Finding no green

Energy technology developers have difficulty raising capital

Published March 31, 2013 by Richard Foster

Kim Chaffee knows he can transform hydropower generation, but proving that claim won’t be easy.

A Glen Allen-based mechanical engineer with degrees from Harvard and University of California-Berkeley, Chaffee designed a river tidal turbine that can run in shallow waters. Unlike most turbines, which resemble fans or windmills, Chaffee’s turbine design is rectangular and rotates in two directions. “It’s much more efficient” than existing technology, says Chaffee. “You can make it span an entire river. You can generate huge amounts of power at relatively low cost with one deployment. … It truly is a revolutionary product if I can just get it produced.”

Chaffee developed a small working prototype attached to a motorized pontoon boat on Lake Anna, but estimates he needs about $500,000 to test and build a scale model. He submitted a joint application with Oak Ridge National Laboratory for grant funding from the Department of Energy but was turned down because he didn’t yet have a working model. He’s since put his startup business, Marine Renewables Technology, on hiatus, but hopes to still find investors who will back up his vision with an infusion of capital.

“Trying to raise that money privately is very difficult in this economy,” Chaffee says frankly. “There’s a lot of other things that look like they have a better payoff out there that angel investors or [venture capitalists] are going to be interested in before they’re going to be interested in something like this that’s high risk and is at a very early stage.”

Just a few years ago, green technologies and alternative energy development were touted as among the hottest investment opportunities for the coming decades. U.S. Sen. Mark Warner, a legendary venture capitalist who made his fortune in telecommunications, was quoted wistfully wishing he could get into the industry.
But since then, the conventional wisdom has changed. And, in part because of the decreasing cost of traditional energy sources such as coal and natural gas, green tech has become a much harder sell.

Chaffee’s business was among the first tenants at the Dominion Resources GreenTech Incubator in Ashland, which was intended to help startup green energy businesses get assistance by bringing their technology through the proof-of-concept phase to the marketplace.

That was in 2010. Late last year, the incubator was rechristened as the Dominion Resources Innovation Center, widening its mission to include startups across technology sectors, from biotech to information technology.

“The center’s been open for a little over three years, and as we were coming up on that anniversary, one of the things that became apparent to all of the partners was the whole sector of alternative energy has not developed as robustly … as a lot of people had expected, especially given the fact that there was a lot of hype and attention and promise four years ago around funding for green technology … green energy, etc. Even Dominion Resources, which is our principal private partner, kind of admitted that conditions had changed a bit,” says Bob Skunda, chairman of the board of the Virginia BioTechnology Research Park, which manages the center.

So what happened?

“Reality has set in,” says James B. Murray, a noted venture capital investor and general partner at Charlottesville-based Court Square Ventures. Investors follow a herd mentality. They’re all looking for a lead on what the next big thing is going to be, whether that’s biotech or alternative energy or mobile apps. After the stampede clears, the investors are looking for a return on investment, and green technology wasn’t providing it quickly enough across the sector, Murray says.

“The problem that is particularly true of green tech is that the scale of investment is so much different in many other fields that are available to venture investors,” Murray says. In mobile-apps development, for instance, a relatively small capital investment can yield a quick profit. It’s easy to quantify how much coding an app or web application will require. That’s not the case with the lab work and testing needed to bring a new energy technology to market.

“If I tell you we are going into a lab and keep working on genetic iterations of algae until we get one that when dried will grow fast and produce energy at some certain rate, there is no way to quantify how long that will take or how much work you’ll have to put into it,” Murray says.

It also comes down to cost effectiveness.

In the software field, Murray says, investors are usually looking for a product to be 10 times more valuable or one-tenth the cost of an alternative. But in the energy sector, “an incremental improvement of 5 percent is often viewed as remarkable.” And that’s not enough of a cost savings to get industry or consumers motivated to switch to a new technology.

Murray has invested in or vetted various green-energy projects, including hydro, wind and biochemical energy production. But as coal and natural gas prices have come down in recent years, the yields those technologies claimed haven’t materialized. “In all of those cases,” he says, “those deals just ended up being unable to produce energy or save energy at a cost that was comparable to the existing technology.”

Dominion Resources is seeing a similar problem with offshore wind development. Wind is the largest, sustainable unexploited power generation resource we have, says Mary Doswell, Dominion’s vice president of alternative energy, “and it was looking very good, very competitive until the natural gas prices dropped.” Now, she says, “the economics aren’t working.” (For more information on offshore wind development in Virginia, see page 32).

Engineers are laboring to crack the holy grail of making offshore wind more cost-effective than traditional energy, given the challenges of constructing and maintaining ocean wind turbines and underwater transmission cables.

There are many startups and researchers working on problems like this in fields across the energy sector, but it’s a time-consuming process, Doswell says. And investors don’t want to wait a decade or more for a technology to make it through testing and regulatory hurdles until it turns a profit.

“It’s very frustrating,” Doswell says. “We’re seeing a lot of companies that have great technologies but to have that ability to hang on, so to speak, is difficult and investors don’t have the patience to hang on.”

In many ways, the sector itself is switching gears, acknowledging the hurdles of cheaper traditional power sources and the reluctance of consumers to change their power-guzzling habits.

Dominion, for example, has developed a proprietary software product called Edge that monitors voltage bandwidth and can improve power grid efficiencies by about 3 percent. It’s licensing the product to other power companies. “There is a whole lot more we can be doing to optimize and control the grid, and that’s where a lot of new technology seems to be focused,” Doswell says.

At Dominion Resources Innovation Center, the current crop of green-tech entrepreneurs and researchers associated with the center seem to be looking less at novel sources of power generation and more at methods of making present power systems more cost-effective, says the center’s “entrepreneur in residence,” William Daughtrey.

One company, Intelligent Service Panel, run by electronic engineer and inventor Holly Chen of Palmyra, is developing a smart electric panel that will improve household power consumption. Another firm, Green Vision Energy, is developing systems to use algae to eliminate carbon dioxide output from coal-burning power plants.

Electric Force Motors is creating high-voltage, energy-efficient motors for use in hybrid vehicles and industrial assembly-line conveyor belts. Through a proprietary process, his motor eliminates the need to use rare-earth elements monopolized by China, says owner Weston Johnson, an electrical engineer. It also eliminates the need for gearboxes, making it a cheaper alternative to traditional motors.

The best selling point may be that it’s not creating an entirely new technology. He’s just developing a better motor. Consequently, he says, “I don’t believe we have the same technical risk as other emerging green technologies do.”