The Coming of the Cleantech Era

By Steven Milunovich
Greentech Media
January 19, 2009

Despite the credit crunch, falling solar module prices and the like, cleantech
is still on track to be the next big thing, writes Steven Milunovich, Cleantech
Strategist, Merrill Lynch.

Clean technology is suffering from the credit crunch with deferred and canceled
projects. Solar module prices now look to fall by 20 percent to 25 percent in
2009. Alternative energy stocks have cratered. The U.S. public policy front
appears more upbeat with the election of Obama, but there are increasing
concerns that his environmental agenda could be put on the back burner. Taking
a longer-term view, however, we believe cleantech is the next big thing and that
the application of technology to energy markets will provide investors ample
opportunities beginning in 201011.

The Sixth Revolution

Let's step back and put cleantech in perspective relative to previous
technological revolutions. Our framework is provided by economist Carlota Perez
in her book "Technological Revolutions and Financial Capital." She identifies
five great surges, arguing that technology revolutions occur about every 50
years (Table 1).

The first was the Industrial Revolution centered in Britain from 17701830. The
next three revolutions were the Age of Steam and Railways (18301870), the Age
of Steel, Electricity, and Heavy Engineering (18751920), and the Age of Oil,
Automobiles, and Mass Production (19101975). The fifth revolution is the
current Age of Information and Telecommunications. She marks the beginning or
"big bang" event as the 1971 launch of the Intel microprocessor. Earlier
computing efforts (the transistor, mainframes) are viewed as a precursor to this
disruptive event, which dramatically altered the economics and pervasiveness of computing.

We believe the sixth revolution will be the Age of Cleantech and Biotech. Key
foundational technologies could be nanotechnology and genetic engineering.
Although government subsidies are needed today, cleantech could explode when
pure economics drive adoption. Investors must pay attention because cleantech
could revolutionize much of the economy, including the utility, oil and gas, and
auto industries. History suggests that public market investors earn the highest
returns fairly early in the revolution. For example, railroad stocks doubled in
the 1840s frenzy but traded flat in the 1850s. Although biofuel and solar
stocks are on the downside of their mini-bubbles, many cleantech companies have
yet to go public, which likely will accelerate in 201011 coming out of the downturn.

The Valley Meets Big Energy

Venture capitalists will be an important catalyst to the sixth revolution. VCs
have been a primary funding source of disruptive technologies in the computing
era and are now bringing their smarts and experienced management teams to
energy. Cleantech is becoming the third leg of the VC stool, complementing
information technology and biotech. Many funds we've spoken with expect
cleantech to become at least 20 percent of their portfolio.

Some firms are applying their IT expertise to cleantech while others have
partners with energy backgrounds. There is a good reason IT and energy
executives are coming together. Energy observers Peter Huber and Mark Mills
point out that the biggest change in the last few decades has been the emergence
of the digital economy, permitting devices and systems that were impractical
before. Solar PV is an obvious example of the application of digital technology
to energy, but, as Nobel laureate and VC Arno Penzias points out, so are large
transistors than can work in the world at human scale.

Digital technologies were applied more easily to weightless information at the
milliwatt level; now it's the turn of larger digital systems operating in
megawatts. According to Huber and Mills, "The single biggest opportunity for
more efficiency resides in real-time, dynamic control of complex systems, from
commercial buildings and engines to factories and homes." That's a job for
silicon, software, intelligent networks, and other digital tools.

It is early days for cleantech, a time at which venture capitalists can have
real impact. Ray Lane of Kleiner Perkins said, "I think that energy is in the
same stage that technology was in the late-1980s. There's no Internet. No
client/server. Corporations weren't looking to venture capitalists to see what
is going on, they were looking to IBM, Sun, and Oracle. It was only during the
1990s that enterprise customers became more concerned with venture capital
investments. The same is happening now in energy." Indeed, though a near-term
shakeout looms, the cleantech era is just beginning.

This opinion piece is from an independent writer and is not connected with
Greentech Media News. The views expressed here are those of the author and are
not endorsed by Greentech Media.


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