The tremendous drive toward clean energy exists because of increased demand for fossil fuels from China and the developing world.
“I’m not a clean energy guy, I’m an energy guy,” said Kevin Skillern, managing director of venture capital for GE Energy Financial Services.
He spoke to several hundred people attending the second day of the Clean Energy Venture Summit 2011, the fifth annual event at the AT&T Executive Education Center in Austin.
Skillern’s key points are a huge need exists for software to drive new energy applications, solar is becoming more affordable and microbes show great promise for providing fuels of the future.
So why is GE interested in the clean energy market? It is the biggest industrial company in the world with a market capitalization of $550 billion. GE is bigger than Exxon plus Wal-Mart plus another company, Skillern said.
“About a third of the world’s power comes from equipment made by GE,” Skillern said. “We’re the biggest company in the renewable industry with wind and solar power.”
GE has backed about 40 renewable energy startup companies since 2005, Skillern said. And about 1,500 business plans come across its desks every year, he said.
In the U.S. people take energy for granted, Skillern said. He has four kids and lives in California. When the power goes out, within two minutes his kids “are going crazy,” he said. But in India, days go by without power, Skillern said.
Fuel and energy is fundamental to our lives and that’s why GE formed Energy Technology Ventures with NRG Energy, an energy retailer, and ConocoPhillips, global energy company. The $300 million joint venture invests in emerging energy technology companies. The venture’s key objectives are to make money, collaborate, gain new technology insights and strengthen relationships.
The current investing environment is challenging, Skillern said. Energy tech stocks were negatively affected in the recent market sell-offs. The clean energy index is down 33 percent year to date. And Solyndra , a solar panel maker in Freemont, Calif. that filed for bankruptcy in Sept. 1 and laid off all its workers, proved one of the biggest venture capital busts ever, he said.
“There are few energy venture capital success stories with real profits yet,” Skillern said.
But on the positive side, the demand for energy innovation is strong and energy remains the largest venture capital segment. An estimated 15 percent of all venture capital dollars are going in energy startups. That’s up from less than one percent 10 years ago.
“The world needs new energy technologies,” Skillern said.
Mature companies and breakthrough technologies are beginning to emerge, he said. And the U.S. remains the most fertile hub of innovation for energy.
Overall, China’s energy consumption will soar in the next decade and that’s driving the need for more energy sources, Skillern said.
“China, in aggregate, consumes as much energy as the U.S.” Skillern said. Seven years ago, it was 40 percent, he said.
In China, the big power source is coal, Skillern said. Twenty years out that trend is not going to go away, he said.
By 2020, the passenger car fleet in China will hit 225 million. Meanwhile the U.S.’s passenger car fleet is shrinking
to an estimated 246 million vehicles, down from an all time high of 250 million a few years ago.
“China will consume the equivalent of all the oil produced in Saudi Arabia,” Skillern said. “That’s a long term trend. But it’s a big, big deal.”
The software industry is driving innovation in the energy industry, Skillern said. He quoted from Netscape founder and Venture Capital Investor Marc Andreessen’s essay in the Wall Street Journal from Aug. 20.
“We are in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy,” Andreessen wrote. “Six decades in the computer revolution, four decades since the invention of the microprocessor, and two decades in the rise of the modern Internet, all of the technology required to transform industries through software finally works and can be widely delivered at global scale.”
Today, more than 2 billion people now use the broadband Internet, up from perhaps 50 million a decade ago, according to Skillern’s presentation. And in the next 10 years, at least 5 billion people will own smart phones giving access to full power of the Internet every moment of every day, he said.
“On the back end, programming tools and Internet-based services make it easy to launch new global software power startups,” Skillern said.
For example, in North America one in every six home energy meters is a smart meter, Skillern said. In five years, it’ll be 55 percent, he said. Worldwide smart meter adoption is at 6 percent and it will grow to 19 percent with five years.
“It’s not going to put power plants out of business,” he said.
But it does provide low costs and easy savings for consumers and allows them greater information about energy consumption and control, Skillern said.
Skillern said his household pays 35 cents per kilowatt hour for electricity, compared to 10 cents nationally. Software will allow consumers to cut their consumption, he said. Smart meters lead to a 10 percent to 15 percent reduction in their bills.
Consert has a major deployment underway with CPS Energy in San Antonio. Energy efficiency savings from 140,000 homes generates 250 megawatts to create a virtual power plant with the potential to double. The rollout starts in mid-2012 and will be completed over the following three years.
Already, Consert has hired 20 people in San Antonio since June and it plans to hire eight to ten more by the end of 2011 and more than 150 during the next three years.
Another big trend is making solar energy more affordable. Solar energy costs 30 cents per kilowatt hour, compared with an average of 10 cents nationwide for traditional energy sources. The idea is to make solar a “grid parity” technology which means it can be produced at or less than the cost of delivered grid power without subsidies. Right now, California, New Jersey and Massachusetts have achieved grid parity with government subsidies.
The fluctuation in price of solar energy has to do with location, Skillern said. In Hawaii, solar power is just 9 cents.
“The economics of solar have gotten better by 54 percent in the last three years,” Skillern said. Solar energy is a $70 billion industry today. GE has invested in Solar Edge.
The last big trend is microbes, Skillern said. Some types of algae and other microbes offer potential fuel sources for the future.
“Energy represents one of great societal challenges of our time,” Skillern said. “Breakthrough energy technologies are an essential part of the solution.”