We noticed you're browsing in private or incognito mode.

To continue reading this article, please exit incognito mode or log in.

Not an Insider? Subscribe now for unlimited access to online articles.

Martin LaMonica

A View from Martin LaMonica

For Energy Startups, a Glass Half Full or Empty?

As a group, clean-tech startups are struggling. Here are some of the technology and business trends that will shape startup activity this year.

  • January 4, 2013

It’s no secret that times are tough for funding clean technology startups. But innovators are adapting to the many things that have changed since the go-go years of the mid to late 2000s.

Going down: venture activity in clean-technology companies has peaked and appears on the way down. Startups are turning to alternate sources, such as corporate investors and family foundations.

Research company the Cleantech Group yesterday released data showing just how much venture investors have soured on clean technologies, with the amount of money invested into clean-tech startups plummeting 33 percent last year to $6.46 billion.

Even though fewer startups are being funded, innovation in energy and environment continues, albeit under very different business conditions. Here are some thoughts on the business and technology trends shaping this year.

A smaller investor pool. Back in the mid 2000s, nearly all generalist venture capital firms had an investment in the clean tech category with solar and biofuels getting most of the money. Now, the venture investing is left primarily to specialist companies, as others have fled.

The Cleantech Group’s numbers reflect this. In addition to a lower total amount invested, the number of deals fell over 30 percent, too, and the average deal sizes are lower. Many venture capital companies “got burned” in previous years when they underestimated how much capital is required to bring an energy-related startup to an IPO or sale, says Sheeraz Haji, the president of the Cleantech Group.

Corporate investors, such as ABB or General Electric, have helped fill the funding needs for startups, but these “strategic investors” are cautious and there’s been a decline in their involvement over the past year, says Haji. Meanwhile, raising money on the public markets via an IPO is effectively shut and a number of companies cancelled stock offerings. SolarCity did have a successful IPO but had to scale back how much it sought to raise, which its chairman Elon Musk blamed on investors skittish of clean tech.

The continued marriage of energy and IT. Energy has traditionally meant drilling, but it’s becoming increasingly high tech. This is driven in part by investment patterns. Wary of funding companies that will require big sums of money and long technology development periods, VCs are putting their money into “capital-efficient” startups geared at energy efficiency. One hundred and forty of the 700 deals Cleantech Group recorded last year were in energy efficiency.

A number of companies have rightly estimated that buildings could be more efficient by analyzing data or using sensors to cut back on wasted energy. One startup called Stem analyzes building energy consumption patterns and electricity rates and then uses an on-site battery to lower electricity bills. (See A Startup’s Smart Batteries Reduce Building’s Electric Bills.) 

But this area has become overcrowded. There are now dozens of building and utility data analytics companies and Haji notes that some, such as Serious Materials, have had to abandon plans to offer energy management services to building owners. Investment dropped 21 percent in energy efficiency, which is also hurt by muted electricity prices.

A more promising area is using embedded computation and communication, such as networked sensors, to make energy more efficient, a form of what people call the Internet of things. An example in the area of sensors is Enlighted, a lighting company that uses light and motion sensors to improve lighting controls and save energy. General Electric, meanwhile, is pushing heavily into the “industrial Internet” by equipping everything from jet engines to medical devices with controllers and sensors to analyze data and improve equipment performance.

Cheap Fossil Fuels Give and Take away. Natural gas has rapidly displaced coal in power generation and super cheap natural gas in the U.S. makes it harder for solar and wind to compete on price. (See What Mattered In Energy Innovation This Year.) 

But the domestic fossil fuel boom is creating the need for better analytical tools in exploration and monitoring the entire distribution system, Haji says. And the drilling technique behind the U.S. oil and gas boom—fracking—creates the need for water treatment technologies. Cheap natural gas also makes stationary fuel cells and natural gas vehicles more attractive.

Solar has become a commodity business and investment has plummeted, but other areas such as energy efficiency and waste-to-energy are attracting more interest.

Meanwhile, more companies are trying to make use of natural gas to make chemicals and even fuels. For example, Siluria has a process for making the chemical ethylene from natural gas rather than oil while Calysta Energy and Primus Green Energy, once a biofuel company, are using natural gas to make liquid fuels. (See Biofuel Companies Drop Biomass and Turn to Natural Gas.)

Efficiency, not electrification, is the name of the game in cars. Electric vehicles are coming, but expect a long transition. The shorter range and high cost of battery-electric vehicles limits their appeal to a small audience of people, while hybrids offer better fuel economy without range limitations. Sales data from big automakers indicate that consumers a showing preference for plug-in hybrids over all-electric cars. (See Consumers Voting for Plug-in Hybrids Over EVs.)

But as automakers looks to meet more stringent fuel economy standards in the U.S. and other countries, electrification is just one tool among many. Expect to see more advances in the internal combustion engine and efficiencies gained through lighter materials and more aerodynamic body designs. 

By the end of this year, BMW is expected to release the i3 plug-in hybrid that uses a carbon fiber body, a sign that alternative materials have attracted serious attention from auto manufacturers. 

Cut off? Read unlimited articles today.

Become an Insider
Already an Insider? Log in.
More from Sustainable Energy

Can we sustainably provide food, water, and energy to a growing population during a climate crisis?

Want more award-winning journalism? Subscribe to Insider Plus.
  • Insider Plus {! insider.prices.plus !}*

    {! insider.display.menuOptionsLabel !}

    Everything included in Insider Basic, plus the digital magazine, extensive archive, ad-free web experience, and discounts to partner offerings and MIT Technology Review events.

    See details+

    Print + Digital Magazine (6 bi-monthly issues)

    Unlimited online access including all articles, multimedia, and more

    The Download newsletter with top tech stories delivered daily to your inbox

    Technology Review PDF magazine archive, including articles, images, and covers dating back to 1899

    10% Discount to MIT Technology Review events and MIT Press

    Ad-free website experience

You've read of three free articles this month. for unlimited online access. You've read of three free articles this month. for unlimited online access. This is your last free article this month. for unlimited online access. You've read all your free articles this month. for unlimited online access. You've read of three free articles this month. for more, or for unlimited online access. for two more free articles, or for unlimited online access.