What is the short term outlook for venture capital investments in clean technology? How has the clean energy sector been impacted by the economic downturn? During today's OnPoint, Patrick Von Bargen, a director at Quinn Gillespie and Associates, discusses emerging venture capital trends in clean energy. He also comments on the Senate's upcoming fall debates on healthcare and energy.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Patrick Von Bargen, a director at Quinn Gillespie & Associates. Patrick, it's nice to have you here.

Patrick Von Bargen: Happy to be here.

Monica Trauzzi: Patrick, you represent startup firms using venture capital to develop clean energy technology and venture capital investments have fallen sharply from 2008 levels. What do you see in the short term as markets begin recovering? How long do you think it's going to take for the clean tech sector to fully recover?

Patrick Von Bargen: It will take a while. Two things are happening in the venture community. There are a number of venture firms who are seeking funding from institutional investors. They are having a problem committing more money to clean tech companies. There are a number of firms that have capital that they can invest and I think the question there has to do with some of the uncertainties in the clean tech sector and what technologies are likely to be winners and which ones are not. So I think the pace will pick up because capital will begin to flow to the sector, but also there will be more certainty developing in what policy directions are going to really support clean tech companies going forward.

Monica Trauzzi: Any key trends you see emerging in the clean tech sector in terms of what is being invested in?

Patrick Von Bargen: The clean tech sector, as you know, is very broad, so it covers everything from biofuels to renewable electricity and those are very different environments. But I think in the electricity area one of the big issues that concern venture capitalists is storage. How are we going to make significant inroads with renewable energy unless we have new technologies in storage and there are some bottlenecks there. And in the biofuels space we have the renewable fuel standard which is evolving. There's some uncertainty there. There are a lot of companies in that space. Picking the likely winners is hard to do. So I can't give you any particular trend, but they're looking at all these technologies in all these spaces and trying to assess what are the winners likely to be. And there's a lot of competition for those candidates.

Monica Trauzzi: Venture capitalists are always looking for the next hot thing.

Patrick Von Bargen: Right.

Monica Trauzzi: Will their focus continue to be in the clean tech space or is there something else coming up in the future that they might put their money towards?

Patrick Von Bargen: I think the focus will increase on clean technology partly because when we look at economic growth patterns for the future of the country the energy in clean tech space is going to be one of the major economic growth drivers in the country. So, I think that wave is still rolling in from the ocean to the beach and they're going to ride it for a while.

Monica Trauzzi: In addition to your work on clean tech you also represent clients in a coal and electricity industries. What recommendations are you making to these clients as we get closer to the potential passage of a cap and trade?

Patrick Von Bargen: I think the issue there is we now have a cap-and-trade bill out of the House. We know what's in that bill. I believe the Senate is going to pass something and so their next forum is the Senate and the question is, they have to assume that there will be a bill, how is it structured in a way that is conducive to their future strategic plan from a business proposition? And they've got to balance on the one hand the bill is going to force change, so they can use the old business model. What kind of change is going to make sense for them economically going forward?

Monica Trauzzi: On coal specifically, do you believe the Waxman-Markey bill incentivizes utilities to stick with coal for electricity production or does it sort of force them to move to other sources of energy like natural gas?

Patrick Von Bargen: Well, I think the Waxman-Markey bill really provides for a very gradual transition on the coal side, but I think the reason it's important is that it does signal that there will be a transition and that things do have to change. And so I think utilities will have plenty of time to deal with that fact, but I think the fundamental message is that they do need to change their models going forward. It just may take longer than let's say people on the left would want it to occur.

Monica Trauzzi: So, what changes do you think need to happen in the legislation as it makes its way through the Senate?

Patrick Von Bargen: I think the politics in the House are very different from the politics of the Senate. I think Congressman Waxman's main objective he achieved, which was to get a bill out of the House of Representatives. So, the question I think for the Senate now occurs from a policy standpoint. Are there policy issues in Waxman-Markey that we in the Senate can fix so that it becomes a more manageable regime going forward? And what shape that takes and what is possible politically in the Senate is pretty much open. But when we think about how do we make adjustments over time in the bill? Is the structure of the Waxman-Markey bill conducive to that or do changes need to be made in order to make that change over time easier to accomplish?

Monica Trauzzi: Is it possible to have an environmentally strong bill and also get those 60 votes that are needed?

Patrick Von Bargen: I think so. When we talk about the Senate we're talking about 100 members who have a range of interests that go from energy and environment, which is the main topic, but also economic development issues, right? The president has argued, I think, pretty coherently that getting a strong bill in energy and environment is actually an economic growth issue. So, as he works Senator by Senator to try to get their votes, does he have the ability to offer them economic development advantages specifically targeted perhaps to their states in order to get their votes for the energy environment piece? He has a lot more flexibility because he has a much more defined universe to work in. So I think we should be looking for opportunities that he might take up there to secure particular votes with a combination of incentives for a particular member.

Monica Trauzzi: Health care has been pushed to after the August recess. What do you think that means for the climate and energy discussions in the Senate? Is there enough time to get both climate and health care done?

Patrick Von Bargen: The window I look at is probably from September through February, because beyond February we get very much into an election year. Is there enough time in that window? Probably. You know, we understand that the deal in the House is that there will be a vote in the House shortly after the recess in August, which would mean they won't bring it to a vote unless they know they have the votes. So if that's passed early in September and the Senate is still working on its bill you could have a September period in which the Senate and House both pass a bill. I know that's ambitious, but it's possible and that would probably delay the energy and environment bill to mid-October at the earliest in the Senate. But I think that's likely, so if the president is working both of those in tandem he may not have a final bill on his desk by Copenhagen, but he should have some progress on that that's pretty significant, perhaps a bill passed out of the Senate and now in conference. So, I think when we get to that end of February date he probably hopes to have both bills done.

Monica Trauzzi: And you mentioned Copenhagen, there's been a big focus on the bilateral talks between the U.S. and China heading into that meeting. Do you think that there's adequate momentum going into the Copenhagen talks on the domestic front?

Patrick Von Bargen: I can't answer that yet. I believe that if the Senate does act in the late October/November timeframe I think there will be a lot of momentum at that stage. There will be disputes about whether the bill passed by the Senate is strong enough and really accomplishes the objective, but when you think about the kind of progress that would have been made over a six-month period in the United States it's pretty significant.

Monica Trauzzi: OK, we'll end it right there. Thank you for coming on the show.

Patrick Von Bargen: My pleasure.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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