Clean Energy-a Hot Global Market!

Clean energy is a hot, global market for venture investors. In the United States, we will witness the largest flow of investment into this space in history with over US$1.6 billion invested in "clean technologies" through September 2006.

Clean energy includes any source that causes little or no harm to the environment or reduces impact from traditional sources. This includes all renewables (e.g., hydro, wind, solar in all its forms, wave and tidal energy, etc.), hydrogen and other fuel cells, hybrid vehicles and supporting infrastructure, energy efficient building systems, smart and distributed technologies that improve electric grid operation, clean conventional power systems, and biomass fuels.

It's not surprising that the majority of "clean energy technologies" support the largest industry in the world - electric utilities. Electricity has enormous capital leverage because central electric grids are approximately 100 times as capital intensive as the traditional direct fuel systems such as the oil and gas pipeline infrastructure. In terms of relative cost, the average U.S. rate of 10 cents per kilowatt-hour is equivalent to oil at $170 a barrel. Environmentally, power plants burn a third of the fuel in the world, accounting for a third of the CO₂ released from the burning of fossil fuel.[1] Therefore efficient utilization of electricity has a significant impact on a nation's ability to reinvest in its economy and reduce its impact on the environment.

The entrepreneurial challenge for clean energy companies

Great companies spring forth from great entrepreneurs. And the world renowned US entrepreneurial community has clearly heard the calling of the clean energy sector. Executives skilled in the art of launching new technologies and building markets are following the money and migrating to the space. This unprecedented combination of a  1) legitimate venture backed clean energy sector coupled with 2) an ever growing talent pool and 3) shifting leadership in the US government, has created an environment ripe for explosive growth.

The good news: many of the tenets employed by entrepreneurs to successfully grow technology firms for decades are true in this sector. In clean energy the considerations include:  

·         Regulatory involvement. Governments recognized the value of energy sources in economic and military might centuries ago. As a result, policy and regulations guide market development across a very wide swath of this industry. Because of the highly regulated nature of this market, entrepreneurs must be aware of government activities, initiatives and directions when developing their business plans.

·         Geography. Multi-tiered government intervention means standard deliberations of domestic versus international market focus will not suffice. In most cases, entrepreneurs must wade through complex government market incentives and deterrents at the continental, country, state, and municipal levels for proper value proposition quantification.

·         For example, financial incentives designed to promote a balanced approach to electric utility infrastructure should reward the utility for being "kilowatt hour indifferent".  Indifference means utility shareholders get paid equally for the acquisition and integration of capacity whether through traditional infrastructure, energy efficiency or renewable platforms. However, in reality, 50 year old regulatory policies are highly biased towards traditional infrastructure with return policies allowing an embedded capital amortization period of 20 to 30 years. In comparison the market imposes capital amortization hurdles for clean energy projects typically closer to a 2 to 3 year timeframe - or a recovery rate 10 times as aggressive as traditional infrastructure.

·         Segmentation. Clean energy markets are typically segmented by commercial versus residential / consumer.

·         In the commercial segment, clean energy companies have two paths to revenue - regulated companies like electric utilities or private enterprises. The allure of electric utilities (driven by sheer market size) must be considered in light of actual experience of new technology adoption. In the United States, the electric grid is virtually identical to the grid of the 1950's. In this industry the "big" innovation of the past 20 years has been the slow migration to digital metering. In terms of technical sophistication and functionality, digital meters are akin to "dumb computer terminals" used in the 1980's.

·         However, over the same time period, private commercial enterprises have spent billions of dollars on clean energy technologies such as upgrading lighting and building systems. As a result, despite political rhetoric, clean energy products are more likely to find initial reference customers in large private, global corporations rather than electric utilities.

·         In the residential / consumer segment, few existing distribution channels have a proven track record of supporting clean energy. Clean energy entrepreneurs must also contend with expensive installation regulations which are sometimes hidden and can destroy a value proposition. Many of these requirements were designed in conjunction with entrenched players to preserve the status quo by controlling "undesirable" changes to the energy infrastructure.  This has protected the profitability of ingrained market participants.  The effect has been to slow down technology adoption.  

·         Value proposition. Ingrained market participants use an "engineering blocking" strategy to avoid adoption of technology which they perceive as financially undesirable. Regulators and law makers are counseled by those same parties that adoption of new products create unnecessary public safety and reliability risk. As a result, many clean energy entrepreneurs have tended to focus on "features" versus quantifiable, result focused "benefits" when promoting their technologies.

·         Revenue and pricing model. As with most industries the bias is towards finding a repeatable revenue model versus a one time technology sale. In fact, one of the global leaders in traditional AND clean energy products - General Electric - derives over 50% of its revenue and profitability from repeatable financing operations. GE and others use this model to level the capital amortization playing field for clean energy projects. Clean energy firms must consider structural constraints as well as market expectations when developing initial repeatable revenue models.

Growth Process Group and Clean Energy

Growth Process Group interventions help clean energy entrepreneurs launch and grow their companies.   We develop successful navigation strategies for "crossing the chasm"[2] from the choppy early adopter stage of revenue to sustainable, predictable revenue growth.

GPG accomplishes this through its senior team of consultants employing a proprietary and highly structured consulting model. The resident GPG team has deep experience with the clean and distributed energy space as well as in driving technology adoption.  

GPG News

GPG and FountainBlue team up to launch clean energy forum. The monthly luncheons are designed for entrepreneurs to share successes and challenges on a pre-set theme, moderated by experienced colleagues, in a safe environment, focused on helping fellow members run and grow their clean energy ventures. The series will  launch in February 2007. Look for more information on this initiative over the coming months. To learn more about FountainBlue go to www.fountainblue.biz .

Chuck DeVita is moderating a monthly series of clean energy forums at Santa Clara University.

Mark Bowman returns to Growth Process Group after completing a long term interim executive assignment.  Mark has over eighteen years experience in sales, business development, and marketing for both established and early stage technology companies. More.

Brian Reidy joins advisory board of distributed hydro company. Reidy has been appointed as an advisory board member of Dial Discoveries a company devoted to developing and deploying sustainable technologies. More.

Speaking Engagements

Chuck DeVita is a recognized speaker and visionary on sales & marketing management and on positioning for investment for enterprise technology providers. Brian Reidy is a recognized authority and frequent speaker on energy technology and energy efficiency.

Recent and future speaking engagements include:

September 26, "Developing Value Propositions and Pricing Models", a 5 week course, Stanford Continuing Studies Program, http://continuingstudies.stanford.edu/

October 26, "Achieving Funding Milestones" FinancingPartners- Behind the Numbers Seminar, http://www.financingpartners.com/eventdetails.php?id=129

November 13 and the 3^rd Thursday of every month, "Alternative Energies-EBA Series" Santa Clara University, http://eba.scu.edu/joomla/content/view/39/47/

November 16, "Developing Value Propositions in Early Stage Ventures", a Marketing Roundtable, SVOD-2006, http://www.svod.org/2006/registration

January 17, "Getting Your First Customers-2007 Entrepreneurship Conference"    Stanford Graduate School of Business

Additional speaking engagements are listed at http://www.growthprocess.com/speakingengagements.asp

Future GPG Newsletter Topics

Acquiring Reference Customers

Creative Compensation to Motivate Your Reps

Developing Value Propositions

Assessing Your Sales Process

Hiring Sales Reps

Building Your Pipeline

The Value Pyramid

Developing Ideal Customer Characteristics

Sales Assessment-the Risk of Delaying

Sales Supply Chain

Implementing Sales Management Excellence

Choosing and Managing Your Channels       

Getting Product Management & Product Marketing Right

To give us feedback on your favorite topic and/or to give us feedback on the value of this newsletter, email us at newsletter@growthprocess.com.

Copyright © 2006 Growth Process Group