As a senior analyst in the Division of Strategic Planning at the California Public Utilities Commission, Dan Adler designed California's ambitious clean energy policy, which put a 20 percent target on renewable energy use by the Golden State's utilities by the year 2010.

Four years ago, Adler moved over to the California Clean Energy Fund (CalCEF), a non-profit venture capital entity created to enhance innovation in clean energy by funding early-stage startups. CalCEF is an "evergreen" fund that reinvests any profits in additional startups or research programs in renewables and energy efficiency.

In 2006, CalCEF raised a $30 million fund that Adler now helps oversee as president of the organization. Last year Adler oversaw the creation of a follow-on fund specifically targeting angel-type investments of $500,000 or less. Adler is an expert in renewable energy policy at both the national and state level and has the rare perspective of both a regulator and an investor. I got a chance to speak with Adler at the Renewable Energy Finance Forum West last week. Here are edited excerpts:

DailyFinance: In many cases, utilities seem to be major obstacles to homeowners putting up their own renewable energy. Net metering (utilities buying back power from homeowners at retail rates) is something many residential renewable companies complain about as being too low.
Dan Adler:
I can understand that point of view. But the utilities have an obligation to serve at the end of the day. They have to run the local infrastructure. They need to pay attention to the state of the wires and transformers and the local distribution grid. If you have unexpected surges coming out of a local grid, than can be a huge problem their systems might not be prepared for. And those surges can happen with solar energy, for example. The ideal is to get to zero net energy communities and back that with a range of local renewable systems. Then bulk up the interface with the grid so that the grid can handle the changes. But it's not all there yet.

I wanted to ask you about biofuels a bit, as well. It's a hot topic in some not so great ways. How much has the ethanol meltdown damaged the credibility of the renewable energy industry with politicians?
A lot. It's definitely been tarnished with some inaccurate assessments of what corn ethanol can actually do. The horrible thing is that everyone saw this coming back in 2006 and 2007. When you have a blunt instrument like a federal mandate saying they want ethanol, that's like opening the floodgates. You had predictable results. If you already saw the narrow margin of environmental benefits in the best case and saw the worst practices out there, it was clearly a green-rush for corn ethanol. But that's how we all learn.

Is there any possible upside to the huge boom and bust in corn ethanol?
Yes. Transmission of alternative fuels was a missing piece. The consumer-facing infrastructure for liquid fuels was missing in our infrastructure. Very little attention was paid to how do you get alternative fuels into the pipeline. Corn ethanol taught us valuable lessons on how we might make that work.

So you started as a fund-of-funds targeting seed-stage energy investments in 2006. Could you tell me about that?
Our initial fund was formed in 2005 with the stated objective of driving venture capital investment in the seed stage of alternative energy plays. This has been difficult because alternative energy is viewed as a sector requiring high amounts of capital, so no one wants to be an early-stage investor in a technology that could require $200 million to get to market. We chose Nth Power, VantagePoint, and Element Partners as the funds we wanted to put our venture investments in. All are great partners. But the market reality changed and no one was willing to invest in risky early-stage technology. So most of the money we put in ended going into later-stage investments. But we hope to help with more early-stage ventures -- so-called "science projects" -- going forward.

What's next for your organization?
We are incubating a seed fund that we hope is going to be north of $20 million. We are partnering with PG&E and CalPERS and trying to create a venture capital discipline level around seed-level investing. Until now it's been friends, family and fools. We think that the same level of diligence at a seed level can lock in a lot of value very early. You help the entrepreneurs understand business as they start to build out this sort of technology and help make it easier for them to go from lab to the pilot stage where larger venture capitalists can step in.

What types of technologies are you looking at with this fund?
We are emphasizing demand-side technologies. Those tend to be very capital efficient. We are looking at startups in flow batteries and flow-battery chemistry, two areas with a lot of potential to become the next generation of battery storage. We are actually looking at flywheel technologies and even fuel cells. So anything that can store energy is on our radar. What's so compelling about that is improved storage adds value to so many other things that we're trying to do over time. We are also looking at more efficient lighting systems and home energy management systems. We have an interesting commitment through an angel fund to back a technology that helps biofuel companies optimize their feedstock in order to squeeze out maximum ethanol, bio-oils or chemicals.

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