Tuesday, September 13, 2016

Low Energy Investments

Solar-energy-company Solyndra's (2011 photo) bankruptcy
cost VCs and taxpayers over $500 million. The facility
is now occupied by Seagate, the data storage company.
Clean-energy investments have been a disaster for venture capitalists:
Venture-capital investors lost more than half of the $25 billion they pumped into clean-energy technology startups from 2006 to 2011.
The reasons: [bold added]
These investments were illiquid. They would tie up capital for much longer than the three- to five-year time horizon that VCs preferred.

It also takes a lot of money to get fundamental science right and to scale it up. Building extensive factories and building demonstration projects to scale, those were not activities that VCs ended up being willing to fund at the hundreds of millions of dollars level.

Third, energy companies or clean-tech companies were going into markets that are legacy industries, for which a product already exists that does a pretty good job. So when you’re a solar-panel company competing with cheap electricity from natural gas, you don’t have the benefits of high margins. You instead have to compete at the razor-thin margins of the commodity markets.

And finally, the fourth reason we found was that the valuation premium that companies might receive upon exit, even if they were successful, simply was not high enough to justify the investment put into them. [blogger's note: IPO's and/or selling to Big Energy wouldn't have been at ridiculous earnings multiples.]
Other reasons, IMHO, are: the lack of dependable regulatory support (alternative energy subsidies and taxes on carbon) and the fracking revolution that blew a hole in OPEC's oil price umbrella. Some day a technology like hydrogen fusion will be perfected, and the world's capital (and concomitant returns) will beat a path to its door. But that day is not today.

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