With crude hovering near $50 a barrel, Nicholas Parker heads a VC group seeking out investments in "clean" technologies.
Parker spoke to CNET News.com about the intersection of clean energy-related technology and information technology.
Q: How is IT having an effect on the energy industry, particularly on alternative sources of energy?
A: The headlines tend to be solar panels and wind turbines. But frankly, IT is fundamental to the modernization of the infrastructure and to achieving energy efficiency, energy conservation, energy management goals. There are large energy IT companies out there, which are some of the most successful companies. Algorithms and software is at the very heart of this--even if it's not shrink-wrapped. It's embedded.
Can you give me an example?
Power electronics. Let's look at wind turbines. Wind turbines are getting very large--3 megawatts. The scale they can generate power in certain regions is at prices that are consistent or better than the cheapest fossil fuels, like coal. How come? There are improvements in materials in coatings, but there's also power electronics inside and management controls systems--IT-based designs. It's not shrink wrap, but it's IT inside. That's fundamental to this industry.
What about the U.S. electricity grid? The blackout last summer was ultimately traced back to a software bug, I believe.
You look to modernizing what is basically a 19th energy grid. The disconnect is that you also have a digital economy. And in the digital economy, 99 percent reliability of energy is not good enough. You need 99.9999 percent reliability, whether you're running a server farm or a hospital or a financial-services institution.
You've also got the digital economy driving the need for more reliable power so that you don't have blackouts or brownouts. But also higher-quality power. There's a real connect between the two on a macro level.
On the micro level, who's got the solutions? Energy IT is really important, whether inside, (such as) managing power consumption in buildings, or inside devices. What's the big restriction on chips right now? They overheat. All the way through the system, there's this real interrelationship between IT and energy.Are there cases of people from the traditional IT industry getting into the energy-related field?
How much does concern for the environment motivate what you do as a venture capitalist?
Sure, we should care, but that's not what I get paid to do. And I care deeply. I see what's happening in the world around me. But I get paid to be in this because I'm (investment)-driven.
You mentioned mainstream VCs. Energy is a big, broad field. Is there a lot of money going into specifically "clean" energy-related technologies?
Is it a category? It is not yet, but it is on the verge of becoming one. There are leading institutional vendors like CalPERS (California Public Employees' Retirement System), who now say, "Yes, we put "X" into software, "Y" into biotech, and now we're going to put "Z" into clean tech. We're going to allocate money like that. Who are the best managers?"
If it's not yet a category, what's holding it back?
Up until a little while ago, venture capitalists, quite understandably, focused on other areas. But I think there's a good analogy to biotech. Genentech went public in 1979. That was the Netscape of biotech. It took another 13 years before biotech garnered even 10 percent of overall venture dollars. It takes time.
In clean tech, we're definitely at a tipping point, where things are happening, and there are many reasons for that, whether it's 55 bucks (per gallon of oil) or people "beavering" away with increasingly robust computing technology to be increasingly cost-effective. There are operating hours on demo plants--all kinds of thing are happening. Basically, we're getting to the breakthrough point. And then (we're) getting experienced entrepreneurs who come into this space, or make their first million dollars. It becomes a virtuous circle. That's what we're seeing in clean tech. And the returns are way better than people think they are.
Better than traditional technology-related investments?
We released a research note around a broader study that has looked at returns in this space. It's not definitive, but the data we've assembled suggest that investors have been able to achieve venture-grade returns consistent with the overall venture capital average returns over the past decade, taking into account the dot-com boom. For a lot of people, that's a very astonishing piece of data. But it's there.
How do you define clean technology, and how is it different from alternative energy?
We basically see it as products and services derived from technology that optimize the use of natural resources--typically energy--and economic value, and in doing so, reduce ecological impact.
Can some of the ideas of the Internet be applied to distributed energy generation?
Yeah, it becomes an energy Web rather than energy grid. Sound familiar? I had a meeting with guys from Cisco Systems about this. They said, "As soon as the market gives the right signals, we're ready to go. We just did it for the telecom industry." So it's more than just alternative energy. It's everything around that has to happen.
Secondly, it's water. Water is a very a critical issue. Take the semiconductor industry, which uses gargantuan quantities of water. Intel--where are all its manufacturing plants? They're in dry places, like the southwest United States and Israel, and so forth. Well, water is becoming a critical resource. You can't get enough of it. So Intel Capital has invested in water purification and recycling technology. It's mission-critical.
The third area would be advanced materials
A catalyst or membranes.
Which could be used in a fuel cell?
Sure. New coatings, new ways of getting more material bang for the buck, substituting. So, for example, Boeing goes from using aluminum in the bodies of their planes to using composites and ceramics. So you get cleaner industrial processes.
And here's where it comes together. Industry has to do more with less to be competitive. When PCs hit the factory floor, that had a massive impact. Now a lot of clean technologies are coming about to help companies become more productive and waste less. And pollution is ultimately waste.
So take a piece of smart logistics software, like fleet management. That's purchased to improve the bottom line, not to hit environment compliance regulations. But probably the No. 1 way it helps is by improving fuel efficiency. A strong environmental driver, (but) that's not the purchasing reason.
The computing industry is seeing more and more embedded processors and wireless networking for noncomputer devices. What is the impact of that in your field?
Machine-to-machine is a hot topic in Silicon Valley. And there are all these microprocessors, in everything from elevators to wristwatches, being ubiquitously connected to the Web. Does that mean that I can monitor toxicity through microsensors? Does that mean I can manage power consumption in offices better, like elevators that don't have to stay on during the weekend? The chance to boost the efficiency of resources consumption and reduce ecological impact while it hits the bottom line is massive.
That's the future. That's what clean tech is. Not scrubbers and smoke stacks.