By Jennifer Scott Fonstad
Managing Director
Draper Fisher Jurvetson 


Why Cleantech Matters

Over the last century, national growth, global politics, investment returns have marched to the tune of the massive increasing worldwide consumption of energy. The oil and gas industry alone (just the barrels) today tops $2 trillion; with supporting industries and services this number doubles – roughly 10-12% of worldwide GDP.

While no one anticipates our dependency on oil, gas, and coal, to dissipate any time soon, a significant share will be taken by an emerging, sustainable and renewable energy category, with the potential, including energy efficiency products and services, to top a trillion dollars. New investment markets of this magnitude emerge once or twice a century; here we are at a most nascent stage – with all of the opportunity in front of us.

So what's different? Why now? On the supply side, the promise of solar, wind, and other renewable sources have been around for decades. What makes this relevant today? How do demand side businesses fit into the story?

First, the economics. Depending on the application, many renewable sources are close to parity with traditional options. With a barrel of oil hovering at the $60-80 range, there are increasingly better options. Process innovations have driven down costs for solar along with new materials to make solar more efficient. Variable control capabilities and energy storage make wind more accessible. And a number of innovations emerging in fuel cell technologies, bio-diesel, biofuels, and related agri-energy markets are providing new sources for transportation, as well. While solar and some biofuels benefit from subsidies or tax credits, as the infrastructure is deployed, along with smart grid technology to network, we will continue to see costs and efficiency drive ever closer and ultimately equal to or better than an oil or gas alternative.  

Today, solar represents less than 1% of world energy supply. With many of the material, manufacturing, and installation businesses emerging, solar has seen a 21% growth rate since 2005; by 2030, solar is expected to deliver 5% of the world's electricity consumption. Wind, at 120GW of installed base, currently provides 1.3% of worldwide energy supply, but at grid parity on electricity cost, it will continue to grow at a breathtaking pace and is expected to deliver 10-15% of worldwide electricity by 2030. Bio-diesel is anticipated to grow from 3.9 million gpy in 2009 to 50 million gpy by 2030, with nuclear representing 6% of worldwide energy consumption by 2030. These numbers represent enormous markets, with the required manufacturing, infrastructure and support services alongside. 

Fundamental to the economics is the emergence of choice. This means that while consumers, businesses, and governments, have had few alternatives beyond traditional oil, gas, coal, and occasionally nuclear, to satisfy increasing energy demands, new options are emerging. Today, energy uses will increasingly be matched to the best energy source. In other words, energy use can be increasingly application-specific. Where there is choice, there is price competition, and increasing investment in innovation. For example, while fuel cells may not have the range and distribution infrastructure to support consumer adoption, applications such as forklift and on-site transportation may be a tailor-made application with the best cost/capability trade-offs. The emergence of an electric car industry with companies like Tesla, Reva, and Think, give consumers choice on what kind of cost/experience trade-offs they are willing to make, ultimately driving further investment.

The demand side opportunities are a critical piece of the story. Products and services driving demand efficiency complements and enables many of choices energy consumers will have, while providing significant opportunities for investors. Lighting, particularly LEDs, are moving rapidly into the $75B general illumination market; perhaps more significantly, by networking lights and providing much simpler controls, we will see opportunities for lights to be managed based on utility peak/off-peak demand, fundamentally changing how and when electricity generation will be used. Lights can now be ‘tuned’ for specific applications; for example, ‘tuning’ lights to enhance the color of meat at the meat counters to drive more sales. Companies like Enernoc network together off-grid energy sources, energy storage, and utility demand to manage and optimize energy use, by application. New sources for energy will also enable variable energy generation options like wind to find broader use, potentially even in small commercial and/or residential applications. Sensor networks and smart metering alert users to excess energy situations (refrigerator doors left open, for example) and provide a dashboard of energy use so consumers can make smarter energy decisions.

These are not small shifts in how users engage with their energy needs, but a fundamental shift, both in the source and use of all different kinds of energy applications. Smart green building will be an entirely new and emerging category participating in this shift as will a host of neighboring industries. It is early to the game however and investors have a significant opportunity to play. How and where to play an emerging trillion dollar opportunity will be the interesting part. 

Footnote: The role of energy security

One final footnote worth mentioning is the increasingly critical national goal of investing in renewable sources for energy security. China, the largest consumer of energy (and the largest polluter) has chosen to invest heavily in all forms of renewable energy to insure steady supply and broaden its options for energy sources beyond the Middle East (for example, investing heavily in cellulosic and other novel agri-energy opportunities in China and on large land tracts in Africa). The United States, with heavy investment by the Obama administration, has taken a similar but critical tact. Perhaps in the end, it is this emphasis, at a national level, that underscores how likely and how quickly a trillion dollar cleantechnology industry emerges.

About the Author

Jennifer Scott Fonstad

JENNIFER SCOTT FONSTAD
Managing Director, Draper Fisher Jurvetson 

Jennifer Scott Fonstad is a Managing Director of Draper Fisher Jurvetson. Considered one of the most senior women in venture today, Ms. Fonstad invests broadly in early stage companies, most recently taking an early leadership role in clean energy. Additionally, she has been working to change our country’s healthcare system through entrepreneurship. Recent investment successes include Athenahealth (NASDAQ: ATHN), Lumenos (acquired by Wellpoint, NYSE: WLP), and NetZero (NASDAQ: UNTD).  

In addition to her investing responsibilities, Jennifer sits on the investment committees for DFJ VinaCapital, DFJ’s partner fund in Vietnam, DFJ Tamir Fishman, DFJ’s partner fund in Israel, and serves as adviser to the DFJ China team.

Jennifer finds much of her inspiration from her family. She and her husband Diego are building the first LEED Platinum certified home in their home town of Atherton. Her oldest daughter has taught her the importance of grassroots efforts through her work with the Atherton GreenSTART program, her school, and through the FIRST Lego Competition (see their work on water conservation at: http://www.penguinos.org).

Jennifer joined DFJ as a Kauffman Fellow in 1997 becoming a partner in 1998. She began her career with Bain and Company after spending a year teaching math to high school students in sub-Sahara Africa. She graduated Cum Laude from Georgetown University and holds an MBA with Distinction from the Harvard Business School. Jennifer is married with four children.