Cleantech spotlight on San Diego

Cleantech Magazine, March 2009

It's a beautiful spring evening on the Pacific shoreline, at the first event for the new Robert Paine Scripps Forum at UC San Diego. Ralph Cavanagh, co-director of the Natural Resources Defense Council, is giving an energetic talk on climate and energy policy to an audience of local executives, investors and researchers.

"I have boundless optimism about the capacity of this community to lead not just California but the country in clean technology solutions and climate science," he says. "Heaven knows that in many respects you already are."

The reception is hosted by CleanTECH San Diego, a trade association promoting this southern Californian county as a global hub for the cleantech industry. The group launched in 2007 with support from the city's Mayor, after the San Diego Regional Economic Development Corporation (EDC) commissioned a cluster study from local research group Global Connect.

The San Diego region is already home to world-class clusters of the biotech and ICT industries. But with the broad area of cleantech rapidly emerging as a key sector for any forward-looking economy, the regional movers and shakers are looking to repeat that cluster-building success.

"Economic development can't be done on wishful thinking - many places wanted to be a hub of biotech and few succeeded," says EDC president Julie Meier Wright. "Today it's cleantech. Everyone's trying to tell a good story but, if you look at the attributes you need for a successful cluster, we have a lot of them."

CleanTECH San Diego's own research has identified over 220 local companies working in cleantech and related industries, from established corporates through to new start-ups. "We're finding that San Diego is a living laboratory for new clean technology companies," says Lisa Bicker, president and CEO of CleanTECH San Diego. "We're very proud we represent small businesses looking for their first round of funding, as well as really large businesses."

Notable local players include electric vehicle developer Aptera; algal biofuel pioneer Sapphire Energy; fission and fusion group General Atomics; and Synthetic Genomics, which is exploring the use of engineered microbes for energy production and industrial processes.

Becker says that the association's greatest asset is the diversity of its membership and its board. As well as companies and utilities, CleanTECH includes representatives from the public sector and academia, bringing together all the necessary elements to build a successful cleantech cluster.

Research base
San Diego boasts some 58 research institutions, mostly based in the Torrey Pines area close to the UCSD campus. Within a few square miles, you can find such internationally renowned bodies as the Salk Institute for Biological Studies and the Scripps Institution of Oceanography, which led the world in global warming research 50 years ago. Scripps director Tony Haymet also acts as vice chair of CleanTECH San Diego.

Bicker says this wealth of research expertise is key to growing the cleantech industry. "We're very focused on ensuring San Diego gets more than its fair share of research dollars," she says. "It all starts with R&D."

UCSD ranks fifth in the US for attracting federal research funding, and has a distinguished history of spinning off new companies. About a third of local biotech companies were launched by UCSD professors, while ICT spin-outs include wireless giant Qualcomm.

The university is now producing cleantech spin-outs. One notable is Genomatica, which is developing processes for producing industrial chemicals from bioengineered algae instead of from petrochemicals. The use of algae to produce chemicals and biofuels is a key area for both UCSD and CleanTECH. "We have leadership around the algal sector," Bicker says.

UCSD is also committed to cleantech in its own operations. The sustainability programme headed by vice chancellor Steve Relyea aims to slash emissions and make the 45,000-population campus independent of the grid by 2010. Initiatives include installing 1MW of solar capacity and 2.8MW of methane fuel cells, creating a campus-wide smart grid, investing in energy storage, and drawing on seawater to cool buildings.

These initiatives can help attract inward investment to the area, Relyea notes: "We're prototyping these technologies, and companies want to bring new technologies to us. They want to be part of a showcase of the top technologies in this area."

The university is also encouraging students to work with faculty to deploy these new technologies, giving them valuable skills and experience for later employment.


Entrepreneurial spirit
Research expertise doesn't count for much if it can't be turned into successful businesses, however. "We want to be more than an R&D hotbed, we want to make sure we're creating companies here," says Bicker.

Although the region can't yet compete with Silicon Valley for company creation and investment, the entrepreneurial spirit is strong. According to EDC figures, cleantech companies in San Diego received $197 million in venture capital in 2008, a sixth of total VC in the region.

Half of that cleantech funding was taken by algal biofuel group Sapphire Energy, which raised two rounds of around $50 million each in June and September. Battery developer PowerGenix (see box) secured a $30 million fourth round in September, while vehicle developer Aptera raised $24 million in July.

There are also plenty of young entrepreneurial companies yet to reach the VC stage, such as biofoam manufacturer Malama Composites (see box).

The region is also at the forefront of green construction techniques. Property developer Fred Maas, also on the CleanTECH board, is focusing on sustainability at his Black Mountain Ranch development in Del Sur, north of the city. The showcase Ranch House is one of the few Platinum LEED rated buildings in the US, and Maas is holding his builders to strict environmental standards.

The current downturn in housebuilding provides an enormous opportunity for spreading green construction technologies and practices, Maas says, as builders have to find alternatives to cheap mass construction. "I'm thinking about starting a true green building company to take this opportunity, because no one has really embraced it," he says.

Political support
San Diego enjoys political support for the cleantech industries. That's partly driven by the need to revive a flagging economy. Although the city is ranked the fifth wealthiest in the US, it is currently facing a $54 million budget deficit. The California state deficit has meanwhile reached $42 billion. Manufacturing employment in San Diego has fallen 18% since 2000, and state-wide unemployment has hit 10% for the first time in a generation.

Like state Governor Arnold Schwarzenegger, Mayor Jerry Sanders is a Republican who has committed to cleantech as a way to drive 'green collar' job creation. Tim Flannery's 'The Weather Makers' and Lester Brown's 'Plan B 2.0' sit alongside management and leadership volumes on his office bookshelf. He says he sees no political risk in pushing a green agenda in the free-market US.

"The political risk is that you don't get on board," Sanders says. "There's been the most amazing transformation I've ever seen, from three years ago when people liked to doubt climate change, to now when everybody's jumping on board. We've seen a tremendous change in people's attitudes."

Regulatory requirements are also pushing the move towards a cleantech economy. California's Global Warming Solutions Act of 2006 mandates a 25% reduction in greenhouse gases by 2020, relative to business-as-usual estimates, and the Governor has declared an 80% reduction target for 2050.

San Diego is currently preparing to offer one of the US's most generous schemes to help households and small businesses to install solar power systems, under the Californian 'million rooftops' initiative. The scheme will provide bond-backed financing which spreads the cost of installation over 20 years, and is due to be operational by the autumn.

The Mayor's office is also funding a company incubation programme, on a model previously used in the IT and life science sectors. The programme provides seed funding to help university spin-outs reach proof-of-concept stage. The first round backed three spin-outs developing new technology in solar quantum wells, thermal energy, and algal biofuels.

Utility leadership
Unlike other technology sectors, cleantech needs the support of the utilities to build an effective cluster. San Diego Gas & Electric, part of the Sempra group, is also embracing green opportunities. The utility has decoupled sales from profits and no longer seeks to just sell the maximum amount of energy, says Hal Snyder, VP for customer solutions.

Improving the electric grid is a priority for San Diego. The region's power infrastructure is one of the most capacity-constrained in the US, and came within minutes of losing all power during last year's wildfires. Introducing a broad range of smart grid technologies could help relieve the pressure.

Top of the agenda is the installation of 1.4 million domestic smart meters, an investment worth around $570 million. "We are, I think, leading the way in smart grid," Snyder says.

SDGE is also preparing major investment in the Sunrise Powerlink, a new high-voltage power line linking the city to the ample solar, wind and geothermal resources in the deserts to the east. In an arguably ironic twist, the proposals are opposed by environmentalists worried about damage to wilderness areas, but Snyder says he is confident that construction will begin this year.

The utility is in advanced talks with UK solar concentrating group Heliodynamics about a generation plant in the desert. Snyder hopes that the recently agreed federal stimulus package, which offers at least $70bn support for clean technology, will encourage further investment in renewable generation. "With the stimulus money, the timing is pretty good right now for people to start looking at investing in the inland area," he says. "Once we start seeing the stimulus money going in, I think we'll see this coming together."

Back at the Scripps Forum, as the sun sets over the Pacific, Ralph Cavanagh ends his speech by emphasising the role of local utilities in driving adoption of clean technologies, and urges the local cleantech community to encourage such efforts.

"You demonstrate that you can do this better than anybody else, and you will become the most powerful possible engine for community leadership," he concludes. "You will make Silicon Valley a dim memory."


San Diego facts

Located in the extreme south-west corner of the US, San Diego County has a population of around 3.1m, including 1.3m in the city of San Diego. The county has a gross regional product of around $170bn - if it were a country, it would rank between Nigeria and Chile. The largest sectors are defence, manufacturing, and tourism.

San Diego city is the eighth largest in the US, but retains a compact feel with easy access from downtown to the business parks and nature reserves. The locals pride themselves on their lifestyle, with plenty of desirable neighbourhoods such as UCSD's home of La Jolla, and ample opportunities for surfing, sailing and trekking. Coastal areas enjoy a very pleasant Mediterranean-style climate.

To the south is Mexico, with a relatively transparent border for trade. The Baja region provides a low-cost manufacturing base for companies such as Kyocera Solar. To the east is Imperial County, an agricultural area with strong renewable resources.


PowerGenix

PowerGenix is a classically Californian venture-backed tech firm, producing rechargeable nickel-zinc batteries for high-intensity applications including electric vehicles.

The firm was founded up the coast in Santa Clara, but chief executive Dan Squiller moved operations to San Diego in 2004 to reasons of both business and lifestyle. "We have relations with UCSD where we take parts and materials to them and they analyse them for us," he says. "There are other companies we want to be around, developing electric vehicles and nanomaterials. Being able to sit with other CEOs and talk about cleantech is valuable - if I was in other parts of the country, I wouldn't be able to have those conversations."

The firm is based on one of the city's many science parks, but outsources mass production to China. The firm also does some manufacturing and assembly across the border in Mexico. "It's too good an opportunity not to take advantage of," Squiller says.

Like many a tech company, PowerGenix had been planning an IPO to return value to VCs and to reward staff, but that's been put on hold until the markets return to normality. "We're structured like a typical California venture company where we all have stock options - all the employees here could be making more money working for a more established company," Squiller notes. 



Malama

Malama Composites is a young company with a quintessentially Californian product - environmentally-friendly surfboards. 

"Surfers love to be in the environment, but their primary tool for doing it was made from fossil fuels and hazardous chemicals," says chief executive Lief Christoffersen.

Based on technology licensed from a UK company called HomeBlown, Malama produces surfboard cores from a polyurethane foam derived from soy rather than from petrochemicals. The manufacturing process is free from toxic VOCs and, unlike traditional polyurethane foam, is degradable.

The Malama team is currently developing other applications for their biofoam including construction materials and lightweight shipping containers for air transport. The firm is in talks with local wind turbine blade manufacturer Knight & Carver "Not only can we produce them cheaper and lighter, but the long-term durability of the turbines will be improved," says Christoffersen.

Malama currently has a staff of just four, but is preparing to talk to VCs about funding to grow the business. The team works closely with other local firms such as renewable building materials producer ChloroFill, and is planning to work with algal fuel developers to produce constituent chemicals for their biofoam. "We're just beginning to make contact with them, to say we can be a better option for them than this commoditised product they've been looking at," Christoffersen notes.



San Diego Regional EDC organised and supported the writer's visit to the region to research this article.