Money flowing to new ideas in energy

With rising energy prices stoking demand for new technologies, venture capital firms are showering attention, and hundreds of millions of dollars, on a field investors have long ignored: alternative energy.

Start-ups working with solar, battery, hydrogen, wind, and fuel cell technologies raised $445.1 million in venture funds nationally in the first six months of this year, 56.1 percent more than the $285.2 million raised by such companies in all of 2005, according to figures newly compiled by the National Venture Capital Association trade group.

In New England, venture investments in alternative energy companies spiked to $87.9 million in the first half of 2006, six times more than the $13.5 million invested all of last year.

At today's higher energy prices, ``a lot of the things that didn't look economical in the past are starting to look more economical," said Jeff Andrews , a partner at Atlas Venture in Waltham who's been prowling for alternative energy investments.

Andrews said interest in the field has been heating up at venture firms across the country as soaring oil prices leave financially pinched businesses and consumers clamoring for alternatives. ``You don't have to look very far to see what the cost of energy is," he said.

Among the Massachusetts start-ups that have drawn venture funding are A123 Systems, a Watertown company that is pioneering a new kind of rechargeable lithium ion battery that would be more powerful and durable than the batteries that now power hybrid cars. The company raised $30 million in February -- the largest funding round so far in 2006 for an energy start-up in New England -- from a consortium of venture investors that includes North Bridge Venture Partners of Waltham and Silicon Valley powerhouse Sequoia Capital.

Earlier this year, A123's batteries entered the consumer market powering a new cordless line of Black & Decker's DeWalt power tools, such as hammer drills and circular saws. A123 executives are now talking to American and European automakers about incorporating the lithium ion batteries in new hybrid vehicles scheduled to be introduced between 2009 and 2011. ``I believe we have the right technology at the right time," said A123 cofounder Yet-Ming Chiang , a materials science professor who developed the tiny nanomaterials used in the batteries in his lab at the Massachusetts Institute of Technology.

At least some of the fervor for funding energy start-ups can be attributed to the souring of interest in other sectors of the economy.

``Venture capitalists have gone through a dry spell finding attractive investments in telecommunications and software," said Howard R. Berke , founder and chief executive of Konarka Technologies Inc., a Lowell company developing flexible plastic solar cells for use in everything from building materials to mobile phones. ``They see clean energy as a new focus area."

Solar energy companies like Konarka have been especially attractive to venture investors as the price of oil, natural gas, and electricity climbs. Konarka raised $20 million earlier this year from a funding group that includes Draper Fisher Jurvetson, one of two Silicon Valley firms, along with Kleiner Perkins Caufield & Byers, that have set up venture funds investing exclusively in alternative energy.

While solar energy has been used as a power source for decades in relatively small numbers of homes and buildings, the technology may finally be ready for large-scale adoption, suggested Berke, who is also a director of the American Council on Renewable Energy, a trade association. ``I think we are at the tipping point," he said. ``The technology right now is more robust, the cost of fuel has been rising, and renewable energy is becoming cost competitive."

Another factor driving alternative energy demand, and heightening investor appetite, is the subsidies and incentives offered by governments in the United States, the European Union, Russia, Japan, and China. ``It's happening on a global basis," Berke said, ``and venture capitalists recognize that when they fund a company in the renewable energy space, they're funding companies that will have a global market."

Not all the energy start-ups are responding to jitters over high oil prices. Another cluster, including such companies as Lilliputian Systems of Wilmington, a maker of fuel cells embedded on silicon chips, is working to increase the power of devices like cellphone or handheld computers so their users can access videos or other broadband content. ``We enable power-hungry applications, and we have no shortage of customer interest," said Ken Lazarus , the Lilliputian chief executive.

Because most of the crop of new energy companies raising venture funds are still in the development stage, like Konarka, or just starting to line up customers, like A123, it's too soon to gauge how successful they'll be -- or whether their venture backers will be able to cash out profitably by selling the companies or taking them public.

Venture capital is the perfect funding model for such companies, because venture firms are willing to make riskier longer-term investments and lose money or break even on some as long as they realize big returns on others, said Travis Bradford , founder and president of the Prometheus Institute for Sustainable Development, a research firm in Cambridge and author of the book ``Solar Revolution: The Economic Transformation of the Global Energy Industry."

``A lot of venture capital is flowing into companies in this space, and not all of them are going to make money," Bradford said. ``But these are major new sources of energy. If a new generation of technology can bring their cost down further and gain rapid acceptance, these companies are going to be very valuable assets."

Robert Weisman can be reached at weisman@globe.com.