OPINION
Is America's Transition to a…
Clean Energy Economy, in Jeopardy?
In
Oregon, highly productive wind farms this summer exceeded the limits of BPA’s
transmission carrying capacity. While scattered across Michigan, a
state devastated by the restructuring and slowdown in automobile manufacturing,
more than a half-dozen companies began construction on facilities to build
advanced batteries for electric vehicles, and for export. In the
Southwest, two solar thermal plants, each supported by more than a billion
dollars in federal loan guarantees, will soon sprawl across thousands of acres
in the desert. From Hawaii to northern Maine, you see wind turbines
and solar collectors on buildings, made possible in part by government funding.
The
federal investment stimulus is in the final stages of delivering loan
guarantees, tax credits, and cash grants to projects aimed at developing and
deploying energy technologies. Speaking in mid-July at a ground-breaking
ceremony for an advanced battery factory in Holland, MI, President Obama
promised that the plant would be "a boost to the economy of the entire
region."
Two
years after the American Recovery Act budgeted $80 billion for new and clean
energy technologies, has the objective of transitioning the United States away
from its dependence on fossil fuels and foreign energy sources and into a clean
and sustainable energy economy been achieved? Beyond spurring
new American jobs in clean energy, the Obama administration pushed for the
unprecedented injection of federal money, representing the first and all
important step that the President described as a …"comprehensive strategy
that will pave the way toward a clean energy future for our
country."
The
federal stimulus investments did provide a much-needed market momentum, and
demonstrated in the absence of leadership from previous Administrations, a new
national commitment designed to grow and scale jobs to an emerging clean tech
marketplace, while re-investing in America’s technology leadership. But
what happens as the stimulus money runs out?
Remaking
the nation's energy infrastructure will, of course, take years. But nearly 2
years after passage of the stimulus legislation, is America’s shift off fossil
fuel and reducing our dependency on foreign energy on track? Is
America crossing the threshold to a sustainable clean-energy future? The
short answer is both yes, and no.
Venture Capitalists,
taking the Venture out of Capital
The
United States, and governments around the world have recently begun scaling
back support for renewable energy, while the venture investment community has
shifted their clean energy sector focus to less capital intensive, less
ambitious technologies. The shift is not surprising considering the
current state of the global economy, but it is also raising concerns about how
new and innovative energy technologies will be commercialized in the absence of
both public and private sector capital sources.
Venture
capitalists have traditionally argued that the private sector, not government,
can fill the need for capital in an emerging clean tech market space, but often
serve more as venture banks for established, mezzanine-mature companies, rather
than funding start-up investments. Dozens of VCs have recently stopped
making initial investments in clean technology companies all together,
according to Dow Jones Venture Source. A recent analysis by the Cleantech
Group further indicates that VC’s who continue to invest in the clean tech have
all but shifted to low-capital projects, such as software for monitoring and
reducing energy consumption. This trend boils down to one thing, in
absence of further government stimulus and private sector support, innovative
clean energy technologies may never get out of the lab.
As
recently as two years ago, Venture Capitalists backed longer-term,
capital-intensive energy investments. Also, thanks to, or because of,
generous government subsidies in clean energy, VC’s invested hundreds of
millions of dollars on solar-cell and smart grid startups which often required
expensive equipment and factory build outs in order to reach commercialization
– an investment profile that can take many years to generate a return.
The recent investment shift has been propelled
by a number of factors. In a tough economy, M&A and second round investment
opportunities often take center stage ahead of riskier early stage investments.
In the VC clean tech feeding frenzy of 2009, many firms later found
over-diversification to be a costly strategy, and have since returned to a more
familiar investment territory, e.g., information technology and life
sciences.
Some
VC’s argue that are fewer good companies available to invest in or that many of
the most promising companies have already been funded. This argument
belies the fact that large investments in conventional technologies, such as silicon
solar cells, have also driven down prices and making it more difficult for new
companies to enter that clean tech sector.
In
today’s risk-adverse investment environment, ground-breaking technologies
normally associated with younger companies also remain a bridge too far for
most VC’s. New kinds of investors in clean tech are exactly what are
needed, according to Mitch Tyson, former Advanced Electron Beams CEO. Clean
tech startup finance, he said, needs to look a lot more like biotech startup
finance. Both take a longer time to exit for early-stage investors, and have
huge capital requirements. And yet, no one talks about investors backing off of
biotech. The sector has a more mature and diverse structure for bringing
technology to market fruition, Tyson said, and clean tech can emulate
that.
With
fossil fuel government subsidies at an all-time high, and clean energy funding
being cut, this also appears to be less a question about the merits of clean
energy investments and markets, and if they can be sustained, and more about
the politics of vested interests in fossil fuels, and their political and
economic clout in re-directing America's energy policy focus to conventional
feed stock fuel sources. With this political clout, comes a
high extraction and emissions cost to the public, and to our environment.
In
the United States, the 2009 stimulus funding for clean energy is
running out. Next month is the deadline for projects to get funding from
a loan-guarantee program worth tens of billions of dollars. The program is
essential to companies seeking to build large-scale projects using technology
that private investors would normally consider too risky.
Budget
cuts in the United States are also hurting funding in R&D of new clean
energy technologies, which has both short and long term negative consequences
for America's economic recovery and future competitiveness. Germany,
Italy, and Spain are also cutting back subsidies for clean and renewable energy
alternatives to fossil fuels.
Globally,
nearly 88% of clean-energy funding—including financing for wind farms—goes to
established technologies, says David Victor, director of the Laboratory
on International Law and Regulation at the University of California, San Diego.
"We're on the cusp of a severe challenge for energy
innovation," he says.
