Slowing rush to invest in clean tech could hurt major Sacramento area industry

Published: Sunday, Apr. 28, 2013 - 12:00 am | Page 1D
Last Modified: Sunday, Apr. 28, 2013 - 7:28 am

Sacramento's leaders are counting on clean technology – the business of solar and wind energy, "smart" buildings and more – to help lift the region out of the economic doldrums.

Investors have become more skeptical. They're pouring less money into clean-tech ventures these days following some spectacular flops. One of the nation's most influential investors – Sacramento's own California Public Employees' Retirement System – calls clean-tech flat-out unprofitable.

"I have to say our experience is that this has been a noble way to lose money. And we're not here to lose money," said Joe Dear, CalPERS' chief investment officer, in closely watched remarks at a clean-tech conference last month. "We have dialed back."

Industry backers say the clean-tech sector remains essentially healthy – and is continuing to make a difference in the Sacramento area.

SARTA, the Sacramento Area Regional Technology Alliance, said the area's clean-tech companies added 1,000 jobs last year. Hundreds of additional jobs are expected to materialize through a nonprofit program that will invest $100 million in retrofitting Sacramento buildings.

While some segments of clean tech are struggling, others are prospering. One hot area is technology for improving energy efficiency in buildings. Strong demand from building owners has boosted companies such as Folsom's SynapSense Corp., which makes wireless systems for managing temperatures inside data centers.

"You have to peel the onion a little bit," said Bart Tichelman, chief executive of SynapSense. "You have to understand what sectors are doing better than other sectors."

Still, the signs of stress are unmistakable. Cleantech Group, a San Francisco market researcher, said worldwide venture capital investments fell by 33 percent last year, to $6.5 billion.

Sheeraz Haji, Cleantech chief executive, said the industry slump is an "overwritten story" but he added, "The state of things is mixed. You've had some failures."

The most notorious is Solyndra, the Silicon Valley solar-energy company that collapsed in 2011 after receiving a $535 million stimulus loan guarantee from the Obama administration.

Solyndra isn't the only failure in the solar industry, which became glutted with capacity over the past few years. Chinese solar-panel manufacturers, backed by their government, grossly overexpanded, depressing prices.

"Solar has been the graveyard," said Gary Simon, an official with SARTA.

In the Sacramento area, two publicly traded solar companies have warned investors they're in danger of going under.

Roseville's Solar Power Inc. and Premier Power Renewable Energy Inc. of El Dorado Hills, in filings with the Securities and Exchange Commission, have said they are experiencing major cash-flow problems and might not be able to continue as a "going concern."

Solar Power lost $25 million last year and saw revenue fall 28 percent. It has cut its U.S. workforce in half, to a dozen employees. In its latest SEC filing, the company said its Chinese parent LDK Solar, which owns 70 percent of its stock, is having cash shortages of its own.

Premier Power lost $8.9 million in the first nine months last year; sales fell 22 percent. This month it told the SEC it hasn't yet finished its 2012 annual report. Among the obstacles were "unresolved issues" with its accounting firm "over past-due fees."

Officials with both companies couldn't be reached for comment.

'Great ideas' may not be enough

The state of the clean-tech industry is important in Sacramento. Partly because of the research spilling out of UC Davis, elected officials and other leaders have targeted clean tech as a force for diversifying an economy still largely dependent on government.

SARTA's CleanStart initiative says the industry added 1,000 jobs in greater Sacramento last year, bringing total employment to 3,200. The job numbers include some traditional employers, including heating and cooling contractors and the 29-year-old Siemens light-rail plant.

Officials with CleanStart said the job growth is a strong signal that the industry, despite some hiccups, is continuing to grow. Money is still flowing in, albeit more slowly, as investors get choosier about which sectors they back.

"The air isn't completely out of the balloon," said Simon, chairman of CleanStart and a clean-tech entrepreneur.

As far as CalPERS is concerned, however, the industry is a major disappointment.

CalPERS has recorded a 0.8 percent overall loss since 2005 on a handful of clean-tech investment funds to which it has committed $1.23 billion, said spokesman Brad Pacheco.

Its single biggest commitment, totaling $465 million, is to the 6-year-old Clean Energy & Technology Fund LLC. That fund has posted a 9.7 percent loss.

Pacheco said CalPERS is continuing to fulfill its funding commitments to investment partners. But the pension giant isn't making any new commitments to clean tech, he said.

"These are great ideas," Dear said at last month's conference in Santa Barbara, sponsored by the Wall Street Journal. "Just because it's a good idea doesn't make it a good investment."

One of CalPERS' clean-tech partners defended the business. Speaking at the same panel discussion, Alan Salzman of VantagePoint Capital Partners in San Bruno said clean tech "is in a bit of a funk" but will turn around.

"These things go in their waves," he said.

CalPERS' $49.5 million investment in Salzman's fund has earned a 1.9 percent profit.

Laws drive clean-tech demand

Certainly some other investors are still confident. MidAmerican Renewables, a company controlled by investment guru Warren Buffett, announced in January that it will buy a pair of giant solar-energy plants being developed in Los Angeles and Kern counties for a reported $2 billion.

When completed, the plants will be the largest solar projects in the world and will supply power to Southern California Edison – an example of how government mandates to promote clean tech remain an important force.

State law requires Edison and other California utilities to get one third of their power from renewable sources by 2020.

Such requirements create powerful incentives to invest in geothermal, solar and other renewable energy sources.

Earlier this month, production of wind power in California hit a record of nearly 4,200 megawatts – the equivalent of four big conventional power plants – according to the state's grid manager, the California Independent System Operator.

The ISO says about 18 percent of the plant capacity on the the state's electricity grid comes from renewable energy. About half the state's renewable energy comes from wind power.

Yet the unpredictability of public policy can weigh a sector down. When it looked as though federal tax credits for wind power were going to expire late last year, Haji said investors pulled back from the sector.

And in spite of significant tax subsidies, the ethanol business continues to struggle with overcapacity issues. Pacific Ethanol Inc. of Sacramento turned a profit in 2011 but lost $19 million last year on revenue of $816 million. One of its four production plants, in Madera, has been idled indefinitely.

Call The Bee's Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.

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