DIvIDEnD - Stephen M. Ross School of Business - University of ...

photo by samuel stuart
a:
Innovation often is born of a pie-in-the-sky
dream to change the world. For Jonathan Koch,
MBA/MS ’96, it’s all about “putting iron in the
ground.” Koch is co-founder and managing
director of u.S. Renewables Group (uSRG), one
of the largest private equity funds focused solely on
the renewable energy industry. Founded in 2003, the
fund has mobilized more than $750 million of capital
commitments via three funds to invest in the renewable
power, biofuel, and infrastructure sectors.
But what usRg really invests in is capacity. “if we’re going to
meet the projected market demand and mandated requirements
for renewable power and fuel in the near future, we have to build
a lot of plants,” koch says. “we believe there are several technologies
ready to be deployed. the game is to find qualified developers
and finance the build-out of this new expansion.”
usRg’s niche is to create platform companies with the intent
to stamp out fleets of large-scale commercial facilities. the firm
looks to make investments between $15-100 million depending on
the stage of the project and company lifecycle. “it’s a very different
asset class — with different financial structures and different
returns — than making a venture bet on an unproven technology
or unproven markets,” koch says. “we have to be secure not only
in the core science or process, but also in the fact that this plant
can function as designed at a large scale.”
as a project finance expert at usRg, koch seeks to identify
opportunities in renewable energy and then package a series of
scalable assets to take to market. this requires everything from
licensing technology and inking permits to negotiating feedstock,
offtake, and power purchase agreements. usRg executes contracts
for engineering, procurement, construction, operations,
and management of future plants.
“these are very complex operations, and we are involved in
every step,” koch says. usRg generally takes a controlling position
and active management role in the companies it finances;
koch sits on three boards across multiple sectors. usRg’s funds
are long-lived, and its hold time can last anywhere from three to
six years.
HERE coMES THE SUn one example is solarReserve, which
solves several issues in the solar energy space, according to koch.
notably, it relies on technology developed by the fortune 50
firm united technologies corp. (utc) that allows for large-scale
underground storage of dispatchable thermal energy. Plants are
designed at 250 megawatts or more and rely on low-water-use
technology. koch calls solarReserve a “tremendous win,” especially
because utc is backing the technology with performance
guarantees and is helping to build the component parts.
usRg purchased a worldwide license for the technology from
utc. then it recruited engineers and scientists from Rocketdyne
Propulsion & Power (who created the technology) and veteran
managers with expertise in the power industry. solarReserve now is
developing multiple plants in the western u.s. and around the world.
usRg also has invested in developing the first commercial-scale
facility for fulcrum Bioenergy, which would convert the organic
components in municipal solid waste into cellulosic ethanol, considered
an advanced biofuel by the environmental Protection
agency. Permits are in place to build its first plant in Reno, nev.
usRg projects it would produce 10 million gallons of fuel per year.
FUElinG innoVATion But first things first. solarReserve and
fulcrum Bioenergy, two of 12 active companies at usRg, now are
transitioning from development to debt financing. they face a
tight credit market, ever-changing regulatory policy, tax issues,
and other unknowns. “that means we have to bring to market the
most compelling projects possible,” koch says.
the market where finance and renewable energy meet is a point
that has attracted koch throughout his career. today he combines
institutional experience he gained at ge and Booz allen with
entrepreneurial expertise from his stint as coo of a portfolio
company of kleiner, Perkins, caufield & Byers. he also was the
co-founder and ceo of sundial, a leader in provisioning utility
services online.
“my career had been focused on improving large, industrial systems;
i learned how the multinationals produce and manage the
environmental impacts of fuel, chemicals, and power,” koch says.
“then, along with my partners at usRg, we saw this great opportunity
to take tried-and-true financial skills and tried-and-true
renewable energy technology and start building capacity.”
where it gets really interesting is identifying those technologies
poised to become full-scale commercial. “it’s what the venture
firms are struggling with because they now have a pilot plant but
need someone to finance commercial-scale units,” he says. “a lot
of people refer to this as the valley of death.”
usRg is one of the investors that can help companies throughout
the development process to cross that valley of death. “we’re
excited about creating terrific new companies we think can
change the world,” says koch. “if we can effect real change in how
we produce kilowatts and gallons of fuel, we can reduce our carbon
footprint. and we can create a more sustainable economy.”
—Deborah Holdship
spring 2010 DIvIDEnD 39