exploding demand from China and India for natural resources, not to mention suburban sprawl, polluted rivers and soil, etc, etc. The hope is we may be able to fix it with behavioral changes and technology.

Cleantech is the umbrella term for the technology part of this hope. It’s generally thought of as products or services that “…improve operational performance, productivity, or efficiency while reducing costs, inputs, energy consumption, waste, or pollution.” (Thanks Wikipedia.)

The issue I have with cleantech lies in the solutions that are being focused on, and who is doing the focusing. Let’s start with the latter and look in this column at cleantech and the VC community. You know, the guys quoted in all those BusinessWeek and Fortune articles portraying themselves as the saviors of the Earth—much like Capt. Planet and the Planeteers.

According to the most recent PricewaterhouseCoopers MoneyTree survey, venture capitalists invested $2.2 billion in cleantech companies over the last year. That’s a mind boggling 45 percent jump over 2006. I have seen business plans that were laughed at a couple years ago now become the object of bidding wars by top VC firms.

Beyond the hype and money, why are the VCs flooding into cleantech? I reckon some of it is driven by a combination guilt complex/God complex for the “sins” they committed in acquiring their wealth. I won’t mention any names (mainly because it’s such a huge list), but it appears these personal pathologies factor into their drive to save the Earth with their bigger brains and purer hearts ***cough***.

Now, there are great venture capitalists patrolling the cleantech space—Rob Day of @ventures comes to mind—but they belong to a very short list. The biggest problem is that most VCs are not equipped to handle industrial plays like energy. They don’t understand the engineering, the science, the value chain, or how the public policy world works. And, even worse, they don’t seem to be taking the time to access the right people to do the due diligence for these questions either.

These days, I am watching some HBS drop-out, who sold an online dog food company back during the bubble days, in a mad scramble to blindly pull the trigger on deals that need expertise in materials science and mechanical engineering to even read through the business plan. Seriously, some of the bizarre claims being made by some entrepreneurs in their projections would make any power industry engineer simply laugh out loud. Yet the checks are flying out of investment firm after investment firm to these start-ups.

Getting beyond the scientific and technical feasibility issue, try to find a VC that understands manufacturing. Good luck. I hypothesize that the reason so many photovoltaic companies have gotten funded is because if a VC by some miracle does understand manufacturing, he almost always understands it in terms of the semiconductor field. The reality is that building a physical object is extraordinarily different from … Next Page »

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