Re-energizing Energy Innovation: Experts Spar (Lightly) at Xconomy Forum

12/4/08Follow @wroush

The role of technology entrepreneurs in rebuilding the U.S. energy economy was the main theme at Xconomy’s latest forum Tuesday night. Topping the agenda was an all-star panel of local entrepreneurs, venture capitalists, and academic analysts, who shared their thoughts with a sold-out crowd of some 125 attendees at the British Consulate General in Cambridge, MA. The program climaxed with an intense, fascinating chat between Highland Capital Partners general partner Paul Maeder and energy-efficiency expert Amory Lovins, co-founder and chairman of the Rocky Mountain Institute.

If there was a single takeaway message from the evening, it was that new technologies being developed by venture-backed energy companies—along with the smart application of some old ideas, like efficiency—have the potential to generate significant investment returns, while slowing climate change and helping to lift the U.S. economy out of recession in the bargain. But taking full advantage of these technologies, all of the speakers agreed, will require some major political, cultural, and regulatory changes. As a new administration in Washington begins to confront the economic crisis and the ongoing national-security vulnerabilities created in part by U.S. dependence on foreign oil, Boston-area innovators and entrepreneurs are clearly looking for opportunities to contribute.

The Maeder-Lovins conversation was so idea-rich that it deserves a post of its own, which we’ll bring you in a day or two. But the panel discussion, moderated by Xconomist Bill Aulet of the MIT Entrepreneurship Center, produced its own wealth of worthwhile insights. The panelists included Christina Lampe-Onnerud, CEO of lithium-ion battery maker Boston-Power; Jim Matheson, general partner at Flagship Ventures, which has investments in local energy startups Ze-gen, Mascoma, and Novomer; Bill Wiberg, general partner at Advanced Technology Ventures, which has investments in Great Point Energy, Coskata, and Rive Technology; and Donald Lessard, Professor of International Management at the MIT Sloan School of Management and co-chair of the MIT Energy Education Task Force.

Aulet kicked off the discussion with the assertion that energy innovators have not established a lustrous record over the past few decades, with new technologies typically taking 10 to 40 years to reach the market. But Wiberg immediately disagreed with that premise, saying that “It’s not innovation that’s been lacking, it’s commercialization.” When energy prices waver, as they are now, investors’ confidence about putting money into alternative energy schemes often wavers as well, Wiberg pointed out.

Lampe-Onnerud countered that Aulet was correct, in a sense, in that many energy technologies are so complicated that it really does take decades to work out all of their kinks. In her own field of battery chemistry, Lampe-Onnerud pointed out that lead-acid and then nickel-metal-hydride batteries dominated from the 1850s all the way up to the 1990s, when the first lithium-ion batteries were commercialized—and that lithium-ion technology is still only beginning to show its potential. “Energy storage devices are like little chemical factories,” she said—and many other energy technologies are equally complicated. “It’s not a one-component problem,” Lampe-Onnerud said. “If we could have one resolution tonight, I’d want to inspire people to work more collaboratively, because these things are really hard.”

Lessard argued that the pace of energy innovation is limited by existing models for regulating and investing in energy technologies. “Anything that requires behavioral change or regulatory change is going to be hard,” he said. “It’s very hard to bank on regulatory reform.” The energy business involves such complex politics and extensive regulation, in fact, that “it’s an environment where if you were a smart startup, you would never go,” Matheson chimed in. “Which is why the venture industry has shied away from it. But now we’re all trying to go there together.”

Wiberg pointed out that in certain venture-funded areas, such as biofuels and coal-to-gas technologies, there is already “a lot of pilot activity for large-scale production.” But the financial crisis means there’s going to be a period of uncertainty for many of these companies, he said, as the hedge funds and private equity firms that were active in early-stage energy investing fall out of the market. “How do the companies that were planning on raising hundreds of millions of dollars on the private and public markets adjust their business plans and still get the capital they need? That’s incomplete,” said Wiberg. “But we’re optimistic, even in this environment. These are enormous markets, and there is a lot of innovation going on, and an increasing number of great entrepreneurs are getting involved.”

Matheson faulted venture investors for focusing too heavily on the “black boxes,” the core technologies at their portfolio companies, and too little on “how you add unique value in a value chain.” Many first-generation alternative energy projects will fail, Matheson predicted, because they’re producing commodities for which there is no market, or no sustainable price. Matheson cited Flagship portfolio firm Novomer (profiled here and here) as an example of a company that has only expanded as fast as it is able to find markets for its products (in this case, alternative polymers synthesized from carbon dioxide).

Provoked by the panelists’ comments about the limits of new technologies and the importance of market factors, Aulet asked, “Is technology overrated when it comes to energy innovation?” Lessard answered more or less in the affirmative, saying rebuilding the nation’s energy economy “is going to require as much regulatory and ‘mechanism’ engineering as … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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