DETROIT – Michigan’s NextEnergy wants to make Michigan the alternative energy epicenter of the United States, in part by investing in promising start-up companies that, say, will produce future fuels that don’t come from petroleum products.
In January, the alternative energy R&D incubator at Wayne State University in Detroit hired DTE Energy?s deal finder, Ryan Waddington, to direct its Entrepreneurial programs. Waddington is now responsible for developing and executing NextEnergy?s business accelerator services program and its seed and venture funding activities.
Waddington spent more than six years at DTE where he identified and evaluated clean and alternative energy technology investment opportunities and managed investments in the Michigan corporation?s $100 million venture capital fund. Waddington also managed several advanced energy technology demonstration projects, including a systems dynamics project to model the impact of distributed generation on the electric grid, and a systems thinking initiative around energy technology and sustainability as part of a corporate-wide long-term strategy development project.
He’s very excited about Michigan’s prospects to develop and attract alternative-fuel technology companies that will help the state’s auto industry convert from producing gasoline internal combustion vehicles to environmentally friendlier hydrogen-powered cars and trucks. But that?s a long term goal. Short term, he wants to wave the alternative energy flag to catch the attention of national Venture Capital firms.
“One of the things I’m going to try to do is encourage Michigan and Midwest venture investors to look at alternative energy as a focus,” he said. “I think there’s still a bias towards life sciences and IT. Alternative energy is not even on the radar screen. I’d like folks to take another look because I think they’ll be missing a huge opportunity if they pass it up. There’s an incredible amount of new money coming into the space.”
But not a lot of that private money yet has trickled down to Michigan. So the state has stepped in by backing incubator projects like NextEnergy, and this year by earmarking $396 million to invest over the next two years in promising Michigan technologies that could include those in alternative energy. Michigan Gov. Jennifer Granholm dubbed it the 21st Century Jobs Fund.
To a much lesser degree, NextEnergy has stepped in to provide gap funding as well as to help Michigan entrepreneurs find partnerships, and experienced management. Michigan entrepreneurs often get stuck, he said, and need to rely on others to get to the next level.
Waddington?s other role is to tap his extensive network of VCs nationwide from his golden rolodex at DTE, ?To bring that capital to bear for Michigan entrepreneurs. There?s not a lack of entrepreneurial initiative or tech ideas or quality people in Michigan. There’s just a lack of financial support.”
Scrambling to find investment dollars is not what Waddington had to do at DTE, which serves 2.2 million electric customers in Southeast Michigan, as well as 1.3 million natural gas customers statewide. At DTE, Waddington was one of about 11,000 employees. At NextEnergy he is one of 10. At DTE, he looked for investment opportunities nationwide. At NextEnergy, statewide.
“At DTE, it was a challenge to find a good deal that we could invest from $2 million to $4 million into. Here we’re dealing with startup numbers.”
What does Michigan?s alternative energy guru see as hot investment opportunities in the state?
?I think the best near-term opportunities are in alternative liquid fuels, such as ethanol and biodiesel,? Waddington said. ?From a technology standpoint, there are two key technology platforms emerging for the production of alternative fuels – one around gasification and gas-to-liquids, and the other around enzymatic conversion.
?In gasification and gas-to-liquids processes, solid biomass feedstocks like wood are converted into gases with heat and then into liquid hydrocarbons, like ethanol, with high pressure catalysis. Gasification can also be used to produce chemicals or electric power. Enzymatic conversion involves the use of biological processes to convert solid feedstocks into liquid fuels. Both platforms can also be used to extract hydrogen for fuel cells.?
While the auto industry may eventually power all its vehicles with hydrogen in fuel cells, this exotic technology remains more a dream than a promise. Other hot prospects for NextEnergy are micro-power and distributed generation, hybrid-electric vehicle powertrains and advanced batteries.
?There’s a whole bunch of technologies emerging today. A lot of Investment opportunities.?
Biomass also is a big investment target for Indiana, where Gov. Mitch Daniels announced in March that Louis Dreyfus Agriculture Industries LLC plans to build the world?s largest biodiesel plant near Claypool. Indiana is the fifth largest corn state and the fourth largest soybean state and with the facilities under construction, the state will produce an additional 400 million gallons of ethanol annually and 95 million gallons of biodiesel. Indiana?s goal is to produce a combined 1 billion gallons of ethanol and biodiesel annually.
With skyrocketing oil prices, the value proposition for biodiesel and other alternative energy fuels is improving almost daily.
?There?s a realization now that it?s time to change energy sources and at the same time see where the investment opportunities are,? he said. ?It?s one area that Michigan has some technology leadership, from companies like GM and Ford. Six years from now, we might see 2005-2006 as the economic turning point for Michigan.?
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Some macro drivers also bode well for the potential of energy investments, Waddington said. Six years ago, the energy technology space was fairly small. Few Venture Capitalists put much money into it. Now there are upwards of 150 VC funds globally focused on clean technology, with some 65 percent investing in alternative energy. He thinks some of that money is bound to flow Michigan?s way.
?There?s been improvement over the past several years. But there?s always room for more. The numbers sound big, billions of dollars, but when you compare it to the size of the VC industry, the dollars invested in energy research the value of the tax incentives provided by the federal government remain very small.?
Should the federal government make more of a commitment to developing clean and alternative technologies? Waddington, a Venture Capitalist and supporter of the free market, said that?s harder for him to endorse.
?But I do believe alternative energy technology should be allowed to play on a level playing field, and if that means giving more subsidies to alternative energy to raise them to the same level as the subsidies given fossil fuels, than so be it.?
This story was written by Mike Brennan, Editor & Publisher of Mitechnews.Com. For more information, click on www.mitechnews.com.
