Venture capitalists are people, just like you and me. They put their pants on one leg at a time, and they're prone to making investing mistakes just like the rest of us. That said, it's hard to deny that some VCs are clearly better than others. John Doerr is one of Silicon Valley's more successful and high-profile VCs, with big wins including early investments in Symantec, Amazon.com, and, more recently, Google.
This success, I believe, gives his words some weight. So when he says, as he did in November, that global warming is real and that "cleantech" is "the biggest economic opportunity of this century," my ears -- and yours -- should perk up.
The future for cleantech
It's not that the idea of cleantech as a big investment opportunity is new. The Motley Fool, myself, and others have been writing about it for some time. Instead, it was Doerr's explanation of how cleantech can help address global warming that I found so interesting. He laid out four steps for solving global warming that, when viewed in aggregate, can provide investors with a useful framework for thinking about how to invest in cleantech.
First, Doerr said the U.S. government should adopt a mandatory goal of reducing greenhouse gas 25% by 2010. This is an ambitious goal, and even with Democrats in control of both houses of Congress, I don't think it's likely. Nevertheless, I do believe some controls are coming, and investors can profit by understanding which companies are getting ahead of the curve and positioning themselves to benefit from government mandates. For instance, I have written before about Duke Energy's willingness to embrace mandates and explained how this progressive position -- when backed with strategic investments in cleaner coal-burning technologies and large-scale carbon sequestration and alternative fuel energy projects -- could position it ahead of its peers if and when government mandates on carbon emissions are imposed. More recently, IBM announced its Big Green Innovations initiative as a way to take advantage of this emerging market. Another way to play this opportunity is to consider investments in those companies manufacturing "negawatts" -- that is, decreasing energy use by better managing the demand side of the equation -- such as EnerNoc
Second, Doerr called for the adoption of renewable sources such as solar and wind power. This is hardly a bold call, but investors should give serious consideration to investments such as Motley Fool Rule Breakers recommendation Suntech Power. The company's big plans to buy $5 billion worth of solar wafers from MEMC Electronic Materials over the next 10 years is just one indication that it expects to be a leader in the growing solar cell market. Other companies with growing wind which are resources worth considering are FPL Group
Third, he said the United States needs to reinvigorate its biofuels industry. To a degree, this is already happening. Archer Daniels Midland now has a 50-million-gallon facility in production, and a few months ago, VeraSun announced plans to begin building a 30-million-gallon biodiesel facility. With the advent of tougher EPA regulations requiring cleaner-burning diesel -- which biodiesel meets -- the demand for biofuels could grow stronger in the near future. And both companies, by positioning themselves at the forefront of this biofuels "reinvigoration," could profit nicely from its expansion.
Ethanol production is also expanding rapidly, with Andersons, Aventine Renewable Energy Holdings, US BioEnergy, and Pacific Ethanol all bringing large-scale facilities online recently.
Finally, Doerr said there needs to be more investment in technologies that can remove existing carbon dioxide from the atmosphere. I'm not aware of any companies that do this now, but I know that Headwaters is actively working to develop unique nanoparticle catalysts that might soon help in this quest, and it is also possible that BP's new partnership with Synthetic Genomics -- which was started by Craig Venter, the founder of Celera -- could produce some interesting advances in this area.
There will be no shortage of other companies working on such technologies, but I encourage investors to keep an eye on the big boys such as DuPont. Cleaning up vast amounts of carbon dioxide is a big problem, and it could well take a big company to deliver the resources necessary to make a dent.
Investors looking for a more diversified approach to investing in renewable energy might want to consider the PowerShares WilderHill Clean Energy (PBW) exchange-traded fund. Alternatively, investors with a more conservative approach might want to look at companies such as General Electric and PG&E. The two can't be considered pure cleantech plays, but the former has a sizable position in wind power, and the latter generates 12% of its electricity from renewable energy sources.
The bottom line is that like Doerr, our Motley Fool Rule Breakers team believes cleantech will be huge. And while there will be many technologies and companies taking part in the solution, Fools should be strategic about how they want to approach the opportunity. After all, just because the opportunity is big doesn't mean everyone's profits will be, too.
If you'd like to take a look at our ongoing cleantech research at Rule Breakers and read up on the companies recommended to date, you can do so free for 30 days. Click here for more information. There is no obligation to subscribe.
This article was originally published on Nov. 17, 2006. It has been updated.
Fool contributor Jack Uldrich still puts his pants on one leg at a time, but they're nanomaterial pants that easily repel liquids and prevent staining. He owns shares of GE, Suntech Power, and Headwaters. Symantec is an Inside Value recommendation, Amazon.com is a Stock Advisor pick, and Duke Energy is an Income Investor choice. Headwaters, Suntech Power, and PowerShares WilderHill Clean Energy are Rule Breakers selections. The Fool has a strict disclosure policy.