I always leave conferences like the recent Wall Street Green Summit (WSGS) with optimism about the future of the solar sector, sustainability and cleantech in general. There were many very powerful ideas generated at the one-day conference from thoughtful individuals who are passionate about advancing renewable energy.
Here are some of the key highlights from the event:
DG solar can be a game changer
The WSGS was held right on the heels of a Morningstar report that said that distributed generation (DG) could upend the utility industry. The report analyzed utilities as investments and the ongoing predictability of their dividend payments. The point was clear: DG threatens to span the moat that has protected major utilities for decades.
On the cleantech side, DG represents an enormous opportunity. While it currently produces only 1% of the power in the U.S., it could increase to more than a third of U.S. power by 2017. Much of the rise in DG comes from the reduced cost of sustainable energy equipment.
Julie McLaughlin, vice president of business development at Dynamic Energy, noted that the cost of solar modules dropped from $3/W in 2008 to $0.50/W in 2012. Over that same period, solar output increased from less than 1,000 MW to more than 7,000 MW.
The rise of DG won't come without challenges, though. Energy companies have to scale their operations and processes to handle a higher volume of smaller projects. That's an issue that many companies are struggling with.
As I mentioned in my presentation, the industry currently has a 1.7% closure rate on DG projects, leaving money stranded with little to no return. For DG to reach its full potential, the industry is going to have to adapt to a new way of doing business.
VC funding for cleantech is in decline
Rob Day, a partner at Black Coral Capital, says venture capital (VC) has not seen much of a return from cleantech investments. The gross return on such investments between 2000 and 2011 was just shy of 5%. Take out a fee north of 3.75%, and many VCs have been left with net returns that are barely positive.
Many VCs have decided that such a rate of return isn't worth the risk. Day says this is especially true of generalist VCs. He says that specialist VCs are still active in the market but face difficulty raising new funds.
Since the third quarter of 2010, late-stage VC investment in cleantech has dropped from nearly $700 million to around $400 million. Early stage has seen a similar decline, dropping from around $200 million to nearly zero.
Day says there is still opportunity to work with VCs on financing. Renewable power development activities such as solar project financing and installation have performed well, returning nearly 7% net between 2000 and 2011. He also says that VCs are interested in working with capital-light companies, such as those innovating in finance, operations and services.
Public-private financing is rising to fill the VC void
Bryan Garcia, president and CEO of the Connecticut Clean Energy Finance and Investment Authority (CEFIA), says his organization is facilitating partnerships between state agencies and private investors with the goal of making Connecticut homes and businesses more energy efficient.
Connecticut has a goal of achieving a 20% reduction in energy usage in 15% of the state's single-family homes by 2020. That initiative would require a nearly $1.5 billion investment. The state also says it has a market of nearly 150,000 homes that could install solar technology. However, that would require a nearly $4 billion investment.
CEFIA receives nearly $30 million per year for investments through an electricity surcharge. It also partners with private companies to launch cleantech programs.
One such program, CT Solar Lease, allows consumers to get affordable, no-money-down financing for solar improvements to their homes. It also gives local solar installers the ability to offer easy financing to customers.
CEFIA works with a syndicate of local banks on the CT Solar Lease project. Those banks and CEFIA underwrite consumer financing, which solar installers then offer to customers. Consumers make payments directly to CT Solar Lease, thus taking the collection and repayment risk away from installers. CT Solar Lease also insures the hardware and provides support and maintenance.
Haresh Patel is CEO of Mercatus Inc.