The European Union on Friday set binding targets that require all member nations to generate 20 percent of their electricity from renewable sources by 2020. The EU also mandated that member states replace 10 percent of their transportation fuels with biofuels within the same time frame.

The targets were introduced as part of a EU directive that analysts predicted will provide a significant boost to companies developing clean-energy technologies. As more individual states consider so-called renewable energy standards in the United States, the EU targets also could be the harbinger of more such standards throughout the world.

“This will significantly stimulate the market,” said John Balbach, a managing partner at the Cleantech Venture Network. “It sends a very strong signal of long-term and consistent policy direction, and long-term and consistent policies are what are needed to address the market.”

That’s because long-term targets like the EU’s will help assure investors that early-stage technologies will have a market, said Michael Liebreich, CEO of London-based research firm New Energy Finance.

The EU also agreed to reduce greenhouse-gas emissions down to 20 percent below 1990 levels by that time—and to reduce emissions by 30 percent if other countries agree to the same goal. Member states also agreed to increase energy efficiency to save 20 percent of energy consumption compared to 2020 projections.

But renewable-energy standards are not accepted everywhere. The United States has no federal standards, for instance, but 21 states and WashingtonD.C. have adopted their own targets. Earlier this month, Minnesota set a goal of getting 25 percent of its electricity from renewables by 2025, and states such as Oregon and Kansas are considering standards as well.

Opponents say such standards will raise the price of electricity for consumers, a fact that is likely to spark fierce debates over the costs of renewable energy, particularly in the United States where consumer costs get more scrutiny than in Europe.

But politicians seem to like renewable-energy standards and cleantech proponents expect to see more of them.

Bank of America said it will plunk down a cool $20 billion to finance green business activities over the next decade.

Cleantech industry watchers said the news, announced late Tuesday, represents a major stride into the mainstream.

“This is a signal that we’re seeing a mainstreaming of what was considered a little outlying voice just a few years ago,” said Robert Wilder, chief executive of WilderShares, which manages three energy indices.

“One of the biggest banks giving extra consideration to products or projects that are lower-carbon is one of the greatest things we could see happen,” he added. “And putting $20 billion on the line—not chump change—shows they truly believe in their marrow that they can make money by being green.”

The initiative includes $18 billion to provide financing and advice on matters like green real estate projects, and development and adoption of energy-efficient or low-carbon technologies.

Another $2 billion will go toward consumer products, such as a reduced interest rate for mortgages for energy-efficient homes and an eco-friendly credit card offering incentives for green purchases and donating money to an environmental organization.

Bank of America also said it will start trading carbon emissions credits to help its clients offset their carbon use, and will give “favorable consideration” to provide loans for clients creating and adopting environmentally sustainable products, services, and technologies.

The initiative is significant because it could help clean technologies overcome a significant barrier: Even if a technology can bring buyers a return on their investment, they need to be able to finance the initial costs.

Getting a loan for solar projects is still fairly unusual, so most banks aren’t prepared to offer low-interest loans for those projects, Mr. Wilder said.

“If it’s not in their book, sometimes they will say no or offer a higher rate,” he said. “Now this bank is predisposing itself to say, ‘Solar? We can do that.’ It’s not sexy, but these are real-world rubber-meets-the-road issues. Mundane details like the inability to get a loan can kill a project.”

Despite the announcement, shares of Bank of America fell $0.35 to close at $50.59 in Friday’s trading.

Overcoming Barriers

This initiative eliminates the question about whether or not funding will be available for these types of projects and also will help overcome the barrier of “just getting people thinking about it,” said Jonathan Klein, founder of the Topline Strategy Group.

“It creates incentives for people to start considering these things, and helps create awareness among the developer and home buyer community that these things are available,” he said.

Joel Makower, executive editor of GreenBiz.com, said the Bank of America news is a sign that mainstream banks are ready to support clean technologies with much-needed capital and with their power—through the web, monthly statements, and direct mail—to spread the green message to their clients.

“This is extraordinary,” he said. “For clean technologies to become a mainstream part of the marketplace, we need the full spectrum of financial institutions. The VC community has been engaged increasingly for years, but the mainstream banking community has been slower to the gate. In some ways, this completes the financial picture.”

Of course, Bank of America is not the first financial institution to go green. In November, San Francisco’s New Resource Bank partnered with SunPower to provide financing for solar projects.

Right Direction

But BofA’s is the largest such announcement so far.

“It’s clear with $20 billion, this is not a token gesture,” Mr. Makower said.

Peter Liu, chief executive of New Resource Bank, said the Bank of America announcement is “a great development” for the company’s corporate and retail clients, while New Resource Bank focuses more on startups and entrepreneurs.

Clean energy is poised to skyrocket into a $226 billion worldwide market by 2016 from the $55 billion it occupied in 2006, according to a Clean Edge report on Tuesday.

In 2006, the market jumped 39 percent to $55 billion. Companies focused on biofuels and wind saw the most revenue, raking in $20.5 billion and $17.9 billion, respectively. Solar electric companies made up $15.6 billion in revenue, and fuel cell companies sold $1.4 billion.

“Solar and wind represented $2.5 [billion] and $4 billion industries in 2000,” said Ron Pernick, a principal at Clean Edge. “What we see is annual growth rates more akin to computer and wireless growth rates than the more staid and steady energy sector. That means that they need to manage growth in a different way.”

The report is the latest forecast for stellar growth in the clean energy industry. According to Clean Edge, mainstream acceptance of climate change, a new level of commitment from U.S. politicians, significant corporate investments, and growing U.S. venture investments in energy technologies have played into the growth.

According to Rodrigo Prudencio, a principal at energy technology venture capital firm Nth Power, U.S. venture investments in energy technologies nearly tripled to more than $2.4 billion in 2006, making up 9.4 percent of total venture investments.

Biofuels grabbed $813 million, with distributed energy including solar power and fuel cells raising $580 million, and energy intelligence technology raising $476 million.

Mr. Prudencio said investors probably don’t need to worry about an energy tech bubble because the median deal size grew only slightly from $6.5 million in 2005 to $8 million in 2006—with most of that growth in later-stage deals.

But in one “curious” trend, VCs invested $1 billion in infrastructure plays instead of technology development, he said.

If the unexpected venture community behavior doesn’t continue next year, 2007 investments could drop compared with 2006, he said. The big question is whether any drop would fall above or below the 2005 mark, he said. “2006 might be a little peak that sticks out over a long-term trend going upward, or it could be a peak before an overall downturn,” he said.

Whatever happens with venture capital, the biofuels and solar industries are on track for continuing market growth, according to Clean Edge.

In particular, the solar market has grown more than 50 percent per year in the last couple of years, Mr. Pernick said. “Solar is going to be a very unique story.”

The biofuels industry’s growth also could make the Clean Edge predictions—it expects a $80.9-billion market in a decade—look conservative, Mr. Pernick said.

U.S. President George W. Bush has called for 35 billion gallons of biofuels per year by 2017, for example (see Bush Backs Alternative Fuels, U.S. Treasury Pitches Alt Fuel Plan, Energy Dept. Pumps Ethanol $385M), and companies like Imperium Renewables are rapidly ramping up their production capacity (see Imperium Raises $214M), he said.

In the family of clean energy technologies, so-called “clean coal” is the embarrassing, illegitimate cousin. Advocates of solar and wind power and other renewables scoff at old-world coal because it’s a fossil fuel, and environmentalists say a technology that relies on earth-damaging mining can never be considered clean.

“I would not use the word ‘clean’ anywhere near the word ‘coal,’” says Robert Wilder, CEO of WilderShares, which manages three energy indices. “It’s a misnomer; coal is inherently dirty.”

Ouch. That’s particularly harsh coming from the manager of an index which tracks cleaner fossil fuel technologies, the WilderHill Progressive Energy Index. It’s no secret that coal is dirtier than any other fossil fuel. Companies developing clean coal technologies, including GreatPoint Energy and CoalTek, don’t deny the fact; instead, they want to find ways to reduce emissions from the world’s dirtiest fuel.

“Coal is definitely not going away,” says Andrew Perlman, CEO of Cambridge, Massachusetts-based GreatPoint Energy, which has a technology to turn coal into natural gas. “We can plaster our country with solar cells, which aren’t economic, and windmills, and everything else, and we’re still not going to make a dent in our energy needs.”

Hailing Coal’s Reign

As countries reach for more energy independence, coal’s reign is only likely to grow. Global coal consumption is expected to nearly double from 5.4 billion short tons in 2003 to 10.6 billion short tons in 2030, according to the U.S. Department of Energy’s Energy Information Association (EIA) International Energy Outlook for 2006.

The report also projects that coal’s share of the energy mix will grow from 24 percent in 2003 to 27 percent in 2030. Because coal is so entrenched, advocates of clean-coal technologies argue that the potential impact of reducing emissions from coal is “orders of magnitude” greater than that of introducing renewables.

Coal could certainly use a clean-up job. While coal supplies about 52 percent of U.S. electricity, it generates 84 percent of the electricity emissions, according to the EIA. Coal emits twice as much carbon dioxide as natural gas, the cleanest fossil fuel, according to environmental nonprofit Environmental Defense.

The data borders on scary: a single 500-megawatt-per-year coal plant produces as much carbon dioxide as 800,000 cars. Coal plants also emit mercury, and methane emissions from coal mining made up an estimated 9.3 percent of the total in 2005, according to the EIA.

And it’s not just China and developing nations that use coal for energy. According to the EIA, the United States has the largest recoverable coal reserves—enough to last more than 200 years—followed by Russia, China, India, and Australia.

Greener, Cleaner Coal

Faced with this reality, a growing number of entrepreneurs are working to make coal “cleaner” in today’s greener political environment. With even U.S. President George W. Bush calling climate change a “serious challenge,” and the fourth Intergovernmental Panel on Climate Change releasing a report that’s expected to predict billions of people will suffer from water shortage and millions will go hungry by 2080, “clean” is in.

Governments are now sinking serious cash into clean coal, and entrepreneurs are happy to take the money. In 2002, President Bush committed $2 billion over 10 years to clean-coal research. Then in January, Democratic U.S. Senator and presidential hopeful Barack Obama of Illinois and Republican U.S. Senator Jim Bunning of Kentucky reintroduced a coal-to-liquid bill that would provide incentives for converting coal into diesel fuel.

And again in January, in the Philippines, all 10 member countries of the Association of Southeast Asian Nations agreed to promote and develop clean coal in a declaration underscoring everyone’s goal to reduce dependence on fossil fuels and promote clean technologies. Australia and China also signed a pact to work together on clean-coal technology at the summit.

While governments may be backing clean coal, venture capitalists have so far shied away from the sector. In 2006, VC firms invested less than $100 million in clean-coal companies worldwide, according to London-based clean energy research firm New Energy Finance. That compares with $400 million invested into the much trendier solar space worldwide last year.

Piqued VC Interest

But there are signs that VC interest is growing. According to the Cleantech Venture Network, venture investment in clean coal in the U.S. more than doubled last year, from $14.7 million to $35 million. Of course, at those amounts, doubling isn’t a major feat, but with more government incentives mitigating risk, VC interest should continue to grow.

After all, coal’s biggest appeal is its price. In 2005, the latest date available from the EIA, coal cost an average of $1.54 per million Btus (British thermal units, standard units of energy), petroleum cost $6.48 per million Btus, and natural gas cost $8.20 per million Btus. “Coal is still the lowest cost per Btu, and at this stage of the game, I don’t think we’ve seen the full platform of what clean coal can achieve,” says John Quealy, a principal and senior research analyst in financial firm Canaccord Adams’ Boston office.

The biggest VC deal in 2006 was a $30-million investment in GreatPoint Energy by Advanced Technology Ventures, Draper Fisher Jurvetson, Khosla Ventures, and Kleiner Perkins Caufield & Byers. Then there was a $5-million funding for Tucker, Georgia-based CoalTek, which uses electromagnetics to turn low-grade coal into cleaner and more efficiently burning coal; Draper Fisher Jurvetson again came in on that, along with Braemer Energy Ventures and Warburg Pincus.

At the low end of the scale, there was a $3-million investment in Golden, Colorado-based Luca Technologies by BASF Venture Capital devoted to helping develop technology to turn oil, coal, and shale into natural gas.

Economic Reality

These VCs are convinced that clean coal can pay off as an investment in the near future. Bill Wiberg, general partner with Advanced Technology Ventures, says the reality is the economics. His Palo Alto, California-based venture firm invested in GreatPoint, as well as in solar and ethanol companies, and Mr. Wiberg says he believes all three sectors can succeed. “In the end, all technologies need to prove they can be both clean and cost-effective,” he says. “The losing technology is the one that doesn’t pencil out economically anywhere.”

Other, still-cleaner coal technologies aren’t yet ready for commercialization. For example, government researchers around the world are working on carbon storage, which involves capturing all of the carbon dioxide from coal-burning and burying it underground. The U.S. government’s FutureGen project is developing technologies to create an emission-free coal plant and store the CO₂ in deep geologic formations. The U.K. government is working on a project to capture carbon emissions and pump them under the North Sea.

But even if research succeeds in turning coal into a zero-emission fuel, its critics won’t be assuaged. “Mining coal is dirty work, so you can’t get ‘clean coal’ unless you ignore the fact of getting coal, which is ridiculous,” Mr. Wilder says.

Mr. Perlman counters that the purists ignore reality. “It’s easy to say, ‘we never want to dig anything up again,’ but the reality is that coal is increasing as a fuel supply,” he says. “We think we have a realistic way of converting the dirtiest of commercial fuels into the cleanest of commercial fuels, and we think this is the only way to really make a big difference to environmental issues and global warming.”

Despite their potential advantages, new coal technologies will have to fight to be labeled clean. “‘Clean coal’ has more of a basis as a marketing term than a scientifically accurate phrase,” Mr. Wilder says. “The real problems are ecological and immensely serious, and it doesn’t help anybody to use terms like ‘clean coal.’”

Still, if coal can buck its dirty image, it could translate into a fantastic inheritance.

A new Chinese law restricting the use of some hazardous substances took effect Thursday, confusing and concerning some electronics manufacturers that sell to China.

The law, known as RoHS, restricts the use of lead, mercury, cadmium, hexavalent chromium, and two flame retardants, polybrominated biphenyls and polybrominated diphenyl ethers in electronic equipment. It mimics a European Union directive that took effect in July (see Green Card Required, EU Ban Opens E-Waste Market), but disparities between the two laws, including different labeling requirements, penalties, and exemptions, were enough to send some manufacturers scrambling to sort out their obligations.

“We’re trying to figure it out,” said Kevin Ashton, vice president of marketing at ThingMagic, a Massachusetts-based company that makes radio-frequency-identification-tag (RFID) readers. Mr. Ashton said his company has been looking through lists of hundreds of components to see if any that are exempted from the EU law might be prohibited in China.

“While [the law] is obviously a good thing, we have to go through it and be very careful,” he said. “Sometimes we run into long lead times because only one manufacturer has the part, and we’re in the back of the line because we’re little.”

Mr. Ashton said the laws impact smaller companies more than large ones, slowing adoption of some emerging technologies, such as RFID in Europe. “That doesn’t mean its bad or that it shouldn’t be there, but it does have an impact,” he said.

David Douglas, vice president of Eco Responsibility at Sun Microsystems, agreed that RoHS laws are more likely to hurt smaller players. Sun has a team of employees that track regulations, and believes it’s already fully compliant with the China law, Mr. Douglas said.

Both companies say their main concern is that future regulations in other countries might conflict with those they’ve already worked to meet. Neither wants to make different products for different countries, which would increase costs and render them less competitive.

“Different countries are going to do this, and we’ve got to hope like heck all the countries are going to do the same thing—either stick with the EU’s or with China’s standard,” Mr. Ashton said. “Otherwise, we’re going to have to keep making changes, and might eventually need to create different products for different countries, which we really don’t want to do.”

The U.S. Department of Energy will invest up to $385 million in six cellulosic ethanol plants, DOE Secretary Samuel Bodman said on Wednesday.

It’s a jump from the $160 million announced a year ago. The plants will produce more than 130 million gallons of ethanol from the non-food part of crops, such as wood chips, corn stalks, and switchgrass, according to the DOE.

“These biorefineries will play a critical role in helping to bring cellulosic ethanol to market and teaching us how we can produce it in a more cost-effective manner,” Mr. Bodman said. “Ultimately, success in producing inexpensive cellulosic ethanol could be a key to eliminating our nation’s addiction to oil.”

The grants are going to six companies: up to $80 million to Iogen Biorefinery Partners, for a plant in Idaho; up to $80 million to Broin Companies, for a plant in Iowa; up to $76 million to Range Fuels, for a plant in Georgia; up to $76 million to Abengoa Bioenergy Biomass, for a plant in Kansas; up to $40 million to BlueFire Ethanol, for a plant in California; and up to $33 million to ALICO, for a plant in Florida.

The news follows President George W. Bush’s proposal to require 35 billion gallons of renewable fuels by 2017, announced in January (see Bush Backs Alternative Fuels, US Treasury Pitches Alt Fuel Plan). Companies said the grants show the DOE recognizes the cellulosic ethanol’s importance in reducing global warming and growing energy security.

“Secretary Bodman said this morning the increase in funding is a reflection of the priorities of this administration,” said Jeff Passmore, executive vice president at Iogen. “When you consider the $385 million directed toward cellulose ethanol is 40 percent of the total cost of those six projects, that’s a lot of money. It’s a big sum, and a great first step.”

The U.S. Department of Energy estimates that starch-based ethanol production will top out at 12 billion gallons a year unless the industry taps into food crops (see The Fuel of the Future?,Ethanol: Cellulose Break Down, Ethanol=Soaring Corn Prices?).

That falls short of the 35-billion-gallon goal, meaning the country will need to turn to other sources—namely cellulosic ethanol—to reach its goal, analysts say.

“There’s a very wide gap,” said Rick Kment, a biofuels analyst at research firm DTN. “There’s no one in the ethanol industry that foresees grain being a majority part of that in the first place.”

But so far, cellulosic ethanol has been limited to pilot- and demonstration-scale plants, and hasn’t proven economical to make in larger volumes, he said.

“To really get to the numbers that we need, we’re going to really need to focus on cellulosic ethanol as being a large part of ethanol production,” said Mr. Kment. “It’s commercially uneconomical right now, so we’re going to need more research and more funding.”

Of course, none of the companies actually have the money yet, Mr. Passmore said. Winning the grant is a first step; then companies must negotiate for the actual amounts they will get, pass those proposals through Congress, and seek additional financing for the rest of the money needed to build the plants.

Still, grants are especially important to the capital-intensive biofuels industry (also see Imperium Raises $214M), said Range Fuels CEO Mitch Mandich, adding his company expects to break ground in the next few months.

“I see this as a pretty aggressive step on the part of the DOE to really help launch new technologies,” he said.

Cleantech venture-capital investment in China surged 159 percent last year, enabling the Asian giant to surpass Europe as the world’s second-largest destination for cleantech funding after the United States, according to a report Dow Jones VentureOne and Ernst & Young released Tuesday.  

China-based companies raised $221.8 million in a dozen deals last year, up dramatically from $7 million spread over five deals in 2004 and $85.5 million in five deals in 2005. The growth of funding provided to Chinese cleantech groups outstripped the growth of worldwide cleantech investment, which nearly doubled to $1.28 billion in 2006.

Ernst & Young said it expected China to play “a major role” in growing innovation in cleantech. With a massive potential market, strong natural resource constraints, and a very strong message—including defined goals—from the Chinese government about supporting clean technologies, it’s no wonder investors are interested, said Rob Day, a principal at venture-capital firm @Ventures and author of the Cleantech Investing blog.

“There’s a lot of VC interest in China, and in the markets of clean energy and water, so any chance to be able to combine those two strong trends is probably going to grab some folks’ attention—particularly in fast-growing areas where they have the capability to leapfrog existing technologies,” he said. “There is a definite market for [cleantech in China], and good technology capacities as well.”

That said, Mr. Day pointed out that China’s cleantech investments started from a very small base, which is part of why it looks like there’s been such rapid growth. That’s also true of the entire cleantech sector.

The VentureOne and Ernst & Young numbers show cleantech is still a small part of overall financings, making up $1.28 billion compared to a total of $34 billion of venture-capital invested worldwide in 2006. The total investments also grew, and exceeded the $32 billion previously forecast (see VC Investment on Track for $32B in 2006).

European cleantech investments totaled $157 million in 38 deals, compared with $87.2 million in 32 deals in 2005. U.S. companies saw the most activity last year, raising $883.6 million in 87 deals, compared with $491.4 million in 66 deals in 2005.

The Cleantech Venture Network said Wednesday it is working to convert taxis to hybrids, in a move that it says could save $50 billion in fuel costs over a decade and slash smog in cities.

The network on Wednesday launched the Cleantech Innovation Institute to work on projects such as this one. Jim Harris, a managing partner for the institute, said the goal is to solve problems that require more than one industry to work together.

“We’re doing something that doesn’t require government subsidies or special favors, that’s cash-flow positive, and that’s creating benefits for all involved,” he said. “It’s frustrating it hasn’t happened already.”

North America has 196,000 taxis, which drive an average of 10 times more than regular passenger cars. “They are the largest contributors to smog in our cities,” Mr. Harris said, adding one of every five children in Toronto develop asthma before becoming adults because of air quality problems.

Switching cabs to hybrids will save cab drivers an average of $1,200 to $1,500 per month on fuel, he said.

Of course, it won’t lead to the first taxi hybrids. New York and San Francisco both announced hybrid taxi programs last year.

But if it’s so cost-effective, why aren’t more taxis already hybrids? One of the problems is the upfront cost. Leasing companies don’t generally lease to taxi companies or fleet owners because they drive too many miles, Mr. Harris said.

The institute is in discussions with GE Finance to try to negotiate this leasing at a higher cost, but one that would still bring car drivers a return on their investment. Mr. Harris said the institute is also in discussions with Toyota and the mayors of four cities—San Francisco, New York, London, and Toronto, to try to switch the cabs in those cities over to hybrids.

The institute plans to pin down partnerships and formally launch the program at a conference in May in Frankfurt, Germany, and hopes to get the leasing program up and running this year, Mr. Harris said.

The announcement wasn’t the only boost for cleantech Wednesday. The California Public Employees’ Retirement System (CalPERS) also announced it will commit $400 million to a private equity fund focusing on clean energy and technology investments, with another $400 million going to a fund for global emerging markets.

The investments will be managed by specialized teams within the Pacific Corporate Group.

Mr. Harris called the news “wonderful.” In a study the Cleantech Venture Network did with the Natural Resources Defense Council and Environmental Entrepreneurs, it found that every $100 million of venture capital invested in cleantech results in 2,700 direct jobs, and $500 million in spin-off activity over the next 20 years, he said.

“This is another example of why cleantech as an investment category was up 78 percent in ’06 over ’05,” he said, pointing to news earlier this month that BP was investing $500-million in biofuels research, through a partnership with the University of California at Berkeley, and that Wal-Mart also was investing $500 million in sustainability. “This is going to ensure this growth continues.”

Also on Wednesday, the angel network the Keiretsu Forum launched a cleantech investment committee to evaluate cleantech startups for its members, according to Jonathan Bonanno, who is chairing the committee. The committee will partner with the Cleantech Venture Network to help find and evaluate the companies, he said.

Finally, San Francisco Mayor Gavin Newsom is expected to announce a citywide cleantech initiative at a reception at the Cleantech Venture Forum on Wednesday evening.

Car manufacturers should not be penalized for selling large vehicles, said Neel Kashari, senior advisor to U.S. Department of Treasury Secretary Hank Paulson, Tuesday at the Cleantech Venture Forum in San Francisco.

He said the Corporate Average Fuel Economy (CAFE) standard, which has required manufacturers’ fleets to average 27.5 miles per gallon since 1990, is a “one-size-fits-all requirement” that does just that.

Manufacturers that make smaller vehicles already surpass the standard, and it forces manufacturers that make larger vehicles to sell smaller cars—sometimes at a loss—in order to justify selling the larger, more profitable vehicles.

“It does nothing to incentivize smaller vehicle manufacturers, and it’s a big financial pain for larger manufacturers,” he said. “Also, there are real problems with safety. We can literally balance deaths with mpg.”

Instead, the department supports different mileage requirements for different types of vehicles “to avoid unfairly penalizing the U.S. auto industry,” he said.

The proposal is part of a three-step plan to increase energy security, which Mr. Kashari said is a big economic risk for the country that also has brought diplomatic and military costs. “Volatile prices hurt families and businesses,” he said. “Terrorists view the global oil infrastructure as an attractive target and hit us.”

Aside from reducing consumption, the plan includes increasing alternative fuels with a renewable fuels standard that requires 35 billion gallons per year by 2017—about 15 percent of the nation’s fuel consumption—and doubling the strategic petroleum reserve. The plan would reduce gasoline consumption 20 percent in the next decade, and reduce oil consumption by 2 million barrels per day, Mr. Kashari said.

“It’s about slowing price growth by reducing consumption and increasing supply,” he said.

But many Cleantech Venture Forum attendees said the plan doesn’t go far enough, and some said the CAFE standard should be much stricter.

“That was the biggest load of poppycock I’ve heard in a long time,” complained one conference-goer as she left the room early.

Felix Kramer, founder of CalCars, a group that advocates hybrids that can be plugged into electrical outlets to extend mileage, said the plan isn’t bold enough.

“The proposals they’re making hardly moves the needle,” he said. “We have technologies now that could double the energy efficiency. I’m disappointed.”

Others said the plan doesn’t do much to reduce imported oil.

“We still will import a lot of our oil in 2017, but that misses the point,” Mr. Kashari answered. “We’re going to have a lot of alternatives for people.”

He said it doesn’t matter whether oil is bought abroad or at home, because it’s the net world demand for oil that controls prices. “The only way to hit [our enemies] is to lower the prices of oil, and their profits.”

Rafael Coven, managing director at Chesapeake Strategic Partners, a management consulting and venture development firm in Maryland, said he thinks the only way to effectively reduce fuel consumption is to increase fuel prices, not lower them.

As long as fuel prices don’t take the real price of oil extraction, and pollution, into account, the market isn’t able to realistically compare fossil fuels to renewable fuels, he said. “Renewables become much more price competitive when you factor in all the externalities,” he said. “Who knows? They might be cheaper now.”

Still, Tyler Griffith, an analyst with Savvian Advisors, said he agrees with Mr. Kashkari that the source of the oil doesn’t matter, because using any oil raises worldwide oil prices. “I don’t know why people kept challenging him on that,” he said. “It’s about diversifying the fuel source.”

He also agrees that a segment of the population needs to have larger vehicles and trucks. “I don’t believe in dictating to car companies that they must produce X number of light vehicles; I don’t believe that’s the answer,” he said.

At the same time, Mr. Griffith said, Mr. Kashkari came across as “a little bit green—not as in environmental, but new on the job.” Of course, he added, “he’s got a tough crowd.”

“The plan made sense given the scope of the problem as he defined it, the oil problem, but it doesn’t go further into the larger issue—it’s the environment,” he said.

At a discussion about solar policy held by Pacific Gas and Electric in San Francisco on Thursday, Khosla Ventures founder Vinod Khosla said low cost is the bottom line for making clean-energy technologies successful.

“Growth will never be sacrificed for the environment,” he said, in a press conference before the panel. “I don’t agree with it, but there it is.”

The realistic way to take a significant bite out of global warming is to focus on technologies that can compete on price, he said at the panel. That’s not to say Mr. Khosla doesn’t believe in government involvement. Mr. Khosla supported California’s Proposition 87 last year, which would have taxed oil companies and spent the money on clean-energy research.

But the solution is not to force companies to go clean with new laws, he said. “We should make it so they want to do x or y because it’s something that’s in their interest,” he said.

His view was contradicted by German parliament member Hermann Scheer, who is also president of EUROSOLAR, a European renewable energy association, and the general chair of the World Council for Renewable Energy.

Mr. Scheer, who is also credited with introducing the legislation that made Germany the largest solar market by far, said renewable energy should be worth more because people prefer it to energy that is bad for health and the environment, and said governments need to get involved to make sure people have that option.

Saving the World

To reduce emissions enough to save the planet, the world should focus on low-cost technologies that can be rapidly deployed on a large scale, and that can quickly reduce costs with new technology development, Mr. Khosla said.

He said solar thermal technologies, which make electricity using the sun’s heat instead of its light, are the most promising, and said they are “in a horse race” with clean coal technologies, which reduce emissions from coal-burning.

“I expect clean coal will lose because every piece of that is increasing in cost over time, whereas every piece of solar thermal is decreasing in cost over time,” he said.

It’s not the first time Mr. Khosla has advocated solar thermal (see Khosla Touts Centralized Solar.)

Wind and photovoltaic, or solar-electric, technologies are less likely to solve the world’s climate-change problems, he said.

Wind isn’t a reliable-enough power that can produce more electricity on demand, and “will fundamentally not solve the problem because wind can’t be 50 to 80 percent of the power solution,” he said.

“I’m not interested in solving 10 percent of the problem,” he said, adding he’s interested in technologies with the potential to replace at least 20 percent of power.

Almost all of the photovoltaic technology is going in the wrong direction, as well, he said.

Again, Mr. Scheer disagreed with Mr. Khosla.

“It would be a mistake to concentrate on only one technology—a heavy mistake,” Mr. Scheer said. “If we would have had that perspective 10 years ago, we would not have had the increase in wind energy, we would not have had the advancements in photovoltaics [solar-electric technology].”

While solar thermal makes sense in some areas—such as the Sahara, Tunis, Madagascar, Marrakesh, Cairo, and southern Spain, the transmission costs make decentralized renewable energies—such as rooftop solar-electric systems—a better option in other places, he said.

“Solar thermal was around before photovoltaic, but it’s not everywhere,” Mr. Scheer said. “It has problems, and it’s not just the technology. “

Michael Peevey, president of the California Public Utilities Commission, said he agrees with Mr. Scheer that you shouldn’t put all your eggs in one basket.

“We have to stimulate all of these things,” he said, referring to different clean-energy technologies including wind and solar power, but also agrees that solar thermal is promising.

He said it’s important to look at the full life-cycle costs of these technologies, not just the upfront cost.

Replacing Fossil Fuels

Mr. Khosla said he agrees that diversity is needed, but said the real challenge is to replace almost all fossil fuels. “I don’t think wind will ever get there, or solar photovoltaics,” he said. “And I’m probably the biggest technology optimist out there.”

That’s not to say he thinks these are bad technologies, he said, adding he’s invested in photovoltaics.

“What’s good for me as an investor is not necessarily what’s the solution for the planet,” he said. “Are these good technologies? Should we encourage them? Yes. But what will convince TXU?” (TXU Energy is a Texas utility that is proposing building 11 new coal-fired plants.)

But even before renewable energy is deployed, energy efficiency should be considered, Mr. Peevey said. “Investment in energy efficiency is the most-effective thing to do to reduce global warming,” he said.

While Mr. Peevey said he isn’t sure the proposed ban on incandescent light bulbs in California is realistic in five years, he said the policy direction is the right way to go, and also teased PG&E for having the panel in an incandescent-lit room.

Trina Solar shares lost 11.9 percent of their value after the company beat analyst expectations in the fourth quarter but reported that margins were decreasing.

The stock dropped fell $4.73 to $36.49 in recent trading.

According to the unaudited earnings report, Trina’s net income from continuing operations more than doubled to $4.4 million, or $0.26 per diluted share, from $2.1 million in the year-ago quarter. Analysts had expected earnings of $0.16 per share.

Including discontinued operations, Trina Solar posted net income of $4.6 million, or $0.28 per share, up from $2.2 million, or $0.22 per share, in the fourth quarter of 2005. Net revenues also more than doubled to $38.8 million from $15.9 million in the same quarter in 2005.

But the company announced its gross margin dropped 26.2 percent in the third quarter to 23.3 percent—although it was up from 22.3 percent in the fourth quarter of 2005.

The solar industry has been watching for the possibility of falling margins as manufacturers have upped their production of solar equipment.

In its outlook for 2007, Trina announced it anticipates a further decline in average selling prices this year, but added it expects to grow revenue to between $270 million and $300 million for the full year, up from $114.5 million in 2006. It also expects net income in the range of $34.5 million to $36.5 million for 2007, up from $12.4 million for the full year in 2006.

The company had a rollercoaster IPO in December, but the stock has grown steadily since January. Earlier this month, Trina announced a deal with German solar star Q-Cells, which agreed to provide technical assistance and to buy at least 18 megawatts of Trina’s wafers.

Verde Energy said Tuesday it’s working with Wells Fargo to provide financing for renewable energy projects.

According to Verde, an online marketplace for U.S. renewable energy projects, it pursued the partnership because many of its customers have difficulty finding lenders familiar with renewable-energy projects. It selected Wells Fargo because it’s providing competitive rates with flat-rate pricing, the company said.

“This is the second-largest purchase most homeowners will make,” Verde CEO Rob Powell said.

“Our customers’ ability to buy these systems oftentimes hinges on their ability to get funding. We feel partnering with Wells Fargo and other national lenders is going to help them get these systems in place, which is good for the customers and good for the industry at large.”

The move is the latest attempt to grow the solar market by reducing the upfront costs that analysts say keep many would-be solar buyers away.

Solar manufacturer Sharp in October partnered with CitiMortgage to launch a home-equity financing program for solar installations (see Solar Gets Home Financing), and another solar manufacturer, SunPower, announced a one-step financing program with New Resource Bank, the same month. Startups such as SunEdison and MMA Renewable Ventures also are providing financing.

Easier financing, along with Verde’s bidding service, could help simplify solar installations, said Jonathan Klein, founder of business consultancy Topline Strategy Group.

That’s a worthwhile goal because a complex process is one of the barriers to making solar mainstream, according to a study that Topline Strategy Group released in November with Sunlight Electric, a commercial solar dealer (see Wanted: Solar Salesforce.com, Solar Gets Simpler).

“For alternative energy to really take off, it needs to become as easy to buy as a car, and Verde’s service is definitely a step in the right direction,” Mr. Klein said. “The more they do to simplify the process, like offering financing, the more successful they’re going to be.”

The Business Plan

Verde provides free project consultations and then solicits bids from area contractors to help customers find the lowest price.

Here’s how it works: A customer fills out a survey describing the project (whether it’s a residential or commercial project, where the customer is in the process, when they plan to start the project, details about the roof size, condition, and material, and so on).

Then Verde Energy staff member calls back to get more information about the roof position, roof tilt, and trees and buildings that could obstruct the roof, and uses Google Earth to help verify the information. The customer gets a ballpark average price, and the bidding process starts.

After an on-site consultation, the customer gets accurate system-design plans and a more-exact quote.

The service is free to these solar customers. Verde makes its money from contractors, which Verde screens, checking their licensing, certification, insurance, bonding, and references, and which pay a commission of between 2 and 3 percent per installation.

The company has more than 150 contractors signed up for the service now, and expects to have 250 by the end of this year, Mr. Powell said.

Verde Energy, founded last year, said it has exceeded 3,000 installations since August and expect to breach 10,000 installations this year. That’s compared to fewer than 100,000 installations in the U.S. in the last two decades.

But Mr. Powell said he expects the market to grow rapidly. The company expects to reach profitability, as well as revenue of between $2 million and $5 million, this year.

More Incentives Needed

John Quealy, a principal and senior research analyst with Canaccord Adams, called Verde “an interesting idea.”

But the company’s success will depend on the success of the solar market at large, and that in turn will depend on helping customers make a return on their investment, he said. Verde needs government incentives to drive installations and boost its market, he said.

“All of these online marketplaces clearly [represent] an arbitrage against the standard cost of electricity,” he said. “If electricity prices from fossil-based sources are going to rise, then it makes sense, but you’d need a critical mass of alternative energy contracts to make this trading platform work.”

While those incentives haven’t kicked in yet in many places, Mr. Quealy said “this is a good time to think about that business plan to get in early as incentives kick in.”

In the meantime, Mr. Klein said Verde can use its influence to do still more to simplify the market and entice customers. One big problem is the difficulty of evaluating the true cost of different systems, and more information could help Verde’s customers better compare bids, he said.

First of all, Verde could use a standard rating system to help customers compare their bids, he said. Every manufacturer rates its modules’ electricity output differently, meaning the ratings don’t lend themselves to apples-to-apples comparisons.

“Imagine if every auto manufacturer had a different definition of horsepower,” Mr. Klein said, adding that the California Energy Commission publishes a standard rating based on industry association test conditions, and Verde could use those.

Secondly, Verde could compile data from its client’s projects to help future clients more accurately determine how much electricity they will get from their projects, he said.

Projections of how much energy a solar-power system will generate are typically based on data from the Renewable Resource Data Store, which groups a number of neighborhoods together into area averages, he said. But while it gives one data point for the San Francisco Bay Area, for instance, microclimates within the area actually vary quite a lot, resulting in inaccurate estimates, he said.

Biotech company Diversa announced Monday it will acquire Celunol in a deal worth roughly $182.45 million.

The companies are both working on cellulosic ethanol, or ethanol from the non-food plants or parts of plants, such as wood chips, switchgrass, and cornstalks, and claim the deal will create the first “end-to-end” cellulosic-ethanol company in the United States.

Diversa, a publicly traded company in San Diego, California, is working on enzymes that can break down cellulose into sugars, so it can be made into ethanol. Celunol, a private company in Cambridge, Massachusetts, has processing technology, as well as plans to build a 55-million-gallon ethanol plant and investors like Khosla Ventures and Braemar Energy Ventures.

The Diversa and Celunol deal could accelerate the commercialization of cellulosic ethanol. Cellulosic ethanol is a technology that could potentially boost ethanol into the mainstream (see The Fuel of the Future?). That’s because the ethanol industry is limited by the supply of farm crops, as the same land is needed to grow crops for food as for fuel.

According to the U.S. Energy Information Administration, 20 percent of the land in Europe and the United States would be needed to grow crops to replace 5 percent of transportation fuel with biofuel. Rising corn and soybean prices, as well as an Earth Policy Institute study finding ethanol will require twice the corn as previously expected in 2008 (see Ethanol=Soaring Corn Prices?), has raised pressure for the industry to solve the “food vs. fuel” problem

“The growth of the biofuels industry, and cellulosic ethanol in particular, is one of the most important developments in today’s energy sector,” said Carlos Riva, CEO of Celunol, who also will head the combined company. “The global market demand for alternative fuels such as cellulosic ethanol is potentially massive. We believe the combined strengths of both companies will enable us to accelerate commercialization of cellulosic ethanol.”

Diversa’s former CEO, Jay Short, resigned in 2005. He was replaced on an interim basis by Edward Shonsey, the former executive vice president of internal development, as the board sought a CEO more experienced in commercialization.

Buying A Competitive Advantage

Rick Kment, an ethanol and biofuels analyst at research firm DTN, said the deal is good for Diversa and Celunol.

“These are two of the leaders in this area, with two major components really needed in the development of cellulosic ethanol,” he said. “To develop them under one roof, or under one entity, should be a benefit in developing a competitive advantage in the upcoming cellulosic ethanol industry.”

The deal also is likely to be the first of several mergers and acquisitions, he said.

“It’s interesting in that this might be the start of consolidation in the ethanol industry,” he said. “It’s one of the things that is helping to lower the pressure as more of the players try to reposition their hands to develop where they want to be in the next two to 10 years. I think you’ll see more of this.”

The Deal

According to the announcement, Diversa will issue 15 million shares to buy Celunol’s outstanding equity. In recent trading, Diversa shares were up $0.52 to $10.83, bringing the value of 15 million shares to $162.45 million.

In addition, Diversa will invest $20 million in debt financing to fund Celunol before the deal closes.

Stockholders will retain ownership of about 76 percent of the combined company, and Celunol stock- and option-holders will own the remaining 24 percent.

The deal was unanimously approved by both companies’ boards. Diversa expects the merger to be finalized at the end of the second quarter.

Players’ Details

Celunol operates what it claims is the first cellulosic ethanol pilot plant in the United States in Jennings, Louisinana, and has also commissioned SunOpta to build a demonstration-scale cellulosic plant to make ethanol from sugarcane bagasse, among other things (see SunOpta to Build in U.S.)

The 1.4-million gallon plant, in August expected to be completed in “early spring” with a capacity of 1.5 million to 1.7 million gallons, is now expected to be completed by the end of this year, according to the announcement.

Now, Diversa and Celunol will work together on the demonstration facility—lowering production costs by using Diversa’s enzymes. In 2008, the by-then-merged companies expect to complete development of, and raise money for, commercial-scale facilities, according to an external spokesperson for Diversa.

Diversa is an enzyme producer that has genetically engineered so-called “extremophiles,” or bacteria that thrive in heat or acidity and in the guts of termites (see Ethanol: Cellulose Break Down).

The company is jointly developing enzymes with DuPont to digest corn biomass, and is collaborating with global agri-giant Syngenta to develop transgenic corn that produces high levels of an enzyme needed to break down the corn to make ethanol.

Targeted Growth said Thursday it has raised $22.3 million in private-equity funding for a technology that can boost yields of biofuel crops by about 20 percent.

Investors included Capricorn Management, AllianceBernstein, GrowthWorks Canadian Fund, Integra Ventures, WRF Capital, and Investment Saskatchewan. The round, Targeted Growth’s fifth, brings its total funding to $39.7 million.

Ethanol and biodiesel industries are limited by the supply of farm crops, so technology to increase the amount that farmers can grow per acre could play an important role in growing those industries. According to the U.S. Energy Information Administration, 20 percent of the land in Europe and the United States would be needed to grow crops to replace 5 percent of transportation fuel with biofuel.

Rising corn and soybean prices, as well as an Earth Policy Institute study finding ethanol will require twice the corn as previously expected in 2008 (see Ethanol=Soaring Corn Prices?), has raised pressure for the industry to solve the “food vs. fuel” problem.

Tom Todaro, CEO of Targeted Growth, said the company can modify the gene that controls plants’ growth to increase yields of the corn, soy, and canola used to make ethanol and biodiesel.

“If we want to help reduce stress on the competition between food vs. fuel, the best mid-term solution is just to make more of it [crops],” he said. “If you increase yields by 20 percent, you reduce the pesticides, herbicides, and fertilizers by 20 percent—which is very good for the environment—and you also relieve some of the pressure on food vs. fuel.”

Cells have a natural signal that tells them when to stop or slow their dividing process, he explained. Targeted Growth is able to change the signal, encouraging the cell to keep dividing longer, he said.

The Seattle-based company, founded in 1998, has spent seven years and “tens of millions of dollars” developing the technology, he said.

He added that Targeted Growth can also modify the plants to get them to yield more starch, more protein, or whatever is needed to make them ideal for specific applications, including food.

“This is a wonderful example of how technology can be applied to solving our energy crisis in innovative ways, and if the technology delivers as promised looks to be a very smart investment,” said John Balbach, a managing partner at the Cleantech Venture Network. “There is another facet to consider; namely the larger policy debate regarding the increasing use of food as fuel, an issue which we believe will grow in importance over the course of the next two years.”

But not everyone approves of genetically modified crops, particularly for crops used for food.

“We’re trying to convert the world’s farmland to organic for food, and if crops are going to be used for fuel, people won’t care how they are farmed,” said Rona Fried, editor of Progressive Investor, a green investing newsletter, in May (see Biofuel Firm Altra Gets $50M). “Basic crops like corn, soy, and rapeseed will be genetically modified and will invade organic crops used for food.”

Mr. Todaro said Targeted Growth is the “friendly version” of genetic modification because the company modifies a gene that already exists in the plants, and isn’t introducing any foreign DNA. The company is also aggressively working on a way to make these high-yield seeds without genetic modification, he said.

Anyway, more than 80 percent of corn and soybean plants are already genetically modified, he said. “We believe we can demonstrate why this is an incredibly safe and benign technology and is enormously socially advantageous,” he said.

Targeted Growth says it’s testing its plants in demonstration and regulatory trials in 10 locations in North American and another half dozen in South America.

The company expects to commercialize the plants in four to six years. Mr. Todaro said he doesn’t yet know how much the plants will cost.

Targeted Growth also has plans further into the future. It’s developing a crop specifically for biodiesel production—canolina, an even oilier relative of canola that’s not generally eaten as food—and also is working on crops could help break down their own cellulose and lignin so ethanol manufacturers will be able to turn currently unusable plant parts into more ethanol.

You’d hardly think spam would cause happiness. But when Rob Erlichman, CEO of Sunlight Electric, got an email advertising solar modules in October, he was so excited that he passed it around to his friends.

It wasn’t cleverness in the email itself, which bragged that Carmanah Technologies’ California warehouse was “loaded with inventory” and had “Solar Modules in Stock!”

The reason for the buzz was that Mr. Erlichman, like most solar retailers, hadn’t received any such advertisements in more than a year. “I was like, ‘Woah, that’s something different,’” he said.

Amid a worldwide shortage of silicon that has constrained the supply of solar modules, manufacturers have had to turn customers away (see Solar’s Silicon Shakeup). Now, there are signs that the shortage that defined the market since late 2005 could be changing.

Mr. Erlichman said Tuesday he’s received half a dozen emails from wholesalers, such as Marin Solar and SunWize, advertising solar modules in the last few months.

“It seems reasonable to assume the [solar-electric] shortage is over, at least for now,” he wrote in an email forwarding the SunWise ad offering “new lower pricing.”

Industry analysts have predicted the shortage would end between 2008 and 2010, with plenty of variation. Could the spams mean the shortage is over early?

Mr. Erlichman isn’t the only one to notice an ease in supply. Kate Rowland, a contract administrator for Sun Light and Power, an installer in Berkeley, California, said she thinks the shortage is abating.

After the company had trouble getting modules in 2005, “that’s not been the problem in ’06,” she said. “Getting the preferred type we want is sometimes a negotiation—getting really high-quality modules are sometimes a problem—but there are modules out there.”

But it might be too early to call the end of the shortage. Michael Rogol, managing director for Photon Consulting, said growth rates usually seem to dip in January.

“Installations in January definitely feel slower than in December,” he said. “It feels like the market is a little bit soft, and it feels like more modules are available, especially in North America—a very big market in the sector.”

But while production volume is growing very quickly—he expects to see 50 to 60 percent production growth this year—demand is growing faster, he said.

“I still think absolutely that growth in supply is nowhere near what demand is,” he said. “There is a breath the market is taking, but it’s unlikely that supply is getting closer to demand. Instead, it seems that the solar sector does this every January. When the weather gets cold, the market is seasonably cooling off.”

Mr. Erlichman disagrees with the explanation of a seasonal dip.

“Last year, we did not see solicitations and price declines, and that alone would suggest [a seasonal dip] isn’t the culprit,” he said.

Aside from solicitations from wholesalers, Mr. Erlichman said he’s seeing price reductions from manufacturers after seven or eight straight quarters of increases. For example, Sanyo—one of Sunlight Electric’s major suppliers—has reduced prices 2 percent in January, he said, and BP also has lowered prices.

“The fact that prices are coming down, plus the face that people have got product and are sitting on it, says to me the supply environment is easing,” he said. “There’s definitely more supply than there was. If supply and demand were in perfect balance, we wouldn’t be looking at lower prices.”

Mr. Rogol said that while prices are decreasing 1 or 2 percent for some suppliers, they are up 1 or 2 percent for others.

“There is not a clear pattern,” he said. “What would disprove [the seasonal-dip theory] is if we were seeing noticeable price decreases and notably more volume, but what I’m seeing is that prices are basically flat—down in some markets, up in others.”

In the meantime, manufacturers still are signing long-term supply agreements with silicon producers (see Solar’s Silicon Shakeup, Solar: Doing the Dirty, Solar Consolidation Trend Kicks Off, Three Huge Solar Trends).

For example, Elkem Solar, a Norwegian silicon supplier, on Monday said it signed a long-term supply contract with German solar manufacturer Q-Cells, for 2,400 tons of solar-grade silicon annually from 2012 to 2018.

The practice, to insure a silicon supply during the shortage, might not make sense if it were a time of ample supply, because spot prices might be more competitive.

But Mr. Erlichman said the trend is consistent with the idea that a supply shortage.

Because there wasn’t enough raw material to go around and silicon prices went up, manufacturers are just taking the first opportunity to fix the situation and are jumping on the new supply, he said.

“Increased capacity is going to get sucked up because demand is growing,” he said. “PV manufacturers are saying ‘I want to jump on my fair share immediately so I’m not left out in the cold.’”