Electrical News

The objective of researching and writing Venture Investments of the Energy Industry: A Necessity for Continued Industry Innovation? is to highlight some of the venture success stories in the industry and to emphasis how critical venture capital availability is to continued industry innovation. The US industry is at a deregulation turning point, with the California debacle, the sins of Enron, and last year's out of control gas prices standing as testimony for those who would like to see deregulation go away.

Hidden beneath these headlines are a number of success stories that point to the benefits of deregulation-especially with regard to how competitive markets drive innovation. And for all the sins of Enron, the one positive thing that can be said is that Enron fought a 10-year plus battle to open the electricity industry to competition. Thus far, no other organization appears to be prepared to take-over Enron's leadership role with respect to keeping deregulation moving forward.

The stifling of innovation is unfortunately a potential outcome of the slowing of deregulation.
Venture capital has in many respects replaced most of traditional R&D activities in the energy utility sector. There are still a few utilities with real on-going R&D efforts such as AEP, Southern, Hydro-Quebec, Ontario Hydro, and BC Hydro, but all of these companies to a greater or lesser degree have also provided venture funding to independent start-up firms.
Rate of return economics centered on monopoly businesses does not spur innovation of technologies or growth in much more than assets. However, as the energy utilities industry deregulates, many of the markers for technology and business innovations have started to emerge.

These include:
A decrease in industry wide sponsored research. Industry sponsored activities frequently were too academic for application in operational settings and competition has removed much of the commonality that historically supported industry research bodies. Much of the industry wide research efforts now look more like business development efforts
A decrease in internal R&D expenditures. In many cases, R&D efforts have fallen victim to near term earnings pressures.
Increased availability of capital for emerging technologies.
The emergence of technologies that enable deregulation to occur and work to make a deregulated market more efficient.

The events surrounding Enron along with the dot-com bubble burst of 2000-2001, the crash of the IPO market, the lack of consistent deregulation business practice rules on a state by state basis, and the subsequent slow-down of deregulation, are all bad omens for innovations individually, and much worse when viewed collectively.

Meanwhile, the industry has become extremely dependent on external parties for driving innovation that will enable deregulation and make it work more efficiently. These external parties are in-turn dependent on venture funding. And for the most part, the venture-funding spigot has been reduced to a trickle.

True, there were many products looking for markets that were funded during the drunken sailor days of venture capital excesses, and this industry was not immune. However, it can be argued that perhaps the pendulum has swung too far to the other extreme now, with many markets needing further innovation. Electric transmission, distribution reliability, aging infrastructure, real time pricing alternatives, and power quality are just a few areas that come to mind.

Venture Investments of the Energy Industry: A Necessity for Continued Industry Innovation? provides in-depth analysis surrounding many of the macro level issues discussed above. However, this report provides detailed case studies of the utilities most active in the venture arena, the venture capital firms most active in the energy sector, what investments have worked and why and what is promising on the horizon.
Enron was one of the most active corporate venture capital investors in the late 1990's, although many seasoned VC's say that the company was late to the game and frequently overpaid.

For more information visit http://www.researchandmarkets.com/reports/c27860

Laura Wood
Senior Manager
Research and Markets
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