A Focus on Energy Efficiency Will Help Keep The U.S. Competitive, and Other Cleantech Industry Predictions for 2011

2/22/11Follow @xconomy

Foreign competition is rising, and U.S. consumers haven’t departed from their penny-pinching mentality of The Great Recession, and behind this double whammy the cleantech industry is feeling the squeeze. That’s one of the big impressions I came away with after polling a crop of cleantech experts from Xconomy’s network of advisors and op-ed contributors for their predictions for 2011. But take heart; there’s plenty of room for optimism, especially in the fields of energy efficiency and monitoring, where the U.S. may be leading the way to a greener future that’s much more achievable—at least in the short term—than through any form of alternative energy.

One sub-theme was pretty overwhelming among the responses I received: the actual materials manufacturing side of cleantech (i.e. the production of components for generating solar and wind energy, efficient batteries, and LED chips) is struggling, but energy-focused software and services are rising to the occasion. A number of Xconomists and contributors have pointed out that the U.S. cleantech manufacturing base is weakening due to competition from countries like China, which offer cheaper production and strong government incentives (or mandates) for adopting the new technology.

“It’s a rapidly commoditizing good,” Ray Demeo, VP of worldwide sales at Marlborough, MA-based Coolcentric, says of solar equipment. “The price that China can produce the product at is lower than U.S. manufacturers.”

Additionally, consumers and investors are nervous about spending upfront on things like efficient appliances, electric vehicles, or solar power, to get cleaner sources of energy into their homes (or cars), and would rather find ways to save. Makes enough sense. That’s actually the silver lining for the cleantech space, though, several experts say.

“The fundamental business proposition is we will go in and evaluate some aspect of your energy utilization and we will cut your cost—-I won’t be surprised to see those kinds of business models continue to thrive,” says Tom Ranken, president and CEO of the Washington Clean Technology Alliance. “Ten to 15 years from now, people might be slapping themselves upside the head saying, ‘how did I miss that?’”

Here’s a roundup of some specific predictions we gathered from our network of cities:

—Stephen Mayfield, director of the San Diego Center for Algae Biotechnology and a professor in UC San Diego’s Department of Molecular Biology, said we can expect to see a slew of biofuels advances this year:

  • The first synthetic algal genome.
  • The first significant scale-up of

algae biofuel production.

  • The first clinical trial of an algae-based therapeutic.
  • The introduction of several new algae-based nutraceuticals.

—Seattle-based Cascadia Capital chairman and CEO Michael Butler has some big things to say about natural gas and renewables:

  • Congress will implement incentives for new production of natural gas, renewables, and nuclear energy, but won’t enforce penalties for those who don’t cut down on carbon emissions.
  • Oil prices will hit $100 a barrel, and oil companies will expand by purchasing natural gas companies and assets.
  • Technology for converting waste to energy will hit the market in 2011 and will replace incinerators and landfills as the method for handling municipal waste.
  • Big (and traditional) energy firms like BP, Chevron, and Shell will acquire companies in the renewable energy space.
  • “We expect to see investor money that has traditionally focused on renewable to allocate a portion of that money to natural gas,” Butler says. “We are aware of a couple renewable investors raising natural gas only funds.” Investors are attracted to the fact that some infrastructure is in place, but plenty more is needed for the natural gas field to grow, he says.

—Several other experts were optimistic about the promise of natural gas.

  • Bob Metcalfe, general partner at Polaris Venture Partners and University of Texas Professor of Innovation, predicted that progress in the natural gas space would outpace that of solar.
  • MIT Entrepreneurship Center manager director Bill Aulet pointed us to a discovery in natural gas: shale gas. “The discovery of $4 trillion of shale gas that is much cleaner than coal and located strategically in the Northeast close to the demand, and also in areas of highest political leverage (i.e., in the swing states), could fundamentally change the energy picture here in the U.S,” he wrote. “This dramatic change in the status quo will create great innovation and entrepreneurial opportunities-a modern day Energy Gold Rush but on a much shorter time scale than solar and with more substantial immediate results. It will not be the perfect ultimate solution, but it could be a huge step in the right direction.”

—Rachel Sheinbein, principal at San Francisco-based CMEA Capital, says that we’ve “come got to sense of reality in the energy materials sector,” and that “a lot of people jumped in head first and may be now taking a step back and looking at what makes sense for venture investing” in areas like solar and wind. She did find promise in a few slices of cleantech, such as:

  • Energy storage technology. Sheinbein says that piece of the puzzle is needed for renewable energy products to really take off. She pointed to A123 Systems, (NASDAQ: AONE), a Watertown, MA-based maker of advanced lithium-ion battery systems, which has spun out an energy storage technology company called 24M Technologies.
  • Developing information technology surrounding natural gas and water infrastructure. There’s promise in technologies for managing natural gas drilling and for better monitoring the water system. She also sees potential for technologies to spring up in the area of treating industrial wastewater.
  • Networking technology targeted at energy efficiency. “That’s a comfortable space for venture investors to work in—they know it from other parts of their portfolio,” she says.

—Not everyone is grim on solar. Like Steve Hall, managing director at Seattle-based Vulcan Capital. “After a two-year drought of capital access and valuations challenges, a number of solar start-ups will have weathered the storm and start to show real progress on commercial deployments, manufacturing capacity, and competitive costs per kilowatt hour,” he wrote in his New Year’s prediction for us. “While it is unlikely this sector will be positioned to see new IPOs, a few early winners will emerge and bring new investor enthusiasm to the sector.”

—Seattle-based Eric Koester predicts that existing companies will add a green product or focus to their business, and companies will incorporate wider IT trends—like crowdsourcing, geo-location, and gaming—into their businesses as ways to go green. Examples would be a Web-based platform to organize ridesharing to cut down on fuel usage, or mobile developers offering technology for finding local, organic food items. He’s the author of the recently published Green Entrepreneur Handbook. (He wrote on the subject for us here and here.) “I see more and more businesses springing up in areas such as Green IT, smart grid, home-based energy monitoring, distributed solar/wind/geothermal, and energy efficiency plays. These are all sectors that tend to be a bit less capital intensive and really represent a cross-section of green and non-green technologies,” he says.

Putting this all together, perhaps the U.S. position in cleantech isn’t as bleak in the long run as some may paint it to be. While other countries may have the manufacturing advantage in the short run, there’s still room for the U.S., says the Washington Clean Technology Alliance’s Ranken. “I think sometimes we view our competition as having no flaws,” he says. “Over time what emerges is we’re really good at some things, they’re really good at some things; we find our niche, they find their niche.”

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