Financing Our Cleantech Future
My longtime friend and colleague Bill Green changed jobs recently. That's not normally newsworthy — friends and colleagues do that all the time. But if you're concerned about the future of clean technology — in particular, how we're going to fund the massive scale-up of renewable energy, clean water, and the other infrastructure changes needed to build a clean economy — Green's career move warrants more than just passing interest.
Green is a seasoned environmental entrepreneur, with more than 20 years of management and investment experience. He has led five companies, including Ecolink, one of the first firms to produce alternatives to ozone layer-depleting chemicals, and the Strategic Chemical Management Group, an environmental management company. For seven years, he was in venture capital, a co-founder of VantagePoint Venture Partners' CleanTech practice, among the largest cleantech VCs, with more than $1 billion dedicated to the sector. (In 2003, Green invited me to join VantagePoint's Cleantech Advisory Council, where I still serve.)
Last week, Green announced that he was joining Macquarie Capital Funds as a senior managing director. If you're like me, you probably didn't know much about this company, part of The Macquarie Group, a massive Australia-based global investor and manager of infrastructure, real estate, and other businesses. The Funds division manages more than US$116 billion in assets around the world, much of it large infrastructure projects.
Why is this particular job change worth singling out? Green's evolution from environmental entrepreneur to venture capitalist to a senior director of one of the world's foremost investment banks mirrors the trajectory of the cleantech movement itself. What began in the 1980s and 1990s with a handful of scientists, engineers, and idealistic entrepreneurs, funded by a small circle of friends, came to life during the 2000s with the infusion of tens of billions in venture capital, private equity, and corporate and government investments. That gave rise to the thousands of growing companies that today are manufacturing everything from solar cells to electric cars — and all of the batteries, fuels, engines, controllers, software, and other components that make these things work.
Now, as a new decade begins, it's time to take things to the next level: ramping up proven technologies at massive scale.
That's where Green and Macquarie come in. They are at the leading edge of large investment banks that have the financial firepower to unleash mature technologies globally, financing the wind farms, solar fields, and energy storage facilities that will be needed to bring renewables to scale.
Bill Green describes this evolution in terms of a "corporate lifecycle."
"In the beginning you've got an entrepreneur who comes up with an idea that is transformative in its promise and can attract venture capital," Green explained recently. "The entrepreneur builds a team, develops a product that is what I call 'pre-commercial' — they have a product that works, by whatever definition their sub-category requires, and they've built one of them. They then face the challenge of building their first fully commercial deployment. Once there is an example of a fully commercial deployment, they can think about replicating at commercial scale — what in the semiconductor industry is called 'copy exact': Build a factory, build an identical one somewhere else, build a third somewhere else."
That first commercial deployment is the most difficult to get funded. Once it's proven itself — that it can perform reliably and generate a predictable cash flow — it is more or less a matter of "copy exact," stamping them out from place to place. This is a role for project financing — as distinguished from company financing — and is the realm of investment bankers.
Deploying even one commercial-scale plant can require more capital than most people imagine. Consider BrightSource Energy, which builds and operates large-scale solar thermal plants, in which massive arrays of mirrors beam sunlight to a central tower, boiling water to create steam to run a generator. BrightSource (which happens to be funded by VantagePoint, along with Morgan Stanley, BP, Chevron, Google, and others) has contracts to build several of these plants, at $2 billion to $3 billion a pop. And then there are wind farms. Building one will set you back anywhere from $150 million to $1 billion or more. So, too, a biofuels refinery. Real money, as they say.
Big as those price tags are, cleantech projects are relatively small compared to other infrastructure projects — airports, bridges, toll roads, and the like — making them less appealing to large banks that prefer large projects. Moreover, a lot of investment bankers haven't yet developed expertise in renewables. "Renewables is still a sector that is largely the province of a small group of people who have devoted many years to understanding the sector, who have grown up in the sector in various ways," says Green. "And the sector has yet to fully mature to the point where every institution has developed the capabilities to invest in it. So, many bankers have taken a view that says, 'If this is not my specialty, I would rather back the larger transaction.' That leaves a tremendous opportunity for those of us who both understand and elect to focus on this subsector."
Green and Macquarie view the cleantech sector as ripe for their style of banking. "There's still a gap between Silicon Valley and Wall Street when it comes to understanding the complete capital-formation value chain from venture capital through to equity and debt," says Green. Put another way, the VCs and the bankers haven't yet become a well-oiled machine in handing off venture-funded companies to those who can take their technologies and products to scale — the way, say, a new microprocessor chip can go from R&D to commercial development, with manufacturing plants deployed around the world in relatively short order.
As he sets now out to find and fund proven commercial technologies, Green says he will focus on wind farms, utility-scale solar, utility-scale solar thermal, and geothermal energy. Beyond that, he says, "I'm interested in finding the opportunities that are a bit less obvious but that come in the form of more traditional infrastructure." Transmission, for example. "We believe that there may be opportunities for Macquarie in the emerging conversation around how renewable energy is moved from point of generation to point of use. This has been a real puzzle piece that's starting to get more attention, but I think it's still underserved from the standpoint of capital development." Wastewater purification and landfill waste-to-energy technologies are two more interesting infrastructure opportunities, he says.
Of course, it's not just the financial opportunity that interests Green as he starts this next phase of his career. "I am so excited to be able to point to steel in the ground and tell my son that our company participated in bringing that wind farm or that solar field into existence. I deeply enjoyed the years that I spent in conceptual conversation around bringing to life things that were only the dream of an entrepreneur at the time I first saw them. Now, I'm ready to see these things deployed at scale all over the place, and this is the absolute best platform that I could imagine to make that happen."
It will be interesting to watch. As the financial heft of national governments hit their limits, we'll need the big financial machines — which funded the Internet, cellular networks, highways, bridges, water systems, and mass transit systems — to make clean technology part of the global fabric. Macquarie isn't the first investment bank to jump into cleantech, but it has made clear that it wants to be at the front of the pack.
As if to underscore his excitement for his new role, Green leaves me with a few parting words not typically associated with the dry world of large-scale finance: "It's really cool," he says. "Really cool."
Joel Makower is Executive Editor of GreenBiz.com and chairman of Greener World Media, Inc.