Energy Fund Charged Up to Invest $30M

It’s said that for every dark cloud, there is a silver lining. When it comes to energy investing, there’s a case of a green lining to a dark cloud. A new, albeit small, investor has emerged from the bankruptcy of Pacific Gas & Electric (PG&E) to invest in so-called “green” companies – those that develop clean energy technology.

The California Clean Energy Fund (CalCEF) plans to announce this week the launch of its fund and that it has partnered with Draper Fisher Jurvetson (DFJ), Nth Power and VantagePoint Venture Partners to invest from a $30 million fund.

The nonprofit CalCEF was founded with a $30 million settlement that came from the PG&E bankruptcy. CalCEF plans to exclusively invest in clean energy companies.

It has allocated more than $25.5 million to be split equally among its three venture partners, and the remaining $4.5 million is on reserve for future programs. CalCEF will operate as an evergreen fund, with all profits going back into clean energy investment.

Lisa Bicker, CalCEF’s president, says that CalCEF has “aggressive fund-raising plans in place,” but she would not elaborate on whether the organization plans to raise a for-profit energy fund in the future. CalCEF has the option in its charter to create a side fund, and the organization may elect to bring on additional venture partners.

For now, DFJ and Nth Power have each pledged to match all CalCEF investments with money from their own funds. Meanwhile, CalCEF will act as a limited partner for VantagePoint.

The clean energy market has not been a significant focus of the venture community, largely because energy investments have been restricted by governmental regulations.

But investments in clean energy have steadily risen over the past few years, thanks in part to de-regulation. The pro-environmental energy cause got a shot in the arm last year when the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) launched their Green Wave initiative in which they would invest $1.5 billion into clean energy over the next several years. Since State Treasurer Phil Angelides announced Green Wave a year ago, neither CalPERS nor CalSTRS has made any formal investments into any exclusively clean energy funds. But CalPERS was an LP in DFJ’s fund VIII, a $400 million vehicle that closed last month. The Menlo Park, Calif.-based venture firm invests in clean energy technology as one of its principal investment sectors.

Meanwhile, as more venture firms target energy investing, clean technology has emerged as the sixth largest venture investment category in the U.S. and Canada, behind information technology, software, biotechnology, health care, and telecommunications, according to Cleantech Venture Network. In fact, investors lit up industrial and energy private equity deals with about $8.9 billion in investments last year, compared to about $7.5 billion in 2003 and almost double the 2002 deal flow of $4.5 billion, according to Thomson Venture Economics (publisher of PE Week).

There, perhaps, is more to come, as the worldwide clean energy market is forecast to grow to $89 billion by 2012, a nine-fold increase from $9.5 billion in 2002, according to Clean Edge Inc., an energy research and consulting firm based in Oakland, Calif.

In addition to CalCEF, other venture investors are in the midst of raising energy funds. Vancouver, B.C.-based firm energy investor Chrysalix Energy announced last month it held a first close on its second fund, Chrysalix Energy II U.S. Limited Partnership. The Canadian firm plans to close on between $60 million and $100 million before the end of 2005.

Also, in late January, San Francisco-based Expansion Capital Partners announced the first close of its second fund, Clean Technology Fund II, with $20 million of a targeted $50 million or more.