Mark Huang was a venture capitalist with GE’s Energy Financial Services group when he got called for Army Reserve military service in Iraq. After serving for about a year, he was ready for a deployment of a different kind—the deployment of capital for cleantech.

“I believed cleantech was a high-growth area,” he said. “The drivers are as strong as ever. It’s exciting.”

Working with people in strategic marketing, Mr. Huang proposed a joint project with the Energy Financial Services and Technology Lending groups, which are both units under GE Commercial Finance. The initiative—announced in January—would specifically finance clean and renewable energy technologies, as well as technologies for cleaner and more efficient energy generation and distribution.

Since then, the initiative has led to the funding of startups such as Ocean Power Delivery, which has technology to reap electricity from ocean waves; A123Systems, which makes a high-powered battery for power tools; and Agile Systems, which makes efficient motor technology (see GE Backs Wave Power, VCs Charge Up Battery Firm).

Mr. Huang, now a senior vice president for technology lending at GE Commercial Finance, spoke with RedHerring.com about the opportunities and challenges in cleantech.

Q: Why are you so interested in cleantech?

A: The sector, how we define it—energy, water, transportation, and industrial plays—is definitely growing. Customers need better, cleaner solutions. If you can make things efficient, it saves money and lowers pollution. You have rising emissions standards in all parts of transportation, and higher oil prices. You have an awareness—at the corporate level and in the individual consumers—[that they want] to be green. And what makes it so compelling is, with many of these technologies, the costs and efficiencies are going down.

Q: There are plenty of other VC firms investing in cleantech right now. How do you think this GE initiative is able to get an edge, considering its relatively late start?

A: What makes our business model unique is that many of these companies can get synergies working with GE on Ecomagination. Some of the technologies on the IT side are looking at financing synergies there with the different ways GE can touch the zero-energy home, like in appliances and smart metering. And one of the first things we do when we close is make the introductions, and see if the technologies may be complementary. I think it’s unique.

Q: So are you doing strategic investing for GE, rather than operating like a traditional VC?

A: Not at all. We measure as a separate profit and loss on making good returns on invested capital. We’re not a strategic investor; we’re not an extension of business development. We compete separately on VC and debt financing. That said, if companies have a technology that would have applications in other parts of GE, it’s a win-win-win. It’s gravy. But it’s not required.

Q: What are GE’s limitations in this area?

A: Well, our strike zone is typically $5 million and under, which is relatively small. I like to have at least one institutional round closed before we go in. We also prefer something that has a bit of a shorter time frame. Five to 10 years is long, more R than D. We’re more focused on the business model. If it’s not commercial, it’s on a clear path to be commercial in a few years. We prefer later-stage, where beta projects are completed and they’re building a big factory. We’re a nice fit in a company at that stage, when they need large amounts of capital to fund production.

Q: Clean technologies face some unique challenges. Other VCs have said they tend to be very infrastructure- and capital-intensive, with slow adoption rates (see VCs Are Wary of Cleantech). How are you dealing with that?

A: In energy, you do have a longer adoption rate sometimes, and compared with other technologies—like software and IT—it is capital-intensive. It’s a unique issue in the evaluation of energy technology and water. I think when you evaluate a company’s value proposition, you evaluate debt differently than most VC investors, and you take that into consideration. And some of the technologies may have a faster adoption rate. Energy actually can capture some technologies in IT—hardware and software, for example.

Q: In February, you told Red Herring that you were looking to invest in water technologies (see Next Cleantech Star: Water?). Are you close to making an investment?

A: I’d say the bulk of my time [is spent on] energy technologies, and a lot of it on solar. After that, transportation—hybrid vehicles, components, batteries, motors. We haven’t entered a term sheet for water, but it’s an area that we continue to look at. I’m looking [for opportunities] in the whole value chain—membranes, filtration, purification. But renewable energy and transportation has taken up a good part of our time the last few months. I’m an energy guy learning about water, as you quoted me as saying. It’s just having enough time.

Q: If you’ve been spending so much time on solar power, why haven’t you announced any solar investments?

A: While our group has not made any solar investments yet, we have chased down a lot of proposals. But a lot of money is going into the space, and it’s competitive, so we’ve lost term sheets. First of all, solar’s growing real fast, and it’s a high-growth, real industry. Right now, it’s a sold-out industry. Second, there’s a lot of room for technology innovation, so it’s a great space for venture. But some companies have grown so fast so quickly, they are way beyond VC. Quick growth means they are very profitable and way beyond needing our product.

Q: Tell us about other challenges you face investing in cleantech.

A: It’s a different business model, with many different parts of the financing chain. In renewable energy, many technologies depend on government programs—subsidies—and it’s a unique challenge. Also, market adoption is capital-intensive. Another challenge with renewable energy like wind and solar: you get electricity when the wind blows or the sun shines, but the average consumer expects electricity 24/7. So there are some unique challenges, but unique opportunities as well.