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November 4, 2011 8:17 pm
If someone had told you back in 2004 that there was a man sitting on his living-room sofa in London inventing a company he would sell in five years for more than £45m, it would have been a shock to learn it was Michael Liebreich.
At the time, Liebreich was a former management consultant on the wrong side of 40 who had not had a steady job for nearly three years. An internet foray he made just before the dotcom crash in 2000 had ended badly. He had accumulated eight pages of headhunter contacts, almost none of whom would return his calls. “I was just so tarred with the dotcom brush,” he says. “I was really getting a bit desperate.”
In his spare time, he set up a personal website, where he amused himself writing about Leonard Cohen’s lyrics (“sublime”), an EasyJet service lapse (“grotesque”) and Frederick II (“one interesting motherf***er”). But this was a bruising time for Liebreich, an Olympic skier with a first from Cambridge, a Harvard MBA and five years at well-known consultancy McKinsey.
Then he discovered clean energy. Or green power, or clean tech, or whatever catchphrase one cares to use for the wind farms, solar parks and other technologies once deemed the province of off-the-grid fringe dwellers.
He became one of the new breed of what could be called “pinstripe greens”, business people making millions, even billions, from ventures that often barely existed six years ago.
As a group, they are an eclectic lot. One wears a nipple ring. Another made hamburgers in a Sydney café before he became one of China’s richest men. Others are financiers who would barely know a solar cell from a sunspot.
But their ranks have been quietly swelling with a global clean energy sector that last year attracted a record $243bn in new investment, nearly five times what it was six years earlier.
For Liebreich, everything started to change after he went on a climbing holiday in Bolivia in 2003. He saw protesters blocking the roads to fight a move to pipe billions of dollars-worth of the country’s natural gas to the US.
Flying home through Brazil, there were power cuts because the country’s energy supplies could not keep up with its enormous growth. The same year, huge blackouts in north America and Europe plunged millions into darkness.
Energy, Liebreich decided, was the thing. “Everywhere I looked I saw reasons why the current energy system had to change,” he said.
That meant alternative sources of power, and perhaps a shift in the energy industry as transformational as that he had just seen in the internet revolution.
Liebreich went back to see his professors at Cambridge, where he had studied thermodynamics, and started reading up on the latest green technologies. He soon began to think he might have cottoned on to something others in the financial world were missing.
“I remember calling a friend at Credit Suisse and asking which clean energy companies they did research on. They said, ‘What do you mean?’” he says over coffee in a Notting Hill café. “I said, ‘What about Vestas?’, the world’s biggest wind turbine manufacturer, and they said, ‘How do you spell Vestas?’
“I knew venture capitalists who didn’t know the first thing about fuel cells. I knew energy bankers who didn’t have the first clue about wind. People were asleep at the wheel. They hadn’t understood.”
The world is going to go entirely to clean energy – the direction of travel has been set in stone
Liebreich is not, in his words, “a deep environmentalist”, though he certainly thinks climate change is real. But he understood a gap in the market when he saw one. In 2004, with the help of interns and a Polish programmer he found on a website called Rent a Coder, he set up New Energy Finance, a company providing financial information about the emerging world of clean technology. “We were initially doing it on my sofa in a mews house,” says Liebreich. “We were pulling furniture out of skips.” At one point, prospective interns were told: “You can have an internship as long as you have your own laptop.”
But the thought that kept him going was summed up by the joke inside the fledgling company about what its motto should be: “New Energy Finance – In The Land of the Blind.”
And as it turned out, his timing could hardly have been better: 2004 turned out to be the eve of an explosion of interest in climate change, and therefore clean energy. The Kyoto protocol, the world’s only treaty obliging rich countries to cut their greenhouse gas emissions, came into force in February 2005. Hurricane Katrina devastated New Orleans six months later, just before Al Gore’s influential climate change documentary, An Inconvenient Truth, appeared.
By 2008, sales at New Energy Finance had climbed to £7m ($11m). Then came 2009, a big year in clean energy, and for anyone invested in it.
After years of wrangling, it started to look as if the US might bring in a cap-and-trade scheme that would put a price on carbon, and world leaders might forge new climate rules at that year’s UN climate talks in Copenhagen. Both promised a massive shot in the green energy arm. It was a perfect time to sell a business analysing a sector still so new that no one knew whether clean tech was one word or two – they still don’t.
On December 10, Bloomberg, the financial information group, announced it had bought Liebreich’s business. Neither side has ever disclosed the price, but people familiar with the transaction say it was more than £45m. Liebreich is believed to have owned nearly a quarter of the company. Just over a week later, the Copenhagen meeting ended in failure, as did the US carbon scheme the following year.
But Liebreich, who at 48 is still running what is now called Bloomberg New Energy Finance, believes the energy “system shift” that led to his success is far from over.
Eventually, he says, “the world is going to go entirely to clean energy”. Jeremy Clarkson, the famously anti-green car show presenter, “will be the equivalent of one of those guys who go around to steam rallies and drive the old steam engines and say, ‘Ah, look at the restoration job on that!’ The direction of travel has been set in stone.” And there is a lot of money betting he is right.
. . .
Inside the clean energy world, if you ask who is making the most profits, you will hear a stream of names from US solar titans to German wind moguls, Brazilian biofuel magnates and Chinese battery tycoons, testimony to the growing numbers of successful green business people now spread around the globe. But very often, the answer is Vinod Khosla. Khosla is the intense, blunt-speaking Silicon Valley billionaire who made his first fortune co-founding the Sun Microsystems computer systems company. He went on to Kleiner Perkins Caulfield & Byers, the celebrated venture capital firm that was an early backer of Google and Amazon. He set up his own firm, Khosla Ventures, in 2004, the same year Michael Liebreich was setting up New Energy Finance, and became a large green energy investor.
Today he is putting money into everything from a low-emission engine made by a Michigan company called EcoMotors (along with Bill Gates, the Microsoft founder), to a company that makes two-bladed wind turbines (in which Goldman Sachs has also invested). Last month, he announced he was raising his green bets with a new $1.05bn fund that would be directed partly at backing clean energy businesses.
Figuring out precisely how much money is made and lost from investing in what are inherently risky, young ventures is not always easy. Venture capital investment in green energy declined with the 2008-2009 recession, raising doubts the sector would ever produce a dotcom-like boom. Which is why a few weeks ago, ears pricked from Wall Street to the City of London when Khosla appeared on stage at a big tech industry shindig in San Francisco and was asked if he thought clean tech had been a “disaster”.
He did not. “Just in the last 12 months, we’ve generated over $1bn in profits,” he said, hands jabbing the air to drive home his point. “A billion dollars in profits over the last year is way more than lots of venture funds have done in IT in 10 years,” he continued. “So, I challenge anybody to claim that clean tech, done right, is a disaster.”
As it happened, the same conference was full of big Valley names banking he is right. There was Elon Musk, PayPal’s co-founder who helped set up Tesla Motors, an electric sports car company, which counts Google founders Larry Page and Sergey Brin among its investors. And John Doerr, a prominent Kleiner Perkins partner who thinks green technology could be “the biggest economic opportunity of the 21st century” and is investing with the help of Al Gore, another Kleiner partner.
Beyond California, it is getting hard to think of many big investors who have not dabbled in this emerging field. Even Warren Buffett put $232m into BYD, a Chinese electric car company.
And green investors are invading the leafy streets of London’s Mayfair and West End, traditionally home to hedge funds and private equity groups. One of them is Ben Goldsmith, younger brother of environmentalist MP Zac; son of billionaire financier Jimmy.
His Wheb firm now manages two clean technology funds with total assets under management of £130m. When it raised its first fund in 2005, “it was pretty much the first in the UK and there were probably only two or three in Europe”, says Goldsmith. Now, he says, he can walk out his office door in Marylebone and “within a five- or 10-minute walk there are probably four or five”.
Across Europe, Goldsmith, 31, estimates there are now at least 14 or 15 dedicated clean tech private equity funds. And in another decade, he predicts there will probably be “two or three times as many, and clean tech will be the predominant venture and growth capital theme”. It is still too early to say how Wheb’s clean tech investments have fared, as the firm has only just started to realise its investments. But it is instructive to look at the sort of companies Goldsmith’s firm has chosen to back. As he says, what they do is often “not very sexy stuff”. One recycles scrap rubber. Another makes sensors that help cut water use. Another makes IT systems that measure the weight of people’s rubbish bins. “It’s at the more boring end,” says Goldsmith, “but hopefully the more profitable.”
. . .
It is one thing to make money if you already had some to start with, like Ben Goldsmith or Vinod Khosla, but the clean-tech industry is also starting to create billionaires from scratch. One of the first was also one of the most unlikely, a small, quietly spoken Australian citizen named Zhengrong Shi.
If you do a search of English language newspaper databases, you will struggle to find one word written before 2005 about Shi, founder of what is now one of the world’s largest solar panel makers. He was born in 1963 to peasant farmers so poor they had to give him up for adoption. He ended up moving to Australia to study, and, by the 1990s, he was researching solar science at Sydney’s University of New South Wales, working part time making burgers in a café called Maisy’s. By 2000, he was an executive in a solar start-up company, driving his Toyota Camry across Sydney’s Harbour Bridge to work each day from a house in the suburbs. Five years later, he awoke one day to learn he was one of the richest people in China.
In between, he had moved back to his home country, set up a company called Suntech that made solar panels very efficiently, but not too expensively, and in 2005, floated it on the New York Stock Exchange. Shares leapt, giving him a net worth of more than $1.4bn, at least on paper.
Not that Shi got too excited. “I didn’t feel that much, to be honest,” he says on the phone from his headquarters in the city of Wuxi, west of Shanghai. “From the eyes of an outsider, it’s ‘Wow, it happened so quickly!’ But I knew that every day had been about working hard and making things happen.”
The rest of the world thought otherwise. So many visitors started to make the 90-minute drive from Shanghai to Wuxi that the company built a low carbon museum, which Al Gore opened last year. Wen Jiabao, China’s premier, came to visit. As did Steven Chu, President Obama’s energy secretary. Prince Charles wants Shi to visit the UK later this year, “just to touch base and give him an update about what’s going on in the industry,” says Shi.
Beijing’s interest in Suntech is not accidental. China’s plans to boost its renewable energy sector are so large it has become a cliché to say that if there is ever a Google of clean tech, its founder will probably speak Mandarin.
Shi is far too modest to suggest that person will be him. “I think I’m a diligent worker and very focused on my tasks, and also I’m reasonably intelligent,” is all he will say of his own abilities.
Such humility is apt in a solar industry suffering a supply glut and plunging prices that have toppled several companies. The US saw three solar bankruptcies over the summer, most infamously California’s Solyndra, which the Obama administration had backed with a $535m loan guarantee. “It’s winter time for the industry,” says Shi, who has seen Suntech’s shares plunge. But then he adds firmly: “It’s temporary.”
. . .
Not every green businessman wears a suit to the office. The day I meet British wind millionaire Dale Vince, in his headquarters in Stroud, in the Cotswolds, he is wearing biker boots, jeans, a necklace with a bird skull-shaped pendant encrusted with black diamonds that his wife just gave him for his 50th birthday, an earring in one ear and, he says, another in his left nipple.
He does not get up to say hello, because he is one of those people who stands at his desk. (He also takes ballet classes, which he says improves his football.) He is a vegan and refused to do business with turkey farm king Bernard Matthews who, he says, “wanted wind farms to power his turkey concentration camps”.
Like some other millionaires, he has just bought a football club, Gloucestershire’s Forest Green Rovers. Unlike others, he has banned red meat from matches, including for the players.
He had just received an invitation to a bash for Bill Clinton’s 65th birthday, and another to have lunch with someone big in Brussels, but was not planning to go to either. “I just say to people, ‘look, if you really want to meet, come to Stroud, and if you can’t be bothered coming to Stroud, then it can’t be that important.’”
He may still look a bit like the trailer-dwelling hippie he used to be, but in fact, he is an astute energy market maven. The privately held company he has built from one wind turbine in 1996 is estimated to be worth about £85m, making him Britain’s richest green entrepreneur, according to successive Sunday Times rich lists.
The company is Ecotricity, and you can buy anything from a wind turbine to your household electricity from it, thanks to an unusual business model that makes it both a wind park developer and independent energy supplier. Its 53 turbines at 17 wind parks and 55,000-plus customers make it a small energy player by global standards.
But Vince has 90 more turbines in the pipeline, just had to buy a third office building in Stroud because the last one he bought earlier this year is already full, and claims he is always knocking back offers from would-be buyers.
“There’s barely a month goes by that somebody doesn’t say, ‘Oh, I’m interested in buying you,’” he says. His list of rejectees includes British oil group BP, which would have made life interesting for one of the best-known businessmen to turn his sights towards clean power.
. . .
Lord Browne of Madingley, better known as John Browne, ran BP for nearly 12 years, building it up from a mid-ranking energy company to a global industry leader. He resigned in unexpected circumstances in 2007, after lying about how he met a former boyfriend who had threatened to expose their relationship.
Today, he is a partner at US private equity firm Riverstone Holdings, a large investor in fossil fuels whose $3.5bn renewable energy fund is one of the world’s biggest. When we meet in the Mayfair office, he is visibly wary. Yes, he will agree to pose for a photograph with one hand in his trouser pocket. No, he will not put in the other. Still, he is happy to talk about his notable career in green energy. Not least for an oil man. BP introduced an internal carbon price under Browne, who gave it the tag “Beyond Petroleum” and, to the astonishment of rivals, became a significant voice for action on climate change.
The group’s green credibility has suffered since the Deepwater Horizon disaster in the Gulf of Mexico last year, causing a massive oil spill. But it is, nonetheless, well ahead of the schedule it set itself under Browne in 2005 to spend $8bn on alternative energy by 2015, and will have invested nearly $7bn by the end of this year – mostly on wind, solar and biofuel businesses.
If asked who has made the most money in the green energy sector, Browne first names Vinod Khosla, then says, “BP has done rather well, if I may say so, particularly in the wind business.”
It may be a bit too early to tell how well Riverstone’s renewable energy ventures are going, he says, “but so far so good”. He thinks there is still a lot more money to be made in green energy, but also in what he calls “the battery space”. As for whether the world will ever move completely to clean energy – a difficult prospect given forecasts that fossil fuels will continue to be the dominant source of global energy until at least 2035 – “not in my lifetime,” Browne says.
Still, he does agree with Sheikh Ahmed Zaki Yamani, the former Saudi oil minister, who said the stone age did not end for lack of stones, and nor will oil. In fact, says Browne, “he said it all”.
. . .
The sun and the wind are not the only creators of green millionaires. The global carbon markets have also done their share, especially in the past two years. These are the relatively new markets that let companies buy and sell permits that give them the right to emit carbon dioxide. At the time of writing, they are in the doldrums, not least in Europe, now home to both the world’s biggest emissions-trading scheme and worst sovereign debt woes. But for the people who got into this esoteric world at the start, there turned out to be money to be made.
Pedro Moura Costa was such an early entrant that his first customers thought he was joking when in 2003, he told them he could make money for their company from carbon. “People would say, ‘The science fiction department is on another floor,’” he says from his home in Rio de Janeiro. Moura Costa, a former forester, was one of the first to see the potential of the carbon offset, the mechanism that effectively lets people compensate for their pollution by paying for emissions to be cut somewhere else in the world.
In 1996, he and a US partner set up a company called EcoSecurities from their respective front rooms in Oxford and Los Angeles that turned into one of the market’s most influential players. Company filings reported on Bloomberg show Moura Costa had a 10 per cent stake in EcoSecurities before Wall Street investment bank JPMorgan Chase bought it in 2009 in a deal that gave the company a value of £129m.
A year later, Richard Sandor, did even better. The 70-year-old Chicago-based economist pioneered north America’s first voluntary emissions trading exchange in 2003 and his business, Climate Exchange, became the dominant carbon trading platform in Europe. It was bought by IntercontinentalExchange, a US group, last year in a transaction that valued the company at £395m. Sandor had publicly declared a stake of 16.5 per cent. Also in 2010, Barclays took over Swedish carbon trading company Tricorona, while Thomson Reuters, the financial information group, bought Norwegian-based Point Carbon, one of the best known carbon market analysis businesses.
Millions may be being made from, and invested in, green businesses, but for shareholders brave enough to buy into such ventures, the news has not always been good. Over the past year, leading clean tech indices show shares in the larger companies have underperformed the wider market by a large margin. That is partly because solar panel and wind turbine prices keep falling – good news for anyone hoping clean energy sources will one day be as cheap as fossil fuels. But it is a reminder that we have been promised a glittering green future before.
The 1970s oil crisis spurred widespread interest in alternative energy sources. President Jimmy Carter put solar panels on the roof of the White House and governments started doling out subsidies for non-fossil fuels. Then oil prices subsided, and interest faded. This time, those who believe in clean tech’s permanency say there are at least two factors that mean alternative energy is here to stay: rising demand from emerging economies and concern about climate change.
There are many numbers to support their case. The global market for solar and wind power rose from $6.5bn to $132bn between 2000 and 2010, says Clean Edge, a US research firm. The number of hybrid electric car models around the world has risen from two to 30 over the same time. Certified green building numbers grew from three to 8,138. But we will still see failures such as Solyndra.
“We’re in a messy transition period,” says Ron Pernick, a founder of Clean Edge and co-author of 2007’s The Clean Tech Revolution, one of the first books to analyse the potential profits to be made in green energy. But the broad trend for green business is only heading up, he adds.
And one thing is clear: as long as people can make money from green businesses, investment will grow. As Lord Browne puts it, “The fundamental underpinning of sustainability is profitability. Without profitability, it’s going to disappear.”
Pilita Clark is the FT’s environment correspondent.
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