Green tech: is it the new dotcom?

Paul Harris, The Observer 8 Jun 08;

American speculators are pouring cash into start-up technology firms seeking environmental solutions - and big dividends

Rising up next door to an Otis Spunkmeyer cookie bakery in a nondescript Texan business park, the hulking new factory did not look like an answer to the world's energy problems.

But John Langdon, a director at Austin-based solar energy firm HelioVolt, believes that is exactly what it is. Talking over the buzz of power tools and clanging of hammers, he believes this place is part of an energy revolution that will change the face of the American - and the world's - economy.

'The whole transformation is inevitable. We are in the same place in solar energy now as the car industry was in 1901,' he says, without a trace of doubt in his Texan drawl.

Langdon's confidence is shared by many - and not just in solar energy. For HelioVolt is just one of hundreds of firms creating an industry called 'green tech' or 'clean tech'. The term refers to any sort of new technology that can be used commercially in an environmentally friendly way to produce energy or clean up pollution. It is spreading rapidly across America, grabbing headlines in a country now obsessed with spiking oil prices and rising costs of energy.

It is also an industry undergoing a massive financial boom as investors pour billions of speculative dollars into its start-up firms, similar in many ways to the dotcom revolution of the 1990s that gave the world Microsoft, Google and the internet revolution.

All over America green-tech firms are seeking to make a huge profit at the same time as solving the world's energy needs and environmental problems. The figures are huge and growing. Last year alone more than $3.6bn (£1.8bn) of investment cash poured into the industry in the US alone, on top of $2.9bn in 2006, in itself a 78 per cent jump from the previous year. 'The sector is growing at a very rapid pace,' said Jeff Holzschuh, chairman of an energy industry investment fund at Morgan Stanley.

The variety of green-tech firms is dazzling. It ranges from well known alternative energy sources such as wind energy and geothermal to more bizarre forms, such as using microscopic bugs to make synthetic petrol substitutes. Other firms look at biofuels such as ethanol from corn or less controversial sources such as switchgrass or agricultural plant waste. Still more are exploring hydrogen fuel cells big enough to power a building or small enough to fuel a laptop. A recent book, Earth: The Sequel, by environmentalist Fred Krupp, begins with a statement about green tech's possibilities: 'A revolution is on the horizon. A wholescale transformation of the world economy and the way people live.'

Just like the dotcom boom was led by Silicon Valley in California, so are hotspots of green tech appearing in America. The main area so far is probably Austin, the capital of Texas, the old heartland of America's oil industry. HelioVolt is just one of more than 50 green-tech firms now in the city at the cutting edge of a new wave of solar energy firms. It aims to produce building materials embedded with thin but powerful solar energy generators. Thus, instead of having to fit solar units to buildings, the buildings themselves will actually be made of solar power generators.

They will not only provide their own power but sell excess energy into the power grid. The company has risen rapidly, attracting powerful investors, impressed by its technology and the Austin factory, which should be up and running by early next year. Last year HelioVolt easily raised $101m from venture capital firms and its chief executive, BJ Stanbery, is a familiar sight at energy conferences around the US. Sitting in a plush hotel room in Manhattan, fresh from another presentation, he says finding backers was easy: 'Raising money is not a problem for us.'

There is also a widespread 'greening' of America's political system and its wider economy. Hillary Clinton put creating 'green collar' jobs at the heart of her presidential campaign, estimating that up to five million such jobs could be created as the US economy goes green.

Even big firms such as Wal-Mart and Coca-Cola are announcing changes in their environmental practices. Though some of this has been condemned as mere 'green-washing', there is little doubt there has been a fundamental shift towards environmentalism. Last week San Francisco imposed a series of fees on local firms that emit carbon dioxide.

The cause of the change is simple: there is money to be made in going green; that is the hard reality behind the revolution. The bankers and hedge fund managers flooding into the sector are not investing billions to save the planet, but to make a profit. 'It is a strictly for profit group,' said John Eber, managing director of Energy Investments at JP Morgan. Eber has put in a staggering $4.4bn of investment in 43 wind farms.

But, just as the dotcom sector eventually crashed, some worry that green tech may also expand and collapse. 'There is an element of bubble to it,' Stanbery admits. 'But there always is. Some firms will always fail, but others will become huge.' Optimists also point out that green-tech companies differ greatly from dotcom firms. The nature of their research requires heavy investment and equipment and exhaustive testing, not just new software tricks. 'Three guys in a garage can't do what we do,' says Langdon.

Yet there is no denying some similarities. HelioVolt has grown so quickly that its staff sometimes work two or three to a single office. Its break rooms have the requisite trendy ping-pong tables and piles of empty pizza boxes common to Silicon Valley start-ups. But Langdon thinks there is little chance the company will fail. Instead, he envisions a world of buildings constructed from materials that will generate their own power.

Surveying HelioVolt's new factory he made a confident prediction: 'This will be the smallest factory we ever build. The next ones will be much bigger.'