Deal Radar 2009: Hydro Green Energy

Hydro Green Energy (HGE) is a Texas-based renewable energy systems developer and integrator in the hydropower industry. Its proprietary hydrokinetic power systems, Hydro+, Current+, Tidal+ and Ocean+, generate power without the construction of any dams, impoundments or conduits. HGE owns two patents in the US and others internationally, and it is the only US company with a commercial, federally-licensed hydrokinetic power project. 

The Hydro+ platform can be deployed downstream from existing projects to increase output without creating back pressure on the existing facility. Lock+, another platform, allows power generation at existing non-powered lock and dam infrastructures, thereby converting the facility into one that uses renewable waterpower generation at a lower price.

The company was founded by Wayne Krouse, CEO and chairman, in 2002. Prior to setting up Hydro Green Energy, Krouse held several senior positions with Nalco/Exxon Energy Chemicals and was also a Senior Field Engineer with Schlumberger. From 2002, Krouse spent three years getting his patent approved until he finally received it in 2005. In 2007, he was R&D Chairperson of the National Hydropower Association. At the time of set up, he bootstrapped the company with $400,000 of his personal funds. Another $600,000 was invested in a seed round from friends and family. HGE was out of funds in 2008, when Angel investor Mike Draper approached Krouse with an interest in investing. There was a $2.6 million Series A investment from Draper and Quercus Trust, a cleantech fund. At present, HGE has signed its Series B term sheet with Quercus for $2 million of a $7 million round and is on the lookout for partners who understand the cleantech sector to take on the remaining investment, with a goal to close the round by the end of June.    

When the company was founded, the waterpower technology sector was in its infancy, with only one indirect competitor in the US. HGE’s main aim is to generate base-load, non-emitting renewable energy from water resources at a lower rate so it is less expensive than power generated from fossil fuel. The company believes it has the potential to make sites economically viable to produce base-load zero carbon renewable energy even though they were previously considered uneconomical to develop. This clean technology can help reduce the negative impact of climate change while improving air quality and helping meet the growing global electricity demand.     

Independent studies by the NASA-sponsored SATOP program, Hatch Acres and other engineering firms all conclude that Hydro Green Energy’s dual ducted turbine produces 250% more power for the same diameter and water velocity as a “wind mill” type low-technology hydrokinetic power system often described as tidal energy turbines.

The size of the available market is very large: the US power industry alone is almost $300 billion per year. The global electricity market is over $1 trillion per year with approximately $350 billion in the US. As it recognizes this huge market potential, HGE is trying to create a new market for itself within the renewable energy industry. 

In my interview with Krouse in October of last year, we discussed how 8% of America’s energy is currently hydro, but with the deployment of HGE’s technology, that number could increase to 20%. A study by the US Department of Energy shows that there are 185,000 megawatts of potential hydro capacity in the US.

In its first growth phase, HGE’s business model expects to generate revenue in two ways.  The first is systems integration sales and licensing to existing power producers, municipalities and project developers. HGE will act as an Independent Power Producer (IPP) through the sale of power via long-term power purchase agreements (PPAs). HGE works on gross margins of approximately 45% for Lock+, down to 20% for Hydro+, on system integration sales, administration, operations & maintenance services contracts, equipment pool fees and licensing royalties. 

The company is already generating revenue for its first hydrokinetic power project. HGE is not yet profitable, but has concluded negotiations on a Lock+ sale, with a second at the MOU stage. These two deals will push revenue expectations for their first year by over 300%. With projected sales figure almost quadrupled ($24 million in 2009 versus initial forecasts of $5.7 million), HGE  expects to become profitable soon.

HGE is also currently exploring the possibility of installing 90 underwater turbines in the Niagara River in upstate New York to generate 140 megawatts of electricity. Although this is a fraction of the power generated by hydroelectric dams, HGE’s project is more environmentally friendly and promises to keep fish safe.  

Potential customers include utilities, public power companies, independent power producers, cities municipalities and similar organizations. Discussions are in progress with several large companies, including Brookfield Renewable Power, Duke Energy, Alabama Power, Tennessee Valley Authority, Mississippi Power, Sacramento MUD, and  TransCanada. 

To get into the water sooner and at lower costs, HGE began with an amendment to an existing license for a hydroelectric facility. The company is in negotiations with six projects which are in the pipeline, which should eventually translate to $120 million in revenue. 

HGE sees two potential exit strategies within the next three years: either an IPO or a buyout from a large turbine equipment manufacturer in the wind or hydropower industry, an independent power producer or an investor-owned utility.

Recommended Readings:
Cleantech is Cool
Deal Radar 2008: SunRun
Lessons for CleanTech Entrepreneurs: RayChem COE Paul Cook

This segment is a part in the series : Deal Radar 2009