Category Archives: Sustainable Building Materials

Hardwood Trade Restrictions by U.N. Group Likely to Spur Demand for Modifed Wood

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On March 14, the United Nations Convention for International Trade on Endangered Species (CITES) announced new restrictions on trade of various plant and animal species, including 100 species of tropical hardwood. International trade in a range of rosewoods and ebonies from Asia, Central America, and Madagascar will now be regulated by CITES. The joint program between CITES and the International Tropical Timber Organization (ITTO) will support the efforts of the countries concerned, to strengthen their capacities to implement the Convention. The CITES agreement was signed by 170 countries, including most major timber exporters, e.g. Brazil, Thailand, Costa Rica, and Madagascar.

In the last two decades, the use of tropical hardwood in the developed world, especially in European Union countries, has come under scrutiny. Most countries in the European Union require tropical hardwood imports to be Forestry Stewardship Council (FSC)-certified. The changes required to get FSC certification likely raise the production costs, and as a result the use of tropical hardwood has fallen significantly from 1998 to 2007 in Europe. The recent announcement from CITES is now applying screws from the supply side. To date, CITES has applied restrictions on trade of endangered animal species such as sharks and polar bears. To our knowledge, this is the first instance where it has included any wood species under its rules. If implemented effectively, the new restrictions will boost the demand for modified wood products that have shown promise of hardwood performance, such as the furfuryl-alcohol-impregnated softwoods from Kebony and flavonoidimpregnated softwood materials being developed at the Max Planck Institute (client registration required). Clients interested in modified wood materials should focus on the European market and applications that require durability, such as boardwalks and decking.

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Steven Chu steps down at U.S. Department of Energy, leaving a mixed legacy

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Last week brought the widely expected news that Steven Chu will be stepping down as Secretary of the U.S. Department of Energy (DOE). Chu has been a hero to scientists and clean energy advocates, but on his watch the DOE has made some questionable decisions, particularly from a commercialization and business standpoint. That said, Chu has also laid the groundwork for a strong legacy of energy innovation – if those initiatives produce results, he may justly be regarded as one of the most important DOE Secretaries since the department was created in 1977.

Unfortunately for Chu and DOE, the name “Solyndra” will appear in the first paragraph of most appraisals of his term – the DOE’s ill-fated $535 million loan guarantee (client registration required) to the Silicon Valley solar panel maker became a rallying cry for opposition to the Obama administration’s clean energy investments. Other recipients of DOE loan guarantees and other largesse, including A123 Systems (client registration required), Beacon Power (client registration required), EnerDel, and Abound Solar (client registration required), have also filed for bankruptcy. While there was a case for deploying government funds when private investors largely stopped lending during the financial crisis, the DOE loan guarantee program mixed investments in reliable projects, like solar power plants using established technologies, with funds for firms like Solyndra that faced steep technical and market risks. It was highly likely that several would fail, but DOE either underestimated the risks or wasn’t well prepared for the political fallout (or some combination of both), and arguably hurt the cause of government support for new energy technologies – previously a point of bipartisan consensus.

Chu’s DOE also showed commercial naïveté in its claim that it could help bring 1 million electric vehicles to U.S. roads by 2015 – and President Obama personally cited Chu’s assurances in defending the administration’s focus on electric vehicles. While the DOE target included plug-in hybrids (PHEVs) like the Chevy Volt, as well as all-electric vehicles (EVs), only around 250,000 such vehicles will realistically be in operation in the U.S by the end of 2015 (see the report “Small Batteries, Big Sales: The Unlikely Winners in the Electric Vehicle Market” — client registration required). Anemic sales to date of PH/EVs also belie such optimism, and just before Chu stepped aside, DOE began publicly backing away from the goal – suggesting that DOE’s EV enthusiasm may not have been the best use of its resources.

What’s more, DOE has largely been on the sidelines of the most important energy story of Obama’s first term – the phenomenal boom in domestic gas and oil production, driven by technologies like hydraulic fracturing. To some extent that’s only right – by the time the technology (which had benefitted from DOE support in decades past) was ready for prime time, the industry hardly needed further help from DOE. However, given the impact this production will have on the energy and climate picture in the U.S., and the remaining technology and policy needs to help access these resources safely and make the best use of them, it’s surprising how little focus they’ve received (barely meriting a mention in Chu’s review of his term in his resignation letter).

Despite these stumbles, history may well look kindly on Chu’s tenure, because programs he’s championed have the potential to create a generation of impactful new technologies and keep the U.S. a center of innovation in energy. Through the network of 46 Energy Frontier Research Centers, and especially the new Advanced Research Projects Agency – Energy (ARPA-E), the DOE is funding research on really novel technologies with a breadth, depth, and purpose beyond its previous basic science efforts. ARPA-E, in particular, is well-positioned to help fill a void left by venture capitalists that are (wisely, by their financial standards) increasingly reluctant to invest in early-stage energy technologies. If these programs help shepherd along impactful energy technologies that that come to the market over the next decade, they’ll have a greater impact than even a successful Solyndra would have, and will validate Chu’s initiatives.

Given the ups and downs of Chu’s tenure, who should Obama tap to replace him? Some favor another academic, like Shirley Jackson of Rensselaer Polytechnic Institute, or Ernest Moniz of the MIT Energy Initiative, to continue to build DOE’s innovation efforts. Others argue that DOE’s commercial blind spot argues for a businessperson like Duke Energy CEO Jim Rogers. While a course correction is needed, and energy business acumen at DOE would be welcome, a utility executive may not be the best steward of Chu’s innovation legacy (and may sit uneasily atop what’s still largely a scientific agency). A business leader with more innovation experience could serve admirably – GE CEO Jeff Immelt has been floated, though seems unlikely to serve. Otherwise, given the controversies DOE has weathered and the need to defend its budget in an era of sequestration and discretionary spending cuts, a more seasoned politician might also be a wise choice to follow Chu. Someone like former (moderate) Republican governor and EPA administrator Christie Todd Whitman or past North Dakota Senator Byron Dorgan could serve to consolidate Chu’s gains in long-term innovation, but would still be inclined to pivot the agency more toward the pressing issues of the day.

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Acuity and SunOptics release integrated daylighting-LED lighting system

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On December 4, Acuity Brands released its LightFlex system for suspended ceiling applications. The system consists of prismatic daylighting skylight from SunOptics, connected to a light tube coated with a reflective film. A proprietary optical sphere design and a set of lenses on either end of the light tube, diffuses the light and reduces the glare while maintaining the intensity. The skylights are made from double- or triple-glazed acrylic or polycarbonate sheets. The LightFlex system is designed to be integrated with Acuity’s lighting control and back-up LED lighting systems.

Acuity Brands is one of the largest providers of lighting hardware and solutions in North America with 2012 sales of $1.2 billion. Its foray into daylighting with SunOptics will be a big vote of confidence for SunOptics. However, adoption will be governed by the payback period, dependent on average sunshine hours in a given location, electricity pricing, and the lighting efficiency of the LightFlex system. If the system can provide 500 lumens/m2 or more for 2,000 hours per year, the payback can be between two years to five years in North America. The payback can be further shortened if the daylighting system is integrated with daylighting sensors, lighting controls, and back-up LED lights.

A number of companies like Sundolier, Daylighting Systems, Skyshade, and Ciralight Global are developing high-performing skylight designs. Lighting control companies will evaluate their designs and possibly introduce similar products. Clients developing acrylic or polycarbonate lenses, sheets or reflective films should look to market their materials to SunOptics and other skylight developers striking such partnerships.

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Late-Stage Investments Show Maturity of Green Buildings

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After a cautious start, investments in green buildings technologies began to blossom post-2005. From 2000 through 2005, only 37 investments rounds were closed in the space, but from 2006 to present, the number of deals has soared by over 700%, with at least 140 startups netting a combined 295 venture investments – all told, since  2000, venture capitalists have invested $4.06 billion in technologies that improve the energy efficiency of buildings and homes.

Signals of the green building industry’s growth and maturation are evident in this week’s graphic, which appears in the recent Lux Research report (client registration required) in the Sustainable Building Materials and Efficient Building Systems Intelligence services. While there were only 4 late stage investments (Series D and above) from 2000 to 2005, since 2006 these late-stage investments have increased, showing the maturity of the field. In 2011 there were 15 late-stage investments totaling $445 million, nearly 50% of the total invested that year.

With an increasing number of late-stage investments and higher dollars per investment, the maturity of the industry is emerging. Increased investor confidence since the 2009 financial crisis has also led to a higher investment size increasing from an average of $10.51 million in 2010 to $14.90 million in 2011. Now, early investors are poised to look for exits from the first wave of successful green buildings start-ups.

Source: Lux Research report “Building a Green 21st Century: Tracking Venture Investments in Green Buildings to Uncover New Opportunities”

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Rolf Disch Trying to Find a Home for Net-Zero-Energy Design in Germany’s Residential Building Sector

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Recently, we spoke with Dr. Tobias Bube from Rolf Disch Architecture regarding the potential for net-zero-energy design in residential construction. Rolf Disch has been involved in net zero or “plus energy” architecture since 1994. The firm’s first building, Heliotrope in Freiburg, Germany is widely considered by a number of architects to be the first building in the world that produces more energy than it consumes.

Dr. Bube told us that the additional cost for constructing a net-zero-energy home is only 7% to 10% more than that for construction meeting the minimum energy efficiency standards required by codes in Germany, such as EnEV 2009. Dr. Bube added that net-zero-energy construction can reduce heating and cooling costs by 90% for a 100 m2 home, bringing the payback period for energy conservation technologies under 10 years.

Rolf Disch utilizes technologies such as daylighting, passive solar heating, insulation better than R 10/inch, and zoning in windows. It also uses solar photovoltaic (PV) energy for on-site generation and payback for the PV technologies is in excess of 20 years with the recent reduction in German feed-in tariffs (FiT) for solar. Over the years, Rolf Disch has faced difficulties convincing home builders and housing development companies to adopt net zero or plus energy design. Therefore, in 2003, the company decided to float its own housing development arm adopting plus-energy construction methods. It now serves as the main customer for the design firm. According to Dr. Bube, a significant slice of the German upper-middle class is prepared to pay a premium for plus-energy homes.

According to our estimate, over 300 net-zero-energy buildings (NZEB) have been constructed over the past 10 years, most of them being in the commercial and institutional sector. Low tolerance for high capital expenditures and long paybacks have both held back the adoption of NZEBs in the residential sector. But a combination of high electricity prices, strict building energy conservation codes have made Germany the first geography where NZEBs can potentially take root even in the residential segment. Investors interested in the NZEB space should follow the activities of major home builders and housing development companies in Germany.

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Can Windows and Drywall Plug the Hole in the Boat at Serious Energy?

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Over the past two quarters, Sunnyvale, California-based Serious Energy has bled talent and taken on a lot of water. Now, recent news suggests circumstances have become dire as the company has shed all non-core business activities to focus solely on its efficient window and soundproof drywall business.

In recent years, the company had broadened its spectrum of offerings to include building energy management software and capital financing for energy efficiency projects. While its expansion drew key talent from across the industry and led to a handful of strategic acquisitions, it also quickly sapped the $140 million of venture capital (VC) cash raised since the company’s inception. Since the third quarter of last year, Serious Energy has seen its CFO and co-founder, CTO, and a slew of other senior executives jump ship to join other companies in the space.

In December, 2011, we interviewed Kevin Surace, then-CEO at Serious Energy. He told us the company would need to raise an additional round of equity funding to finance its initiatives before going public to finance further growth. A month earlier, the company had managed to raise $3 million of a targeted $33 million investment round, and it was continuing to press for growth across all of its business areas, despite lackluster revenues. At the time, we advised that if Serious Energy wanted to avoid becoming another cleantech investment gone wild, it needed to scale back its initiatives to provide a quicker, less dilute exit for investors. But the company pursued business as usual into 2012, until its CEO was replaced in February by the company’s remaining co-founder, Marc Porat.

The final blow that spurred Serious Energy to abandon its software and financing offerings may have come last month, when incumbent player SCIenergy (Client registration required) received a favorable settlement in a lawsuit it had filed against Serious Energy for misappropriation of trade secrets relating to its energy management software tools. Lacking cash to redevelop its software, it makes sense for Serious Energy to abandon this offering and revert to its core materials products. The question now is, just how successful are Serious Energy’s drywall and window businesses?

In answer, consider the company’s February announcement that planned to close its Chicago-based manufacturing facility and lay off around 50 workers. A day later, it announced that it had reached an agreement with the United Electrical Workers Union Local 1110 to keep the facility open while looking for a new owner and exploring “all other options.” In addition, the company recently yanked its EcoRock drywall products from the lineup. It touts the products as “green” because they are manufactured unconventionally without the use of natural gas – since natural gas prices have fallen by about 50% since July 2008. Lastly, Serious Energy had been in an exceptional position to profit from Obama’s energy efficiency incentives (Client registration required). But attracted political flak in 2010 for potential conflicts of interest arising from the marriage of a Serious Energy executive to a key U.S. Department of Energy advisor.

It would be wise for investors to steer clear of Serious Energy as we expect the company to be imminently acquired or else liquidate its assets in 2012. After spending $140 million in VC cash over ten years only to revert to its lackluster window business (which relies significantly on government support) and its soundproofing drywall business (which is a niche market) we think the company will find it a challenge to raise any additional funds from VC investors. The challenge has already been alluded to by incomplete investment rounds in June 2010 and November 2011. SCIenergy is likely to benefit the most from Serious’ imminent demise. As we discussed in a recent analyst insight (Client registration required), SCIenergy has recently acquired Transcend Equity and aims to ramp up its energy-efficiency-as-a-service offering with capital financing for the initiative provided by Mitsui & Co. This offering had SCIenergy and Serious Energy vying head-to-head for the commercial building market, but Serious’ departure has rolled out the red carpet for its incumbent at an optimal time. Expect SCIenergy to see increased demand in 2012, with the serious reduction of competition on the horizon.

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Modified wood producer Kebony wins three major projects

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Kebony, a producer of modified wood from Norway, announced three major projects in the last quarter of 2011: Onda restaurant in Norway, Yarmouth Harbor in the U.K., and Sheepshead’s Bay footbridge in New York City.

Kebony, which made The Guardian’s latest CleanTech 100 list, uses fast-growing softwoods such as pine, and makes it more durable by treating it with liquid biowaste using a patent-protected process. It impregnates the softwood with furfuryl alcohol produced from agricultural waste, and then heats it to polymerize the alcohol and form furan polymers in the wood cell walls, thereby increasing dimensional stability. According to Kebony, the result compares to tropical hardwoods, such as teak and balsa in hardness, durability, and dimensional stability. Additionally the furfuryl alcohol polymerization treatment removes any need to paint or coat the Kebony wood with volatile organic chemicals.

Wood continues to be a popular construction material in Europe and North America, even though supplies of tropical hardwood are increasingly threatened by rapid development, logging and climate change in Latin America and Southeastern Asia. Supply constraints have resulted in huge price increases. For example, the price of ripe hardwood from Latin America has gone up 120% from $0.76/linear foot to $1.76/linear foot in the last seven years. Also, according to the World Resources Institute, logging for tropical hardwood and pulp accounts for 0.2% deforestation per year and 20% of anthropogenic greenhouse gas emissions. All these factors have prompted consumers such as the New York City government to reduce the usage of tropical hardwood. But it’s been difficult to find an alternative material that shares its high strength and durability – thus, the interest in Kebony’s potentially more sustainable solution. But the company will face increasing competition from competing approaches – such as plastic-wood composites and non-tropical hardwoods – as it tries to capture the attention of sustainability-conscious buyers.

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