Betting on how America will wean itself off oil has become a business opportunity for entrepreneurs and financiers eager to stake a claim in the country's energy future.

In recent years, "clean" technology startups pioneering more environmentally friendly methods for making, storing and using energy have exploded in number. With pitches ranging from super-efficient batteries to thin-film solar cells, these companies have caught the eye of investors willing to speculate on a multi-billion dollar emerging market.

New York-based Lux Research Inc., which tracks such companies, reports that hundreds of energy technology startups in the United States now receive some form of venture capital backing.

Since 2003, U.S.-based venture investment into the sector has more than quadrupled, from $547 million to over $2.4 billion, according to a report released earlier this year by industry research and consulting firm Clean Edge.

As of 2006, about 10 percent of all venture capital in the country went toward energy technology. Only information technology and biotechnology received more.

Fuels derived from corn, wood chips, sugar cane and other biological feed stocks, in particular, have caught the attention of investors, who see such energy sources' potential to power the nation's fleet of cars and trucks.

In 2003, biofuel startups received $800,000 in venture capital, according to data from San Francisco Bay-area clean energy investment firm Nth Power. Last year, venture funding for the sector topped $800 million.

Bridging a funding gap
While these sums are still relatively small compared to what the U.S. government and large public corporations are investing in energy technology, the growth in funding is significant, said James Stack, an analyst at the energy consulting firm Freeman, Sullivan & Co.

According to Stack, venture capital is bridging a "structural gap in the product development cycle."

For many emerging technologies, he explained, the government provides financing for fundamental scientific research. Once technologies have been tested, large corporations, with their economies of scale, figure out how best to deliver these products to the public.

In the middle, however, are riskier investments in still-nascent technologies and processes that neither the government nor large corporations want to fund. Venture capital fills that void by taking risks on promising companies that are trying to make their products commercially viable.

In the case of energy technology, Stack noted, the capital costs can be particularly large, since they may require expensive infrastructure, such as refineries in the case of biofuels, and take a decade or more to develop.

Ron Pernick, co-founder and principal of Clean Edge, said he believes this is partly why the recent surge in venture funding for energy technology is promising. He noted that of the $2.4 billion venture capital invested in clean energy technology last year, about a billion went to pipelines and infrastructure.

"That shows at least desire for venture capitalists ... to not only put money into early-stage technology development or expansion-phase technology, but also into bricks and mortar," he said.

Long-term thinking
While that trend may not continue, Pernick said it at least signals that investors are thinking longer-term.

Ted Sullivan, an analyst at Lux Research Inc., said he sees the surge in investment less optimistically.

"Everybody [is] piling onto the ship," he said. "With the current state of technology, how many players can you possibly have within the space?"

For example, solar energy accounts for only two-tenths of a percent of global energy production, yet there are 400 module makers competing for market share, said Sullivan.

"That doesn't sound terribly sustainable," he said.

For these companies to be successful, Sullivan explained, they will need to have some sort of competitive edge, an advantage in terms of product or process.

While the surge in investment will likely speed up adoption times for new energy technologies and spur the invention of new technologies, he said, the transition from oil may take decades.

"People are talking a transformation in five or 10 years. I don't think that's feasible either from an infrastructure standpoint or an economic standpoint," he argued. "There's still a lot of oil in the ground, still a lot of coal in the ground. And companies are getting persistently better at extracting it."

Both Sullivan and Pernick agreed, however, that in the long run no single energy source is likely to replace oil. Both emphasize that a blend of new technologies, paired with breakthroughs in energy efficiency, could eventually fill the energy demand.

That means cars and trucks capable of using a variety of fuels -- so-called flex fuel vehicles -- are likely to appear in U.S. markets in the coming years. Just how soon these vehicles arrive, however, will depend largely on policy shifts such as renewable energy standards and how soon manufacturers bring them to market.

"At the end of the day, you're completely transforming the energy infrastructure of the U.S. -- and potentially the world," Sullivan said.

-- By Noah Buhayar, Online NewsHour