The Rocky Mountain New Energy Markets Summit hosted by Holme Roberts & Owen included technological, policy-related and financial perspectives on the future of the energy economy in our state and nation. The full afternoon event featured speeches by Governor Bill Ritter and German Parliament Member Dr. Hermann Scheer, as well as several panels featuring professionals from government and industry.
Governor Ritter
HRO Partner Melody Harris, who played an instrumental role in drafting Gov. Ritter’s energy policy, introduced the Governor noting “what a difference a few years makes” in regard to conversations and policies around energy. This change in perspective has been driven in the state of Colorado in no small part by Ritter, who according to Harris sees the “new energy economy” as “his issue.”
Gov. Ritter began by emphasizing that to define the new energy economy soley in terms of renewables represents too narrow a focus, a sentiment repeated by several other speakers throughout the afternoon. He looked towards an energy future that includes “clean-burning extracted fuels and aggressive promotion of renewables” along with a renewed focus on “encouraging energy efficiency and conservation.” Gov. Ritter specifically noted natural gas and clean coal among the extractable fuels presenting opportunities. Gov. Ritter, who has attended five energy related ribbon cuttings in the last three weeks, went on to tout a few of the state’s successes at generating green jobs, including the opening of the Abound Solar production facility. Abound’s success and that of other companies is aided by the “ecosystem for the new energy economy” that exists in Colorado, comprised of researchers in the state’s Universities and at NREL, investors, and a progressive body of policy. Gov. Ritter concluded by expressing hope that the money in the stimulus package will not only “create jobs” but also cause the state and country to “turn the corner toward a clean energy future.”
Panel: Energy and Renewable Energy Markets, Supply and Demand
- Doug Arent, NREL
- Moderator: Nea Brown, HRO
Arent offered the audience broad perspectives on the future of renewable energy. With the US’s current energy portfolio consisting of 6% renewable energy, Arent said that the view from two years ago was that by 2030 this number would reach 9%. Arent noted that a much more aggressive uptake is possible depending on how the country “defines its future” with influence from technology developments, policy, and pricing subsidies. He believes there are many options for renewable generation in the US due to a “huge endowment of natural resources,” most of which are concentrated in the western states. Arent called energy efficiency the “low hanging fruit,” remarking that efforts are often more productive when the whole system is considered rather than individual components. For example, houses can be built 60% more efficient than code with no change to overall cost of ownership (mortgage payment plus utility bills). Arent went on to highlight the range of renewable technologies that National Renewable Energy Lab (NREL) is researching, which includes solar, wind, biofuels, and options for alterative vehicles and the Smart Grid. Across all these technologies, Arent acknowledges the need for increasing cost competitiveness with traditional options but cautioned that the oft used “grid parity” is a broad term. In calculations of cost comparisons of renewables to grid power, several assumptions impact the comparison (e.g. use of retail v wholesale prices, inclusion of transmission and distribution losses). While the opportunities are plentiful, Arent concluded by saying that moving toward more renewables will “take policy, financing and technology” and will not be “a short-term transition.”
Dr. Hermann Scheer
The audience was treated to a surprise appearance by Dr. Hermann Scheer, a leader in new energy policy in Germany, who was in Colorado for other events. Scheer cited the radical change in thinking and actions needed to move towards renewables, as “the only common thing [with traditional energy] is the word energy.” Scheer sees urgency in “the race against time” to incorporate renewables, seeking a future that “brings together energy consumption and energy harvesting” and provides a “full energy solution.” Scheer also urged a rethinking of cost comparison of traditional energy to renewables as these comparisons must account for “the long energy chain of the conventional energy system” relative to solar generated on a rooftop for use in the same building. These calculations must also factor in the social costs and environmental impacts of fossil fuels.
Panel: Follow the Money: Legislative Overview and Economic Implications
- Don Elliman, Colorado Office of Economic Development and International Trade
- Alice Madden, Governor’s Climate Change Advisor
- Tod Delany, First Environment
- Moderator: Matt Lepore, HRO
The second panel of the day delved into government’s role in the energy future. Madden highlighted Colorado’s efforts at addressing climate change through the state’s Climate Action Plan. The plan calls for a 20% reduction in carbon emissions by 2020 and 50% by 2050 (relative to 2005 levels). The largest chunk of these reductions is expected to be delivered through energy efficiency, with additional portions contributed by renewables and potentially clean coal. Among the state’s specific efforts are the creation of the Colorado Carbon Fund and the passage of a bill which allows counties to use their bonding authority to help individuals finance new energy investments. Elliman provided a brief overview of the stimulus funds coming to Colorado as part of the American Reinvestment and Recovery Act (ARRA) of 2009. Energy office block grants and weatherization funds comprise the bulk of the formulaic dollars. While the additional funds are welcome, Elliman noted the “amount of money, time crunch [to spend the money], and the lack of guidance” as challenges to “tak[ing] the most advantage” of the new funding. Elliman also expressed hope that companies, governments and non-profits in the state could win some of the competitive grants available in addition to the $6B in loan guarantees. Finally, Elliman cautioned against “forgetting programs [and funding outside the ARRA] that are being redirected” under Obama’s administration. Delaney focused specifically on the market for carbon offsets which are generated by products that reduce carbon emissions (e.g. methane capture from mines or agriculture) and can then be bought on voluntary or mandatory carbon exchanges like the Chicago Climate Exchange. Delaney’s company serves as an independent verifier of a project’s offsets. Delaney noted that if the US implements a cap and trade program it is expected that one billion tons of offsets will be needed.
Panel: Capital Markets Update In New Energy Sectors:Financing Strategies For New Energy Innovation
- Paul Leggett, Morgan Stanley
- Bruce Hoyt, St. Charles Capital
- Michael Crawford, Q Advisors
- Ward Cerny, Green Manning & Bunch
- Moderator: Lynn Hendrix, HRO
The third panel of the afternoon shifted the focus to the financial aspects of a changing energy economy. All panelists posited that the recessionary macroeconomic environment could challenge clean tech investment in the short-term. Among the specific issues are the difficulties in debt financing, fewer investors with less cash, and fewer tax equity investors (who are important for many large wind and solar projects). Despite these challenges, all panelists still see pockets of opportunity within the energy investment space. Leggett stated that he believes the current challenges represent a “temporary dislocation” that will generate a “period of rationalization and consolidation” over the next 12 to 18 months. Overall, Leggett remains bullish on the longer term penetration of clean technology, believing the country is nearing a “tipping point” toward wider adoption of clean energy that merely requires a final push (e.g. disaster), or a pull from “economically viable and attractive” alternative technologies to get over the edge. Haymons, whose bank works with middle-market companies, noted that investors seem to be seeking relatively later stage companies and that he has seen a “20-30% correction in valuation” for companies in the past year. He also suggested that as traditional equity is harder to come by, companies seek alternative sources of funding which may include government sources or investment from large company internal venture funds. Crawford said his bank is encouraging client companies seeking financing to “pursue smaller rounds” so as not to scare away investors. Investors are looking for “capital efficient investments,” which means companies must more often outsource some activities rather than attempting complete vertical integration. Cerny focused on wind power, which he called “cost effective today.” He cited expectations for increasing wind installations in the future that will be aided by the project finance benefit written into the ARRA, which allows for greater benefits to be taken on the front end of a project and offers the “greater regulatory certainty” that investors have been seeking.
Panel: Private Investment Funds: Role in New Energy Innovation and Commercialization
- Dirk McDermott, Altira Group
- Dr.Mike Pavia, Oxford Bioscience Partners
- Neil Suslak, Braemar Energy Ventures
- Kevin Andrus, CoCap Energy & Opportunity Fund
- Jon Fouts, Morgan Stanley
- Ryan Craig, Bertram Capital
- Moderator: Mark Weakley, HRO
The panel offered perspectives on energy investment from the private equity, venture capital, and hedge fund views. In terms of private equity, Fouts began by noting that “traditional buyouts are gone” and he expects it will be “a long-time before they come back.” Some funds still have substantial cash, however, which means “deals will still get done” but generally require a more complicated structure. Craig spoke to how his firm Bertram, a hybrid between a VC and PE firm, has been able to play in the clean energy space. Bertram, in seeking firms with cash flow, generally does not pursue traditional clean tech investments but has found a way to “explore the edges.” This strategy involves investment in companies that can offer services, components or support to the supply chain of clean tech innovators. Three venture capitalists stepped up next to offer their investment strategies in the energy space. Denver-based Altira invests across the energy sector with McDermott noting wind and solar as high growth opportunities. The fund “prefers to invest in Colorado” but will go wherever it finds attractive deals which are usually provided initial funds of $5-10M. Oxford Bioscience Partners has moved into clean tech investing from life science. The company is most interested in biologic and chemical solutions that allow access to previously “unobtainable hydrocarbon supplies.” Oxford has invested in Colorado’s Luca Technologies, a firm using microorganisms to extract additional natural gas from wells previously considered dry. Braemer Energy invests across the energy sector but has recently found more of its investments going towards the clean tech arena. The fund has pursued investments in ethanol where Suslak believes the key is “to look at the feedstock” and how to maximize yield. Andrus concluded the panel in discussing how his energy-focused hedge fund makes decisions. While the time frame on returns may change, Andrus evaluates earlier stage or “early theme recognition” investments in much the same way he does investments in larger companies: considerations include the management team, the business prospects, and the current pricing of the asset.
The summit concluded with a panel on tax equity. The Rocky Mountain New Energy Markets Summit, co-sponsored by Morgan Stanley and Altira Group, is part of a series of events HRO is offering exploring the New Energy Economy.
