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  • 1. Disclaimer The information in this report has been reviewed by the EPA and Venture Capital Com- munity participants in the Summit. It also has undergone EPA administrative and general counsel review. It does not necessarily reflect the views of the Agency, however, and no official endorsement should be inferred. EPA/600/R-09/023 U.S. Environmental Protection Agency Office of Research and Development June 2009
  • 2. This report was prepared by The Scientific Consulting Group, Inc., Gaithersburg, Maryland, under EPA Contract EP-C-05-015, Work Assignment 3-4. Paul Shapiro was the EPA Work Assignment Manager.
  • 3. Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology Table of Contents Introduction ............................................................................................................................................... 1 Agenda of the EPA-Venture Capital Community Summit .............................................................................3 Summary of the EPA-Venture Capital Community Summit .........................................................................5 Welcome ........................................................................................................................................... 5 Introduction to Venture Capital and Growth .................................................................................... 6 Introduction to How EPA Operates .................................................................................................. 9 Discussion of the Venture Capital Report Recommendations, Especially Related to Beginning and Sustaining Communications.................................................................................. 12 Working Lunch – Overview of the New Department of Energy Technology Commercialization Programs ....................................................................................................... 16 Discussion of Alternative Financing Instruments: Loan Guarantees, Loans, Venture Capital Funds, Grants, etc. .............................................................................................. 21 Public Comments............................................................................................................................ 26 EPA and Venture Capital Roles and Next Steps .............................................................................. 27 Appendices .............................................................................................................................................. 33 A. EPA-Venture Capital Community Summit: Potential EPA Follow-Up Activities ....................... 35 B. List of Summit Attendees .............................................................................................................. 36 C. Summit Presentations..................................................................................................................... 39 1. Venture Capital Overview ..................................................................................................... 39 2. U.S. EPA: The Context for Promoting New Environmental Technology ............................ 42 3. DOE Commercialization: Energy Efficiency and Renewable Energy .................................. 45 D. Stages of Investment ...................................................................................................................... 48 E. Federal Register Notice for the EPA-Venture Capital Community Summit ................................. 49
  • 4. Introduction The EPA-Venture the agenda included Public Comment time. Capital Community EPA created a Web site ( Summit: Exploring venturecapital) for the event that includes the Programs to Commercial- Venture Capital Report and two prior NACEPT ize Environmental Technology was convened reports on how to better coordinate EPA’s by EPA as part of the Agency’s response to the technology programs and to work with partners in recommendations in the EPA National Advisory the marketplace. Council for Environmental Policy and Technol- ogy (NACEPT) report titled, EPA and the Venture This report contains summaries of the comments Capital Community: Building Bridges to Commer- made by participants during the EPA-Venture cialize Technology. This Venture Capital Report Capital Community Summit. The report also was submitted to EPA’s Administrator in April includes three presentations that were made at 2008. the Summit to provide background information for the participants. These presentations were: NACEPT operates under the Federal Advisory “Venture Capital Overview,” by Emily Baker of the Committee Act (FACA), which permits it to make National Venture Capital Association; “U.S. EPA: consensus recommendations to EPA. NACEPT is The Context for Promoting New Environmental one of the few EPA FACA groups that provides Technology,” by Walter Kovalick of EPA Region 5 advice directly to the Administrator. The Sum- (Chicago); and “Department of Energy Technology mit, in contrast, was an EPA meeting that was not Commercialization: Energy Efficiency and Renew- convened under FACA and the group was not able Energy,” by Drew Bond of the Department of asked to reach a consensus or provide recommen- Energy’s Office of Energy Efficiency and Renew- dations. Ideas put forth by individuals were noted, however, and are described in the Summary in this able Energy. report. Importantly, the report also includes a list of The Summit was a public meeting designed to potential follow-up items developed by EPA to address two recommendations in the Venture encourage environmental technology investment Capital Report: (1) EPA should forge and sustain and commer-cialization. This list is provided as communications with the early-stage investment an appendix because it was developed after the community and (2) EPA should strengthen Summit (see Appendix A). financial support (e.g., loan guarantees, grants, revolving loan funds) for environmental technology If you have any questions, comments, or interest commercialization. The meeting was announced in pursuing these ideas with EPA, please contact in a Federal Register notice (see Appendix E) and Paul Shapiro at Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 1
  • 5. 2 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 6. Agenda of the EPA-Venture Capital Community Summit EPA-Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology November 12, 2008 AGENDA Co-Chairs: Rob Brenner, U.S. Environmental Protection Agency (EPA) Hank Habicht, SAIL Venture Partners Purpose: To put forward and discuss a set of potential EPA and venture capital community actions to catalyze the commercialization of environmental technologies. Background: This Summit is a followup to the recommendations in the EPA National Advisory Council for Environmental Policy and Technology (NACEPT) report, EPA and the Venture Capital Community: Building Bridges to Commercialize Technology (April 2008), which is available at recapital. 9:30 a.m. – 10:00 a.m. Registration 10:00 a.m. – 10:05 a.m. Welcome Rob Brenner, Director, Office of Policy Analysis and Review, Office of Air and Radiation, EPA, and Hank Habicht, Managing Partner, SAIL Venture Partners 10:05 a.m. – 10:25 a.m. Introduction to Venture Capital and Growth Emily Baker, Director, Federal Policy and Political Advocacy, National Ven- ture Capital Association 10:25 a.m. – 10:45 a.m. Introduction to How EPA Operates Walt Kovalick, Assistant Regional Administrator for Resources Management, Region 5, EPA 10:45 a.m. – 12:00 p.m. Discussion of the Venture Capital Report Recommendations, Especially Related to Beginning and Sustaining Communication • Desired Outcome: Develop an initial list of actions that individuals believe would enhance communication over the long term 12:00 p.m. – 12:30 p.m. Working Lunch – Overview of the New Department of Energy (DOE) Technology Commercialization Programs Drew Bond, Director for Commercialization and Deployment, Office of Energy Efficiency and Renewable Energy, DOE Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 3
  • 7. • Desired Outcome: Begin discussion of DOE’s commercialization programs and how individuals believe similar programs at EPA could advance the Agency’s mission 12:30 p.m. – 2:30 p.m. Discussion of Alternative Financing Instruments: Loan Guarantees, Loans, Venture Capital Funds, Grants, etc. • Desired Outcome: Develop an initial list of actions that individuals believe would be helpful in exploring new EPA financial programs 2:30 p.m. – 2:45 p.m. Break 2:45 p.m. – 3:00 p.m. Public Comment 3:00 p.m. – 4:30 p.m. EPA and Venture Capital Roles and Next Steps • Desired Outcome: Discuss the morning and afternoon lists and ask individuals to put forward potential actions they consider most impor- tant for EPA and the venture capital community to pursue to catalyze the commercialization of environmental technologies 4:30 p.m. Adjournment 4 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 8. Summary of the EPA-Venture Capital Community Summit Welcome Rob Brenner, Office of Policy Analysis and Review, Office of Air and Radiation, EPA; Hank Habicht, Managing Partner, SAIL Venture Partners Rob Brenner opened the meeting by welcom- is very timely for the Agency to initiate communi- ing everyone to the Summit. He explained that cations with this community. he and Hank Habicht were the co-chairs of the Summit. Mr. Brenner then asked everyone to As a former EPA Deputy Administrator, Mr. Habicht introduce themselves. He then introduced Paul expressed his appreciation for the Agency senior Shapiro and thanked him for planning and orga- managers who were participating in the Summit. nizing the Summit. He complimented these managers for their abili- ties to promote environmental protection and their Mr. Brenner described why the Summit was openness to consider new ideas and approaches for of great importance to the U.S. Environmental raising environmental performance. Mr. Habicht Protection Agency (EPA). Traditionally, the avail- mentioned the book, The Prophet, by Kahlil Gibran, ability of commercially available technologies, such which was popular in the 1960s. That book includ- as flue gas desulphurization devices for power ed a statement that went something like “I wasn’t plants and catalytic converters on cars, has assisted put in this world to make you happy and you were the Agency in the development of standards and not put in this world to make me happy; each of us regulatory policy. More recently, some states such has to do our own thing, but if in the end we find as California and Massachusetts have enacted pro- each other then it’s beautiful.” Concerning today’s gressive energy and environmental legislation and meeting, Mr. Habicht explained that the VC com- become regional centers for venture capital (VC) munity is not in business to make EPA successful investments and emerging environmental technol- and vice versa but he hoped that at the meeting ogy development. Potentially, EPA could learn today each party will have found each other and from these state models and determine how the that at the end of the day each of us will say it is Agency could structure programs and regulatory “beautiful.” policy to encourage the development of emerg- ing technologies that can enhance environmental Clean technology is not a passing fad or a “flash protection. Rather than waiting for commercial in the pan.” Mr. Habicht suggested that there is technologies to become available, EPA may be able a convergence of issues and challenges that has to become more proactive and influence environ- not existed before. Rising energy prices have mentally beneficial technology development and affected supply and demand. Global energy use adoption. is expected to increase three-fold in the next 30 years; in the past 20 years, energy demand has Mr. Brenner explained that rising energy costs and doubled. Seventy percent of this new demand impending climate change impacts also are driving is coming from the less developed world, with the Agency to more aggressively investigate new China contributing nearly 30 percent of this new energy technologies that offer beneficial environ- demand. Another factor affecting clean tech- mental results. The VC community is closely nology growth is the amount of “main stream” attuned to emerging technology development so it financial capital being committed to this sector. Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 5
  • 9. Every private-sector financial institution—from Council for Environmental Policy and Technology international banks to VC firms—is committing (NACEPT) or some other existing FACA commit- resources to clean technology. The key issue is to tee. put resources behind clean technology “winners” so that both investors and the environment will Based on the Summit agenda, Mr. Shapiro benefit. Mr. Habicht explained that a reason- explained that the “Desired Outcome” from each able goal for today’s meeting is for EPA and the session will be determined by EPA officials who VC community to gain a better understanding of will summarize the discussion from each session each other as well as a better appreciation of the and identify items for future consideration. He driving forces and constraints affecting each other. also mentioned that notice of the meeting was He hopes that this will form the foundation for published in the Federal Register and that there is establishing a process for ongoing communication. time set-aside on the agenda between the after- noon sessions for public comments. Mr. Habicht asked Mr. Shapiro to explain the ground rules for the Summit. Mr. Shapiro said Mr. Habicht suggested that the transition team that the Summit is not a Federal Advisory Com- for the new administration may be interested in mittee Act (FACA) meeting; however, it is a the results of today’s deliberations. Although the public meeting and there are some rules that Summit participants know many of the transition apply. The venture capitalists participating in the team officials, he emphasized that the focus of Summit cannot make recommendations to EPA the Summit should not be on providing advice nor can they reach consensus on group delibera- to the transition team; rather, the focus should tions. The meeting is designed to seek individual be on what communication mechanisms can be rather than group or collective advice. Mr. Shapiro established between government and VC officials cautioned that the group cannot reach agreements to develop a better clean technology policy. on issues and that participants should strive to direct their comments to EPA and not to each Mr. Habicht explained that the purpose of the other. In summary, Mr. Brenner explained that first two presentations is to establish a common the group can offer specific comments to the basis for both EPA and the VC community. The Agency but cannot offer recommendations to EPA first presentation by Emily Baker of the National that were derived through consensus voting. He Venture Capital Association (NVCA) will describe stressed that today’s meeting is an informal session the VC community, and the second presentation but mentioned that a more formal FACA process by Walt Kovalick will describe EPA. When intro- may follow. Mr. Brenner suggested that, in the ducing Ms. Baker, Mr. Habicht indicated that she future, EPA may consider forming a VC advisory is the director of the NVCA Clean Technology subcommittee as part of the National Advisory Advisory Council. Introduction to Venture Capital and Growth Emily Baker, National Venture Capital Association (Slide presentation is provided in Appendix C) Ms. Baker explained that the NVCA Clean included establishing a close relationship with the Technology Advisory Council was established U.S. Department of Energy (DOE) in its energy 2 years ago based on the growing interest and efficiency and renewable energy activities. Ms. Baker investment opportunity in this sector. Over the expressed her hope that the Summit would pro- past 18 months, NVCA has developed a clean vide an opportunity for the NVCA to establish technology public policy agenda and is currently better communications with EPA about clean lobbying Congress to recognize the significance technology issues. of this sector. Part of the NVCA efforts has 6 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 10. Ms. Baker described the history and focus of the The investments focus on innovation and usually NVCA as a trade association. Initially, the NVCA are high risk and high reward. Forty percent of was created to foster communications among venture-backed companies fail, forty percent break VC professionals but the association has evolved even or make minimal gains, and only 20 percent into a public policy and advocacy organization make significant gains. In addition, VC builds for the VC community. The NVCA lobbies all value in companies and the economy. The invest- congressional committees including those deal- ment stays in the company and is used for growth ing with tax and trade policies, as well as energy, and venture capitalists bring operational and environment, and small business committees. scientific knowledge to bear to catalyze growth by VC firms are small businesses, so the NVCA is involving themselves in the day-to-day operations. proactive for small business. The NVCA sup- ports basic research because federal laboratory Although venture investments accounted for just developments—whether from the DOE National 0.02% of invested capital (about $230 billion Laboratories, EPA, or any other agency—can be a compared to the nearly $1.5 trillion invested by source of new product and technology ideas for hedge funds), companies that got their start with venture firms. VC accounted for 10.4 million jobs and $2.3 trillion of revenues in the United States in 2006, Ms. Baker noted that the research data collected which was 18% of the Gross Domestic Product. by the NVCA on venture investments is provided Some companies that were originally funded by in the MoneyTree Report. These data are shared VC include Genentech, Microsoft, Apple, Google, publicly and are available online. She commented FedEx, and Starbucks. Venture-backed companies that NVCA’s members are responsible for nearly usually outperform their non-venture counterparts 90 percent of the VC currently under manage- and current venture-backed companies account for ment. more than 400,000 U.S. jobs. Innovations funded by VC include the pacemaker, Herceptin (cancer), In defining VC, Ms. Baker provided an overview and Integrilin (heart disease). Venture capital- of the VC life cycle. The process starts with ists increasingly are focusing on clean technology VC funds being raised from various institutional (solar, wind, carbon capture, and energy efficiency). investors; once sufficient funds are collected, the The Global Insight Report prepared by the NVCA VC firms look for portfolio companies in which offers more details on the economic impact of VC. to make investments. VC firms screen hundreds and potentially thousands of companies annually Ms. Baker noted that venture capitalists are to identify 8 to 10 companies that will comprise welcomed by congressional members because their fund portfolio. they bring jobs and economic growth to their districts and states. For every VC dollar invested Both financial and management expertise is pro- in 1970-2001, there was $7.90 in U.S. revenue vided to portfolio companies by venture firms. during 2006. For every $28,463 of VC invested Ultimately, venture firms want to build a portfolio in 1970-2001, there was one job in the year 2006. company to the point where it can be a public The tangible benefits of venture investments are entity or be acquired by a larger entity. VC substantial and long term. firms do not invest in public markets or security derivates. They do not leverage or charge fees to Ms. Baker identified the top 10 states for VC portfolio companies; nor do these firms take hedge investment in 2007, noting that California, Mas- or short positions in companies. This is the major sachusetts, and Texas are the top three among the distinction between VC firms and hedge funds or states with more than $19 billion of VC invested. private equity investments. Beyond the top 10 states, there have been a lot of clean technology venture investments in Colorado Ms. Baker identified some of the characteristics of and New Mexico, probably because of the DOE VC investments. VC investments are long; some- National Laboratories in these states. California, times as long as 15 years in the life sciences sector. Texas, Washington, and Massachusetts lead the Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 7
  • 11. top 10 states for VC-backed U.S. revenues in 2006. Ira Leighton asked Ms. Baker to identify the California, Texas, Pennsylvania, and Massachusetts top two most important factors that attract venture the list for VC-backed U.S. jobs in 2006, employing investments to certain states. Ms. Baker replied more than 4.8 million workers. Ms. Baker noted that the high concentration of university research that one in ten Americans works for a venture- in the top 10 states is one factor and another backed company. is the spin-outs of innovations from the DOE National Laboratories, particularly in states such In 2000, venture-backed U.S. revenues were as New Mexico. Historically, another factor that $1.5 trillion; they grew to $1.7 trillion in 2003 has encouraged venture investments is the close and then $2.3 trillion in 2006. The VC-backed proximity of portfolio companies to the VC firm’s growth rate of 11.8% from 2003-2006 outpaced offices. Most venture capitalists wanted to avoid the 6.5% of total U.S. sales growth. In 2000, there getting on a plane to visit their investment compa- were 8.7 million VC-backed U.S. jobs; this number nies. Ms. Baker admitted, however, that this factor grew to 9.4 million in 2003 and to 10.4 million is becoming less important, particularly with clean in 2005. The VC-backed U.S. job growth rate of tech investments. 3.6% outpaced the 1.7% job growth rate of the private sector from 2003-2006. Dr. Kovalick asked how cost center-based technology investments, like environmental Ms. Baker compared Internet-specific investments technologies, might differ from energy efficiency (dollars invested and number of deals) with clean investment technologies, like solar and wind tech investments from January 2005 to March farms that may save industry resources if they are 2008, indicating that there has been a much installed. Ms. Baker replied that solar and wind greater increase in clean tech investments since technologies are attracting investments because 2006. Ms. Baker provided data on the investment venture capitalists see a high market potential and activity in the top five industries—biotechnology, high return on their investments in these industry software, medical devices and equipment, industri- subsectors. Conversely, some venture investments al/energy, and semiconductors—from early 2007 to are made in environmental technologies because early 2008. There was an increase in investment investors believe they can “do well by doing good.” activity in medical devices and equipment and semiconductors in early 2008 compared to 2007. Eric McAfee explained his company’s venture The other industries experienced no increase in investments are not based on cost-center or incre- investment or a decrease in early 2008. mental revenue issues, but on the scalability of Ms. Baker identified six federal policy initiatives the business model. Venture capitalists tend to that are needed to drive clean tech: (1) Renew- be most interested in a rapidly growing revenue able Portfolio Standard, (2) Renewable Fuel stream from their portfolio investments. Gross Standard, (3) investment tax credits, (4) strength- profit margins are important to venture invest- ened CAFE standards, (5) more robust federal ments. Key questions include: What is the R&D for energy, and (6) the Federal Government potential revenue? What are the growth profit as an early adopter and user of clean energy margins? What will it cost to get there and how technologies. quickly can it be done? Rosemary Ripley added that EPA needs to think about how to show In closing, Ms. Baker stated that the NVCA is industry that it can make money on environmental looking forward to working more closely with technology investments. She offered that cap EPA to facilitate new partnerships. She provided and trade technology approaches may be a useful her e-mail address ( and encour- example; industry is interested in reducing carbon aged participants to contact her if they wanted dioxide in the atmosphere and if it can be demon- more information. Ms. Baker thanked the Sum- strated that industry could actually make money mit participants for the opportunity to make her using these technologies, then the market for them presentation and asked if there were any questions. would grow rapidly. 8 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 12. In the early 1990s when the Clean Air Act Amend- than waste avoidance considerations in most clean ments (CAAA) were being negotiated, Mr. Brenner technology investments. He noted that, in the explained that EPA asked Smith Barney to conduct early 1990s, there were more than 60 publicly a study for the Agency on business opportunities traded, hazardous waste cleanup companies; today, in the proposed CAAA. Following completion of there are only four companies still in business and the study, EPA hosted a conference on the clean air two of those four are in Chapter 11 bankruptcy marketplace that sought to explain that the CAAA proceedings. Nevertheless, primary energy genera- could offer some significant investment opportuni- tion does create environmental problems, so the ties. Although the compliance technology costs key is to determine how to generate more energy associated with some provisions of the CAAA were but create fewer environmental problems. A good estimated to be very high, these Amendments did example of an industry where productivity has create some of the initial cap and trade programs increased while discharges have decreased is the endorsed by the Agency. chemical industry; during the past 10 years, the productivity of the chemical industry rose but its John Preston added that the potential profit center generation of hazardous materials decreased. for primary energy generation is much greater Introduction to How EPA Operates Walt Kovalick, Jr., Assistant Regional Administrator, Region 5, EPA (Slide presentation is provided in Appendix C) Dr. Kovalick explained that his presentation Policy Act (NEPA), which impacts many efforts would cover EPA’s mission and budget, provide a including some energy development projects. context for how EPA operates and implements its mission, and conclude with some of his personal EPA’s Fiscal Year (FY) 2008 budget was $7,472 observations about the nexus of EPA’s work and million. Since the passage of the 1995 Government environmental technology. Performance and Results Act, EPA like all federal agencies must prepare a 5-year strategic plan. EPA is one of more than 20 independent Currently, EPA is operating under the 2006-2011 regulatory agencies in the Federal Government. Strategic Plan (on the Web at Although EPA is not a Cabinet department, it has plan/2006/entire_report.pdf), which identifies five Cabinet status. The Agency’s mission is to protect goals: (1) Goal 1—Clean Air and Global Climate public health and the environment. There are Change, (2) Goal 2—Clean and Safe Water, (3) more than 20 statutes that provide mandates for Goal 3—Land Preservation and Restoration, (4) the Agency, including: Clean Water Act (CWA); Goal 4—Healthy Communities and Ecosystems, Clean Air Act (CAA); Safe Drinking Water Act and (5) Goal 5—Compliance and Environmental (SDWA); Resource Conservation and Recovery Act Stewardship. Goal 1 accounts for 13.1% of EPA’s (RCRA); Comprehensive Environmental Response, Compensation, and Liability Act (Superfund); budget and 2,609 full-time equivalents (FTEs). Federal Insecticide, Fungicide, and Rodenticide Act Goal 2 accounts for the largest portion of the (FIFRA); Toxic Substances Control Act (TSCA); EPA budget, 36.1% and 2,901 FTEs; most of the and others. Beyond environmental media like air, resources associated with this goal are distributed water, and land, EPA also has regulatory respon- to states for their local water responsibilities. Goal sibility for regulating products under FIFRA and 3 accounts for 23.6% of the budget and 4,574 TSCA. Under TSCA, for example, EPA regulates FTEs, Goal 4 for 16.7% of the budget and 3,736 existing and new chemicals. Another statute that FTEs, and Goal 5 for 10.5% of the budget and was not on the slide is the National Environmental 3,487 FTEs. Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 9
  • 13. EPA’s $7,472 million budget is divided among sources are under control in the United States so state and tribal assistance grants ($1,222 million), the focus has turned increasingly toward diverse operations from non-Trust Funds ($3,175 million), nonpoint sources of pollution, such as agricultural operations from Trust Funds ($1,360 million) runoff and salt runoff from highways and other and infrastructure/State and Tribal Grant project sources. For the past 15 years, EPA headquarters financing ($1,715 million). has been working with the regions on compliance assistance, voluntary partnerships, Performance Dr. Kovalick presented EPA’s organization chart, Track (beyond compliance), and partnering for which identified the Agency’s headquarters and economic gain/development (e.g., Brownfields). regional offices. The chart explains how EPA is EPA currently has more than 50 voluntary organized by environmental media and function. partnership programs to help businesses and the Dr. Kovalick noted that each EPA region is orga- public with environmental protection and more nized similar to EPA headquarters with media and than 500 companies involved in Performance functional offices. Track, which is a voluntary beyond compliance recognition program. EPA also executes more Dr. Kovalick explained that the regulated com- than 100 cooperative research and development munity is any business or organization that is agreements (CRADAs) with private sector organi- required to comply with EPA statutory or regula- zations annually. tory requirements. This community includes more than 800,000 permitted facilities under CAA, Dr. Kovalick presented a map that depicted the CWA, and RCRA; more than 20 million small 10 EPA regions and the states in each region. businesses; 80,000 units of local government; and He mentioned that these regions are consistent millions of regulated facilities under more than 12 among federal agencies. Almost one-half of major environmental statutes. Dr. Kovalick pointed EPA’s 17,000-member workforce is located in the out that most permitted and regulated businesses regional offices because nearly all environmental are regulated by the states, not EPA. For most programs are deleted to the states and tribes. statutes, EPA sets national standards and the states The vast majority of inspection, permitting, and implement them on a local basis. State and local enforcement is at the state/tribal level. The governments provide most of the environmental Agency has approximately 2,400 FTEs dedicated regulation; these agencies issue most of the per- to science and technology work and most of these mits and conduct most of the enforcement cases. staff members are in the Office of Research and Development (ORD). Dr. Kovalick noted that With respect to operations and implementation, more than a third of the entire EPA workforce is Dr. Kovalick explained that EPA exercises dis- scientists and engineers. About $440 million of cretion in balancing the mandate given in each the Agency’s $760 million science and technology statute. The different types of traditional regula- budget is extramural. From a technology tion used by EPA include technology based (most perspective, Dr. Kovalick explained that states do stringent or cost effective), health based (set for not routinely accept the same technologies for environmental conditions), market based (sets control and compliance; therefore, a technology limit for nation/area; facilities get tradable allow- that might satisfy environmental requirements ances), and use restrictions (exposure restricted in California might not be acceptable in New by label directions or product restriction). The York. Reciprocity among states on environmental market-based, cap and trade allowances are avail- technologies for permitting and enforcement able primarily in the Clean Air regulations, and remains an elusive issue. EPA use restrictions are available only through the FIFRA and TSCA regulations. Dr. Kovalick identified six EPA roles in the envi- ronmental technology marketplace, including: In the 1990s, EPA began to move beyond “com- (1) funding agent, (2) technology developer, mand and control” approaches to environmental (3) regulator/enforcer, (4) information broker, protection. In general, large stationary and point (5) partner in deployment, and (6) user of “first 10 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 14. resort.” Dr. Kovalick went on to explain that EPA is Available Control Technology (BACT) and other best as a regulator/enforcer and as a verification agent levels. In addition, EPA has an appreciation of (part of the information broker role). The Agency technology aspects of many sectors through part- is less experienced as a funding agent, technology nering programs such as Design for Environment, developer, or user of “first resort.” As verification energy conservation, and others. agent, EPA has conducted a very aggressive program with more than 400 technologies verified through Dr. Kovalick stated that, with few exceptions, the Agency’s Environmental Technology Verification EPA’s mission is not to be a technology develop- (ETV) Program in the past 15 years. ment organization. New environmental problems are viewed first through a statutory/regulatory lens Dr. Kovalick presented a diagram that mapped leading to technology inquiry. A recent example EPA’s environmental technology programs to the of this is the use of the Underground Injection R&D continuum (from research/proof of concept Control (UIC) Program’s proposal to sequester to diffusion/utilization). He explained that the greenhouse gases; the technology did not drive the majority of EPA’s efforts are concentrated in diffu- inquiry, it was driven by the statutory requirement. sion/utilization. (Each of the programs identified Although EPA has expertise in some niches, the in the diagram were fully explained in the hand- Agency’s mandates do not call for comprehensive out that accompanied Dr. Kovalick’s presentation.) monitoring of technology developments. Dr. Kovalick He noted that the EPA technology programs also mentioned the Environmental Technology directed at earlier stages along the continuum are Council (ETC), which is a forum established by small compared with those of other federal agen- EPA for joint action across program and regions. cies; for example, EPA’s Small Business Innovation More information on the ETC is available on the Research (SBIR) Program is approximately $6 Internet at million annually, whereas DOE’s SBIR Program is about $500 million annually. In closing his presentation, Dr. Kovalick offered some observations about EPA’s role in environ- Dr. Kovalick identified a number of intersections mental technology development. Every 6 months, between EPA’s work and environmental technolo- EPA publishes a regulatory agenda that charts the gies. For example, EPA’s researchers and program subjects and issues to be addressed over a several staff have an in depth understanding of technology year period. This agenda does not provide details in certain niche areas, such as drinking water treat- about levels of the proposed regulations; this ment, air pollution control, remediation, and diesel information will become available as regulations retrofit. He described a recent example wherein are formally proposed in the future. Dr. Kovalick Congress directed that EPA determine the best pointed out that, by their nature, technology- technology available for removing arsenic from driven regulations “fix” best technology and drinking water for small communities. Likewise, because of limited resources, the Agency is unable EPA has expertise in monitoring and measure- to continuously update the best technology ment technologies because the Agency specifies identified in regulations. EPA is well vested in the methods to be used to track environmental technology diffusion activities, especially technol- performance for wastewater discharges or air pol- ogy verification. The Agency is experienced in lution emissions. EPA also has a secondary level operating SBIR and grant programs but has no of understanding of industrial processes to set Best mandates for many other financial vehicles. Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 11
  • 15. Discussion of the Venture Capital Report Recommendations, Especially Related to Beginning and Sustaining Communications Mr. Brenner suggested that questions for both the facility is expected to produce natural gas at Dr. Kovalick and Ms. Baker can be posed as part less than half the cost of other current gasification of the discussion of the second NACEPT Report technologies. There will be zero carbon dioxide recommendation to “forge and sustain communica- (CO2) emissions from the facility because the tions with the early-stage investment community.” CO2 generated will be delivered under pressure to He said that former EPA Administrator Bill Reilly enhance oil recovery in the Gulf area. and former EPA Deputy Administrator Hank Habicht will be remembered for encouraging EPA Third, the U.S. Federal Government should consider officials to “get out more” and interact with states, how to reduce its carbon footprint. Mr. Preston environmentalists, and the business community. explained that C Change Investments is the Several successful new EPA programs such as co-developer of a first-of-a-kind ecologically Performance Track and other partnership programs sustainable Medical Science Green City to be grew out of these efforts. Mr. Brenner explained located within Sejong, which is to become the that the NACEPT recommendation to forge com- new administrative capital of Korea. The $200 munications with the venture capital community million project is part of a large effort to build offers a similar opportunity for the Agency. There a highly efficient, near-zero carbon emission were several specific suggestions for the Agency new capital where Korea’s national government to consider within this recommendation and he office buildings will be relocated. Globally, encouraged Summit participants to keep these office buildings consume nearly 40 percent of specific suggestions in mind during this discussion. energy requirements and simple innovations like high efficiency compact fluorescent light (CFL) Mr. Preston complimented Dr. Kovalick and Ms. bulbs or improved insulation materials can make Baker on their presentations. He offered four a significant difference. He suggested that the observations. First, in clean technology develop- payback for converting to CFL or higher efficient ment, private-sector resources greatly exceed bulbs in U.S. government office buildings could be federal government resources. The clean technol- 3 years or less. If the Federal Government tried to ogy investments being made by the California develop an even more efficient and less expensive Public Employees’ Retirement System (CalPERS) CFL bulb than currently available, the potential is an example of the vast resources available in the impact of such a small yet important lighting private sector. Three years ago, CalPERS had no device would be enormous. He stressed that the resources invested in energy and environmental Federal Government adoption of such small, but technologies; today, more than 50 percent of its innovative technologies could establish a significant resources are invested in these technologies. precedence and have a major market impact. Second, there is a pending revolution in innova- Mr. Preston suggested that the Federal Govern- tion in energy and environmental technologies. ment consider creating “shoot-offs” to spur The dramatic escalation of oil prices in the past 2 innovative technology development. In 1993, years is the principal cause for this revolution. An the Federal Communications Commission (FCC) example of this revolution is today’s announce- sponsored a shoot-off for the design of the high ment by C Change Investments (the venture definition television (HDTV). The FCC was capital firm founded by Mr. Preston and former unable to decide among the four leading designs; CalPERS executive Russell Read) to construct the so they contacted the Massachusetts Institute of world’s largest, most-efficient synthetic natural gas Technology (MIT) to identify the best design production facility. Because of its high efficiency, features among each of the four finalist systems operational availability, and production capacity, and those features were used as the specifications 12 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 16. for HDTV. EPA could emulate this approach believes that EPA could signal the establishment to identify the best light bulb or best insulation of a huge greenhouse gas reduction market if a technology for retrofits in buildings. Mr. Preston national cap and trade system for these gases commented that the U.S. construction industry was established. Beyond the VC community, is the one of the few sectors that has failed to Mr. McAfee noted that large utilities, such as innovate or improve productivity over the past Duke Energy, one of the largest U.S. electric 50 years. If EPA could push the development of power companies, also would be interested in some construction-related technologies and the technology investment opportunities created by a Federal Government was as an early adopter of cap and trade system. these technologies, the results could be significant. This approach would encourage the VC commu- Mr. Habicht added that large companies such as nity to invest in these technologies, which would Duke Energy make up the primary membership also offer a short economic payback in energy of EPA voluntary programs, such as Performance savings for the Federal Government. Track, Climate Leaders, and others. These large companies are the clean technology buyers for Mr. Habicht noted that EPA teamed with utili- many VC portfolio companies. Mr. Preston agreed ties and other organizations in the early 1990s to about the value added provided by large compa- sponsor the development of advanced residential nies and noted that utilities are providing one-half technologies, such as the Super Efficient Refrig- of the capital requirements for the $3.5 billion erator. These programs were referred to as the coal gasification project he mentioned earlier. “Golden Carrot” programs because they were market-pull partnerships to demonstrate federal Ms. Ripley agreed that CO2 emissions reduction leadership in promoting technology advances. will create a big market and she believes the With very modest resources, EPA and its partners world is waiting for the United States to show leveraged a much larger private-sector investment leadership on this issue. The new Administration in energy efficiency and pollution prevention. should step up and make some decisions about how the United States can address the problem; Mr. McAfee suggested that the Federal Govern- then, the VC community can determine the big- ment could make it easy for VCs to fund the gest opportunities. She suggested that there may technology advances if the government could help be opportunities to use existing emission control the VCs know where to look for such advances. systems to control CO2 as well. For example, one Venture capitalists need insights on markets. He of the NGEN portfolio companies, Powerspan stressed that the venture community spends a lot Corporation, offers one of the least expensive of time trying to determine the biggest market means of capturing CO2 for sequestration. As a with the highest margins; anything the Federal post-combustion technology, its development grew Government can do to identify those markets and out of another proprietary Powerspan technology margins would be of great interest to the that offers cost-effective, multi-pollutant (sulfur VC community. dioxide and particular matter) control of coal-fired power plant emissions. Mr. McAfee said he is a big fan of setting targets and then letting the market determine how to Mr. Brenner noted that Frank Alix, Chairman get there. One of the Cagan McAfee portfolio and Chief Executive Officer of Powerspan, has companies, for example, has developed algae that visited EPA and discussed the company’s pioneer- consumes CO2 and produces ethanol; the demand ing cost-effective technologies for controlling coal for such a technology might be significant if cap combustion emissions. The interaction the Agency and trade programs were established for green- has had with Powerspan has been valuable in house gas emissions. This type of technology also terms of understanding clean energy technologies. should be of interest to EPA because it addresses Mr. Brenner said that these types of interactions two environmental issues—the elimination of need to be become more common across the CO2 and the production of biofuel. Mr. McAfee Agency. Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 13
  • 17. Ms. Ripley supported the earlier proposal for Mike Shapiro commented that the “monthly creating government-sponsored competitions and obligation to report” for water discharge permitted suggested one for CO2 reduction technologies. facilities is based on the amount of data EPA can Such competitions would force the Agency into receive (and review) as well as the data a permit- dialogues with companies that are developing ted facility can generate. If data are generated advanced technologies. instantaneously the same violation problems also may apply so citizen suits could continue and Larry Starfield asked if the venture capitalists may even grow. Further, if real-time monitoring were aware of some of the regional environmental was adopted by permitted facilities then regula- problems being addressed by the Agency, such as tions may need to change to react to the type and environmental issues associated with concentrated amount of data reported. animal feed lot operations (CAFOs). He pointed out that CAFOs are a large environmental prob- Outside of water discharge monitoring, Mr. Starfield lem created by dairies, poultry operations, and pointed out that remote sensing cameras have cattle farms. Some states, like North Carolina been used in the Houston, Texas, area to monitor and Arkansas, have supported the development air emissions from petroleum refineries. There is of animal waste digesters but all of these systems an economic incentive for refineries to identify have to be subsidized because they are not cost and reduce their air emissions because volatilized effective. Mr. Starfield explained that there is a emissions means they are losing product out of huge market for technologies that would remove their stacks. Currently, EPA does not use these animal waste problems from the watershed and cameras for emission monitoring and enforcement, require no government subsidy. but the industry has adopted their use for eco- nomic reasons. As stated by Dr. Kovalick earlier, there are nearly 800,000 permitted facilities in the United States Mr. Preston suggested the CAFOs problem may and each of these facilities must provide monthly be addressed by looking at the issues associated reports on permitted operations. The monthly with the conversion of biomass to energy. The reporting requirement has created a huge market energy density of the animal waste needs to be for lawyers when citizens file suits every time the understood because transportation costs may be permitted limits are exceeded. Mr. Starfield noted significant for moving the waste from the field that real-time monitors would prevent the occa- to the digester. The energy density of petroleum sions for these suits because permitted facilities coke and coal is about 14,000 BTU per pound, could be warned when the limits were exceeded while the energy density of animal waste may be (for various discharge points) and take corrective about 5,000 BTU per pound; thus, the transporta- action immediately. Self-reported violations by tion costs for petroleum coke and coal is three companies would prevent citizen suits and reduce times less than that for animal waste. Likewise, EPA enforcement costs tremendously. corn can produce 200 gallons of biofuel per acre per year, palm oil can produce 500 gallons Daniel Hullah replied that real-time monitoring per acre per year, and algae can produce 20,000 technology probably exists but the reason it has gallons per acre per year. Unfortunately, many not been adapted for use by the permitted facili- investors mistakenly invested in corn because of ties is because its other application probably has the government subsidy and neglected to consider a larger market. Mr. Hullah also noted that the the economic capability of the technology. In businesses may be reticent to adopt technologies retrospect, it would have been more beneficial if that would increase their cost by taking more the government would have offered a subsidy for frequent corrective actions. It may be capital “green fuel” independent of the conversion tech- intensive to establish the market for such tech- nology. nologies. 14 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 18. For addressing animal waste, Mr. Preston suggested initiate a dialogue on the issues. Mr. Preston that small anaerobic digesters may be the solution. said that “necessity is the mother of invention” He noted that new $1 billion Bank of America and suggested that rolling reductions with non- Tower in Manhattan (New York City) will have a performance consequences may be an alternative small anaerobic digester in the basement to treat approach. EPA may want to consider a tax on all of the waste generated in the building. Initially, nitrogen runoff in water or CO2 emissions that Bank of America estimated a 5 to 7 year payback would become effective at some time in the on their investment; but recently revised its esti- future and businesses and/or manufacturers would mate to a 3 year payback on water, waste, and be taxed if they did not reach those discharge energy operations and maintenance. Mr. Shapiro or emission levels. The cap and trade system mentioned that the nitrogen and phosphorous for reducing air emissions works; with such as associated with animal waste are not normally approach, utilities would be charged with reducing addressed with methane generation technologies. CO2 emissions by “x” amount over so many years. Both the nutrient and pathogen issues need to be Utilities would make investments to reach these addressed with these technologies. reduction levels and the levels could be changed (lowered) periodically. Mr. Preston suggested that Mr. McAfee explained that venture capitalists love this is the approach the Agency has taken with to hear about problems; the bigger the problem, the diesel engine emission reductions. the more appealing it is to the VC community. If distributed anaerobic digesters are the solution for For nitrogen runoff, fertilizer manufacturers could animal waste but cost is an issue, maybe a loan be contacted about similar requirements to reduce guarantee program for dairy, poultry, and other the runoff into rivers and streams. These manu- farms may be the solution. He would like to facturers would make investments to determine have input from EPA and other federal agencies how to bind the nitrogen to reduce releases or concerning the size of the carbon sequestration pay for their inability to do so. These approaches problem. He commented that legislating seques- would not only create an investment opportunity tration may not be wise, similar to the corn/ for venture capitalists but for the entire private biofuel subsidy. If the goal is energy independence sector because everyone clearly knows that in “x” or cleaner air, then those issues should be legis- years it will be worth “$y” to eliminate this prob- lated rather than the feedstock. lem. Ira Leighton stated that, in his experience, envi- Mr. Brenner commented that EPA conducted a ronmental requirements are based on ambient not case study to determine why the Agency’s experi- technology standards. A new National Pollutant ence with the diesel rules worked so well. It Discharge Elimination System (NPDES) permit turned out that this effort was a good example will be water-quality driven and an opportunity of how effective cooperative processes can be; it exists because existing technology will not be included “shuttle diplomacy.” EPA talked with capable of achieving the new standard. This will diesel engine manufacturers and pollution control create a strong driver for emerging technology. equipment manufacturers to determine what was Unfortunately, it is very challenging for EPA to feasible and how hard the Agency could push issue a performance-based standard. It is difficult without creating impossible regulatory require- to establish the performance criteria because ments. the regulated businesses and developers are not forthcoming about the capability of emerging Based on EPA’s experience to date with coop- technologies. How can the VC community assist erative discussions on more stringent regulatory EPA in writing performance-driven requirements? requirements, Mr. Brenner suggested that EPA could identify “grand challenges” (e.g., CO2 reduc- Ms. Ripley suggested that EPA may want to tions or animal waste reductions) in the Agency’s consider publishing a Request for Proposals on Strategic Plan. These grand challenges could be performance standards for specific pollutants to supplemented with specific problems such as Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 15
  • 19. lowering fine particulate emission requirements, problems such as animal waste control may offer expanding diesel retrofit applications, expanding an opportunity for financial assistance programs wood stove emission reductions, or addressing the such as grants or cooperative agreements to find pipeline problems associated with ethanol delivery. solutions without regulations. Publication of these grand challenges and specific problems could be followed by EPA-sponsored Second, mechanisms need to be created to conferences with venture capitalists and others determine how performance standards can be about how to deal with these problems. These developed without alienating the regulated conferences could build on the type of interactions industry. Mr. Habicht noted that, in the past, the begun with this Summit and help create an under- Hazardous Waste Treatment Council tried to sug- standing on both sides about the issues associated gest how the hazardous waste treatment standards with these challenges and problems. should be lowered and the regulated industry was offended by this action because it was not part of Mr. McAfee suggested that scalability is one of the the dialogue. Venture capitalists do not want to most important issues to consider. How scalable be viewed as encouraging more stringent require- are conferences, Web sites, list serves, and other ments that may not be acceptable to the regulated tools of the trade for use in communicating as industry; these companies would be customers for much information as possible about these chal- these emerging technologies and need to be part lenges and problems to the VC community and of the dialogue about challenges and problems. others? There are only a few venture capitalists involved in this Summit but there are 470 NVCA Third, publicizing grand challenges to be addressed members and thousands of firms involved in by non-regulatory solutions, such as the Golden private equity. The issue is how can EPA maintain Carrot Super Efficient Refrigerator challenge, the communications with all of these entities and lead phase-down, the chlorofluorocarbon (CFC) inform them about these challenges and problems. phase out, and others, is an attractive suggestion. Ms. Baker noted that NVCA would welcome the Beyond identifying these challenges and prob- opportunity to serve as an avenue for communica- lems, Mr. Habicht suggested that EPA could be tions with the VC community. the source of needed information on unintended consequences, life-cycle impacts, and other issues Mr. Habicht offered three comments to capture that would be useful in determining how to solve the morning’s discussion. First, pre-regulatory some of these challenges and problems. Working Lunch – Overview of the New Department of Energy Technology Commercialization Programs Drew Bond, Office of Energy Efficiency and Renewable Energy, DOE (Slide presentation is provided in Appendix C) Mr. Bond thanked EPA and the VC community commercialization programs. In addition, Mr. Bond for the opportunity to make a presentation about explained there are a number of congressional bills DOE’s technology commercialization efforts. In that will benefit energy efficiency and renewable the Federal Government, both legislative authority energy technologies. He commended EPA for and political/management support are important organizing the Summit and hoped that it might in creating new initiatives. He noted that DOE lead to more and improved cooperation between Secretary Sam Bodman and Andy Karsner, former EPA and DOE. DOE Assistant Secretary for Energy Efficiency and Renewable Energy, were the inspiration and National security, environmental, and economic supporters for many of the new DOE technology goals form the basis of a robust National Energy 16 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 20. Policy but historical data demonstrate the mag- Laboratories are government owned but contrac- nitude and urgency of the challenge. Mr. Bond tor operated. For the new NREL contract that pointed out that the United States continues to was announced in October 2008, a cooperative use non-U.S. sources for its energy supply and arrangement was established whereby the two much of this supply is fossil fuel based. All of principal contractors—Midwest Research Institute these trends are in the wrong direction. Energy and Battelle Memorial Institute—established part- security requires that the United States diversify nerships with three universities—Stanford, Ohio its energy mix and reduce its dependence on State, and MIT—and the financial community to petroleum. Environmental stewardship requires an help NREL accelerate the future commercializa- energy policy that reduces greenhouse gas emis- tion and widespread adoption of sustainable sions and other negative environmental impacts. energy technologies. Economic competitiveness requires the creation of a more flexible, more reliable, higher capacity U.S. Mr. Bond stated that DOE Program Managers energy infrastructure and improvement of energy have indicated that the “commercialization valley productivity. of death” has prevented DOE program from being as effective as the mangers would have liked. The In describing DOE’s organizational structure, “commercialization valley of death” refers to the Mr. Bond stated that DOE has three principal quantitative challenge of transitioning between department organizational units—Office of Energy early adopters and mass market penetration. This (energy R&D); Office of Science (basic science valley occurs after technology creation in the research); and National Nuclear Security Admin- market-focused business and product develop- istration (nuclear security). The Office of Energy, ment stage. The typical investors at this stage are which includes the Office of Energy Efficiency entrepreneurial and seed/angel investors. and Renewable Energy (EERE), focuses on applied research issues, trying to move projects from basic Mr. Bond explained that a technological innova- research to the field. tion must overcome four challenging transitions before reaching the market. The first transition is EERE’s budget was $1,344 million in FY 2008. from basic science to applied science. The second EERE develops a broad range of clean energy is from applied science to technology investors. technologies, including fuels and vehicles (vehicles, The third transition is from technology investors hydrogen, biomass), renewable power (solar, wind to asset investors, and the fourth is from asset and water, geothermal), and energy efficiency investors to markets. The EERE Commercializa- (buildings, industrial). EERE also is responsible for tion Team focuses on building bridges between the Weatherization Intergovernmental Program the applied scientists and technology investors, (WIP), which works with states on low-income which is the second of the four transitions. Mr. housing retrofit activities and the Federal Energy Bond commented that DOE also is interested in Management Program (FEMP), which works the issues facing developers at transitions 3 and with counterpart federal agencies on the procure- 4 but these deal with tax and regulatory policies. ment, use, and management of more efficient He noted that public benefit is only fully realized energy resources. Nearly one-half ($622 million) when the product is delivered to the market. of EERE’s budget is devoted to development of vehicles and fuels. EERE’s commercialization bridges are designed to overcome four primary gaps: talent, information, EERE spreads the federal R&D funding across capital, and strategy. The “talent bridge” involves multiple laboratories but works predominantly DOE attracting and hiring personnel that have with the National Renewable Energy Labora- both technical and business skills because both tory (NREL). Eleven of the 17 DOE National skill sets are required to commercialize technolo- Laboratories are supported by EERE, but NREL gies. The “information bridge” seeks to build in Golden, Colorado, receives nearly 95 percent of effective communications between DOE staff and its annual funding from EERE. The DOE National technology investors. Mr. Bond noted that techni- Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 17
  • 21. cal language fails to resonate with the business Kleiner and Perkins was selected for the EIR community. The “capital bridge” is the recognition position at NREL, Foundation Capital for the EIR that the Federal Government can play a key role position at Sandia, and Arch Ventures (formerly in early stage seed funding. The Federal Govern- spun out from the Argonne National Laboratory) ment may have a higher “risk tolerance” than even for the EIR position at Oak Ridge. Mr. Bond angel investors on technology development issues. expects that the EIR Program will cause a cultural VCs are more likely to fund business plans and change within each of the three participating prototypes than research papers and competi- National Laboratories as well as across the Depart- tion for VC funding is stiff. The “strategy bridge” ment toward recognition of the value applied tries to cultivate and promote policies that would research can offer for technology commercializa- impact the development of all EERE technologies. tion. Best practices have been developed to foster a culture of innovative. The Equity Share License Agreement, which is tailored for entrepreneurs and small businesses Built off of a proven VC model, the Entrepreneur with tight budgets, forms a primary plank in in Residence (EIR) Program forms the primary the “strategy bridge.” Traditionally, the DOE plank of EERE’s “talent bridge.” This is a well National Laboratories required an up-front large known model that has been used in the VC com- cash payment in licensing fees, making traditional munity to develop knowledgeable investors and licensing agreements expensive and time consum- company managers. A fundable business needs a ing to negotiate. Small entrepreneurial companies technology that works and a market ripe to sell often are more willing to give up equity rather into, but most importantly it needs an entrepre- than offer cash to license emerging technolo- neur who can build the business plan, assemble gies. Built off the Stanford University license, a management team, and raise capital. VCs favor the Equity Share License has been pre-negotiated experienced entrepreneurs with a track record of with VC general counsels, National Laboratory identifying promising technologies and building general counsels, and DOE general counsel. DOE markets. adopted the Equity Share License Agreement as a replacement for traditional licenses to attract more DOE’s EIR Program connects leading scien- entrepreneurial interest in National Laboratory- tific and business talent. Through a competitive developed technologies. solicitation process, three DOE National Laborato- ries—NREL, Sandia, and Oak Ridge—established Designed to introduce investors to technology the pilot EIR Program. The National Laboratories opportunities, the Technology Commercialization partner with a VC firm to sponsor the EIR. The Showcase forms the primary plank of the “infor- VC firm identifies, hires, and mentors the EIR mation bridge.” Many EERE funded technologies who is placed in the National Laboratory. The stall in the “commercialization valley of death” EIR mines the laboratory intellectual property and simply because the innovation has not been clearly drafts business plans for the commercialization of communicated to the business community. DOE technologies developed by the National Labora- challenged the EERE Program Managers to iden- tory. Some of the key criteria DOE used to select tify 8 to 10 of the most promising technologies the VC firms included their size and track record in their portfolios. DOE created simple, layman’s (in the clean technology sector) with commercial- descriptions of the innovation opportunities, izing portfolio company technologies, and their and then invited prominent investors to a 2-day experience with EIRs. EERE provided $100,000 conference showcasing the technologies. EERE matching-funds and full access to the respective started these Commercialization Showcases in National Laboratory. The program also includes a 2007. Twenty-four venture capitalists participated pre-negotiated standard equity share license agree- that first year and the number increased to 80 ment. venture capitalists in 2008. 18 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 22. To illustrate how the technologies are described intellectual property portfolios. Resources for in simple layman’s terms, Mr. Bond described the these funds was established through Section 1001 case study of low-cost carbon fiber technology of the 2005 Energy Policy Act, wherein DOE was as a lightweight replacement for structural steel. tasked with setting aside 0.9 percent of its annual The problem is that carbon fiber currently is too budget for applied research to be used to provide expensive for broad application ($12-30/lb vs. matching funds with private partners to promote $5-8/lb). The Oak Ridge National Laboratory promising energy technologies for commercial has developed technologies to reduce the cost purposes. of carbon fiber production by utilizing low cost feedstocks (low-cost textiles and renewable lignin) The EERE Commercialization Team pursues an and advance processing methods (thermo-chemical aggressive schedule to accelerate the deployment stabilization, rapid oxidation, and microwave- of advanced energy technologies. Mr. Bonds assisted plasma carbonization). Low-cost carbon presented a timeline that identified the many fiber reduces vehicle mass by up to 40 percent, activities undertaken by EERE to support each of which increases fuel economy up to 25 percent. the four bridges described earlier. For the “talent Three patents have been issued on the technology bridge” the activities included EIRs working in and five patents and seven invention disclosures the laboratories, Senior Executive Service (SES) have been filed. Advisors on board, Summer Associates at DOE, and Commercialization Fellows at NREL. Mr. Bond Four of the processes have been reduced to explained that the SES advisors are 3-year SES practice (microwave-assisted plasma carboniza- appointments that were created to bring into tion, textile-based precursors, thermo-chemical DOE business and finance executives to help stabilization, and plasma oxidation). The time to EERE with its technology commercialization availability is 3 to 5 years, and the capital needs efforts. Mr. Bond stated that he holds one of the include a 2-4 MM lb/year carbon fiber plant that three current appointments in these positions. is expected to cost $18-22 million. The Summer Associates at DOE are second-year Stanford University students seeking a Master The Technology Commercialization Fund, designed of Business Administration (MBA) degree who to fill the gap between R&D and VC funding, work at DOE as interns on various energy-related forms the primary plank for the “capital bridge.” projects. EERE expects to reach out to Ohio Because innovations struggle to find financing fol- State University and MIT MBA Programs in the lowing completion of the research and prior to VC future for interns, given their partnership with funding, the Technology Commercialization Fund NREL. The Commercialization Fellows at NREL offers financing for National Laboratory technolo- are business-minded individuals (up to three gies that are not yet proven at the bench scale. business persons annually) selected to help NREL The Fund requires 50-50 DOE-industry matched push intellectual property development at the funds. The funds are restricted to prototype devel- laboratory. opment, demonstration, and deployment, and they cannot be used for further scientific research. The In addition to its efforts to facilitate the second Fund is designed to complement angel investment transition from applied science and technology or early stage corporate product development. investors, the EERE Commercialization Team advises many of DOE’s public-private initiatives Eight of the 13 National Laboratories received that address the subsequent transitions. Mr. Bond financing from the Technology Commercializa- described a few examples. In January 2008, tion Fund in 2008. The funding decisions are EERE signed an agreement with the Governor of based on the potential for market opportunity, the Hawaii creating the Hawaii Clean Energy Partner- likelihood of commercial success, the management ship. This bipartisan agreement was created to team, DOE priorities, and private-sector partners. help Hawaii implement its Renewable Portfolio The Fund is a “carrot” to attract private-sector Standard (RPS). The Hawaii RPS is to reach 20 partners to examine the National Laboratories’ percent use of eligible energy efficient and renew- Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 19
  • 23. able energy technologies by 2020. Hawaii has expressed an interest in loan guarantees are large one of the highest electricity rates in the United (e.g., $100 million revenues); DOE is interested States—27 cents a kilowatt hour in Oahu and 49 in attracting smaller companies (e.g., $25 million cents a kilowatt hour in Kauai. Ninety-five per- revenues or less) for loan guarantees as well. cent of Hawaii’s energy is from oil and 99 percent comes from non-U.S. sources. The goal for the DOE will be establishing a Finance and Invest- Partnership Program is for Hawaii to achieve 70 ment federal advisory committee to assist the percent of its energy from renewable sources by Department with its Loan Guarantee Program 2030. and other technology commercialization and deployment efforts. According to Mr. Bond, the The DOE Loan Guarantee Program was created establishment of this federal advisory committee as a result of the Energy Policy Act of 2005. was mandated either by the Energy Policy Act of DOE received appropriations (up to $4 billion) 2005 or the America COMPETES Act. to offer loan guarantees in 2006. More than 140 companies responded to the initial DOE loan In closing his presentation, Mr. Bond provided guarantee solicitation, and in 2007, 16 companies e-mail addresses for the SES Advisors of the EERE were selected from the solicitation and asked to Commercialization Team, which in addition to submit full proposals. In 2008, DOE received himself includes Carol Battershell and Wendolyn up to $38.5 billion in additional loan guarantee Holland. Mr. Bond thanked everyone for their appropriations. These additional appropriations attention and asked if there were any questions. were provided for nuclear energy, fossil energy, and energy efficiency and renewable energy technology Mr. Preston complimented Mr. Bond on his pre- development; $10 billion was slated for energy sentation but expressed his concern that DOE had efficiency and renewable energy technologies. yet to issue a single loan guarantee. He cautioned The current solicitation for energy efficiency and that failure to move quickly is the “kiss of death” renewable energy technologies has been extended for developers and investors. Mr. Preston said he from December 31, 2008 to February 26, 2009. helped developed the “fast track” option for the This solicitation focuses on three issues: (1) building Department of Defense’s (DOD) SBIR Program a better “widget” (e.g., an advanced technology); and he would be glad to offer suggestions from (2) building the widget domestically (e.g., manu- this experience to DOE. Mr. Bond responded that facturing capabilities in the United States); and David Frantz, Director of the DOE Loan Guar- (3) putting together the widgets in a way that antee Program, is seeking advice and would be they have not been put together before. Regard- interested in hearing any suggestions to improve ing this third issue, Mr. Bond explained that DOE his program. is interested in proposals that offer the integrated deployment of energy efficiency and renewable Ms. Ripley asked if the Loan Guarantee Program energy technologies. The issue of concern is how would make loans to small companies that are to deploy technologies that are scalable? How can pre-revenue or if the Program was directed only wind energy, for example, be matched with energy to post-revenue companies. Mr. Bond replied that storage (e.g., battery operated vehicles)? the Loan Guarantee Program favors companies that are post-revenue. The Program has to be self- Mr. Bond cautioned that DOE and other federal sustaining and there has to be a high probability agencies cannot operate at the speed of business. of repayment of the loans. In addition, there are This is clearly seen in implementation of the DOE four substantial fees associated with the Program Loan Guarantee Program, which is 3 years old and that make it more favorable for post-revenue DOE has not yet issued the first loan guarantee. companies. The application fee alone ranges from DOE is thinking about ways to make the Loan $75,000 to $125,000, depending on the size of Guarantee Program more “small business friendly.” the project. The credit subsidy fee also is sub- Most energy efficiency and renewable energy stantial. This fee is the government’s estimate of technology development companies that have the risk level associated with each project. The 20 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 24. amount of this fee has not been publicly release Hawaiian officials will have to work with their yet; the Office of Management and Budget (OMB) state energy regulators and state utilities. This and DOE are still working on this issue. Even also will require Hawaii to look at energy policy with these fees, the unpredictably of when a loan mechanisms in other states and potentially other guarantee will be offered continues to hamper the countries to determine what it can adopt. About Program. a month ago, a voluntary agreement was signed with the state utility to determine how it can Mr. Leighton asked about capital versus operating become a partner in Hawaii’s RPS program. costs for energy efficiency and renewable energy Issues that are being investigated include feed-in projects. In New England, he explained, a lot of tariffs, smart metering, and other utility programs. effort is expended to maintain communications Mr. Bond also noted that the DOE FEMP with state energy regulators regarding local energy responsibilities include understanding state energy policy. There is more than $400 million in “sys- regulatory issues. tem benefit charges” in New England. He asked if DOE is connected with state energy regulators Mr. Preston noted that, for investors, the up-front to determine how the use of energy efficiency and capital costs are the biggest barrier to most energy renewable energy technologies will affect state rate efficiency and renewable energy technology deals payers and other local energy generation policies. in the clean technology sector. Mr. Bond replied that, in general, his office does Mr. Habicht commented that, in the past in New have responsibility for these issues. He explained England, air regulators have met with utility regu- that if consumers can overcome the higher capital lators. At the federal level, both EPA and DOE costs for renewable energy sources, then the should establish communications with the Federal operating costs work to their advantage because Energy Regulatory Commission (FERC) because they often are negligible. Mr. Bond noted that utilities are very sensitive to energy regulatory to achieve its 70 percent RPS goal by 2030, policies. Discussion of Alternative Financing Instruments: Loan Guarantees, Loans, Venture Capital Funds, Grants, etc. Mr. Habicht stated that the DOE presentation of the U.S. Department of Agriculture (USDA). offered some useful insights into how current Mr. McAfee explained that one of the Cagan federal programs work and this can provide the McAfee portfolio companies is at USDA today basis for the discussion of alternative financing securing a loan guarantee approval. The applica- instruments. tion was submitted just 30 days ago, and it is being approved today. The funding will be avail- Mr. McAfee noted that DOE has developed a able in 30 days. The USDA has a good template useful roadmap for financial instruments for large for effectively executing loan guarantees and other companies that have good credit ratings from federal agencies should learn from that experience. Moody’s or Standard and Poor’s. Unfortunately, venture capitalists do not work with companies Mr. McAfee stressed that the DOE Loan Guaran- of this size and revenue status. Mr. McAfee tee Program can be an important accelerator for suggested that DOE and other federal programs the clean technology sector but the Department’s have to extend their financial assistance programs inability to process a loan is hurting the Program beyond Fortune 50 companies. His opinion is that and the industry. Given the status of the current the DOE Loan Guarantee Program needs to be credit markets, Mr. McAfee suggested that DOE amended. If EPA is considering a loan guarantee is now the “perfect partner” to assist the clean program, the Agency should examine the programs technology sector. He encouraged EPA to offer Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 21
  • 25. DOE its respected scientific expertise to help the Mr. McAfee asked if the DOE Loan Guarantee Department more effectively execute its financial Program had an equity component. Mr. Bond assistance programs for clean technology. replied that technology developers need to provide 20 percent equity in their proposed energy proj- Mr. Preston noted that DOE is a much needed ects. Of the remaining 80 percent project cost, industry partner for scale up of energy projects. 100 percent is guaranteed. DOE is filling a gap in energy project financing and has to concentrate on eliminating the time Mr. McAfee noted that the source of the 20 delay in processing loan guarantees. Mr. McAfee percent equity is key for the investment returns stressed that DOE needs scientific help in execut- to venture capitalists. In the State of Oregon, for ing its financial assistance programs, adding that example, up to $18 million in grants are available the only internal scientific resource the Depart- from the state for ethanol plants. Therefore, to ment has is NREL. He pointed out that clean receive a $180 million DOE loan guarantee for an technology investments are capital intensive, longer Oregon ethanol plant, venture capitalists only have term investments unlike Internet investments to provide $18 million in equity. Mr. McAfee that were less expensive and had short-term exit pointed out that if DOE requires the 20 percent strategies. DOE has a good team, but Mr. McAfee equity to be solely provided by investors, the emphasized that the Department needs external potential returns are greatly reduced and investors assistance to help speed up the execution of its are less likely to participate in such projects. Loan Guarantee Program. Mr. McAfee noted that DOE should expand its commitment to energy independence and treat the Mr. Brenner mentioned that NREL has sought to issue like a “war for energy independence.” establish better working relationships with EPA, but acknowledged that the Agency has to be more With regard to financing technology projects, proactive in collaborating with NREL. He asked if Mr. Habicht explained that some of the critical specific mechanisms and/or scientific issues could elements are: the probability of success of the be identified that should be pursued between the project, a proven track record of the project spon- organizations. sors, and the overall financial plan for the project. He noted that loan guarantees require sufficient Mr. McAfee noted that there is a leadership coverage for cash flows and debt to protect against transition underway at DOE because the Assistant defaults. Although many loan guarantees and even Secretary for Energy Efficiency and Renewable some grant programs favor large companies, most Energy will not be nominated for several months. federal grant programs are oriented toward small He suggested that EPA should use this time to companies where the probability of success may discuss internally the issues that should be taken be the same but the stage and level of investment up with DOE so when the new Assistant Sec- are smaller. A better set of metrics for success retary is confirmed, EPA is prepared to meet to may need to be developed for small business grant discuss potential collaborations. In the interim, programs to illustrate how useful these programs Mr. McAfee encouraged EPA officials to meet with are in technology development. With its techni- DOE’s current senior management to offer the cal expertise, EPA can be a resource for investors Agency’s assistance. through its technology validation and verifica- tion programs. These programs can help address Mr. McAfee encouraged DOE to have a rolling effectiveness and cost issues for investors and solicitation process for its Loan Guarantee Pro- technology customers as well. gram. Rather than having an annual or biannual solicitation process, DOE should seek proposals Because of the large size of the projects (e.g., monthly or quarterly. He suggested that DOE $100 million plus) being considered under the treat its Loan Guarantee Program as a bank that DOE Loan Guarantee Program, some studies can offer loans routinely to technology developers. have been conducted on the credit-to-risk ratios 22 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 26. anticipated for these projects. The conclusion is Another suggestion offered by Mr. McAfee was that the size of these ratios is much higher than the X PRIZE. He explained that, in 2004, the current USDA loan guarantees and it is unknown X PRIZE Foundation awarded its largest prize in how significant these ratios will be in determining history for a spacecraft capable of carrying three who will receive a DOE loan guarantee. people into space, twice within 2 weeks. Even though EPA may not be able to offer a $10 Mr. Leighton cited the EPA New England (Region million prize, the Agency could announce a com- 1) experiment with the EPA SBIR Program as a petition for the best form of carbon sequestration possible model for other regions to emulate to or some other environmental challenge and select spur environmental technology development. The the best proposal for possible technology applica- region worked with ORD to develop the first tar- tion by industry, venture investors, and others. geted EPA SBIR solicitation focused on a regional environmental problem. One of the regional Ms. Baker commented that one issue that needs to needs was for a device to assess the level of lead be addressed is the ineligibility of venture-backed in soil. X-Ray Fluorescence (XRF) portable companies for participation in the SBIR Program. detectors were identified as appropriate devices This has become an issue with the National Insti- for this application. Because most environmental tutes of Health SBIR Program and more recently regulations are methods-driven, EPA New England with the DOE SBIR Program. Ms. Baker noted had to work with the Office of Pollution, Pesti- that the NVCA is lobbying Congress to clarify the cides, and Toxic Substances (OPPTS) to verify the Small Business Administration’s (SBA) affiliation reliability of these detectors for lead soil analysis. rules and ownership definitions for venture-backed It took Region 1 18 months to convince OPPTS businesses. Currently, if more than 51 percent of about the efficacy of this technology because it a company is owned by a venture capitalist then required a change in the lead detection methods that company is ineligible for SBIR consideration. to allow its use. April Richards, one of the EPA SBIR Program Mr. Starfield offered another example of method- Managers, noted that EPA has not experienced driven requirements. He explained that the this problem with its SBIR applicants; probably current method for detecting leaks from petro- because the program is small in comparison to leum refineries is a sniffer leak detector. EPA those of other federal agencies. Mr. Leighton Region 6 wanted to use infrared cameras for leak noted, however, that there are reciprocity issues detection rather than sniffers but was stymied between federal agencies with respect to SBIR because of the Method 21 requirements for Programs. He noted that the recipient of an EPA volatile organic compound emissions, which were Phase I SBIR award for development of the XRF based on sniffer technology exclusively. Petroleum detection technology could not seek Phase II fund- refiners are using infrared cameras but get no ing through the DOD SBIR Program because of credit for doing so because Method 21 has not yet differences between the two programs. been modified. When Method 21 ultimately is changed to allow the use of both technologies, it is Mr. Preston commented that MIT was contacted expected companies will have the choice to select by DOD more than 10 years ago to help rethink either technology for their compliance assurance. the Department’s SBIR Program. MIT helped DOD create a “Fast Track” component for its At the EPA Science Forum in May 2008, Mr. SBIR Program wherein the award time between McAfee noted that there was some discussion Phase I and Phase II could be reduced and other about how the Agency can communicate its find- considerations given to the company if the Phase ings about technologies. He explained that EPA I recipient could attract outside (private sector) is in a unique position to offer its opinion about investors who will match the SBIR Phase II fund- what adds value to a technology. These opinions ing. DOD SBIR projects that obtain such outside should not be recommendations but objective investments and qualify for the Fast Track can findings that can be widely communicated. receive interim funding of $30,000 to $50,000 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 23
  • 27. between Phases I and II and be evaluated for to 200 megawatt requirements. Sometimes small Phase II award under a separate, expedited pro- businesses are seeking information, rather than cess. Ms. Richards pointed out that DOD has funding, from the government about permitting a $1 billion SBIR Program, while EPA has a $4 issues or quality assurance metrics to verify that million SBIR Program. She noted, however, that their technology can be replicated. In some cases, EPA does offer an incentive for Phase I recipients venture investing is viewed negatively by small to seek third-party investments but the size of the companies because too much equity and leverage incentive is small compared to those offered by has to be sacrificed to get venture funding. EPA DOD and some other federal agencies. needs to examine the value proposition offered by clean technologies because problems could be Jeff Heimerman noted that Ms. Richards and other shifted from one environmental media to another. EPA SBIR Program staff members are working with other federal agency SBIR Programs to iden- Historically, EPA has not been a technology financ- tify opportunities for technology developers in the ing agency and Mr. Habicht asked, based on the clean technology sector. Mr. Heimerman said EPA discussions so far, if there are financial assistance is working to make these other sources of capital instruments that the Agency should consider in more transparent to everyone. the future. Ms. Ripley replied that EPA should consider small grant programs for pre-revenue Dr. Kovalick asked if the list of SBIR companies companies. She suggested that Canada offers a from EPA and other federal SBIR Programs would good model for highly successful applied research be useful to venture capitalists. Mr. Preston programs. One of the biggest programs is the replied that receipt of SBIR funding is not as $3 billion Scientific Research and Experimental important to venture capitalists as the company’s Development (SR&ED) Program. Basically, this management team. If a company receives mul- is a tax credit program for which Canadian com- tiple SBIR awards, it often is viewed by venture panies receive a federal tax credit of up to 35 capitalists as a “professional SBIR recipient.” Ven- percent for investments up to $2 million and a ture capitalists care more about the substance than 20 percent tax credit for investments larger than the hype. Mr. Preston added that the EPA New $2 million. The Program has been tremendously England XRF technology example was a huge successful in encouraging technology development success story; the company recently was purchased across Canada. by a large organization that will market the tech- nology nationally. Mr. Leighton suggested that perhaps EPA should hold technology development forums around Mr. Habicht agreed that small businesses that the practice areas known best to the Agency. market their ability to receive multiple SBIR Recently, EPA New England sponsored a technol- grants is a “turn-off” for venture capitalists because ogy development forum on waste sites, specifically such companies think the government is their Brownfields sites and old landfills. EPA asked client rather than the marketplace. Dr. Kovalick developers and investors involved in cleaning up suggested that EPA could provide information these sites to offer their perspectives on what was about its SBIR recipients at future meetings with done right and wrong, and how EPA could help the venture capital community to allow investors others clean up sites in the future. Perhaps, a an opportunity to determine their interests, if any. similar forum could be planned among EPA, DOE, and USDA and developers and investors could It was pointed out that some technologies may offer their perspectives on how the three agencies only be suitable for design applications and scal- might cooperate to solve mutual problems. ing up a technology beyond its design capacity may not be possible. An energy technology Mr. Preston agreed that this could be a very designed for 50 megawatt capacity applications, useful approach for addressing cross-Agency for example, may not work when it is scaled up problems and identifying Agency-specific needs. 24 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 28. This approach also could circumvent some of the Mr. Habicht suggested that it might be useful to limitations EPA and others may face in technol- discuss how ETV could be better structured and ogy commercialization such as the lack of new communicated to satisfy investor needs. resources to support technology development and the inability to pick technology winners. The Mr. McAfee cautioned that any technology sponsorship of such forums by EPA and other verification program needs to offer intellectual federal agencies could help identify technology property protection. He explained that some of trends, Agency challenges, and federal energy his portfolio companies have not used the NREL requirements for light bulbs, insulation, and other verification program because it does not offer building-related issues. such protection. Mr. Habicht noted that EPA’s pesticides and toxics programs have good Confi- For the past several years, EPA has made a heavy dential Business Information (CBI) procedures and investment in technology verification. Mr. Brenner requirements that work. Mr. McAfee replied that asked if this should continue to be a strong invest- if a company’s intellectual property is protected ment for the Agency. Mr. Preston confirmed and the Agency can verify the technology, then that technology verification should continue to this information could be highly useful to DOE in be provided by the Agency. Mr. Hullah agreed, implementing its financial assistance programs. noting that the technology verification provided by Mr. Preston warned that EPA may not be able to NREL has helped investors evaluate the efficacy of go too far in verifying a technology. those technologies. Sarah Bauer, EPA ORD, described the Agency’s James Rea, SiteStories, suggested that the Federal Technology Transfer Act (FTTA) Program President’s Green Chemistry Challenge Award that includes protection of intellectual property has provided some important recognition for rights. EPA is in the process of developing an sustainable technologies. Although there are no Agency-wide position on intellectual property resources associated with these awards, they have rights. EPA also has a large number of patents provided national credit for innovative technolo- that are available for review by investors and has gies. Another program is EPA’s People, Prosperity partnered with several businesses through CRA- and the Planet (P3) Student Design Competition DAs. Sally Gutierrez, Director of EPA’s National for Sustainability. Although the P3 competition Risk Management Research Laboratory (NRMRL) does not offer much funding, it has resulted in in Cincinnati, Ohio, explained that NRMRL the creation of several small innovative technology routinely validates technology performance and companies. works to understand other technical and economic issues associated with technology development. Mr. Habicht noted that, to date, EPA has devel- This experience has allowed NRMRL to provide oped two types of technology programs: detailed advice and data to EPA regional offices, headquarters offices, and states. NRMRL also " Statutory programs such as Best Available has been contacted by venture capitalists about Control Technology (BACT) required on specific issues concerning technologies and the major new or modified sources of air pollution laboratory is prepared to continue this service in and Lowest Achievable Emission Rate (LAER) the future. Mr. Leighton added that the Agency’s required on major new or modified sources of ability to write performance-based objectives rests air pollution in non-attainment areas, and on an experienced workforce and the ability to offer programs like ETV. " The ETV Program that does not have strict statutory requirements but offers an objective Ms. Ripley asked if EPA is writing methods-based analysis of several different media-specific or performance-based rules. Mr. Leighton replied technologies. He noted that ETV is not the that EPA historically has written methods-based EPA “seal of approval” for a technology. rules, which work well for monitoring require- Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 25
  • 29. ments; however, the Agency needs to write to be established so the evaluated technology can performance-based rules in the future. be compared to the state-of-the art so that inves- tors and potential users can assess if it is a better Mr. Shapiro explained that EPA generally tries to investment. Mr. Habicht agreed that unintended develop numerical, performance-based standards consequences need to be examined for all types in Agency regulations. In certain cases, however, of technology from nano-scale applications to such as storm water management, it has been energy storage. Investors always are interested in difficult to develop meaningful numerical stan- scaling up technology, but he cautioned investors dards, so the Agency has used Best Management to be sensitive to unintended consequences like Practices (BMPs) instead. Mr. Starfield added those realized with CFC substitutes. Investors do that EPA also faces environmental problems for not want to solve one problem now but create a which multiple standards apply. In Region 6, for bigger problem later. example, hurricanes have created large physical challenges in the region. EPA has been asked Mr. Preston said he thought it was useful for to determine the best way to demolish 30,000 VCs to hear about the national and regional houses. There are multiple and sometimes con- environmental problems raised in the discus- flicting regulations to consider, such as the 1973 sions so far and he offered some perspectives on National Emission Standards for Hazard Air Pol- how to address them. If industry were in charge lutants (NESHAP) Standard for asbestos removal of the hurricane cleanup, for example, requests as well as water runoff and land remediation issues would be made to create disaster recovery landfills and standards. Beyond regulatory requirements, with relaxed regulatory requirements to allow there are numerable unintended consequences more expeditious disposal of the waste mate- that have to be considered. Once the houses are rial. Restrictions likewise could be waived for demolished, there are debris issues. Should these materials separation to allow more rapid recovery materials go to a landfill or be incinerated? Three and disposal of waste material. EPA could take to four years after Hurricane Katrina, EPA is still a leadership role in disaster recovery because the trying to figure out how to address a number of Agency knows the environmental requirements these issues. There are many technical, political, and how they may be temporally modified to and environmental factors associated with these address pressing environmental problems. problems. Mr. Starfield replied that states normally imple- Mr. Habicht returned to the ETV Program. He ment most environmental standards so to take suggested that EPA think about what kind of the role suggested by Mr. Preston, EPA would verification statement can be made once a tech- have to preempt state laws. Following Katrina, it nology is evaluated. Does the technology do what was decided that the states and not the Federal the company says it does? Beyond describing the Government would lead the clean-up efforts in verification results, well developed metrics need response to the disaster. Public Comments Mr. Brenner asked if anyone present would like to DOE with various skill sets and assist the Depart- make a public comment. Walter Howes, Verdigris ment in establishing the loan guarantee process so Capital, suggested that EPA collaborate with DOE an Ex-Im Bank or OPIC entity could operate it. on setting up the Department’s Loan Guarantee Program in a way that it can be operated by a Mr. Brenner asked if DOE had any reaction to third party like the Export-Import (Ex-Im) Bank Mr. Howes’ suggestion. Mr. Bond replied that or Overseas Private Investment Corporation several U.S. Senators and the Center for American (OPIC). By joining forces, EPA could complement Progress have made similar recommendations. 26 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 30. He thought it would be helpful if the DOE Loan Mr. Heimerman introduced Norm Birchfield, who Guarantee Program were operated under a struc- serves as EPA’s Senior Environmental Technology ture like the Ex-Im Bank. Currently, DOE has a Official (SETO), adding that Norm can direct need to quickly review applications from a technol- investors wishing to discuss technology develop- ogy evaluation standpoint and provide an objective ment issues to the appropriate individual within response. DOE would welcome EPA participation the Agency. in the review process. Beyond proposal reviews, DOE also is very interested in technology verifica- Ron McIlwain, Filtersure, described his company’s tion programs. The NREL program to evaluate unsuccessful efforts to secure an EPA SBIR grant. technologies is not sophisticated and needs strength- Although the company could not secure EPA sup- ening. Mr. Bond suggested that DOE probably port, the firm was able to build a plant in Canada could learn a great deal from EPA’s ETV Program. that is effectively treating hog waste. Dr. Richard Sustich of the University of Illinois Raymond Ricci, NanoRemediation Technologies, Center of Advanced Materials for the Purification said he operates a small nanotechnology company of Water with Systems (the WaterCAMPWS) that deals with water cleanup and other reme- explained WaterCAMPWS is a National Science diation issues. Although a lot of resources have Foundation Science and Technology Center. been offered to large companies, most technology Dr. Sustich offered comments about the “valley of development research is conducted by university death” at the proof of concept stage of technol- scientists and engineers who do not have access to ogy development. Although this is a higher risk these resources. He stressed that small business stage of development, it also is an opportunity for ideas often do not receive much attention at the venture investment. Regarding large environmen- DOE National Laboratories or other large govern- tal challenges, he suggested that it may be useful ment organizations. He asked that government to ask researchers to review these challenges and policy makers keep the small business operator prepare a survey of the proof of concepts that and university researchers in mind as new funding may be used to address these challenges. This programs are developed. He noted that one of could be useful for Agency managers in identifying the biggest challenges facing small business opera- where things might lead in technology develop- tors is getting through the regulatory requirements ment. An example of this approach is captured in that limit new technology applications. a new book entitled “Nanotechnology Applications for Clean Water,” which was published by William Mr. Brenner thanked everyone for their comments. Andrew Publishing. EPA and Venture Capital Roles and Next Steps Mr. Shapiro identified four items that were sug- " Maintain scalability in communications about gested during the morning session: these challenges and problems; communica- tion mechanisms should include conferences, " Use the EPA Strategic Plan to identify grand Web sites, list serves, and other tools of the challenges and develop lists of specific prior- trade to share and exchange information ity problems at the national and regional about these issues (Eric McAfee). levels within those challenges. EPA could sponsor conferences with investors and others " Use the NVCA as a conduit for commu- to discuss technology solutions to these chal- nicating with the VC community (Emily lenges and problems (Rob Brenner). Baker). Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 27
  • 31. " Use grants and cooperative agreements to may need more resources to support international address pre-regulatory problems such as environmental problems. CAFOs and create mechanisms for develop- ing performance standards without alienating Mr. Starfield noted that the General Services the regulated industry (Hank Habicht). Administration (GSA) is the Federal Government landlord and it would be in the interest of both Mr. Preston added that the grand challenges EPA and DOE to work with GSA on improving should go beyond well-known problems such energy issues within federal buildings. EPA and methane emissions from landfills or sulfur and DOE could assist GSA and DOD in improving nitrogen emissions from power plants and focus the energy efficiency of every federal facility. on problems “one level down” that are not being addressed. Missing from the above list is the Mr. Preston suggested that EPA may be able to notion that EPA can play a significant role in embarrass or shame other federal agencies into advising the Federal Government in saving energy doing the right thing with respect to improving in the built environment. If EPA took on such energy efficiency in federal buildings. EPA could as role, developers and investors could identify sponsor a “shoot-off” for the best lighting, the best options for new building lighting systems with HVAC, and the best building insulation materials. a 3-year or less playback period. Beyond light- Although recognition would be the only award ing, options also could be suggested for heating, from such competitions, EPA could use the results ventilating, and air conditioning (HVAC) controls; to retrofit its own buildings. EPA would quantify insulation; and other building construction and the energy savings from these retrofits and these maintenance issues. data could be used to convince other federal agen- cies about the value of these retrofit technologies. Another idea proposed by Mr. Preston concerned Investors may be willing to fund these retrofits if the establishment of performance-based standards. they could receive the savings gained because the Venture capitalists may be able to offer some paybacks are generally less than 3 years and have a suggestions to EPA about how “rolling reductions” 20 percent or greater internal rate of return. could be established within regulatory require- ments. Mr. Brenner acknowledged that EPA may have an opportunity in federal building retrofits because the Barry Breen agreed that identifying grand chal- Agency has a federal leadership responsibility in lenges would be useful for the Agency and the VC community. He suggested that these challenges the National Green Building Program. Mr. Preston focus on issues for which new technology is in the noted that competitions and prizes develop a critical path toward finding a solution. The audi- lot of self-sustaining interest. He pointed out ence for these challenges also should be broader the MIT $100K Entrepreneurship Competition than the capital markets and should include the is the biggest event on campus. It has attracted Agency and others in the Federal Government. enormous media attention and now is bigger than Mr. Brenner agreed with these suggestions and homecoming and graduation. If EPA sponsored explained that the challenges should be useful to American innovation competitions, it would attract the public, EPA personnel, and anyone else inter- enormous attention. This is all positive because ested in environmental protection. the focus is to reduce energy consumption and make the environment cleaner. EPA could be on Kevin Teichman suggested that the grand challeng- the “side of the angels” with such competitions. es include international as well as domestic issues. In drinking water, for example, NRMRL worked Mr. Bond added that DOE would be interested with the Grainger Challenge Prize to find point- in co-sponsoring prize competitions with EPA on of-use water treatment for arsenic-contaminated energy-related issues. Although DOE has several drinking water in Bangladesh. EPA also worked competitions underway already, the Department on cook stove designs to promote health, the would like to take a more strategic approach with environment, and economic prosperity in many respect to prize competitions and DOE would developing countries. Mr. Habicht added that EPA welcome EPA input on this issue. 28 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 32. Dr. Kovalick stressed that EPA is not a monolith track record of working with universities and DOE and each EPA region probably has a different set National Laboratories on technology develop- of priority environmental problems. In Region ment issues. The NVCA also has sponsored clean 5 (Chicago), for example, EPA is very concerned technology “road trips” to National Laboratories. about Great Lakes issues, while EPA Region In July 2008, for example, more than 35 venture 8 (Denver) probably is more concerned about capitalists visited government laboratories in the issues associated with biofuels. The top 20 Colorado. She asked if EPA would be interested environmental issues thus may differ dramatically in such road trips. depending on the region in which they are identi- fied. Mr. Brenner replied that the EPA National Vehicle and Fuel Emissions Laboratory in Ann Arbor, Mr. Heimerman suggested that one universal grand Michigan, might be interested in hosting a visit challenge may be the aging national and regional by venture capitalists. EPA’s clean automotive water infrastructure. Mr. Shapiro agreed, stating technology research is focused on hydraulic hybrid that in the next 30 years the United States prob- drive train vehicles and clean engines. Ms. Gutier- ably will be replacing most water and wastewater rez added that NRMRL also has been trying to pipes throughout most cities and counties. The attract the interest of companies, not just venture Agency should be considering ideas such as capitalists, in water technology development issues. whether “smart pipes” could be installed to address She explained that in September 2007, NRMRL the aging infrastructure problem. Could such sponsored a Clean Water Partnership Summit smart pipes help address impending environmen- that was highly successful and attracted numerous tal problems more quickly? Could smart pipes small companies and some venture capitalists. In extend the life of water infrastructure? A huge May 2008, EPA sponsored the Science Forum that investment opportunity exists with respect to included a technology showcase of advances in air, replacing deteriorating structural problems and water, and soil monitoring technologies and other detecting impending problems more quickly. new emerging technologies. Mr. Habicht noted that millions of dollars are Ms. Ripley asked how EPA prioritizes its research spent annually to treat drinking water in the projects. Ms. Gutierrez replied that the prioritize United States, but less than 1 percent of the process starts with the goals of the EPA Strategic nationally treated drinking water is actually con- Plan, which are translated into specific research sumed; likewise, there is a substantial difference program plans and objectives. In water infra- between “peak” and “off-peak” electricity genera- structure, for example, NRMRL is conducting a tion needs and capacity across the country. There gap analysis to identify potential state-of-the-art are business opportunities within these areas and technology solutions to this problem. NRMRL investors as well as the government may be well also is investigating the environmental implica- served in thinking cooperatively about them. tions of the wide-spread production and use of Beyond counterpart federal agencies, EPA also can biofuels. Ms. Ripley asked if NRMRL looks at the be a resource for states. Each state offers signifi- size of the end market in determining its priorities. cant economic incentives to locate manufacturing Ms. Gutierrez replied that the laboratory does not facilities and plants within their jurisdictions look at the market size. Dr. Teichman pointed and EPA could assist states on technology issues out that EPA’s mission is to protect human health regarding their economic development plans. and provide environmental protection and this responsibility, rather than market size, drives the Ms. Baker agreed that states are encouraging a lot Agency’s research priorities. He explained that of economic development. She offered to alert EPA also conducts a lot of risk assessment research the NVCA regional chapters about EPA-sponsored on technology issues. Regarding the communica- regional meetings. NVCA regional chapters have tion of successful technologies and trends, EPA established good relationships with local economic conducts an annual National Sustainability Design development agencies and they stand ready to Expo on the National Mall. This Design Expo work with EPA and others in addressing local is based on the P3 Program, mentioned earlier, environmental issues. The NVCA has a successful and showcases innovative designs across a range Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 29
  • 33. of issues including alternative energy technolo- process. State permitting, however, is a significant gies, water purification, and new technologies for problem because of reciprocity. Sister states green buildings. The three “Ps” represent the three normally do not recognize each other’s permits. “legs” of sustainability—People, Prosperity, and the Planet. Dr. Teichman noted that P3 not only has Although cross-state permitting is difficult, resulted in several very innovative designs for new Mr. Brenner acknowledged that EPA has helped technologies but also is training the next genera- states in the past permit “first time” technology tion of environmental scientists and engineers. demonstration projects. As more states seek to host new energy efficiency and renewable energy If the U.S. economy is moving toward a recession technology sites, the potential for EPA to assist or depression, Mr. Preston predicted that higher an individual state in the permitting process may unemployment will occur and suggested that EPA become more apparent. may be in a unique position to offer suggestions for job creation opportunities in rebuilding the Ms. Gutierrez noted that some states already national water infrastructure. If large national have added the requirement to use only “verified” environmental problems can be identified then technologies (by EPA or others) in their project the VC community may be able to offer sug- development plans. So the value of the ETV gestions for technology solutions. Recently, for verifications has been recognized. In the past, example, a fiber-reinforced composite technology the involvement of EPA researchers in technology was announced that is capable of building bridges demonstration projects also raised the “comfort in 2 days rather than the conventional approach level” of some state officials and garnered their that takes weeks or months. It was demonstrated acceptance to host a project within their jurisdic- that the military could drive tanks over these tion. new bridges in 1 week. Such a technology may have application in repairing the U.S. water infra- Mr. Habicht commented that there are some structure system. Sometimes, the VC community major new thrusts in technology as a result sees technologies that may have with diverse of environmental regulation. Some of these applications that may not be known to the Federal thrusts include CO2 sequestration, nanomaterials, Government. advanced biofuels, vehicle-to-grid technologies, large solar arrays, large wind arrays, and others. Mr. Bond asked if there are any opportunities EPA needs to position itself to be involved in the to fast track siting and permitting for these new design and evolution of these technologies. EPA commercial scale energy technologies. Section involvement is important to assess unintended 932 of the Energy Policy Act of 2005 requires consequences as well as to be an integral part of DOE to demonstrate the commercial application the infrastructures that are built up around these of cellulosic feedstock biorefineries. There will be technologies. Biofuels is an example of a new significant NEPA implications regarding the sit- energy technology that may have some unintended ing of these biorefineries. Are there ways to fast consequences. EPA and NREL collaboration on track the Environmental Impact Statement (EIS) the impacts of these technologies is a model that requirements for these facilities? should be expanded in the future. Disruptive technologies will have infrastructure impacts and Dr. Kovalick noted that EPA’s behavior regarding the earlier EPA and DOE can collaborate on their permitting has been a perennial flower. In 1995, assessments the better. environmental permitting was raised as a signifi- cant issue in the White House Conference on Mr. Habicht reiterated that EPA needs to commu- Environmental Technologies and it has bloomed nicate its biggest environmental challenges. Once regularly since then. NEPA is a federal not a these challenges are identified, there needs to be state responsibility so EPA can deal with it, but a “give and take” about them with the business the problem may be a matter of prioritizing this community and others. Through this process, function. Normally, there are a limited number the challenges can be sharpened into a potential of EPA personnel designated for the NEPA review technology and investment opportunity. 30 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 34. Mr. Leighton explained that some “building blocks” value can be placed on the loss of tourism because already are in place for communication on these of polluted waters. issues. From 1995 to 2000, when John DeVillars was EPA Administrator in Region 1 (Boston), VC Mr. Starfield agreed that it would be useful for forums were being conducted in New England. EPA and VCs to discuss regional environmental These forums focused on the identification of problems because of the unique differences among innovative technologies that may offer solutions to regions that were mentioned earlier. Water has a priority regional problems. Maggie Theroux, who tremendous value in the South and Southwestern is now with EPA’s ETV Program, was a key player United States but is not as critical an issue in in conducting these technology forums. From other parts of the country. He suggested that these forums, Region 1 learned about the need “smart meters” to gauge electricity usage within to frame problems with as much specificity as individual homes is a great idea but it is not being possible to facilitate the development of effective widely used in EPA Region 6 (Dallas). Likewise, solutions. This effort helped establish the current water meters to gauge water usage would be dialogue between EPA regions and the EPA’s ORD equally valuable. on defining priority problems. Last year, a science symposium, attended by the EPA Deputy Regional Mr. Brenner agreed that there are regional as well Administrators and the senior ORD program as national issues facing the Agency. He suggested managers, was conducted to exchange ideas on that future meetings could focus on regional problems and potential solutions. A common issues, national issues, or potentially only two or format was used to define regional problems that three issues; there are a variety of ways to address included a lot of specificity. Based on this sympo- these problem sets. Are there preferences for any sium, data are now available to allow problems to single approach? be defined on a regional, media, or national basis. Ms. Ripley replied that meetings are helpful but more use should be made of Web communica- Dr. Teichman added that, for the symposium, each tions. The NVCA also may be a good way to EPA region was asked to identify its three high communicate with the VC community. She priority problems and 40 problems were identified. admitted that today’s meeting has given her a Obviously, more problems were identified than renewed appreciation for the challenges EPA faces; expected and not all of these problems involve nonetheless, she would like the Agency be more technology in their critical path. Nonetheless, of a catalyst for adoption of innovative technolo- this exercise may be one source for identifying gies. EPA is uniquely positioned to do so. Does problems with potential technology solutions. the identification of grand challenges depend on What would you do with the research results if the new EPA Administrator? What does it take you received them was a frequent question raised for EPA to be a catalyst for adoption of innovative during the symposium. technologies? Mr. Preston suggested that it might be useful to Mr. Brenner responded that more federal agency translate these problems into a cost value; if this collaboration (e.g., EPA collaborating with DOE, problem were solved how much would that be USDA, and others) is inevitable. The degree to worth. The VC community could really focus on which this collaboration occurs may hinge on a problem if there is some estimate about its value the new Administrator’s priorities but the value proposition. in more collaboration is recognized. Mr. Brenner expects EPA to be much more involved in a Dr. Teichman cautioned that value propositions technology-driven environmental process than it may be easier to estimate in the health area than has been in the recent past. in ecosystems. ORD currently is working on how to value ecosystem services but agreed upon Mr. Habicht agreed that personalities always make metrics have not yet been established. Mr. Preston a big difference. He mentioned that the Presi- acknowledged that a value cannot be put on dent’s Council on Environmental Quality also will human life and made a business proposition, but a be important. Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 31
  • 35. Dan Watts said that he would be presenting the He hoped that today’s meeting will be the initial results of today’s Summit at the NACEPT meeting step toward offering officials a channel to commu- tomorrow because today’s meeting was conducted nicate about issues of common interest with other as a follow-up to the NACEPT Report on ven- problem solvers. ture capital. He asked if there are there some actions from the Summit that can be reported to Mr. Preston suggested that there is an opportunity NACEPT. Is there more work for NACEPT to do at EPA for bold leadership in the Federal Govern- on this topic? ment on technology issues. He believes there is a lot of interest within the Agency for bold leader- Mr. Brenner thanked NACEPT for its work to ship and such leadership makes it unlikely that date. He thought the general response to the such an initiative will fail. NACEPT Report was that it was well done and will be valuable to the Agency. He admitted that Mr. Brenner agreed that there are numerous there are many in the Agency who will want to examples of where EPA has taken a leadership review the Report further before specific next role in the past on technology issues. He offered steps can be determined. Given the range of the the Diesel Retrofit Program as a recent example Report’s findings and recommendations, EPA may where EPA worked to find and develop a technol- want to create another NACEPT Subcommittee to ogy solution early on and the result is that nearly further advise the Agency, but it would be prema- $1 billion worth of diesel retrofits are being made ture to make such a decision at this time. annually. This is just one example; there are many others in the water and solid waste media Dr. Kovalick proposed that, in the interim, the where similar advances have been made through Agency could move forward by scheduling region- technology-driven approaches. EPA gets it. Now, al meetings with the VC community and others there is an opportunity for the Agency to push to discuss challenges and problems of concern to hard on these approaches and EPA plans to take the regions. Mr. Brenner agreed and suggested advantage of it. this may be good point at which to conclude the meeting. He thanked everyone for their partici- Mr. Leighton explained that even in the “Big Dig” pation in what he thought was a very valuable in Boston, the Agency was able to drive diesel meeting to EPA. He expects to see the results of retrofit use in the excavation and construction today’s Summit reflected in the Agency’s efforts process. This opportunity was created because over the next several years and looks forward to government officials used the “bully pulpit” to working with the VC community on these issues push for it and the “court of public opinion” in the future. asked “why not?” He expressed hope that NEPA can be a very important driver for public policy Mr. Habicht explained that perhaps the best way and opinion for regional and national energy and to summarize today’s meeting is that “we have environmental problems. found each other and it is beautiful.” This Sum- mit has assembled some of the most talented Mr. Habicht agreed, explaining there are and will and hard working people around and very useful be unique opportunities for collaboration between discussions have resulted. Based on his experience EPA and DOE on energy and environmental at EPA, he understands that the Agency staff often issues. Hearing no more comments, Mr. Habicht feels isolated because of institutional constraints. and Mr. Brenner adjourned the meeting. 32 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 36. Appendices A. EPA-Venture Capital Community Summit: Potential EPA Follow-Up Activities B. List of Summit Attendees C. Summit Presentations 1. Venture Capital Overview 2. U.S. EPA: The Context for Promoting New Environmental Technology 3. Department of Energy Technology Commercialization: Energy Efficiency and Renewable Energy D. Stages of Investment E. Federal Register Notice for EPA-Venture Capital Community Summit
  • 37. Appendix A: EPA-Venture Capital Community Summit: Potential EPA Follow-Up Activities The following is a list of potential follow-up activities developed by EPA subsequent to the Summit to help further environmental technology investment and commercialization. Some of the activities have been initiated. I. Collaborating With Other Agencies A. Develop partnerships with DOE, USDA, and other agencies to learn from their technology com- mercialization efforts B. Seek to use Stimulus and venture capital funds to support environmental technology development and deployment C. Explore cooperating with other federal agencies to encourage wide-scale government purchas- ing of innovative environmental technologies (e.g., energy efficient and greenhouse gas reduction technologies) D. Develop a strategy for collaborating with state, tribal, and city economic development organiza- tions to create green jobs II. Fostering Interaction With the Venture Capital Community A. Communicate EPA’s “Grand Challenges” for which technology might provide solutions B. Organize regional follow-up meetings with the venture capital community C. Develop with venture capital associations mechanisms to facilitate communication and coopera- tion D. Create a framework to inform EPA on how to work with the venture capital community III. Considering New Programs and Activities A. Create prize programs for technological solutions to major challenges confronting the Agency B. Assess the need for grant and loan guarantee programs that would encourage investment in envi- ronmental technology commercialization C. Assess whether the Agency’s Green Building Strategy should be revised to add technology com- mercialization D. Discuss the need for a FACA group focusing on venture capital investment in environmental technology and/or related themes (e.g., other finance and investment actions catalyzing environ- mental technology development and deployment) Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 35
  • 38. Appendix B: List of Summit Attendees Participants Eric McAfee Managing Director EPA Senior Career Managers: Cagan McAfee Capital Partners Barry Breen John Preston Deputy Assistant Administrator Managing Director Office of Solid Waste and Emergency Response C Change Investments Rob Brenner, Co-Chair Rosemary Ripley Director Managing Director Office of Policy Analysis and Review NGEN Partners Office of Air and Radiation Dan Watts Walter Kovalick, Jr. Executive Director Assistant Regional Administrator for Resources Otto H. York Center for Environmental Management Engineering and Science Region 5 (Chicago) New Jersey Institute of Technology Ira Leighton Presenters: Deputy Regional Administrator Region 1 (Boston) Emily Baker Director Mike Shapiro Federal Policy and Political Advocacy Deputy Assistant Administrator National Venture Capital Association Office of Water Walter Kovalick, Jr. Larry Starfield Assistant Regional Administrator for Resources Deputy Regional Administrator Management Region 6 (Dallas) Region 5 (Chicago) Kevin Teichman Drew Bond Deputy Assistant Administrator for Science Director for Commercialization and Deployment Office of Research and Development Office of Energy Efficiency and Renewable Energy U.S. Department of Energy Pai-Yei Whung Chief Scientist Office of the Science Advisor Audience Senior Venture Capitalists: EPA Attendees: Hank Habicht, Co-Chair Amanda Aldridge Managing Partner Office of Air Quality Planning and Standards SAIL Venture Partners Office of Air and Radiation Daniel Hullah Sonia Altieri Principal Office of Cooperative Environmental Management RockPort Capital Partners 36 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 39. Appendix B: List of Summit Attendees (continued) Diana Bauer April Richards National Center for Environmental Research National Center for Environmental Research Office of Research and Development Office of Research and Development Sarah Bauer Neil Stiber Office of Science Policy Office of Science Policy Office of Research and Development Office of Research and Development Michael Bender Larry Weinstock Office of Resources Management Office Air and Radiation and Administration Office of Research and Development David Widawsky National Center for Environmental Innovation Norman Birchfield Office of Policy, Economics and Innovation Office of the Science Advisor Mary Wigginton Michael Brody National Center for Environmental Research Office of the Chief Financial Officer Office of Research and Development Rafael DeLeon Other Attendees: Office of Cooperative Environmental Management Richard Canino Jordan Dorfman New Energy and Industrial Technology Office of Water Development Organization Peter Fargo Sarah Carter Office of Research and Development American Association for the Advancement of Science Fellow Sally Gutierrez National Risk Management Research Laboratory Ray Cheung Office of Research and Development World Resources Institute, Inc. Jeff Heimerman Edie Findeis Office of Solid Waste and Emergency Response EMS, Inc. Mark Joyce Prasad Guple Office of Cooperative Environmental Management National Institute of Standards and Technology U.S. Department of Commerce Michael Kane Office of Policy, Economics and Innovation Walter Howes Verdigris Capital Mitch Lasat National Center for Environmental Research Glen Kedzie Office of Research and Development American Trucking Association Cynthia Nolt-Helms Valarie Latraverse National Center for Environmental Research Canadian Embassy Office of Research and Development Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 37
  • 40. Appendix B: List of Summit Attendees (continued) Mary Mai Sumita Singh Center for Environmental Innovation National Venture Capital Association Ron McIlwain David South Filtersure, Inc. T&M Solutions Jim McVaney Richard Sustich Rentech, Inc. Center of Advanced Materials for Purification of Water with Systems (WaterCAMPWS) David Nguyen University of Illinois at Urbana-Champaign American Trucking Association EPA Project Officer and Contact: Andrew Paterson Econergy Paul Shapiro National Center for Environmental Research Raymond Ricci Office of Research and Development NanoRemediation Technologies E-mail: Brian Routhier Contractor Support: American Trucking Association Beverly Campbell Edward Saltzberg Angela Hays USA Energy Advisors Greg Ondich The Scientific Consulting Group, Inc. Paul Schaudies GenArraytion, Inc. James Rea SiteStories 38 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 41. Appendix C: Summit Presentations 1. Venture Capital Overview About NVCA EPA-Venture Capital Community Summit: Formed 35 years ago to foster better Exploring Programs to Commercialize communications among venture capital Environmental Technology professionals Today focuses on advancing p y g public policies p November 12, 2008 conducive to entrepreneurship, innovation and capital formation Venture Capital Overview Also has research, education, networking charter Emily Baker, NVCA Based in Washington DC 470 member firms 2 What is Venture Capital? Venture Capital Characteristics Venture capital is invested alongside management in private start-up Venture capital is long term investment. companies operating in innovative industries. Venture investments typically last 5-10 years, often longer, rarely less. Information Technology Venture capital is focused on innovation. Life Sciences VCs invest in companies that look to transform the status quo in high Clean Technology Cl T h l technology spaces. h l Venture capital funds are capitalized by institutional investors and the Venture capital is high risk and high reward. VCs themselves. Forty percent of venture backed companies fail; forty percent break Pension funds even/make minimal gains; only 20 percent make significant gains. Endowments Venture capital builds value in companies and the economy. Foundations Venture capital investment stays in the company and is used for growth. The goal of a venture investment is to build a company to the point Venture capitalists bring operational and scientific knowledge to bear to that it can stand on its own as a public entity or be acquired as part of catalyze growth, involving themselves in day-to-day operations. a larger organization. 3 4 Venture Capital = Economic Venture Capital Investment Growth is Productive ... Venture investments accounted for just .02% of invested capital. Despite the small venture industry size, companies that got their start For VC every dollar invested in 1970-2001, there was with venture capital accounted for 10.4 million jobs and $2.3 trillion of revenues in the US in 2006 or 18 % of GDP. $7.90 in US revenue during 2006 Companies that were originally f funded by venture capital include For every $28,463 of venture capital invested in 1970- Genentech, Microsoft, Apple, Google, FedEx and Starbucks. Venture-backed companies outperform non-venture counterparts. 2001, there was one job in the year 2006 Current venture backed companies account for over 400,000 US jobs across the country. Innovations funded by venture capital include the pacemaker, Herceptin Note these ratios are based on investment through 2001 ($296B) (cancer), Integrilin (heart disease). VCs are also increasingly focused on because investment after that time has likely had little effect on 2006 clean technology – solar, wind, carbon capture, energy efficiency. jobs and revenues. If investment through 2006 ($421B) is used, the ratios would be $5.55 and $40,364 respectively Source: Venture Impact 2006 by Global Insight 5 6 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 39
  • 42. Appendix C: Summit Presentations (continued) 1. Venture Capital Overview (continued) Top 10 States for Venture Top States for VC-Backed US Revenues 2006 Capital Investment 2007 National State Billions Invested Employment 2003- at VC-Backed 2006 California $14.19 Rank State Companies Growth Massachusetts 3.59 1 California 566,600 12.6% Texas 1.42 1 42 2 Texas T 293,700 293 700 10.2% 10 2% Washington 1.34 3 Washington 144,200 12.8% New York 1.17 4 Massachusetts 131,300 12.8% Pennsylvania .85 5 Pennsylvania 121,600 9.6% 6 Georgia 120,000 11.0% Maryland .63 7 Virginia 104,900 14.7% New Jersey .60 8 New York 98,000 10.6% North Carolina .59 9 Tennessee 92,100 15.7% Florida .58 10 Minnesota 82,600 16.2% 7 8 Top States for VC-Backed US Jobs 2006 Venture-Backed Revenues VC-Backed US Revenues (trillions) As a % of total US GDP in 2006 National Employment at 2.5 VC-Backed 2003-2006 $2.3 Rank State Companies Growth 2 VC-Backed 1 California 2,362,400 2.8% $1.7 Revenue = 18% 2 Texas 1,118,600 1 118 600 5.6% 5 6% $1.5 $1 5 Outpaces 2003 - 2006 1.5 3 Pennsylvania 697,400 2.2% Total US Sales Growth 4 Massachusetts 674,300 3.0% 1 14.0% 11.8% 5 Georgia 604,500 4.8% 12.0% 10.0% 6 Tennessee 564,500 2.6% 0.5 8.0% 6.5% 6.0% 7 Washington 463,800 7.1% 4.0% 8 New York 427,700 2.4% 0 2.0% 0.0% 2000 2003 2006 VC-Backed Growth Total Growth 9 Virginia 385,300 3.7% 10 Minnesota 352,700 9.5% Source: Venture Impact 2006 by Global Insight 9 10 Venture-Backed Employment Internet-Specific & Clean Tech Investments VC-Backed US Jobs (millions) As a % of total US Pvt Jobs in 2006 2005 – Q1 2008 Internet-Specific Investments ($M) $1,405 250 $1,293 $1,310 10.5 10.4 $1,177 $1,063 $1,177 200 $997 $980 $980 $851 $855 150 $751 $733 VC-Backed 10 Jobs = 9% 100 50 9.5 95 9.4 0 Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2 '06 Q3 '06 Q4 '06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Outpaces 2003 - 2006 9 Total US Job Growth $ Invested # of deals 8.7 3.6% Clean Tech Investments ($M) 4.0% 8.5 $851 70 3.0% 60 $666 $625 50 8 2.0% 1.7% $472 $514 $471 40 $413 $281 30 1.0% $237 $139 $152 20 7.5 $121 $103 10 2000 2003 2005 0.0% 0 VC-Backed Growth Pvt Sector Growth Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2 '06 Q3 '06 Q4 '06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 $ Invested # of deals Source: Venture Impact 2006 by Global Insight 11 12 PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report Based on data from Thomson Reuters 40 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 43. Appendix C: Summit Presentations (continued) 1. Venture Capital Overview (continued) Investment Activity – Top Industries Federal Policy Initiatives Q1 2007, Q4 2007, Q1 2008 Needed to Drive Clean Tech Renewable Portfolio Standard Total Amount Invested ($M) Q1 2007 $1,533 Q4 2007 $1,395 Q1 2008 Renewable Fuel Standard $1,275 $1,267 $1,270 $1,264 $1,194 $1,008 $1,019 Investment Tax Credits $854 Strengthened CAFE standards $639 $577 $566 $381 $458 More robust federal R&D for energy Federal government as early adopter and user of clean energy technologies Biotechnology Softw are Medical Devices and Equipment Industrial/Energy Semiconductors 13 PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report 14 Based on data from Thomson Reuters New Partnerships NVCA is looking forward to working more closely with EPA Emily Baker, Sumita Singh, 15 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 41
  • 44. Appendix C: Summit Presentations (continued) 2. U.S. EPA: The Context for Promoting New Environmental Technology Outline U.S. EPA: The Context for Promoting New Environmental Technology Mission and budget Presented at the Operations and implementation EPA-Venture Capital Community Summit: EPA- Technology nexus Exploring Programs to Commercialize Environmental Technology November 12, 2008 Walter W. Kovalick, Jr. Ph.D. Assistant Regional Administrator U.S. EPA—Region 5 EPA— Mission and Mandates FY 2008 Budget by Goal One of 20+ independent regulatory agencies • Not a Cabinet department, but Cabinet status Total Agency: $7,472 Million Goal 5 10.5% Goal 1 3,487 FTE 13.1% Goal 4 Protect public health and the environment 16.7% 2,609 FTE 3,736 FTE Multiple statutes provide mandates • Clean Air Act • Clean Water Act • Safe Drinking Water Act • Resource Conservation and Recovery Act (as amended) • Comprehensive Environmental Response Compensation Goal 3 Goal 2 and Liability Act (Superfund) 23.6% 36.1% 4,574 FTE 2,901 FTE • Federal Insecticide Fungicide and Rodenticide Act (FIFRA) Goal 1: Clean Air and Global Climate Change • Toxic Substances Control Act (TSCA) Goal 2: Clean and Safe Water • Others Goal 3: Land Preservation and Restoration Goal 4: Healthy Communities and Ecosystems Goal 5: Compliance and Environmental Stewardship Strategic plan— EPA 2008 Budget Allocation (Millions) $1,222 $1,715 $1,360 $3,175 State and Tribal Assistance Grants Subtotal, Operations (non Trust fund) Subtotal, Operations from Trust Funds Infrastructure / STAG Project Financing 42 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 45. Appendix C: Summit Presentations (continued) 2. U.S. EPA: The Context for Promoting New Environmental Technology (continued) What is the Regulated Operations and Implementation Community? Agency exercises discretion in balancing Any business/organization that is required to mandate given in each statute—mainly statute— comply with EPA statutory or regulatory in HQ requirements. Traditional role—different types of role— Includes: regulation More than 800 000 permitted facilities under 800,000 • Technology based—most stringent or cost effective; based— CAA, CWA and RCRA can “freeze” technology, once set Over 20 million small businesses • Health based—set for environ. conditions; room for based— source control technologies to meet limits 80,000 units of local government • Market based—sets limit for nation/area; facilities based— Millions of regulated facilitates under more get tradable allowances than 12 major environmental statutes • Use restrictions (for chemicals/pests)—exposure chemicals/pests)— restricted by label directions or product restriction Ops and Implementation (cont.) New Strategies (beyond “command and control”) • Begun in 1990’s—HQ together with Regions 1990’s— Compliance assistance Voluntary partnerships Performance track—beyond compliance track— Partnering for economic gain/development e.g. Brownfields, CRADAs Plus • International developments/imperatives (ISO 14000/EMS plus EU/China requirements) N.B. As always, enforcement keeps a level playing field EPA Roles in Environmental Ops and Implementation (cont.) Technology Marketplace Almost half of 17,000 FTE in Regional Offices Funding agent • Most EPA regulatory programs delegated to states and tribes Technology developer • Vast majority of inspection, permitting, enforcement at state/tribal level Regulator/enforcer g / ~2400 FTE for science and technology work— work— Information broker mostly ORD • Neutral • Of $760M budget, ~$440M extramural • Verification agent v N.B. Large % of entire EPA workforce are scientists/ engineers Partner in deployment User of “first resort” Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 43
  • 46. Appendix C: Summit Presentations (continued) 2. U.S. EPA: The Context for Promoting New Environmental Technology (continued) Intersections: EPA’s Work and Environmental Technologies For niche areas, in depth understanding by researchers/programs, • E.g. drinking water treatment, air pollution control, remediation, diesel retrofit • Monitoring and measurement technologies Secondary level of understanding of industrial processes to set BACT, etc. levels Appreciation of technology aspects of many sectors through partnering programs, i.e. Design for Environment, energy conservation, etc. Observations: How Technology Observations (cont.) Intersects with EPA Work With few exceptions, EPA mission is not to be a EPA’s regulatory agenda charts the subjects and “technology development” organization issues to be addressed over a several year period New environmental problems are viewed first By its nature, technology driven regulations “fix” through statutory/regulatory lens (e.g. GHG best technology; resources normally limit EPA’s sequestration = UIC program) leading to ability to continuously update “best” best technology inquiry EPA is well vested in technology diffusion While expert in some niches, EPA’s mandates activities, esp. verification don’t call for comprehensive monitoring of EPA is experienced in operating SBIR and grant technology developments programs; no mandates for many other financial The Environmental Technology Council is a forum vehicles for joint action across programs/regions—see programs/regions— 44 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 47. Appendix C: Summit Presentations (continued) 3. DOE Commercialization: Energy Efficiency and Renewable Energy National security, environmental and economic goals form the basis for a robust National Energy Policy but historical data demonstrates the magnitude and urgency of the challenge. Technology Commercialization Energy Security Environmental Stewardship Economic Competitiveness • Diversify our energy mix and • Reduce greenhouse gas emissions • Create a more flexible, more reliable Energy Efficiency and Renewable Energy reduce dependence on petroleum and other negative environmental impacts and higher capacity U.S. energy infrastructure • Improve the energy productivity of the U.S. economy (Billions of Barrels) (MMTC) ($BN) 264 2200 Historical Projected US Petroleum Imports OPEC Non-OPEC 2000 EISA Balance of US Trade Deficit after 67% 33% Impact (2) Petroleum Imports 1800 $302 180 $252 $331 1600 $449 $180 1400 138 1200 $133 115 120 $104 102 98 1000 Other $120 $104 87 79 800 U.S. Department of Energy 42 36 600 Electricity $381 $418 $490 $535 $536 $488 $395 29 400 $335 $326 28 16 13 12 November 2008 200 Transportation Petroleum 0 Iran Iraq Brazil UAE USA Saudi Arabia Venezuela Nigeria Canada Russia China Kuwait Libya Mexico 1950 1960 1970 1980 1990 2000 2010 2020 2030 2000 2001 2002 2003 2004 2005 2006 2007 1Q08A Drew Bond Director of Commercialization and Deployment Proven Oil Reserves (1) US Greenhouse Gas Emissions by Source(3) US Historical Trade Deficit(4) (1) Source: BP Statistical Review of World Energy, June 2008. Note: Includes 152 BN barrels of Canadian Tar Sands. Higher USA figure includes 86 BN barrels and 4 BN barrels in the Outer Continental Shelf and Arctic National Wildlife Refuge, respectively according to EIA. Only top producing nations shown. (2) Difference between 2007 and 2008 American Energy Outlooks largely attributable to the passage of the Energy Independence and Security Act of 2007 signed by President Bush in December 2007. (3) Source: American Energy Outlook 2008, Energy Information Agency. 2 (4) Source: US Department of Labor, Bureau of Economic Analysis, International Transactions Accounts. Note: 2008 annualized from Q1 data. The DOE is divided up into three units concentrating on energy EERE develops a broad range of clean energy technologies as R&D, basic science research and nuclear security shown in the FY08 budget ($ in millions) FY07 National Lab Funding Secretary Samuel Bodman Fuels & Vehicles Vehicles $213 Deputy Secretary Jeff Kupfer Hydrogen $211 Biomass $198 Office of Energy Office of Science Renewable Power Solar $168 Energy Efficiency Civilian Advanced P High Energy Defense Defense Nuclear & Renewable Radioactive Scientific Physics Programs Security Energy Waste Mng’t Computing Wind & Water $59 Electricity Environmental Basic Energy Defense Nuclear Emergency Delivery & Energy Nuclear Physics Management Sciences Proliferation Operations Reliability Geothermal $20 Biological & Workforce Dev. Legacy Infrastructure & Fossil Energy Environmental For Teachers & Naval Reactors Efficiency Management Environment Research Scientists Buildings $109 Fusion Energy Management & Nuclear Energy Counter-terrorism Science Administration Industrial $64 Deployment Defense Programs WIP $282 FEMP $20 The U.S. Department of Energy focuses on energy R&D, basic science research and nuclear security 3 4 EERE spreads the federal R&D funding across multiple Fall 2006 Question to DOE Program Managers: laboratories but works predominately with NREL “How has your program impacted the life of the American taxpayer?” Answer: EERE FY07 National Laboratory Funding by Laboratory EERE FY07 National Laboratory Funding by Program “[Good Answer]…but the ‘Commercialization Valley of Death’ has $250 $120 prevented us from being as effective as we’d like.” $100 SRNL $200 Geo BNL FEMP LLNL OWIP LANL Industrial $80 INL $150 Wind LBNL $ in millions $ in millions Buildings PNNL Biomass $60 SNL Hydrogen ANL $100 Solar ORNL Vehicles NREL $40 $50 $20 $0 $0 ANL LANL NREL ORNL PNNL LBNL LLNL BNL SNL INL SRNL Biomass FEMP Vehicles Buildings Hydrogen Geo Solar Industrial Wind OWIP The historical “Commercialization Valley of Death” refers to Key: ANL, Argonne National Laboratory (IL); BNL, Brookhaven National Laboratory (NY); INL, Idaho National Laboratory (ID); LANL, Los Alamos National Laboratory, (NM); LBNL, Lawrence Berkeley National Laboratory (CA); LLNL, Lawrence Livermore National Laboratory (CA); NREL, National Energy Laboratory (CO); ORNL, Oak Ridge National Laboratory (TN); PNNL, Pacific Northwest National Laboratory (WA); SNL, Sandia National Laboratories (NM & CA); SRS, Savannah River National Laboratory (SC) 5 the quantitative challenge of transitioning between early adopters and mass market penetration 6 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 45
  • 48. Appendix C: Summit Presentations (continued) 3. DOE Commercialization: Energy Efficiency and Renewable Energy (continued) A technological innovation must overcome four challenging transitions before EERE Commercialization Bridges reaching the market. are designed to overcome four primary gaps Public benefit is DOE traditionally hires scientists – not businessmen Talent only fully realized upon product delivery to market Commercializing technologies requires both technical & business skill sets Information Communication is a fundamental prerequisite of commercialization Technical language fails to resonate with the business community Competition is stiff for venture capital funding Capital 1 2 3 4 VCs more likely to fund business plans and prototypes than research papers The Commercialization Valley of Death is not unique to national laboratories Strategy Commercialization Scaling Deployment Delivery Demand Best practices have been developed to foster a culture of innovation Pull The EERE Commercialization Team focuses on building bridges between 1 2 3 4 Applied Scientists and Technology Investors 7 8 Built off a proven venture capital model, DOE’s Entrepreneur in Residence program the Entrepreneur in Residence (EIR) program connects leading scientific and business talent forms the primary plank of the TALENT BRIDGE National Laboratory A technology that works Readily available at national labs Technology A market ripe to sell into Under-deployed due to focus on Market ready for clean energy Structure scientific research $100+ oil, $12 natural gas, $4 gasoline DOE partnership with Venture Capital Firm Partners with VC firm Global climate change EERE provides $100k matching-funds to sponso EIR Sufficient degree of policy predictability and full access to laboratory Entrepreneur Entreprene r or Venture Capital Firm identifies, hires and h Fundable in Residence mentors EIRs Business Pre-Negotiated standard equity share license Venture Capital Entrepreneur Market agreement Firm An entrepreneur who can execute Build business plan Assemble management team 1 2 3 4 Raise capital Discover Evaluate Plan Spinout Build Venture Capitalists favor experienced entrepreneurs 1 2 3 4 with a track record of identifying promising technologies and building markets 9 10 Tailored for entrepreneurs and small businesses, Designed to introduce investors to technology opportunities, the Equity Share License agreement the Technology Commercialization Showcase forms a primary plank of the STRATEGY BRIDGE forms the primary plank of the INFORMATION BRIDGE Traditional License Equity Share License Need Laboratory Up-front license fee Equity share of company, Many EERE funded technologies stall in the “commercialization valley of death” simply because the innovation has Benefit royalties or combination not been clearly communicated to the business community Royalties Structure Points of All terms Percent equity share Challenged EERE Program Managers to identify 8-10 most promising technologies in their portfolio Negotiation Created simple, layman’s descriptions of the innovation opportunity Invited I it d prominent investors to a two day conference showcasing technologies i ti t t t d f h i t h l i Length of 30 pages 17 pages Investors Represented Contract Private Sector Large companies with cash on Small businesses on tight budgets Preference hand Entrepreneurial ventures 1 2 3 4 Built off the Stanford license, the Equity Share License has been pre-negotiated with 1 2 3 4 venture capital general counsels, national laboratory general counsels and DOE general counsel 11 12 46 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 49. Appendix C: Summit Presentations (continued) 3. DOE Commercialization: Energy Efficiency and Renewable Energy (continued) DOE Technology Commercialization Showcase Case Study: Filling the gap between R&D and venture capital funding, Low-cost carbon fiber: increases fuel economy 25% the Technology Commercialization Fund Problem: Carbon fiber, a lightweight replacement for structural steel, is currently too expensive for broad forms the primary plank of the CAPITAL BRIDGE application ($12–$30/lb vs. $5–$8/lb) Need Description: ORNL has developed technologies to reduce the cost of carbon fiber production by utilizing: Innovations struggle to find financing post-research Low costs feedstocks (low-cost textiles and renewable lignin) and and pre-venture capital funding as described by the Advanced processing methods (thermo-chemical stabilization, rapid oxidation, and microwave-assisted Simple, plasma carbonization) “Commercialization Valley of Death” Funds layman’s Laboratory ($MM) description of technology Impact: Structure National Renewable Energy Laboratory (CO) $4.0 Automobiles: Reduces vehicle mass by up to 40% which increase fuel economy up to 25% 50-50 industry matched funds required Wind: Increases blade efficiency through superior properties Oak Ridge National Laboratory (TN) $4.0 Funds restricted to prototype development, Stabilization/Oxidation Carbonization demonstration and deployment – not further Lawrence Berkeley National Laboratory ( ) y y (CA) $ $1.5 IP Position: 3 patents issued, 5 patents filed, scientific research Designed to complement angel Pacific Northwest National Laboratory (WA) $1.5 7 invention disclosures investment or early stage corporate product Sandia National Laboratories (NM) $1.4 Technology Status: Precursor development Los Alamos National Laboratory (NM) $0.7 4 processes reduced to practice: $0.7 Decision criteria Argonne National Laboratory (IL) – Microwave-assisted plasma carbonization – Textile-based precursors Finished Fiber Potential market opportunity Lawrence Livermore National Laboratory (CA) $0.5 Sizing Surface Treatment – Thermo-chemical stabilization Likelihood of commercial success Microwave-assisted plasma processing, shown in photograph, – Plasma oxidation could replace conventional stabilization, oxidation, and Management team Direct contact Time to availability: 3-5 years carbonization processes represented in boxes at top of illustration DOE priorities to inventor Capital Needs: A 2-4MM lb/year carbon fiber plant 1 2 3 4 Private sector partners 1 2 3 4 is expected to cost $18M–$22M The Technology Commercialization Fund is a carrot to attract private sector partners Dave Warren | ORNL | Phone: 865-574-9693 | WarrenCD@ORNL.GOV 13 to examine the national laboratories’ intellectual property portfolio 14 The Commercialization Team pursues an aggressive schedule to The EERE Commercialization Team advises many of the accelerate the deployment of advanced energy technologies Department’s public-private initiatives 2007 2008 2009 Commercial-scale integration and demonstration Deployment Programs Announce Entrepreneur-in- Draft Solicitation Solicitation EIRs working in Lab Hawaii Clean Energy Partnership Residence Open Selectees Greensburg, KS Senior Executive Draft Job Solicitation Interviews SES Senior Advisors onboard New Orleans, LA Service Description Open TALENT Federal Energy Management Showcases Summer Summer Summer Associates Recruiting Associates at Recruiting Associates at National Parks Service DOE DOE National Marine Sanctuaries Commercialization Recruit Commercialization Fellows at NREL Fellows Policy Proposals Technology Quasi-Governmental Agency for Clean Energy Financing Commercialization Prepare Materials Distribute Materials Prepare Materials Distribute Materials INFORMATION Showcase Event Event Advanced Research Projects Agency – Energy (America Competes 07 § 5012) Create Website Create Website Architecture/ Tax Policy Website Architecture Draft Initial Material Website Live Technology CAPITAL Solicitation Evaluate Commercialization Open Proposals Fund Projects Fund Loan Guarantee Program (EPAct 05 Title XVII) Advisory Roles Innovation Study Market Research Solicitation Open Innovation Study DOE Technology Transfer Policy Board (EPAct 05 § 1001) STRATEGY Commercial-Scale Cellulosic Biorefineries (EPAct 05 § 932) Lab Relationships Lab Visits Lab Visits Freedom Prize (EPAct 05 § 1008) 1 2 3 4 15 16 For further information please contact the Commercialization Team • Carol Battershell, • Drew Bond, • Wendolyn Holland, @ 17 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 47
  • 50. Appendix D: Stages of Investment Sustainable Development Analysis of Investment Styles Investments The sustainable development investment opportunity is broad and, as such, comprises a wide range of investment styles across various stages of a company’s development: Buyout / Style Venture Capital: New Clean/Environmental Technologies Clean Energy Infrastructure Expansion / Existing and New Technologies Angel / A B/C D / IPO PIPES Technology Stage First Project Identification & Pilot Demo Project Portfolio of Commercial Finance Business Plant Plant Development Assets Scale Plant (Infrastructure) Formation • Clean technology venture capital will require a significant amount of additional private equity to take new (and existing) technologies that are proven in pilot and demonstration plants to commercial scale • While project development permitting risk is typically considered arbitrary and difficult to judge, macro trends supporting the clean energy infrastructure build out (i.e. renewable portfolio standards and cap & trade regimes) can help to mitigate this permitting risk • The later stage private equity clean energy opportunity is more limited, but will grow over time as more clean energy infrastructure is built. Consolidation and buyouts are already beginning to occur, particularly in more mature markets in Europe Sustainable Development Analysis of Investment Styles – Risk and Return Profiles, Financing 1 Investments Buyout / Style Venture Capital: New Clean/Environmental Technologies Clean Energy Infrastructure Expansion / Existing and New Technologies Angel / A B/C D / IPO PIPES Technology Stage First Project Identification & Pilot Demo Project Portfolio of Commercial Finance Business Plant Plant Development Assets Scale Plant (Infrastructure) Formation High Medium Low to Medium Technology selection Technology scale up risk Financing risks Site selection Off-take agreements Valuations Business formation from “bench scale” to Performance Permitting (i.e. Power Purchase Growth potential / Initial management integrated demonstration guarantees Securing equipment Agreements or incremental selection scale Site and permits Contractors’ cost “PPA”s) development Risks Execution strategy Engineering, design Engineering & design estimates Engineering, Capital structure Management Additional scale up: Organizational Procurement and Construction cost structure and Construction (“EPC”) O&M management contracts Performance Financing Supply agreements & logistics Project debt & equity financing Hedging 40%+ IRRs 25%-30%+ IRRs 12% - 20% IRRs, 25%+ IRR Returns New “disruptive” technologies, such as: Development promote: depending on Growth Solar thin film, other non crystalline technologies Repayment of costs at financial close cash flow volatility Equipment/services 2nd generation biofuels, including cellulosic ethanol Equity promote to developer – i.e. low (landfill Generation/develop. Coal gasification; carbon capture and sequestration Growth: wind, solar thermal, geothermal, gas); high $100bn total market Battery technology (auto) biofuels, waste-to-energy, hydro (biofuels) cap all clean energy Fin. 100% Equity 70%-100% Equity 70% - 80% Debt Varies 2 48 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 51. Appendix E: Federal Register Notice for the EPA-Venture Capital Community Summit Federal Register / Vol. 73, No. 214 / Tuesday, November 4, 2008 / Notices 65603 Subsegment Waterbody name Pollutant 090106 ................................. Holmes Bayou—From the Pearl River to the West Pearl River (scenic) .................... Mercury and Turbidity. 090107 ................................. Pearl River—From Pearl River Navigation Canal to Holmes Bayou .......................... Mercury. 090201 ................................. West Pearl River—From Headwaters to confluence with Holmes Bayou (scenic) ..... Mercury and Turbidity. 090202 ................................. West Pearl River .......................................................................................................... Turbidity. 090202–5126 ....................... Morgan River—From Porters River to its confluence with Pearl River (scenic) ......... Mercury. 090203 ................................. Lower Bogue Chitto—From River Navigation Canal to Wilsons Slough ..................... Mercury. 090204 ................................. Pearl River Navigation Canal—Below Lock No. 3 ...................................................... Mercury and Dissolved oxy- gen. 090205 ................................. Wilson Slough—Bogue Chitto to West Pearl River ..................................................... Mercury. 090206 ................................. Bradley Slough—Bogue Chitto to West Pearl River ................................................... Mercury. 090207 ................................. Middle Pearl River and West Middle Pearl River—From West Pearl River to Little Mercury and Dissolved oxy- Lake. gen. 090207–5112 ....................... Morgan Bayou—Headwaters near I–10 to confluence with Middle River ................... Mercury. 090301 ................................. Pushepatapa Creek ..................................................................................................... Fecal coliform. 090401 ................................. Bogue Lusa Creek ....................................................................................................... Fecal coliform. 090501 ................................. Bogue Chitto River—From MS State Line to Pearl River Navigation Canal (scenic) Mercury and Turbidity. 090502 ................................. Big Silver Creek ........................................................................................................... Fecal coliform. 090505 ................................. Bonner Creek ............................................................................................................... Fecal coliform. 090506 ................................. Thigpen Creek .............................................................................................................. Fecal coliform. EPA requested the public to provide guarantees, grants, revolving loan funds) The Summit is open to the public. EPA with any significant data or to encourage venture capital investment Registration before the Summit is information that might impact the 29 in environmental technology requested. Any member of the public TMDLs in the Federal Register Notices: commercialization. The Summit will wishing to make a presentation at the Volume 72, number 137, page 39420 bring together senior career EPA Summit should request to do so (July 18, 2007) and volume 73, number managers (Deputy Assistant beforehand. Presentations should be 22, pages 6178 and 6179 (February 1, Administrators and Deputy Regional limited to 3 minutes or less. Time 2008). The comments which were Administrators) with senior venture allotted will be shortened if several received, the EPA’s response to capitalists who were part of the people request to speak. comments, and the TMDLs may be NACEPT Venture Capital Study. A The results of the Summit will be found at report will be produced from the discussed the following day (November water/npdes/tmdl/index.htm. Summit that will be a companion to the 13) in a NACEPT forum on future Dated: October 28, 2008. NACEPT Venture Capital Report; both directions for EPA to be chaired by the Larry D. Wright, will be given to the next EPA Administrator. This forum will be Acting Director, Water Quality Protection Administration, the venture capital part of the NACEPT Council 20-Year Division, EPA Region 6. community, technology developers, Meeting on November 13 and 14, for [FR Doc. E8–26262 Filed 11–3–08; 8:45 am] state and local governments, which there will be a separate Federal BILLING CODE 6560–50–P Congressional members and staff, Register notice. academia, and members of the public. Special Accommodations: EPA The Summit will be open to the public. welcomes the attendance of the public ENVIRONMENTAL PROTECTION DATES: The Summit will be held on at this Summit and will make every AGENCY November 12, 2008, beginning at 10 effort to accommodate persons with [FRL–8737–6] a.m. and adjourning at 4:30 p.m. disabilities. If you require special Registration is at 9:30 a.m. Times noted accommodations due to a disability, EPA-Venture Capital Community are Eastern Time. please contact Linda Parham at Summit: Exploring Programs to at least seven Commercialize Environmental ADDRESSES: The meeting will be held at days before the meeting. Technology the Ronald Reagan Building and International Trade Center, 1300 FOR FURTHER INFORMATION CONTACT: To AGENCY: Environmental Protection Pennsylvania Avenue, NW., register for the Summit, request time to Agency. Washington, DC, in the International make an oral public comment at the ACTION:Notice of meeting. Gateway Room on the Mezzanine. Summit, and for details on how to provide written public comments, SUMMARY: The Environmental Protection SUPPLEMENTARY INFORMATION: The please see the National Center for Agency (EPA) will hold an EPA-Venture Venture Capital Report is available Environmental Research’s Web site at Capital Community Summit: Exploring electronically through http:// Programs to Commercialize A hard copy of the venturecapital. Questions about the Environmental Technology to follow up report can be ordered from the National Summit and written comments should the National Advisory Council for Service Center for Environmental be submitted to Paul Shapiro at Environmental Policy and Technology Publications by requesting document (NACEPT) report on ‘‘EPA and the number EPA/600/R–08/043 through the Venture Capital Community: Building Web site ordering system at http:// Dated: October 28, 2008. Bridges to Commercialize Technology’’ or by calling 1– William H. Sanders III, (April 2008). The report recommends 800–490–9198. The agenda for the Director, National Center for Environmental that EPA create programs, similar to Summit can be found electronically Research. those of the U.S. Department of Energy, through the EPA Web site at http:// [FR Doc. E8–26263 Filed 11–3–08; 8:45 am] to provide financial support (e.g., loan BILLING CODE 6560–50–P Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 49
  • 52. 50 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology
  • 53. Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology 51
  • 54. 52 Report of the EPA–Venture Capital Community Summit: Exploring Programs to Commercialize Environmental Technology