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Energy-Tech Venture Capital

New ideas that may transform the utilities industry.

Venture capital investments have tended in the past to focus on advances in computing, software, biotechnology, and semiconductors. Small investments led by venture capital firms hatched companies such as Apple, Google, Ebay, Amazon, Genentech, and Advanced Micro Devices-plus several others that never became household names.

But the growth and earnings potential when disrupting long-established industries or creating new economic sectors forms a key part of the excitement and appeal of the high-risk investment strategy at the heart of venture capital. As energy technology venture capital emerges, it is causing investors and entrepreneurs alike to sit up and take notice-and take action.

Defining Energy Technology

Energy technology encompasses a variety of inventions, innovations, and applications that serve a widely diverse set of energy consumers, producers, and specialized service providers. To better understand the markets, it is useful to divide energy technologies into four distinct categories. Each represents a segment with existing markets, established channel participants and customers, and opportunities to create significant investor value.

Energy Intelligence: Data are vital to the efficient and optimal use of energy. Ironically, the information-gathering systems that connect to critical energy assets, such as meters, transformers, and generators, are well behind the times. New metering technologies, the collection of interval data, and complicated billing processes for power customers of all classes are among the reasons why the modern energy marketplace needs new energy solutions. Frost & Sullivan estimates the market for serving end-customer energy use at $25 billion in the United States and Canada alone. The Meta Group pegs software for customer information, trading, and workflow management at $5.3 billion worldwide. And, the research group, Chartwell, estimates the annual market for advanced metering is at $1 billion and growing.

Distributed Energy: For years, distributed energy systems have worked in commercial and industrial facilities. But as the increasing cost of power for many users encourages consideration of small-scale generation in smaller facilities-even in homes-technologies such as solar panels, clean diesel generators, Stirling engines, micro-turbines, and fuel cells are emerging. As a result, Navigant, a leading energy-consulting firm, believes that today's distributed energy market, currently sized at over $13 billion, is at an early stage of widespread adoption.

Power Reliability: Demand for high quality, uninterruptible power systems continues to rise, driven by the proliferation of digital equipment in processing facilities, online commercial transactions, and data centers, and in distributed telephony by the increase in cable and satellite infrastructure. The mission-critical nature of electrically powered equipment makes such short-term storage systems a significant market. New uninterruptible power technologies and services have the potential to grab a valuable share of what Frost & Sullivan expects to be an $8 billion market by 2008.

Related Services: Many other industries aggressively pursue outside services during times that compel operational efficiency and cost cutting. The energy industry is following a similar pattern as it begins to outsource business services that historically have been conducted in-house. Venture capital backed "related services" companies address "core" activities such as call centers, engineering, asset monitoring, billing services,