Where are Energy Venture Capitalists Investing?

Venture Capital in the Energy Industry
Venture capital (VC) is an important financial tool for innovative start-ups in many industries. In recent years, increasing amounts of venture capital have been invested in new energy technologies via newly emerging, dedicated industry VC funds. Although government financing continues to provide the lion's share of investment dollars in new and emerging energy technologies, industry experts are starting to see more and more investment activity from private sources. Venture capitalists have invested in everything from distributed generation to online energy exchanges, and many utilities are joining them to cultivate corporate earnings growth.

Venture investing in energy-based technologies and projects began about seven years ago. Unlike government financing, which focuses on developing technologies for eventual application, venture dollars are invested for purposes of financial return. Venture capital is not R&D funding; it is really business expansion capital.

Since the 1960s, venture capitalists have invested in young, rapidly growing companies through purchase of equity securities to help develop new products and services. Venture capitalists often take high risks in anticipation of high rewards.

As deregulation and energy industry restructuring have opened up prospects for high-growth technology companies in the utility industry, private partnerships and closely-held corporations funded by other corporations, pension funds, endowment funds, foundations, and other investors have begun to take notice and establish funds focused exclusively on technology companies servicing the utility industry. Today, a small number of such firms devote themselves solely to energy investments.

Utility companies, as well, see the opportunities and recognize the imperatives. Facing competition, tighter margins, and lower revenues in their traditional businesses, they realize that they must find new ways to raise income and must look to new technologies to become more efficient. Many conventional utility companies have set up venture arms to finance high-growth companies such as Internet exchanges for oil, gas, and power; utility bill presentment and consolidation; and other business-to-business e-commerce services. In addition to the Internet, many dollars are being poured into companies that develop alternative energy sources, particularly fuel cells and other types of distributed generation.

Compared to investment in the Internet, venture capital investment in energy technologies is modest. However, in the past five years, a noticeable surge in venture funding has occurred.
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Is Cellulose Ethanol a Viable Energy Alternative?

The last few decades have seen rapid growth in the consumption of the fossil fuels such as oil, gas, and coal. Production, on the other hand, has not increased to match the rise in consumption, primarily due to limited availability of these resources. The situation has been exacerbated by political instability in the Middle East and the catastrophic hurricanes of 2005, which led to sharp rises in the prices of these resources, and, in some cases, acute scarcity. Industrialized nations that are dependent on other countries for oil have been severely impacted and as a result, the U.S. government, along with state governments and the energy industry, has ramped up its support for alternative energy sources.

Given its environmental and economic benefits, together with the vast availability of feedstock, ethanol has taken on prominence as one of the most favored alternatives to fossil fuel.

An in-depth analysis of the prospects for the use of cellulose ethanol as a fuel includes a comprehensive analysis of how cellulose ethanol is produced, its cost-effectiveness, the growth drivers promoting the use of ethanol over other fuels, the barriers to market, and much more.

Focus on the steps government is taking to promote ethanol use, including tax incentives, funding for research and development, funding for technology, and other measures.

The basics of ethanol production; how ethanol differs from other fuels, and the benefits to consumers from using ethanol.

A complete source analysis of this promising young industry and the market potential of ethanol as an alternative fuel source.
SOURCE: Energy Business Reports

UNDERSTANDING ENERGY HEDGE FUNDS

Hedge funds are private investment funds charging a performance fee and typically open to only a limited range of qualified investors. In the United States, hedge funds are open to accredited investors only. Because of this restriction, they are usually exempt from any direct regulation by regulatory bodies. Hedge funds are credited to Alfred Winslow Jones for their invention in 1949.

Speculative energy trading has a strong future, but it will not be the traditional utilities and energy merchants that will create and maturate that market. While much of the energy industry has returned to the relative safety of trading around assets and marketing activities, energy markets have become characterized across all energy commodities by increasing prices and price volatilities. Oil markets are booming and were not at all impacted by the Enron collapse.

Energy trading will now be dominated by more sophisticated and well-capitalized financial players such as hedge funds and investment banks, as well as by multinational energy companies with a global footprint, while electric utilities are more marginalized to niche markets. Evidence of the fund?s influence on oil markets has been the 55% growth in open interest on Nymex crude, heating oil and gasoline contracts over last year and the more violent and volatile intraday trading moving during recent months. These market drivers are bringing greater financialization and maturation to the energy complex.

According to research, it can be established that there are over two hundred known hedge funds active in the energy sector with many more information. To put this in some context, there are more than 8,100 hedge funds globally managing over $1 trillion in assets today. Energy is still a relatively small but rapidly growing component of their universe. There are many factors responsible for this change in hedge fund strategy. For one thing, traditional equity returns this year have been flat so that many funds are not making the kinds of returns expected for this type of investment.

SOURCE: Energy Business Reports