Silicon Valley’s shift toward green technology is in high gear. Will it create the same kind of bubble, bust and lasting change as the Internet itself? Are we going to party like it’s 1999? Will we hear venture capitalists like John Doerr describe “green tech” the way they did the Internet boom in the 1990s as the “largest legal creation of wealth in human history”?
I don’t think we’re in danger of going over the edge into a bust just yet. It’s so early, and the bubble warning signs just aren’t there. For instance, we don’t have any 50-person green tech start-ups valued at $10 billion yet.
But the velocity of news about clean tech is certainly accelerating. Clean coal is going to get a boost with the proposed $45 billion buyout of Texas utility TXU, funded in part by San Francisco’s Texas Pacific Group. BP is investing $500 million in a
Investments in clean start-ups climbed to $1.3 billion worldwide in 2006, more than double the $664 million in 2005 and far above the $416 million in 2001, according to a report this week by Dow Jones VentureOne and Ernst & Young. That’s 4 percent of all venture funding, up from earlier years.
(The surveyors define clean tech as companies that enable the efficient use of natural resources and reduce the ecological impact of production.)
Does this green-tech boom mean the valley’s freeways will clog with smoke-laden traffic jams, just as we saw in the heyday of the Internet boom? (Although this time we may be driving hybrids or Teslas with electric motors.) Perhaps, especially if you think of all the jobs $3 billion in venture funding for clean tech in the United States – so far – can create, with much of that coming here.
Other fields could certainly overtake green tech, such as nanotechnology or biotech, as the hot industry. But John Denniston, a partner with Doerr at Kleiner Perkins Caufield & Byers, says green tech has enormous scope because it is driven by stopping climate change, achieving energy independence and restoring American competitiveness. The valley is attacking the problem on multiple fronts, from better batteries to cheaper ethanol. These are real problems that need real solutions, in contrast to such over-hyped problems during the tech bubble as the need to buy pet food online.
Green tech’s potential market is huge. Even if solar companies continue to grow like crazy, solar still won’t meet more than 10 percent of our energy needs by 2030, according to a November report by the President’s Council of Advisors on Science and Technology, a group co-chaired by venture capitalist Floyd Kvamme. In the next 25 years, electricity demand in the United States is expected to increase 50 percent. We used 139 billion gallons of gasoline last year, and that is expected to increase to 153 billion gallons by 2012.
In his State of the Union speech, President Bush said he wants 20 percent of all gasoline consumption to come from alternative sources in 10 years. Assuming gas prices of $2 a gallon, the value of the alternative fuel market will be more than $60 billion by 2012. That’s a big market to go after, says Vinod Khosla, head of Khosla Ventures, who wants us to declare a “war on oil.” If you consider the $20 billion online advertising market where search giants Google and Yahoo play, you can see that the alternative fuel market alone is huge.
It’s easy to see how we can all get carried away again. But bubble talk is a little premature, says Denniston. We have to have something of a party before we have a hangover. Not many clean tech companies have gone public, and fewer still are commanding sky-high valuations. Valuations of green start-ups in general are still smaller than the average tech start-up, according to VentureOne.
Barry Cinnamon, a onetime Internet bust refugee, started Akeena Solar in 2001. His Los Gatos company now has nearly 100 employees working in four regions to install solar electricity panels. Cinnamon says there is a lot of excitement among employees, young and old, that they’re doing something to combat global warming and make a living, too. He’s getting job applications from tech workers, but he doesn’t feel it’s a bubble yet.
“In a bubble, you have public liquidity events, and we are very far from that,” he said. “The clean tech investors are betting on a number of horses, but they know that only a few are going to work out.”
But there are legitimate reasons to believe something big is happening short of an investor frenzy. A confluence of events has pushed green tech into the limelight. The California energy crisis in 2000 spurred new thinking about alternative energy. The Sept. 11 attacks, the Iraq war and the run-up in oil prices got the government thinking about energy independence. Al Gore’s Oscar-winning documentary “An Inconvenient Truth” convinced a lot of people that we have only about a decade to do something about global warming. Climate change has ceased to be a topic of debate.
California is the tail wagging the dog with the passage of AB32, which seeks to reduce emissions in the state to 1990 levels by 2020. Even corporate organizations argue that capping emissions is good for business because it will inspire innovation.
But Denniston hopes the federal government will make its mark with significant energy efficiency legislation in 2007. The Democratic-controlled Congress and President Bush’s State of the Union address have put energy and the environment front and center.
And even if all this turns into a bubble, the thing to remember is that after the bubble bursts comes the lasting change. Check out the PCAST report at www.ostp.gov/pcast/PCAST-EnergyImperative_FINAL.pdf.
Contact Dean Takahashi at dtakahashi@mercurynews.com or (408) 920-5739.
