Challenges facing traditional utilities, investors’ shift toward commercial-ready products, and the impact of federal energy policy (or a lack thereof) on the industry were just a few of the hot topics addressed at the 9th Annual Mid-Atlantic Energy Technology & Sustainability Forum.
The October 19 event was hosted by Pepper’s Energy and Emerging Company Groups, in partnership with the Cleantech Alliance Mid-Atlantic. For the first time, the event was hosted in Pepper’s Philadelphia office, attracting a standing-room-only crowd.
Pepper partner Thomas P. Dwyer, co-chair of the Energy Industry Group and a member of the steering committee of the Emerging Business Group, welcomed attendees to the event. In his opening remarks, Dwyer reflected on how the energy tech sector has changed over the last nine years since the Energy Technology & Sustainability Forum launched.
“The energy tech sector has really been up and down over the last decade. We’re certainly going to continue to see changes, and this is going to lead to opportunities in the energy sector,” Dwyer said.
He noted that M&A activity has risen steadily in that time, and has involved companies that have presented at the event in the past. A notable example is NavPort, LLC, which was a presenting company two years ago, and became a lead sponsor of the event before it was acquired by RS Energy. “We hope these trends will continue,” Dwyer said.
Dwyer then introduced the investor panel, which featured Diana Drysdale, president, PSEG Power Ventures, PSEG Solar Source, part of the family of companies that includes the New Jersey-based gas and electric utility PSE&G; Rahul Bhalodia, principal and lead – investments, Constellation Technology Ventures, the venture capital arm of Exelon Corporation, which includes six utility companies; and David Lincoln, managing director, Activate Capital.
The discussion kicked off with each panelist describing the types of investments they’re currently seeking.
Drysdale, who has been in the industry for 20-plus years, echoed Dwyer’s remarks, saying she’s “seen a lot during that time,” and that renewables and storage investments are receiving significant attention.
“PSEG has built 23 utility-scale solar plants outside New Jersey. We’re seeing a lot of exciting things happen in that sector, and have invested $2 billion into solar,” Drysdale said.
Bhalodia said his company is looking to invest in new technologies that allow Exelon to grow its core business and move into new areas.
“We are focused on technologies that have some early adoptions and proof points where we can really bring our commercial power to bear,” Bhalodia said. “As soon as there’s some sort of commercial product, we can help the company produce and commercialize.”
Drysdale’s group follows a similar model, foregoing early stage investments in favor of companies that are ready to commercialize and have a development pipeline in place. She believes that model makes the most sense, based on the risk appetite of her investors.
Dwyer noted that the power and utility industries are in the midst of a transformation due to changes in customer behavior, renewable energy-driven regulations, and disruptive digital technologies, which are threatening to upend a more than 100-year-old business model. The panelists agreed with that perspective, and said utilities need to develop a strategy for dealing with those changes rather than sticking with the status quo.
Drysdale said, “If you talk to the typical utility person, some think things are going to continue the way they always have. But we’re seeing our customer base shrink, both because of increased energy efficiency and because of population shifts. Things are going to keep changing, but in many utility boardrooms, they think renewables are just a fad.”
Lincoln offered a non-utility perspective, saying, “There are three categories here. There are the executives who understand what’s going on in the market and are responding to it. There are the boards, which can be a bit like an ostrich with their heads in the sand. And the wild card is the policymakers who will dictate how utilities are able to respond.”
Drysdale noted that in terms of government policy, there is work to be done in order to move toward a more comprehensive policy.
“Policy-wise, a lot of messes have been made that will be expensive to clean up,” Drysdale said. “We would benefit from clearer federal level energy policy. Utilities are confined by the regulators and policymakers, and it can be frustrating at times.”
Lincoln added that due to the lack of a transparent, long-term U.S. energy policy, many of the leaders in the energy tech space are outside of the U.S.
“One thing we’re seeing is large energy companies that are looking for a path forward. They understand the reduction in demand, and they’re looking for ways to grow their business,” Lincoln said.
In terms of what the panelists expect on the M&A and IPO front for the remainder of 2017, Lincoln described the fundraising environment as “an uphill battle.”
“Financial investors jumped in during the 2005-2006 timeframe. Huge amounts of capital came in and were lost. Investing was ambitious in cleantech and outpaced customer adoption, which has been slow,” Lincoln said. “There are still enormous investing opportunities, though, and we’re seeing a lot of action from strategic investors. I recently took two companies public, but we’re not getting the same type of uplift from the public markets. Consumer-facing technologies are much more attractive in the M&A marketplace right now.”
Bhalodia said, “We’ve seen a wave of funds pop up recently that are very active and looking to deploy capital. On the exit side, corporate exits are easier, but they’re not great outcomes for investors. For sponsor-led or public exits, we’re seeing more energy tech companies positioning their offerings to look more like fintech or the internet of things, which are hot markets.”
Dwyer then posed a provocative question to the panelists: Will there ever be a company like Google – with a deep and wide-reaching impact even outside of its industry – in the energy technology space?
Bhalodia was first to respond, saying, “There’s starting to be an overlap. We’re looking at adjacent industries for applications in our core business. Constellation has a portfolio company that has a solution for charging cell phones and laptops. That’s not Exelon’s core business, but it could translate to their business.”
Lincoln sees the home as the next frontier, noting the success of smart thermostats like Nest, which appeal to Millennials, who respond to the “gamification” of these types of connected devices. “All these companies are fighting to get inside the home right now. They’re fighting for connectivity to the customer. Their solutions have to be of value to the customer, who cares about connectivity more than dollars,” he said.
After the panel discussion, Kevin P. Brown, co-founder and chairman of the Cleantech Alliance Mid-Atlantic and partner at energy executive recruiting firm Hobbs & Towne, introduced the company showcase, where cutting-edge companies had the chance to present their innovative ideas and visions for the future. The companies featured this year included the following:
Compact Membrane Systems, based in Newport, Del., offers a suite of membrane materials and technologies applied to tough chemical separations: olefin/paraffin separation, dissolved gas sensing, dehydration, solvent recovery, and other custom chemistries. Its membranes are fluoropolymer-based, delivering superior performance, chemical resistance and thermal stability in extreme environments.
Ocean Thermal Energy Corporation, based in Lancaster, Pa., focuses on deep-water hydrothermal clean-energy systems, which include producing fossil-fuel-free electricity through Ocean Thermal Energy Conversion (OTEC) and environmentally friendly cooling though Seawater Air Conditioning (SWAC). The company’s technology utilizes the natural temperature differential in oceans to generate clean, non-polluting electricity, as well as alternative, energy-efficient cooling systems and fresh water.
Powerhouse Dynamics, based in Newton, Mass., provides tools to help identify and eliminate wasteful energy consumption in the built environment. It focuses on delivering cloud-based enterprise energy and asset management solutions for large portfolios of small commercial facilities.
RePipe 4710, based in Lancaster, Pa., offers a trenchless pipe replacement solution for failing water mains, resulting in a new pipe system at a cost far below “dig and replace.” Its product is pulled into an existing pipe and expanded to round using steam and air pressure. Once reformed, RePipe 4710 creates a totally new, leak-free pipe system.
The event concluded with a cocktail reception, where attendees could network and meet representatives from the presenting companies and the investor panelists.