Regulation spurred the decision by Detroit-based and New York-listed diversified power company DTE Energy effectively to restart its corporate venturing programme nearly three years ago.
Michigan, the US state where DTE is based, requires 10% of its power to come from renewable sources by 2015 (see illustration). DTE responded to the requirement, passed two years ago, by saying it would invest $15m to $20m a year, about 1% to 2% of its annual capital expenditure, in minority stakes in third-party companies through its DTE Energy Ventures division as part of a $3bn investment programme in renewable energy, primarily wind power.
DTE launched its Ventures division with a $100m fund in 1995 but most of the team gradually disbanded, with Ryan Waddington leaving in 2005 after six years with the group to go to ZBI Ventures, an investment vehicle of the New York-based Ziff media family.
The Renewables Act led to Knut Simonsen, senior vicepresident of DTE Energy Resources, becoming president of DTE Energy Ventures and building a team of five with incumbent Ganesh Ananthasubramaniam. However, the new investments are made from the annual budget rather than from a dedicated multi-year fund, Simonsen said.
Although DTE is concentrating on wind power, the state regulations give extra credit for solar or customersited renewables, according to research by accountancy Deloitte, so the ventures team has also considered solar and nuclear technology investments as well as backing businesses, such as PlugPower, that can help so-called micro-generation of power by customers.
Other investments, including Echelon and SoftSwitching Technologies, help install electrical circuits and meters that use radio networks to exchange information wirelessly between customers and DTE Energy and allow customers to monitor their usage patterns.
The investments, usually $1m to $4m per company in the seed or initial round of funding, fit within DTE’s investment focus on power generation, storage and efficiency.
Simonsen, DTE’s head of strategy, said: "Originally, 15 years ago, DTE Energy Ventures was set up to examine distributed power generation but was effectively restarted in late 2007 to [respond to] impending legislation of renewable energy targets. The Ventures team is helping the company examine what impact renewable energy legislation will have and think through what technologies can affect performance and cost. There has to be a viable cost to replacing coal-fired power stations as customers cannot see a doubling or trebling of costs."
The return to venturing has already led to some successful investments, including DTE being part of battery maker A123’s $69m funding consortium last May, four months before its flotation and 50% first-day jump in share price. However, the company’s share price subsequently fell as an important Detroit customer, Chrysler, fell into financial difficulties and pulled an electric sports car that was expected to use A123 batteries.
A similar pattern was also part of PlugPower’s flotation after DTE and industrial conglomerate General Electric had helped start the company and oversee its listing.
Fact box – DTE Energy Ventures
Formed: 1995
Assets: $100m+
Key people: Knut Simonsen, president of DTE Energy Ventures; Ganesh "Ananth" Ananthasubramaniam; Michael Delaney; Gunyan (Mark) Zhu; Jeff CruseyCompanies: A123 Systems, Echelon, ISE, Perfect Commerce, Pentadyne, PlugPower, QD Vision, Softwitching Technologies
Funds: Aretê, EnerTech Capital Partners, Wind Point Partners, Novus Energy Partners
DTE Energy Ventures’ target business sectors:
Renewable Energy Solar, wind, biomass, biofuels, hydro
Energy Efficiency / Environmental SmartGrid, green building, LED, carbon capture, waste to energy
Energy Storage Advanced battery solutions, plug-in hybrid electric vehicles, flywheels
Box: The Clean Energy Prize, presented by DTE Energy and the University of Michigan, is an annual entrepreneurship competition for teams from Michigan colleges and universities to develop the best plan for bringing new clean-energy technologies to market.
Open to students and faculty from any Michigan college or university, the competition will be administered and hosted by the University of Michigan. The teams with winning ideas will share $100,000 in prize money, to be awarded in the spring.
Algal Scientific, comprising business and engineering students from University of Michigan and Michigan State University, won the inaugural competition last year and earned the top prize of $65,000. Algal’s winning business plan was based on a process using algae to treat wastewater and produce raw materials for biofuels simultaneously.
Applications and details of the competition are available on the Clean Energy Prize website.