Market and Economic Developments in the Renewable and Alternative Sector

Editors Note of Gratitude: A few weeks back I decided to publish this blog to a personal email list I have accumulated recently, and received a very positive response from a vast majority of those who replied personally and only a few who requested to be removed, to that I thank you.

I still have ways to go in adding more to the prospective list, so if you are receiving this for the first time I hope you find it relative to your world and please reply with any comments or
requests.

I have decided that I am going to try to publish an article twice a month on this blog, (except in the case of major events or circumstances), feedback and material suggest this could be a good schedule. The first entry of each month I am going to try to provide an overview of what I perceive are the big trends, developments and circumstances related to the new 'Global Clean Energy Economy' in relation to what I presume to be information relative to those seeking or developing professional careers in that space. The second entry each month I am going to try to publish an article that uses an anecdotal experience in my practice or have been told that might provide personal insights to those executives and professionals presently working or seeking to develop a career in this sector.

This month I am going to focus on new reports that offer a trend that appear to be the beginning of the deconstruction of the old 20th century fossil fuel economy and its markets, to new markets reconstructing the 21st century new energy economy. I hope this informs you seek to either find an opportunity in this changing marketplace or informs you better how to adjust or seize and recognize a new opportunity.

I. 'The Great Race', and the upcoming car propulsion revolution

---General Motors' Director of Advanced Technology, Dr. Christopher
Borroni-Bird in an interview with UK's Autocar stated that "using the internal combustion engines is no longer an option and that includes diesels and hybrids". He went on to state that: "Hybrids are not the solution...they delay the day of reckoning. The debate about hybrids being cleaner than diesel is irrelevant--the diesel is dead end because it uses fossil fuels....--that hydrogen-powered cars and electric cars would develop alongside each other and that GM would have a 'cost effective' fuel cell car by 2010. It will trial 100 fuel cell Equinox SUV's across the world in a market test for the car."

This is a huge strategic statement from the head of their advanced technology R&D group as GM is reeling from market share, revenue, and market evaluation loss. It will be interesting when GM senior exec's begin making similar statements.

---In other related developments: Liquide Air to supply portable
hydrogen fueling systems to GM, where Liquide Air is going to supply five
700--bar portable fast fill hydrogen fueling systems in the U.S. in conjunction
with Liquide Air's agreement to partner with GM in Canada installing a fueling
system at GM's Cold Weather testing site. GM also announced the selection
of Continental Automotive Systems to develop the Volt Batteries for the E-Flex system as the latest confirmation that GM is attempting to diversify the industry away from petroleum with a range of propulsion alternatives.

---The second week of May GM had a huge demonstration by driving a fuel
cell powered SUV 300 miles from Honeoye Falls NY to Tarrytown NJ.

---And finally probably the biggest development in the fuel cell and future
car where at Purdue University Professor Jerry Woddall and two students 'invented' a way to use an aluminum alloy to extract hydrogen from water! They hold that the process holds the promise of producing a ready supply of hydrogen upon demand and only as much as is needed. In fact the scientists stated that hydrogen could be used on existing internal combustion engines with a injector conversion or with fuel cells.

(These develops insinuate that the auto industry that contributes $355B to the U.S. GDP (2002) is about to go through a complete deconstruction and reconstruction over the next twenty years. How fast and where the tipping point is going to be is still unknown, but conceivably if GM releases test autos in 2010, then going to market greater by 2012-13 it is possible that by 2020 most new car sales will be fuel cell or all electric from the world's second largest auto maker. The only analogy I can make is that the transformation will be as profound as corporate America going from mainframe batch computing to distributed processing through PC networks between 1986 and 1996.)

II. The Mighty Wind[power] cometh!

---Last week the largest wind energy conference took place in Southern California at the LA Convention Center where an estimated 6000 plus individuals attended, offering 400 exhibitors and discussing all things windy. At the conference it was revealed that the U.S. market was on the verge of growing the fastest and biggest in the world where already three is installed 2400 megawatts of power generation making wind the second-largest source of new power generation in the country. The AWEA estimates that the industry will more than double that capacity by installing 3000 megawatts in 2007.

---Wind energy is now the top investment as published by Bloomberg News where global expenditure is estimated to be exceeding $150B in wind projects over the next five years, (according to CLSA research). The Pichet Clean Energy Fund (Phillippe de Weck) stated that Wind has the biggest potential to meet renewable energy targets over the next decade, compared to biofuels and solar." Michael McNamara (analyst for Jefferies Int'l) stated that "Wind energy is cheaper than solar and it is a less risky form of investment." Currently Wind Energy provides only 1% of the worlds energy needs but Denmark boasts that 20% of the grid is met by wind, as Spain derives 9% and Germany 7%. The U.S. is now the fastest growing market for wind with 21 States calling for renewable power mandates. McNamara stated the U.S. is the Saudi Arabia of wind power potential. The threshold that compares wind to petroleum is $45 a barrel and I doubt we are going to see that level soon.

---Colorado Sierra Club and Environment Colorado has proposed a ballot initiative to states make it law that by 2012 10% and by 2022 ,20% of the power will be generated by renewable sources claiming that it will create 4000 new jobs and
raising the State GDP by $1.9B. Colorado boasts the 5th best potential for solar
energy and 11 best State for wind power generation.

(To me the message is clear, Wind Energy is the next explosive market with a whole new sub economy emerging supplying and servicing this demand for power generation state by state and through grass roots efforts mandating power supply. Money will continue to flow into the sector as it appears to be solid in its return. What will be needed is government intervention and partnerships installing new power generation lines from wind farms to distribution networks
in metropolitan centers. Other opportunities will be to be part of the supply chain in manufacturing the huge backlog of turbine orders. But if the current power generation is 1% today and the average demand is 10% in those 21 states by 2020, there needs to be a lot of effort and means to catch up with mandated and desired demands.)

III. Here Comes the Sun.... bringing down the costs

---Solar PV costs are expected to decrease by 40% over the next 36 months! In short it appears that "Moores Law" could be at work in solar technology as advances in
poly silicon materials indicate that the cost of PV solar panels will decrease greatly. Also the production and distribution of solar PV cells has risen 6-fold
since 2000 and has grown 41% in 2006, even though grid connected power is still
less than 1% overall, lead by Japan and Germany where the world generates 5000
megawatts. China could end up being the worlds silicon producer as it passed the
US as the 3rd largest manufacturer in 2006.

---Breakthrough solar dyes could change solar panel applications as researchers from the Nanomaterials Research Centre in New Zealand have now developed synthetic dyes that can be used to generate electricity at one tenth of the cost of
current silicon-based solar panels. They state thee compounds work in
low-light conditions and can be cheaply incorporated into window-panes and
building materials, thereby turning an entire building into a generator of
electricity. The synthetic dyes are made from simple organic compounds
closely related to those found in nature.

---Solar industry to grow from $20B to $100B in 2010
states Financial Times where "profit growth is expected to
accelerate as costs are contained or lowered pushing margins up to nearly
60 per cent." These high profits hopefully will mean more capital investments
into production facilities and R&D. A 10-fold increase in production of
high-purity silicon, the main material used to make solar panels, is also
forecasted for 2015 by Photon Consulting, a German research group.

---Slicing the silicon leads to other breakthroughs where at the heart each cell is a single wafer of highly refined and expensive silicon that contributes around 75 per cent of the total cost. By slicing the wager this reduces by 90 per cent the
amount of silicon used in a cell. A single wafer 15 cm in diameter can be used
to cover an area of one square metre. "We think that taking current
knowledge would knock off three-quarters of the cost." Now the South
Australian-based solar cell maker Origin Energy expects to manufacturer sliver cell this year but major production will not be available until 2010.

---Growing number of Americans who shun power lines, choosing to live off the grid, without commercial power. All the residents of Three Rivers Oregon get most of their power from solar panels on their rooftops or on nearby freestanding
structures. The phenomena is occurring with about 180,000 homes, mostly in
the West because of people moving into remote areas that are beyond the reach of
commercial power, because of ample sun and environmental conscientiousness, and possibly because of Westerners' traditional independent streak. National demand is soaring, and the off-the-grid movement is yet to be felt in a significant way by the power industry, nonetheless, the number of people going off the grid
increases by about a third each year, said Richard Perez, who publishes Home
Power magazine.

Initial capital costs appear to be solar's barrier to rapid advance and in that light material costs, manufacturing economies of scale and material science are all converging to create a competition on cost. Solar is also restricted by the aesthetic design limitations and limited applications of placement. That said solar appears to also be in breakthrough as large capital
purchasers like retail outlets; Wal-Mart, Target, Kohls, Home Depot and Lowes,
government entities like the US Army & AirForce at their bases, industrial facilities like Frito Lay. A tipping point will be recognized when a significant portion of new development is incorporating solar into all their building designs. Yet this movement unlike Wind is about getting off the grid or reducing one's dependence on the grid and not transferring power
generation of the grid. As the cost indeed comes down and aesthetics and applications become more flexible and inviting solar will only grow in penetration. The risk as seen by investors is that it will be both a consumer market and B2B market but not an industrial market.

IV. Biofuels and converting fuels

---The controversy of biofuels, namely fuels derived from grains is heating
up. Cargill's CEO stated it is a risky venture at best and some are warning of a Great Biofuels Bubble. Yet each month another ethanol plant is erected causing the recent rise in corn prices--almost 70 percent Sept 2006-February 2007, the spike being sooner than many agriculture economists had expected. According to the United States Department of Agriculture, this year the country is going to use 18 to 20 percent of its total corn crop for the production of ethanol, and by next year that will jump to 25 percent. And that increase, says Marshall Martin, an agriculture economist at Purdue University, "is the main driver behind the price increase for corn." The jump in corn prices is already affecting the cost of food. The most notable example: in Mexico, which gets much of its corn from the United States, the price of corn tortillas has doubled in the past year, according to press reports, setting off large protest marches in Mexico City. It's almost certain that most of the rise in corn prices is due to the U.S. ethanol policy, says David Victor, director of the Program on Energy and Sustainable Development at Stanford University.

Cellulosic production at hand: "In the laboratory, there are no more obstacles to speak of. We've reached viable solutions to the major problems with cellulosic ethanol production," said Elba Bom, bioethanol coordinator for Brazil's Science and Technology Ministry. "The question now is putting these solutions into the most efficient industrial models."A prototype plant could be built in about two years, she said. "There is not one cellulosic technology, because there is not just one feedstock. Some countries, such as the United States, will use switch grass or wood chips, while Brazil will use bagasse and straw from cane processing," Bom said. Helena Chum, senior advisor for the National Renewable Energy Laboratory said the cost of cellulose ethanol production in the United States was expected to continue to keep falling rapidly -- from $6 a gallon only a few years ago to $2 a gallon around 2008. "Eventually, by 2012 to 2016, it should fall to $1 per gallon, when output should reach 20 billion gallons," Chum said, adding that 5 billion to 8 billion gallons of that will come from cellulose. The United States passed Brazil as the world's largest ethanol producer in 2006 and the two countries now account for about 70 percent of world output of the biofuel.

The Biofuels market is the most risky because it is tied at the hip with the internal combustion engine and the 20th century economy. It is flying in the face of the New Global Energy Economy which is seeking to replace direct energy costs with capital technology and resources,
(renewable from self generating occurrences, sunlight, wind and hydro & wave). It is interesting the GM is now moving away from the engine and towards all electric and fuel cell even with cellulose's development.

Lesson's learned, the importance of understanding what really is sustainability

In executive search at the conclusion of the selection process two things happen; a candidate is either offered the position or they are not. Usually there are many factors why a candidate finishes second; perceived personal or professional shortcomings are often factors communicated as determining items (interpreted correctly or misinterpreted) often surfaced in the momentary pressure of an interview. Sometimes one candidate totally eclipses another through the weight or preciseness of their experiences on what is perceived they bring to the table under the circumstances of fortunate timing. Yet in this new energy age that is unfolding, I am finding another separation component that is becoming quite evident, namely----"sustainability". What is it, how it is deeply understood how sustainability is a tangible consequence in operating a profitable growing business in today’s global economy.

Recently I have placed three C-level individuals in the cleantech sector and had one finish second. Looking back it was each individual's deep understandings of sustainability and how that was reflected in the business opportunity they were being presented with and the value propositions the company's possessed going forward in this new market place. Let me explain deeper.

Sustainability is not something that can be learned reading an article or researching what a company's stated position is with firms actively focused in developing cleantech businesses, it is something that permeates their entire business philosophy. It is analogous to how Microsoft or Intel or Silicon Graphics developed their corporate structures at the dawn of the Information Age three decades ago. They were evangelistic about incorporating IT into every business system they had, pushing the envelope and being both the example and experimenting with a fully integrated business model.

In the same light sustainability is more than a PR concept for cleantech companies, it is what makes them different and why ultimately senior executives chosen to lead those companies must be fully versed in what that means and how it projects to the future of the marketplace and the firm's ultimate corporate culture. Sustainability means that the future is a clean carbon footprint as the ultimate goal in conducting a profitable business. To the previous generation this sounds "impracticable" (quoting the recent Bush Administration statement about the proposed new carbon emissions targeted to be 50% of 1990 total by 2050). Yet to the new cleantech world reducing carbon emissions to this level or less is not only practicable, but profitable. Translated into fiscal measures, not unlike the investment into IT which fostered extraordinary gains in worker productivity's replacing direct labor costs of whole workforce divisions of support labor, cleantech offers the same direct costs replacement and a extraordinary return on resource investments.

How does this translate into 2007 considerations of executives attempting to transfer into or lead cleantech businesses with experiences in non-cleantech industries---plenty, it is the difference maker. This is no doubt in my mind that C-level, VP-level and even senior management professionals who are only superficially cognizant of sustainability will either not be offered the position if up against a competitive candidate who is or the eventually the hire or the client company will not ultimately succeed into the cleantech market.

My last three hires all prevailed because of this component where sustainability was not only identified but their attitude considered superior to all the other candidates, My one second-place finisher failed in this area but was seemingly superior in other areas of consideration. Looking back at earlier searches in cleantech related industries, the same thread has run through as a decision component although I did not recognize it as such then. My potential clients access my attitude towards sustainability as part of an overall assessment of my capabilities in this field. It is more than lip service and anyone denying it is fooling themselves. We are at the dawn of a new age and it is exciting and compelling. Consequentely I will be adding this to my overall assessment of viable candidates also. So I ask the reader, how can you translate the value of sustainability into a businesses' value proposition?

Huge technological development---hydrogen

A Purdue University engineer and National Medal of Technology winner says he's ready and able to start a revolution in clean energy. Professor Jerry Woodall and students have invented a way to use an aluminum alloy to extract hydrogen from water — a process that he thinks could replace gasoline as well as its pollutants and emissions tied to global warming.

But Woodall says there's one big hitch: "Egos" at the U.S. Department of Energy,
a key funding source for energy research, "are holding up the revolution." Woodall says the method makes it unnecessary to store or transport hydrogen — two major challenges in creating a hydrogen economy.

"The hydrogen is generated on demand, so you only produce as much as you need when you need it," he said in a statement released by Purdue this week. So instead of having to fill up at a station, hydrogen would be made inside vehicles in tanks about the same size as today's gasoline tanks. An internal reaction in those tanks would create hydrogen from water and 350 pounds worth of special pellets. "No extra room would be needed," Woodall said, "and the added weight would be the equivalent of an extra passenger, albeit a pretty large extra passenger."

The hydrogen would then power an internal combustion engine or a fuel cell stack. "It's a simple matter to convert ordinary internal combustion engines to run on hydrogen," Woodall said. "All you have to do is replace the gasoline fuel injector with a hydrogen injector."

How it works. Here's how it all happens: Hydrogen is generated spontaneously when water is added to pellets of the alloy, which is made of aluminum and a metal called gallium. "When water is added to the pellets, the aluminum in the solid alloy reacts because it has a strong attraction to the oxygen in the water," Woodall said. "No toxic fumes are produced." This reaction splits the oxygen and hydrogen contained in water, releasing hydrogen in the process.

An electrical and computer engineering professor, Woodall first discovered the basic process while working as a researcher in the semiconductor industry in 1967. "I was cleaning a crucible containing liquid alloys of gallium and aluminum," Woodall said. "When I added water to this alloy — talk about a discovery — there was a violent poof. I went to my office and worked out the reaction in a couple of hours to figure out what had happened. When aluminum atoms in the liquid alloy come into contact with water, they react, splitting the water and producing hydrogen and aluminum oxide."

NOTE: This has bigger implications than people realize and fall into the paradigm that a Nobel Laurette economist and venture capitalist where the driving force of the new clean energy economy will be the investment into capital resources replacing direct fuel costs. When this technology is developed the implication is that consumers of energy (be it in transportation or equipment) will derive energy from water and a capital expenditure of this system and using it with a fuel cell electrical generator. Distributors of energy (oil companies or power providers) will become obsolete.

Weekly headlines as market advances

• Kleiner, Perkins, Caulfield & Byers states that venture funding for green or renewable technologies will be $3.5B in 2007 up from $1.6B (Ray Lane, managing partner).

• Deloitte's Survey Shows Consumers Would Pay More For Renewable Energy in Power News by on Tuesday 15 May 2007 According to a recent survey conducted by the energy and resources industry group of Deloitte & Touche USA LLP, the U.S. subsidiary of Deloitte Touche Tohmatsu, a majority of consumers would pay more for clean energy. A total of 62% of those surveyed said they would willingly pay higher electric rates for clean coal, and 54% said they would pay more for alternative energy sources, the company says. In addition, 44% of the respondents cited environmental reasons as the primary motivator when it comes to the purchase of alternative or renewable energy. The factor of price was the second most mentioned motivator (30%), followed by energy reliability (15%) and jobs creation (8%). "We were surprised at the increasing level of support from consumers, but the findings remain mixed," says Branko Terzic, Deloitte's regulatory policy leader, energy and resources. "While more than three quarters of the consumers surveyed believed that alternative energy brought benefits, 42 percent would not pay an additional 5 percent on their electricity bill to support government-mandated alternative energy purchases."

• Wal-Mart is purchasing as much as 20 million kWh of solar power, from BP Solar, SunEdison LLC, and PowerLight, a subsidiary of SunPower Corporation, for 22 combined Wal-Mart stores, Sam's Clubs and a distribution center in Hawaii and California.

Part II Case Study of Successful Search Project

Alternative Energy pre-IPO company seeks experienced CFO to lead it in acquiring private investment capital and lead the firm in preparation if a desired IPO.

This search was referred to me from a managing director at a private equity firm that had a small investment in it where I was told they were looking for a top level, experienced CFO. The firm can be described as both cleantech and biotech firm using convergent technologies to produce clean natural gas.

The requirement was to seek out and deliver candidates that possessed an oil & gas financial industry background and also find someone who has experience working in a scientific, biotech or pharmaceutical/chemical oriented environment who had raised institutional investment capital along with an IPO and publicly owned environment. Within a week I was fortunate to secure not one but two individuals who fit the profile and were interested in pursuing the position.

It is interesting to note that both were highly prized and involved in post IPO companies and yet found the prospects of working in another venture exciting and potentially rewarding. Both recognized the unique opportunities in developing this business model for today's energy and environment marketplace. And both had worked with a scientific bio-engineering company.

What set one apart from the other was his experience with oil & gas even though the other possessed energy and renewable energy experience. Ultimately the client chose the individual with direct experience with their ultimate customer. The purpose of these two unrelated anecdotes reveals that even at top executive positions in emerging companies with new technologies that industry experience is paramount along with horizontal experience and personality.

Case Study: CEO hired for emerging company

Often I am asked by prospective CEO's how does one transition into another leadership role after working as a management consultant for a few years?

This week I concluded a search assignment for a CEO of an emerging company
that is in a related to the cleantech sector. The selected individual had wealth of professional experience directly related to the search parameters requested by client which was essential for him to be initially considered as a viable candidate.

(Note: Over the last decade industry and/or technology experience in a certain field is becoming as essential for CEO's and CFO's as with qualifications for other senior or mid-management positions. Meaning vertical market knowledge is as important as hozizontal or management experience, expecially in emerging or rapid growth business models.)

He was able to draw upon his experience as a consultant developing relationships and defining the position and business opportunity, but it was his management experience that provided him the credibility to compete for the position. That experience coupled with his ability to seek out investors who were comfortable and even highly interested in the business because of his participation is what carried the day.

This is important to understand for a prospective CEO should have a network of investors, either angels or a Private Equity firm already established, so they can to be an active player in this kind of business opportunity.

It is no different than developing a supportive Board of Directors in a publicly-held company where in fact the investors will be sitting on the Board. Furthermore in this case the prospective CEO had to make a leap of faith in actually developing the business plan that would be presented to the new and old investors (who were also active founders) currently engaged in parts of the management. They were seeking further capitalize their business model but had to come around that to do so required a new professional and accomplished management team that the new investors were actually backing, not merely the exciting emerging new technology. For the prospective CEO developing the business plan was a double sided edge, since there was no flushed out working plan previously he could be inviting competition but he also had developed his plan and was able to present to willing investors who quickly backed him.

Each week I am going to attempt to outline successful completed searches in this arena...

Cleantech investment still rising

with Emerald Technology Ventures, Scott MacDonald, Investment Director a global leader in cleantech venture capital.is a pioneer in this rapidly emerging sector and is focused on innovative technologies in energy, materials and water, managing three venture capital funds and two venture capital portfolio mandates totaling over $380M. cleantech area.

"A reputable and experienced LP in the venture asset class told me just last
week that every generalist fund they speak with mentions an initative in
cleantech. I think the great generalist funds will invest in the sector (as you
know a few already are) and they will likely be successful....

...I think there is an incredible opportunity for new technologies to help upgrade the antiquated electricity grids in Europe and North America and to leap frog into the incredible build-out that is going on in countries like India and China. China last year built an average of five 300 megawatt electricity plants a week and energy consumption is expected to continue rising fast as China aims to quadruple the size of its economy by 2020. This means a lot of new grid infrastructure technology will be deployed. We have a number of portfolio companies in the “smart Grid” space and will continue to seek out investments in this space.

Thin film vs. Conventional PV ? - Thin film if you have deep pockets and patience-

Solar concentrators vs. Flat Panel - No comment, yet.-

Cellulosic vs. Corn Ethanol - Science project vs. commodity. I’m a VC…science project always wins.-

Cleantech vs. Greentech - Make great products, build great businesses and provide great returns to investors (and hopefully help out our world along the way) and no one will care what you call it.