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The Venture Financiers: Still Bullish on Energy?

Their numbers remain small, but investors in energy technology say California's energy crisis this summer may be a boon.
Fortnightly Magazine - December 2000

effect is conceivable. He adds, however, "Investors are much quicker to pull the plug on companies [in other technology areas]. We have not seen that in energy."

But if investment activity hinges on industry restructuring, as Holman suggests it does, last summer's spiking wholesale prices in San Diego and the surfacing of the term re-regulation conceivably also could have a chilling effect on venture capitalists. It appears, however, at least to VC players, that San Diego is considered merely a bump in the road.

"Based on our ability to get initial public offerings done for companies in the power technology sector, I would have to say that there has been no visible impact," Holman says. Still, Holman acknowledges that any talk of re-regulation can't be good for investor morale. "It stands to reason that there must be some dampening effect. It introduces some uncertainty that might not have been perceived or evident six months ago."

Deutch suggests that in the long run, San Diego can only have a positive effect. "I think that helps energy technology," he says, pointing out that those skyrocketing wholesale prices and consumer bills will make technologies such as distributed generation all the more attractive.

Asked if the crisis in San Diego had any negative effect on funding, Floyd seems to agree with Deutch. "No, just the opposite," she says, pointing to the mere nine months it took Nth Power to raise its second fund.

From the point of view of investors, in order for all the shiny new widgets to move from developers' garages to use in homes and businesses, restructuring is the key, and the reason for that, according to Holman, is price signals. "I have [said] that if we backslide, that would be very detrimental to the prospects for new power technologies, and one of the big reasons for that is that I think we need price transparency to stimulate rational investment in new power technology.

"So to the extent that California says $150 per megawatt-hour [price cap] is the limit ... that, in my view, is not a good thing. Part of the stimulus for investment in distributed resources is having to pay the $1,500 per megawatt-hour, or whatever that price is. ... That's the signal to the consumer that he needs to do something, that he needs to take steps and find an alternative. Price signals are critical; price signals are the juice that stimulates investment in technology that are going to save us money."

For now, Nth Power appears pleased with its investments. Floyd calls Capstone its "first home run," in the sense that "we were able to be part of a team that helped to successfully nurture the company from inception to commercial product."

On Oct. 24, Capstone announced that it had filed a registration statement with the Securities and Exchange Commission for a secondary public offering.

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