Peering Over the Valley of Death at the MIT Sloan Energy Finance Forum

12/10/10

The second annual MIT Sloan Energy Finance Forum, which focused on the lifecycle of energy finance, was held last Friday at the Sloan School of Management at MIT. I am not someone interested in working in finance, but I decided to walk across campus to get a sense of the state of the sector in case I ever am in the position to develop a business from a technology I may develop during my time as a student here at MIT or afterwards.

As a fourth year PhD student in mechanical engineering, I have been around the block before; I have gotten to know a couple generations of Sloan MBA students, many of whom are very eager to find a technologist—someone with a potentially marketable technology—and lead this unsuspecting engineer or scientist down the path of soliciting investment and business development. I have not yet come across what I would consider to be a marketable technology during my graduate work, but I figured that this forum would afford me a good opportunity to understand this pipeline and what I may possibly encounter.

What struck me most at this event was the pessimism among the mid- and late-career professionals within the energy industry, especially those who deal with early-stage investments in promising technologies. This was quite surprising to me after my past few years at MIT interacting with very optimistic Sloan students. It was through the lens of this disconnect that I tried to make sense of the conversations during the forum.

The opening keynote was delivered by Department of Energy CFO Steve Isakowitz, who echoed Secretary of Energy Steven Chu’s recent musing as to whether the United States is missing out on its “Sputnik moment” in energy. If there isn’t a national effort focusing on the development and deployment of new energy technologies, this new industrial revolution would be missed. However, Isakowitz’s message became more optimistic as he spoke on the Obama administration’s policies directed at energy technology investment. With sustained government policy, he argued, private investment would continue to enter the market and allow for continued technology development and the deployment of those technologies which are economically viable.

By the midpoint of the first panel, entitled “Dirty Little Secrets About Energy Venture Capital”, the conversation shifted to the consideration of whether the venture capital industry’s traditional model was sufficient for the sustained development of energy technologies. Ramana Nanda, assistant professor at Harvard Business School, argued that venture capital firms were not prepared for the structural challenges of investing in energy: the regulation, the product as a commodity, and, most importantly, the low and long-term returns in this capital intensive industry. Venture capital firms entered the energy space with the false assumption that they were entering white space similar to their previous successes in information technology, but were unprepared for the fact that they were entering an industry of massive scale, regulated markets, and a fully developed (though aging) infrastructure.

As a potential technologist, this was the most startling lesson from Friday—that the very people who are supposed to be the ones escorting innovators over the “valley of death” to a profitably deployed technology were the ones most unsure of their ability to perform the task in front of them.

Fortunately, I was able to leave this event optimistic about the potential for continued investment and innovation in energy. This was because of the sheer interest from students of my generation, the up-and-coming leaders in energy. The lecture hall was filled to standing-room only with a great mix of professionals and many students from across MIT and the many other great institutions in the Boston area.

Perhaps the most heartening thing, however, was the fact that I wasn’t the lone PhD student in the room. There were many others who made the trek across campus with the hope of gaining a deeper understanding of the current landscape of energy investment. These twenty- and thirty-something burgeoning energy professionals—MBA students, technologists and policy students alike—are the ones who will be forging their way across the valleys of death together, and I am excited that everyone in my generation is still chock full of optimism.

Addison Killean Stark is a PhD student in the Department of Mechanical Engineering at MIT and is Co-President of the MIT Energy Club. Follow @

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  • Karri Casper

    Excellent article Addison. As someone who works in the energy industry, I face the same challenges and others.

  • http://www.enovexcorp.com Scott Walton

    Sounded like a great forum (despite the pessimism). Unfortunately I am on the startup side of the topic you discussed above. Even though IT startups are higher risk, their ROI is tough to compete with. I wouldn’t say energy returns are low, but the payback period is certainly amongst the highest.

  • Brian H. Barron

    Virtually everyone trying to innovate in the energy sector is stifled by the so-called “valley of death”. Yet a historical review of other business sectors shows that a few have found a way to leap the canyon.

    Take the communications industry: they struggled with the same “tangle & the tyranny of copper wires” that still plagues the CENTRALIZED electric power production markets. But they made the discontinuous & radical “jump-shift” to………..microwave towers, GPS, & satellites.

    The next generation of breakthrough energy innovations will start with the ultimate consumers’ needs, not the outmoded suppliers’ shortcomings, and is designed to be accessible to every person on the Planet, just like the reliable & very inexpensive air that we all breathe, simultaneously, all the time.

    Here’s a hint: study the art of “bricolage” & “biomimicry”.
    Thanx for the observations. bhb

    Brian Hughes Barron
    General Innovation-Seattle

  • AKURU BOLA UDOCHUKWU

    Wow! Am very enthralled by your ability to detail the unassuming focus of contemporary investors in green energy. True to your observations that the current scenario suggests an attitude of uncertainty, let me add that indifference as well as the mirage of conventional energy sources are pointers that try to relegate RE to the background. However, respite will come for young RE researchers like myself the moment that consumers become aware that apart from not damaging our habitats, RE can be produced and utilised in a most energy efficient manner.