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Venture capitalists know creating a green future can be profitable

By Claudia Fan Munce

Investment in clean technology, already a boon to California’s economy, is now poised to expand into areas beyond alternative energy. As venture capitalists begin to see real returns on their initial investments, they are now focusing on the next wave of opportunity in new technologies that can also reduce the use of carbon-based fuels, while still boosting the economy.

Venture capitalists are starting to invest in new methods for water treatment and for improving the efficiency of U.S. power grids, two areas contributing to the use of vast amounts of electric power, which worldwide is responsible for 40 percent of carbon dioxide emissions.

Clean-tech investments, also referred to as green tech, at first focused on solar energy, wind power, fuel cells and biofuels, such as ethanol. By 2006, U.S. investment totaled $2.5 billion, and Silicon Valley investment climbed to $290 million in the third quarter. This level of investment has helped expand the market for alternative energy, which reached $55 billion last year, and is projected to reach more than $200 billion by 2016.

Over the next three to five years, economic and environmental factors will continue to drive venture capital investment in water treatment and “smart” power grids. Major issues include the fact that current water-filtration systems use vast amounts of costly electricity, and that major inefficiencies in U.S. power grids lead to outages at peak use and wastes that can no longer be overlooked as oil prices climb higher. Most important, technologies exist that can help improve costs, conserve energy and gain widespread use if new capital is invested in their commercial development.

The Environmental Protection Agency predicts many states will face water shortages by 2013. Some scientists also warn that if global warming triggers melting of the snowpack in the Sierra Nevada, California will face severe water shortages and the potential collapse of its agricultural industry. At the same time, salt content is increasing in the Colorado River, the primary source of water for 27 million Californians, making treatment more expensive and difficult.

These realities are spurring significant investment in water-monitoring, purification and desalination techniques. The University of California-Los Angeles Water Technology Research Center, which was awarded a $1 million grant from the state, is at work on next generation desalination technologies.

Technology Partners, a Palo Alto venture capital firm, is investing in Seniscore, a start-up company that markets high-tech water-testing and -monitoring methods.

Crystal Clear Technologies, based in Menlo Park, a winner in last year’s California Clean Tech Open contest in the water-management category, is developing a nano-coating to remove toxic metals and dangerous substances from water. Its low-cost method of decontamination can be especially useful during natural disasters, and in developing countries where overall water quality needs improvement.

California, a leader in renewable energy, such as wind and solar power, is among the first states to understand that creating smart power grids also will be a major step forward in conservation. At present, the power grids of most U.S. utilities can lose 50 percent to 70 percent of the power transmitted through their networks before it ever reaches consumers. With the costs of generating electricity and building new plants at an all-time high, utilities are looking for the help technology can offer to reduce waste and use power more effectively.

New technologies can help bring efficiencies to the power grid much the same way technology has brought greater efficiencies to other segments of the economy. Venture capital investment is helping to develop new methods that allow utilities to allocate power in the networks, store underutilized resources for use when needed and ensure power during spikes in use.

Overall investment in smart-grid, sensing and monitoring technologies reached $450 million in 2006. California venture capitalists investing in energy-efficient technologies include San Francisco-based Nth Power, which manages more than $200 million, and Menlo Park-based Draper Fisher Jurvetson, which has a $284 million fund for clean-tech start-ups. One of DFJ’s portfolio companies, EnerNoc, helps technology utilities and high-volume energy users, such as hotels and malls, monitor spikes and modify usage patterns to conserve energy.

Investments in innovative, clean and green technologies are helping to create products and services that are energy-efficient and environmentally friendly. Venture capital investors will not be alone in reaping the rewards. Our economy, our communities and our overall well-being also will benefit.

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