The Top Five Cleantech Stories of 2011, Part I

By Zach Hiatt

The end-of-year holidays are all about family gatherings, religious celebration, retail mania, and of course, lots and lots of calories! But they are also a time to pause and take stock of the year gone by—to reflect upon our successes and failures, and then “resolve” to improve ourselves in the year to come. As our Cleantech practice team counts down the final days until the New Year, we’ve attempted to reflect upon the year that was by recounting the Top Five Cleantech Stories of 2011. These five stories (themes, really) are not intended to be a comprehensive list of everything that happened in the Cleantech/Greentech sector in 2011, but are simply our impression of the major events and themes from 2011.

Without further ado, here’s Part I of the list, counting down from 5th to 1st:

Number 5: Venture Capital Continues to Flow into Cleantech as Sector Matures

According to investment statistics contained in the Q3 2011 PricewaterhouseCoopers/National Venture Capital Association MoneyTree report, 2011 is shaping up to be another strong year for venture capital investment in CleanTech. Through the first three quarters of 2011, the Cleantech sector (which crosses several traditional MoneyTree industries and includes alternative energy, pollution and recycling, power supplies and conservation) was the third leading sector for venture capital investment, behind only software and biotech. After surging in 2008, venture capital investment in Cleantech slowed in 2009 and then rebounded to near-2008 levels in 2010. Assuming the 4th quarter of 2011 is generally on par with the first three quarters, this year will see slightly more venture capital flowing to Cleantech than in 2010. Through the first three quarters of 2011, $3.073 billion in venture capital has been directed to Cleantech investments. By comparison, $3.755 billion in venture capital went to Cleantech ventures in all of 2010. Although it appears 2011 will still outpace 2010, Cleantech investments were down 13% from Q2 to Q3 this year, potentially signaling a softening in this sector. This 3rd quarter downturn, combined with the relatively steady level of venture capital investment from 2010 to 2011, has led at least one analyst to call the trend for the Cleantech sector “flat” to slightly down.

Number 4: The (Continued) Emergence of China as a Cleantech Force

China has long been considered an important player in the Cleantech sector, if for no other reason than because China is one of the world’s foremost polluters (along with the United States) and presents a potentially-huge market for cleaner, greener technologies. And of course, China is a major manufacturing center for various industries, including Cleantech. In 2011, China has emerged as more than just a market and manufacturing hub for green technologies; it is also becoming a major source of capital investment in Cleantech, including both private and government-backed investments. According to the Cleantech Group, China-based Cleantech start-ups raised $176 million in Q2 2011 and $138 million in Q3 2011, which was far more than they had raised in previous quarters. From this, a recent article in Forbes notes that at the same time investment firms worldwide are committing more capital to China, Chinese venture capital firms appear to be investing more in Cleantech. One of the primary reasons for this increased private investment appears to be the Chinese government’s pro-Cleantech policies, which include everything from government-backed financing to fast-tracking permits for Cleantech projects. During the next decade, China is predicted to spend between $440 and $660 billion on Cleantech investments – that’s roughly $50 billion per year, or about 12 times the amount of venture capital coming from U.S. firms (discussed above) during the banner year of 2008!

Stay tuned as we “venture” into our Top 3 Cleantech stories of 2011…

Washington Team Gets Funding to Push Solar Power

By Judy Endejan

Last week, the U.S. Department of Energy (“DOE”) awarded a Washington team $520,000 to accelerate the use of solar power in Washington. This money is to be used to target the “soft costs” of solar energy. Soft costs include permitting, installation, design and maintenance and they make up 40 to 50 percent of the total cost of installed rooftop photovoltaic (PV) systems in the U.S.

The Washington team includes the cities of Seattle, Bellevue, Edmonds and Ellensburg; Seattle City Light; Snohomish Public Utilities District; Puget Sound Energy; Northwest SEED; Solar WA; Thurston Energy and Sustainable Connections. The team’s goal is to streamline processes involved in solar power such as permitting, zoning, net metering and interconnection. Contemplated projects include developing an online permitting system and shorter permitting turnaround times.

Currently, over 18,000 local jurisdictions in the U.S. have their own PV permitting requirements, land use codes and zoning ordinances. Furthermore, states and utilities have their own standards for connecting and selling energy back to the energy grid.

The $520,000 grant is part of the DOE’s “Sunshot Initiative” that has four components, one of which is improving the efficiency of installation, design and permitting solar energy systems. The Sunshot Initiative’s goal is to bring the total cost of solar energy systems down by about 75 percent to roughly $1.00 a watt by 2020. This would make large-scale solar energy costs competitive with the electricity from fossil fuels. The other three prongs of the Sunshot Initiative include advancing technologies for the solar cells and systems that convert sunlight into energy; optimizing the performance of solar installation and improving the efficiency of the solar system manufacturing processes.

The DOE has invested more than $1 billion over the past ten years in solar energy research and development, including the ill-fated Solyndra Initiative that filed for bankruptcy earlier in 2011.

In the energy community, PV electricity has long been viewed as a highly promising energy alternative to traditional high carbon electrical sources. However, PV electricity costs much more at the current time than traditional energy sources. The next blog will examine further PV costs and why they are so high.

Doubling Down on U.S. Car Efficiencies by 2025 and Our Local Opportunities

By Kathleen Petrich

On November 16, 2011, President Obama and his administration made a bold announcement: The EPA and Department of Transportation reached a deal with all of the top U.S. based automakers (including Ford, GM, and Chrysler) where the annual mileage improvements will be 5% for cars in 2017. But, here’s the biggie: by 2025, these same U.S. automakers will reach a total fleet average of 54.5 mpg! This is astounding when the current average is 27.5 mpg. Doubling the average fuel economy in 14 years is a bold step indeed.

Big problems require big solutions!

So why did the big automakers agree to such changes? On the cynical side, it could be that the big automakers already had technology that made such a commitment feasible. Or it was payback for Obama bailing out GM and Chrysler? Or that the potentially explosive EV technology could supplant the internal combustion engine?

In any event, the requirement will be a boon to automotive engineers and suppliers all trying to wring out increases in mpg from new gasoline powered cars. It will also be a golden opportunity for start-ups that have real solutions to improve fuel efficiency.

A review of issued and pending applications suggests that there are various approaches to fuel efficiency. These include 1) improvements to fuel cell systems (e.g., Honda’s U.S. Patent 7,976,990 “High Efficiency Fuel Cell System”); 2) better diagnostics to calculate fuel inefficiencies/power loss (e.g., GM’s U.S. Patent 8,014,938 “Fuel Efficiency Determination for an Engine”); 3) fuel additives (e.g., ExxonMobile’s U.S. Patent 7,989,408 “Fuel Economy Lubrication Composition”); and 4) methods/tools directed as the driver to teach better fuel economizing driving habits (e.g., Honda’s U.S. Published Patent Application 2011/0205043 “Apparatus for Promoting Improvement of Driving Skill to Improve Fuel Efficiency”).

While much of the R+D in the fuel efficiency area is being developed by large corporations, that doesn’t mean that start ups are pushed out of the action. In our own Puget Sound area, there are signs that local companies are positioning themselves to take advantage of this new fuel efficiency challenge and opportunity. Airbiquity of Seattle now has a green vehicle technology division with a focus on improved fuel efficiency for both EV’s and internal combustion engines, particularly fuel consumption management.   PlasmaDrive of Bellevue just received a series of patents pertaining to “System for Improving the Fuel Efficiency of an Engine” (see e.g., U.S. Patent 7,934,489 that issued on May 3, 2011). These businesses, and others like them, are good for making our environment a greener place as well as bringing $green to the region.

Last Chance to Fix Up Your House and Get a Tax Break - Expiring Energy Tax Incentives for Individuals

By Denny Wong

A number of financial incentives offered by the federal government to encourage the development and adoption of clean energy technologies and practices are set to expire at the end of 2011. We discussed one of the expiring incentives, the Section 1603 cash grant program, in an earlier blog posting. See "Last Chance to Take Advantage of Cash Grants for Renewable Energy Projects," posted November 3, 2011. While the Section 1603 cash grant program and many other energy saving incentives are aimed primarily at businesses, some are aimed at individuals and a few of those will expire at the end of 2011 as well.

One such incentive is the Nonbusiness Energy Property Credit. This tax credit provides tax savings to homeowners who make energy efficiency improvements to their primary residence. Examples of qualifying improvements include energy efficient exterior doors, windows and skylights, insulation, high efficiency heating and air conditioning systems. The cost of installing the items does not count, however. Moreover, not all energy saving improvements qualify for the credit. The installed products must meet certain energy efficiency standards. The IRS has issued a notice that allows manufacturers to certify that their products qualify for the credit, if they meet those standards.

The amount of the credit for 2011 is 10% (but only up to $500) of the cost of the improvements, which is considerably less than the amount that would have been available if you had taken advantage of the credit in prior years. But you do not get the credit for 2011 if you have already claimed $500 under the 2006/2007 or 2009/2010 version of the credit. (Note that no credit was available for 2008. The credit lapsed for that year and was only resurrected for subsequent years.) If you claimed less than $500 under the old version of the credit, however, you can still claim the difference between the previously claimed amount and $500.

Calls to renew the Nonbusiness Energy Property Credit have come from various quarters. However, in light of the recent failure of the congressional supercommittee to agree on a deficit reduction plan, and the across-the-board spending cuts that were then automatically triggered, it is doubtful whether there is sufficient political support at this time for extending any programs that will further reduce federal revenues. So this may be your last chance to take advantage of the credit.

While $500 does not seem overly generous, if you need to make improvements anyway, just think of the $500 as a Christmas present from Uncle Sam.

Washington’s Utilities and Transportation Commission Tackles the Conundrum of Distributed Energy, Part 2

By Elaine Spencer

As I tried to describe in Part 1 of this article, Washington has some structural challenges that impair its ability to develop distributed energy as a significant alternative to fossil fuel-powered electrical power generation. The regulatory system that has been built up over the last 100 years has powerful constituencies that it must protect. Those are not only the regulated investor owned utilities (IOUs) that the system assures will earn a return on existing generation capacity that is less necessary when distributed energy sources replace fossil fuel generation. The constituency also includes residential consumers, and business and industrial customers, who have been assured that regulation will protect from unnecessary increases in rates. The regulatory system is ill-equipped to deal with disruptive technology, which is what distributed energy potentially is. So Germany, with a state-owned electrical system, or China, which is coming from a place of being desperately short of electricity, have real market advantages in supporting development of new distributed energy technology and driving down the cost of distributed energy.

But – that doesn’t mean we can’t do something. The Washington Utilities and Transportation Commission (WUTC) issued a report on October 7, 2011 on the potential for cost-effective distributed generation in areas served by investor-owned utilities in Washington State.  The WUTC report can be tough sledding – energy regulatory law is almost mind-bendingly complex, with state law, state regulations, decades of judicial precedent and an overlying body of federal statutes, regulations and case law all factoring into what can be done. And the WUTC proposals are at most going to nibble at the edges of the problem; they may not have any choice about that.

The WUTC found at least three things that it could do to encourage distributed energy.

     Allow larger standard contracts.  Stick with me here. The federal Public Utility Regulatory Policies Act (PURPA) of 1978 was adopted to encourage development of cogeneration and small power production facilities. It gives the states limited authority to set rates for distributed energy generators. The WUTC has by rule allowed generators of up to one megawatt to accept a standard contract issued by IOUs. The virtue of those standard offer contracts is that they create certainty from the beginning about what the owner of a distributed energy facility can expect. And certainty is one of the essentials of financing most new construction. So having larger standard contracts would permit financing of some projects that now struggle because of the lack of certainty over the pay-back period.

     Potentially relax the interconnection rules. The WUTC adopted rules in 2007 concerning the interconnection requirements to connect distributed energy generators to the distribution system. In only four years, however, technology and the industry’s understanding of what is important appears to have changed enough so that those rules may be overly complex and contain requirements that add cost without adding benefit. The WUTC proposes to reconsider those rules to see if they can be simplified and their cost reduced.

     Clarify ownership of RECs under PURPA contracts. Again, this one deals in the arcane reaches of federal and state laws. In a nutshell, distributed energy generation from renewable resources can have two values – the value of the energy generated and the value of Renewable Energy Credits – or RECs. RECs have their own market, and the ability to sell RECs separately from selling the power could significantly improve the return on distributed energy projects. But the PURPA contracts that the WUTC has approved make it unclear who owns the RECs. The WUTC will consider amending the PURPA contracts to clarify the ownership of the RECs – and potentially thereby increase the value of distributed energy development.

The WUTC also has suggestions for what the Legislature could do to encourage distributed energy. And perhaps the Legislature will make those changes. All of the WUTC proposals for legislative action, however, are also more in the nature of tweaking the system than making fundamental change.

What would make fundamental change? Since we are not going to be changing the basic rules of the regulated industry that have been built up over time, it is likely some key technology improvements that will make the biggest difference. Chief among those is development of better batteries. The economics of distributed energy would change radically if electricity could be effectively stored between when it was produced and when it was needed. Imagine a day when the solar panels on your roof generated the power that charged your electric car overnight. That is but one example – but a better, cost-effective battery, would make a huge difference in how electricity generated by distributed systems could be used. Better ability for IOUs to only send the power it needed to a particular substation would also make distributed energy far more valuable, because now they don’t necessarily save that much need to generate power just because there is a producer generating power on the far side of a substation.

Those are tough technological problems, and of course Washington State would love to deploy its considerable intellectual capital to solve them. Other parts of the world, with more immediate incentives to develop distributed energy, may have a critical advantage in leading on those technological advances, however, for the simple reason that they can deploy distributed energy more fully now.