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Tuesday, June 9, 2009

Multinationals' inconsistent cleantech committment

This morning’s Financial Times reports a potential strategic shift by the MNC formerly known as British Petroleum:
The head of BP's alternative energy division is to retire at the end of the month as the company sharply scales back its rate of investment in the business.
The decision by Vivienne Cox, 49, to retire is somewhat ambiguous, because in a previous interview she mentioned a desire to assure that her two small children (now 10 and 5) continued to get enough time. The website women-omics.com saw Cox’s departure (being replaced by Katrina Landis) as a sign of a “female brain drain.”

However, the broader issue is BP’s commitment to developing renewable energy, which caused the company in 2000 to adopt the slogan “beyond petroleum.” The division includes biofuels, wind farms, and manufacturing solar modules, as well as power stations that capture and store CO2 emissions.

BP planned to invest $8b from 2005-2015. Last year it spent $1.4b but this year the spending is expected to be $0.5b-$1.0b, as part of broader cost cuts (which apparently are hitting solar investments hard).

For the past 30 years, big energy (i.e. oil) companies have been providing much of the funding for solar power manufacturing — either directly through their own actions, or indirectly by providing an exit strategy for innovative startups seeking to provide liquidity for their investors (and gain access to additional growth capital). Such has been the insurance bets that these companies have been placing to remain in business should alternative energy eventually trump petroleum as our major energy source.

However, like all public companies, they have a short-term focus that emphasizes quarterly results. If alternative energy will be huge 5 years from now, then these MNCs need to be aggressively invested in the future. If it turns out to be 20 years, they gain no kudos from their shareholders or the stock market for being 15-18 years early.

Finally, there is the clash between entrepreneurial visionaries and corporate bureaucracies that applies to all corporate innovation — both for ideas developed within the big firm and for entrepreneurial startups acquired later.

On the one hand, this leaves the burden for developing new technologies and new markets on focused entrepreneurial startups run by visionaries with a passion to do one thing, and one thing well. This is not something that any MNC could ever provide.

On the other hand, this is a troubling sign for AE startups, because it suggests that BP (and perhaps other big companies) see the payoff period lengthening for investments in AE. This means that VCs (and other investors, supplemented by government subsidies) will have to provide the capital for AE development for much longer, and making acquisition less likely for VCs who were hoping for the conventional 3-7 year exit.

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