Corporate Finance Division
Alternative Energy Venture Capital
Alternative energy as the name suggests is an option to fossil fuels. Alternative source of energy have been conceptualized and developed to deal with the ill-effects of fossil fuel. The term “alternative” has itself been controversy ridden. Categorizing some energy source as alternatives has resulted in wide spread protests from the environmentalist.
As of today, alternative sources of energy are supposed to cut down the green house gas effects in particularly carbon dioxide which can cause catastrophic damage to aquatic life, and life on earth, in general. The last few decades has witnessed a rapid increase in temperature due to the greenhouse gases released in the atmosphere.
Solar energy is the most abundant of all energy resources; the rate at which solar energy is intercepted by the earth is about 15,000 times greater than the rate at which energy is consumed. Although not all countries are equally endowed with solar energy, power generation from direct solar energy is possible for almost every country. Solar energy conversion consists of a large family of different technologies capable of meeting a variety of energy service needs. For power generation, solar energy is either converted directly into electricity in a device called a photovoltaic (PV) cell, or solar thermal energy is used in a concentrating solar power (CSP) plant to produce high-temperature heat, which is then converted to electricity via a heat engine and generator. Both approaches are currently in use.
Compared to onshore wind, solar PV has experienced slower levels of take-up for most of the last decade. However, the industry has recently experienced tremendous growth rates and it is now the fastest growing sub-sector of renewable energy.
Hydro power represents an established, mature source of renewable energy and is the most widely used form of renewable energy, with over 150 countries using the technology .
The major hydro power project types are: run-of-river, reservoir, pumped storage and in-stream technologies. It is a predictable and typically price-competitive technology with one of the best conversion efficiencies of all known energy sources. It requires a relatively high initial investment (the construction cost), but has a long lifespan with very low operation and maintenance costs. The levelized cost of electricity for hydropower projects, under good conditions, is typically below the cost of fossil fuel power. This combined with the low development risk due to the widely available capital and operating data means hydro power offers a competitive alternative to fossil fuels.
Technological innovation and research can further improve environmental performance and reduce the operating costs of hydro power schemes.
As a mature technology, hydro power has a well-established talent pool offering engineering expertise to build and operate the plants. The supply chain and service infrastructure to support the power plants are similarly well developed, limiting operational risk and costs.
Onshore wind is the second largest renewable energy technology by installed capacity, with approximately 234 GW installed capacity by 2011. Onshore wind energy is being deployed at a rapid pace in many countries, and in some regions with good wind resources the cost of wind energy is already competitive with market prices. However, policy measures are still required in most countries to ensure the rapid deployment of new capacity.
The wind energy market has expanded rapidly, from 14 GW at the end of 1999 and it is expected that the industry will continue to install between 40 GW and 60 GW of new capacity each year for the foreseeable future. In addition, as capacity installed in the 1990s and in the first part of the last decade starts to age and to become technologically obsolete, there is potential for redeveloping such sites with improved technology able to capture more power and make better use of available resource.
In certain countries, such as Denmark, Portugal, Spain and Ireland, onshore wind has already achieved high levels of penetration, representing more than 10% of the annual power generated in the system. This demonstrates that wind energy can be successfully integrated into existing grid systems.
Wind turbine costs dropped by 15% between 2009 and 2011, and the pricing environment is forecasted to remain very competitive. Continued advances in wind energy technology is expected, further reducing the cost of wind energy, along with reductions in the levelized cost of onshore wind energy of 10% to 30% by 2020.
Waste-to-energy sources cover a wide spectrum of technologies, including landfill gas, biogas, anaerobic digestion, waste incineration and gasification.
Landfill gas is a mature technology which involves the collection of methane and other gases resulting from waste decomposition within landfills and their conversion into electricity. The process is well understood and has a long, proven track record. The technology is cost competitive, with relatively low upfront and operational costs. As waste decomposition continues long after the landfills have stopped receiving new volumes of waste, this sub-sector will continue to be a viable option despite the gradual shift away from landfills in many jurisdictions, particularly in developed economies which are aiming to recycle and/or incinerate waste rather than send it to landfill.
Biogas / anaerobic digestion represents the biological breakdown of organic matter in the absence of oxygen. Biodegradable materials such as biomass, manure, sewage, municipal waste, green waste, plant material, and crops can all be used to produce biogas. Biogas can then be combusted and a gas engine converts the energy released into electricity and heat. Biogas is used in scale to generate power in some countries (e.g. Germany) or as a vehicle fuel in others (e.g. Brazil). As a renewable fuel it qualifies for renewable energy subsidies in certain jurisdictions.
Waste incineration is a treatment process that involves the combustion of organic substances contained in waste materials. The heat resulting from the incineration process can be used to generate electric power and heat. Certain European countries, such as Denmark, Sweden and Germany, rely heavily on incineration as one of the main forms of waste disposal alongside recycling. Power generated from large-scale waste incineration does not normally qualify for renewable energy incentives, but in certain countries (such as Denmark and Sweden) energy generated from incineration has been an established part of the energy mix for more than a century. With other countries aiming to reduce their reliance on landfills for waste disposal (for example, the UK and Poland), there is significant potential for growth in waste incineration and associated power production.
Gasification is the conversion of biomass and/or other organic waste into synthetic gas (syngas) by reacting the material at high temperatures (>700 °C) without combustion. The resulting syngas is combusted to generate power that is deemed renewable energy. Gasification is at a relatively early stage in its development, with few industrial scale biomass gasification plants currently in operation. There are many demonstration projects around the world and various governments are providing incentives for the development of gasification technology.
Fostering Growth without Diluting Equity:
For Alternative Energy companies at critical stages of development, debt can serve as a key financing option to foster growth, with minimal dilution of equity ownership. At Synergy Capital Markets, not only do we understand the industries of our portfolio Alternative Energy companies, but we also understand the growth process - and occasionally the growing pains - they undergo.
When venture debt is used appropriately, we believe entrepreneurs gain the following benefits:
Able to raise capital in a way that benefits the team and the business as a result of the greater flexibility offered by venture debt than traditional forms of debt financing
Have more time between equity rounds to build the business and achieve critical milestones, which creates potential for greater valuation
Retain a larger ownership stake in the company prior to an IPO or other liquidity event
Achieving milestones quickly in many cases also means reaching the IPO stage more rapidly