In search of the Google of green tech

A year ago, solar-technology start-up Ausra was ready for the big time. There were plans on the table to raise hundreds of millions of dollars to build giant power plants and to conduct an initial public offering of Ausra shares by 2010.

Then the recession hit. Ausra executives refocused on more modest goals, such as building small solar units, and selling equipment for industrial operations like desalination and food processing. It also is trying to sell to utilities, rather than build massive solar plants itself.

"Utilities are really in a great position to build large-scale projects," said Katherine Potter, communications vice president at Ausra. "You need to walk before you can run, but the technology is there."

That IPO goal, it's fair to say, is off the table for the foreseeable future. And as executives came to accept that Ausra had to change its business, the Palo Alto, Calif., company cut about 10 percent of its 108 employees.

Ausra isn't the only green-tech company dealing with reduced expectations. Despite high hopes, $14.5 billion in worldwide venture funding over the last two years, and cheerleading from the Obama White House, 2009 could be a make-or-break year for many green-tech outfits. And the stakes may be greater than the fortunes of a few entrepreneurs and their investors.

Save the world, make money
Can the United States simultaneously lean on green-tech investment to help fix its broken economy, wean itself off dependence on foreign fuel sources, and address climate change concerns? President Obama, for one, appears to be a believer in one of the fundamental underpinnings of green business: you can make money while helping save the world.

"One of the key points that...I will repeat again and again during the course of my presidency is there is not a contradiction between economic growth and sound environmental practices," Obama said when he named his energy and environment team in December. "I think that the future of innovation and technology is going to be what drives our economy into the future. And the energy economy is going to be part of what creates the millions of jobs we need."

Green-tech entrepreneurs and investors are well aware of these lofty goals. But these days, they're more focused on other issues, such as finding the money to stay in business and landing customers.

"We had closed a round of funding in October for the next stage of vehicle development--then all of that went off the table in about six days," said John Waters, the CEO of stealthy electric-car start-up Bright Automotive, which restructured two months later and managed to find alternative funding.

The question isn't whether the green-tech movement will whither away. Already, there is a growing consumer niche for green technologies, from rooftop solar panels to low-power consumer electronics made from recycled materials.

But how big can this industry be, how long will it take to get there, and who will lead the way? The societal and political will to reduce fossil fuel use is arguably higher than ever. Yet renewable energy, excluding hydropower, is still just 2.5 percent of the U.S. electricity mix, while almost half still comes from burning coal. That's not exactly the picture of a country on the cusp of change.

"It's relatively clear that you can make good returns for investors in clean tech--the outlook is pretty good," said Dennis Costello, a managing director at venture capital firm Braemar Energy Ventures. "But it's going to take a lot longer--probably more like decades--to change the total energy production portfolio because the (current) infrastructure is expensive and well-established."

Building from the ground up
Reinventing the energy infrastructure is like trying to redevelop a city, from the traffic signs to the skyscrapers. In a lousy economy, the attractive projects are the most affordable and practical. The green-tech equivalent of flashy homes or skyscrapers--giant projects like solar farms--will be the toughest to get built.

Right now, "practical" means companies with a strong information technology component that help make existing electrical systems more efficient and companies that provide relatively low-tech, people-intensive consulting work. As Google became a tech powerhouse by doing the relatively mundane task of Web searches better than anyone else, the company most likely to break out of the green-tech pack is the one that does simple things such as improve energy efficiency better than the rest.

Out of the $787 billion in the stimulus package, about $39 billion in spending is set aside for energy, with much of it aimed at creating "green collar" jobs.

Businesses specializing in energy efficiency, such as home energy auditors, stand to benefit from measures like the $5 billion set aside to weatherize the homes of low-income people and $4.5 billion to make federal facilities more energy-efficient over 10 years.

Other building-related businesses, including home solar installers, stand to gain. Changes to renewable-energy subsidies in the bill will deliver an "adrenaline boost" to the solar industry and create 67,000 jobs this year, according to Rhone Resch, the president of the Solar Energy Industry Association.

Making the network smarter
Cisco Systems arguably became one of the most powerful companies in high tech because no one did a better job of directing packets of data around a computer network.

Credit: U.S. Department of Energy

Smartening up the power grid: Smart-grid
technologies add sensors and communications to
the existing electricity distribution network.
A modernized grid will be more reliable,
efficient, and capable of using distributed
forms of power generation, such as solar panels.
Consumers and utilities will get better
information on energy use.

On electrical networks, there's a similar need for so-called smart-grid technologies to improve automation. And a hefty portion of the $4.5 billion in planned government investments to the grid infrastructure over the next 10 years could add rocket fuel to that niche.

Although it covers many technologies, the basic idea behind the smart grid is to add communications and data reporting to the existing electricity network to make it more efficient and reliable. Smart-grid companies are capital-efficient, compared to other parts of the energy business: the total amount of venture capital invested in smart-grid technologies last year globally was $345 million, out of $8 billion for green tech overall, according to the Cleantech Group.

Companies such as Tendril and Greenbox provide in-home displays or Web-based software for homeowners to manage energy consumption using so-called smart meters that can communicate information back to utilities in real time. Google, which is developing a Web-based home energy management dashboard, argues that just surfacing more detailed data with smart meters and software can cut energy use 5 percent to 15 percent.

Outside the home, the 200,000-mile electrical-distribution grid also needs more intelligence. Companies such as start-up Silver Spring Networks--an outfit some think has a good chance of going public--and General Electric are working on ways to add networking smarts to the hardware along the grid. Adding communications to transformers and other distribution points can, for example, alert a utility of the location of a problem along the grid and prevent an outage.

IT-related companies bring another high-tech tool to the grid: The "platform" concept. PCs, for example, took off because they offered a common platform for which software developers could write applications. The same could be said of databases or even Web browsers.

So it is with the creaky old electrical grid. Smart-grid advocates aren't sure what will be the proverbial killer application of a Net-savvy power grid. But they predict that real-time updates on energy supply and demand will lead to many new applications, some aimed at helping consumers find the cheapest time to run their dishwashers; others to help utilities more efficiently control the flow of electricity around the grid.

"Just like the Web in the mid-'90s became a fantastic new platform, where millions of new applications were conceived, we're looking at the same thing in a decade's time on the grid, where we end up with a platform where there are lots of unimagined applications that will sit on top of the upgraded energy infrastructure," said Drew Clark, director of strategy for IBM's venture-capital group.

IBM, through its systems integration arm, is working on a number of smart-grid pilot projects around the world, including in Texas and Malta. "The government is giving utilities more leeway to invest in IT--that's not lost of VCs, and it's not lost on IBM," Clark said.