Can Clean Tech Survive Without Incentive?

May 21, 2011

Industry News, Technologies

There’s a buzz amongst the web that the clean tech (clean energy technology) industry is looking pretty dismal at the moment. Despite reporting major venture capitalist dollars in clean tech for the first quarter, there’s more to this than meets the eye. The recently reported surge in clean tech funding has come from later-round investments that are more capital intensive than original round one start up phases. The truth is, there is a rapid decline in the incentives for clean tech investment.

  • Global energy subsidies heavily rooted in Europe are dwindling. About 4 years ago, a Michigan manufacturer of solar panels had so much demand from Germany that domestic buyers couldn’t even think about moving up the mile-long waiting list for at least a couple years. Germany had provided such phenomenal financial incentives for businesses and residents to install solar on their buildings that they were scouring the earth for panels. Now that those rebates and financing options have vanished, demand has dropped drastically.
  • US energy legislation sucks. There is no current energy legislation that’s forcing a rise in demand for these energy start-ups to get up and running. Without demand, returns are low for investors and many venture capitalists are desperately seeking a way out of their current deals with clean tech start-ups as expectations have not been met.
  • Stimulus dollars are running out. A couple years ago, there was so much green energy money floating around that even unexpected consumers were jumping on board the clean tech train. Municipal buildings going solar, installling geothermal, and even offering grants for businesses in the area to do the same. When city government has money to go green, it’s a sign that the market is good. Now that these stimulus dollars are no longer trickling down through the economic machine, demand has been stifled even further.
  • The budget crisis will prevent major energy research funding from increasing any time soon. The Department of Energy isn’t looking at any huge budget increases in the coming years which is huge red flag for investors in clean tech. Without government-sponsored innovation and revolutionary minds reinventing the energy landscape, venture capitalists fear that jumping ino clean tech will lead to floundering and struggling to keep their heads above water.

It looks pretty dismal at this point for start-ups in the solar, wind, electric vehicle, and biofuel worlds.


But not everyone in clean tech is suffering. Luckily, it appears that energy efficiency and energy management techologies haven’t experienced the same hit at the start-up venture capital level. PricewaterhouseCoopers has reported huge gains in LED lighting, energy management software deveopment, and smart grid technology investments.

Even though energy efficiency and management is not as glamorous and photo-shoot worthy as their renewable energy counterparts, there is something to be said for the ease of integration and compatibility to existing infrastructures that puts some venture capitalists’ minds at ease in the face of diminishing financial incentives.

It’s obvious that some clean tech ventures can survive (and even thrive) without incentive, drawing on the power of reinventing what’s already here rather than building from scratch. But how are we going to diversify our power source portfolio into a more clean tech based generation platform when investors would rather jump into the high returns of web-based products like LinkedIn and Groupon?

How do we overcome this? What are your ideas?

Image credits in order: dimitri_c and vancanjay

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11 Comments on “Can Clean Tech Survive Without Incentive?”

  1. Clay Forsberg Says:

    Nice piece Megan. Unfortunately, alternative energy is not as glamorous for investors as Groupon or LinkedIn. But whether these two speculative ventures pan out is far from a guarantee. Wind and solar ventures will only provide decent returns, not great. And for the most part – are not speculative.

    The ascendancy of the “slash and burn” budget hawks has more or less assured us that alternative energy projects will have to stand on their own without government assistance. All is not a loss however.

    Major project constructed by utilities are either going to happen, or they’re not. A lot depends on the state they’re in. Legislative requirements put in place previously (for example California) will insure alternative energy development by the utilities there. And if crude oil price remain high, additional wind and solar facilities will be built to take the place of fossil fuel powered ones being phased out.

    That leaves the consumer market. Gradually, as Gen X and Gen Y become bigger players in the housing and building market (both as consumers and developers), wind and solar energy will become more prevalent since these generations are much more environmentally conscious than then their Boomer parents. This along with needed changes in zoning regulations and building codes will also move ahead the industry. We just have to wait it out. Unfortunately, gasoline prices have no effect on electricity or heat generation – and natural gas prices have been stable, so there’s no “hurt” factor like $4 gas prices.

    No one more than me, wants the proliferation of wind and solar energy. I was heavily involved in the industry in the early ’80s, on several levels. It’s been thirty years and I’m still waiting for it return. I have faith that you and your generational cohorts will lead the way to energy sanity.

    Reply

    • Madam Energy Says:

      Clay! Excellent comment all the way around. I do agree that alternative energy projects will need to stand on their own without subsidy in order to hack it these days but I feel as if consumer incentives (tax cuts, rebates, etc) drive a lot of investor interest as well as public interest. It brings the urgency and relevance of the necessity to the fore front and help to make energy issues a household conversation rather than just a public policy debate.

      “Wait it out” is tough for me. 🙂 But it’s helpful to know folks who have been there-done that with the roller coaster ride that is the energy industry. Being contracted by local utilities for energy efficiency programs, I hear all too often that businesses and residents would be more open to alternative energy if the utility helped out in one way or another to reduce costs – and it just kills me! I’ll have to put a note on my desk that says, “Clay says patience, young grasshopper” to keep me grounded. 🙂 Thanks for the great comment!

      Reply

  2. Mark W. Says:

    Very good post Megan. The gist of it for me was “follow the money”.
    VCs are looking for investments that will reap the most benefits in the shortest time frame possible. It is for this reason that I don’t see alternative energy making great strides with this mindset. They will be able to contribute to advances to some degree but not as much as the utilities and consumer who have the most skin in the game. The government should and can provide incentives (such as tax) but that also seems to be short range and limited due to constrained budgets. Long range planning with both business and government on board seem to me to be the most helpful. When businesses know their government stands behind them and they can trust and rely on them for their future well-being, they will take some incredible risks. I don’t see that happening right now and haven’t seen it in quite a number of years. So this brings me to alternative energy and the global marketplace. Google China and solar panels for news content and it will scare you as it did me. China is the global leader in solar cell production. I won’t be surprised when I hear their new technology is more innovative than the U.S. Alternative energy should be a part of the energy portfolio and its contribution will increase as it becomes more economically viable. I would like to see alternative energy flourish but the only way to do it in a sustainable fashion is to make it attractive to everyone involved – business and consumer alike. Those are some of my thoughts. I don’t really see any villains here but I also don’t see any visionaries standing up for future generations with real fortitude. Visionaries who are high level and could really make a difference on a global scale in this global economy.

    Reply

  3. Clay Forsberg Says:

    It’s all well and good to talk about what the government should do, and what venture capital should do. But what if they don’t do anything? The technology is here to successfully transition our country to cleaner energy. What it’s going to take though, is the public to take the matters into their own hands.

    Local voters have to demand relaxed zoning and building codes so that solar and wind can flourish in suburban and urban areas – not just rural. This is the number hurdle to wide scale use.

    Companies that make and sell the clean energy products (solar, wind, etc.) have to improving their marketing efforts significantly. People buy on emotion. Just marketing to ROI doesn’t generate any excitement since heating and electrical costs are, for the most part – in line. Make builders feel guilty NOT providing “clean energy” designs. And make buyers feel the same way. Most marketing programs generated by “clean energy” vendors, both B2B and B2C, are terrible at best.

    We have the solutions at our disposal. But we, and I mean those who have the least bit an interest in “clean energy,” have to be the ones that ‘step up to the plate’ and do something about our future. It’s been demonstrated over and over that both our current government and venture capital have no real interest in contributing to our future wellbeing – at least as far as energy goes.

    Reply

  4. Madam Energy Says:

    This is the most exciting conversation on my blog to date. I agree with Mark that China is really dominating many energy markets currently and bring a sense of urgency to development.

    But I also agree with Clay that (in the US especially) energy urgency has to come from the people. Many of the decision makers have vested interests in working against renewable portfolios, clean energy legislation, and policy reform.

    I too can attest to the horror that is clean energy marketing. Even amongst circles of very progressive and energy-friendly potential customers, it comes up short. Those who peddle the wares typically lack charisma and emotional intelligence, those who work the grassroots awareness circuit come off as whack jobs (thanks, Greenpeace), and the few who actually do market clean tech well often become discouraged by the slow pace of progress.

    What’s a Gen Y enthusiast to do, folks? Where do you think we can take this energy marketing idea? How do we get marketing geniuses on board for the energy fight?

    Reply

  5. Clay Forsberg Says:

    All right – enough theory, let’s get into some pragmatism. Megan, you asked what GenY can do. First, don’t worry about trying to convince the Boomers (politicians included) … it isn’t going to happen. They’ll just look at you like they do their kids.

    Take the example of social media -say Facebook. The young generation just went out and did it. The same thing can happen with “clean energy.” As I said before, the technology is here – it just has to be put in play. What about speculative ad campaigns – just like spec houses. It would take some time and effort, but why don’t some GenY and young GenX marketing and ad people put some sample campaigns together that appeal to their generations, their peers. Then sell it that way to companies and developers where applicable. These companies are out of touch with your generation.

    One the characteristic of the Millennials, GenY – is their propensity to collaborate and band together. Why not get behind pragmatic green candidates for local office. With the inherent low turnouts in local elections – a good social media effort to get out vote should be able to counter any mainstream incumbent.

    You guys have more than enough numbers and knowhow. You just have mobilize … but mobilize with a focus. Why don’t you spearhead it, Megan – seriously.

    Reply

    • Madam Energy Says:

      Are you sure the rapture didn’t occur? Because this conversation is what heaven is made of. *punchline cymbals*

      I am up for the task! I think this is a really great approach. Being in a Big 10 university area (with three colleges that have renewable energy programs or focuses nearby) I think my immediate access could lend itself well to this.

      I smell a revolution on the horizon.

      Reply

  6. Mark W. Says:

    First of all, I don’t see how the implementation of clean energy is a generational issue. The work on clean energies has been going on for many generations including my own – Boomer. I worked as an engineer at a major aerospace company in CA for many years. While the projects I worked on were not on clean energy, I saw many of my efforts curtailed and dictated by the bean counters. It’s a fact of life that was hard to accept. I remember thinking if only … I had these resources (time, money, people), then I could accomplish these goals. It doesn’t work that way though because the bottom line and politics have a huge influence … more than the logic that generates an engineering solution.
    Second, people who have an interest in clean energy have been stepping up to the plate. So if the solutions are there, why haven’t more of them been implemented to a greater degree? I think it’s because the majority of the people of the U.S. while “rich” compared to many other people of the world are not rich enough to spend their hard earned money on technologies which are not mature. There is still a long way to go even though the materials and processes are impressive compared to one or two decades ago. Materials and process engineering in technical ceramics was my undergraduate degree and my expertise in industry.
    So with that off my chest, I will agree that marketing and regulations need improvement. Any one that knows me knows that I subscribe to the notion that theory is only part of the equation to solving a problem as complex as clean energy. I’ve rolled up my sleeves many times and joined the operator on a machine on the line to work out the details of a process I worked on in the development lab. There’s a big difference between the lab and the production floor just as there is the promise of clean technology relative to the established energy resources (coal, oil, nuclear, and others) currently used. We’re on our way but we’ve got a long ways to go.
    I want clean energy that I can afford and the clean aspect of the solution is important to me. Currently there are people not far away from me in my state (NY) that are fighting fracking for natural gas. It’s an extraction process with risks to one (if not the most) of our most valuable resources – water. It’ like choosing between paying for the groceries or medical costs. Which is more important – energy supplies or water? Obviously water – at least to me. However people that own land with all the “rights” are looking at it from a different perspective.
    I think clean tech incentives are necessary for the short term. People will continue to ask and receive incentives in various forms and amounts. It’s my hope that incentives are truly short term and don’t continue to drag on. I want a diverse and reliable energy resource portfolio for the U.S. (and the rest of the world for that matter). One less “reason” to fight and have wars.

    Reply

  7. Madam Energy Says:

    Mark, I think that the place where generational differences come into play is more or less with the ability for connecting, networking, and collaborating through social media. It’s an incredibly powerful tool (obviously) that is pretty heavily used in the younger generations – present company excluded, of course. I agree that energy issues effect all generations but I think the issue of bringing the conversation to the mainstream is audience may be easier through social media and it’s largest demographic.

    Reply

  8. Mark W. Says:

    Boomers are a large demographic with a large amount of influence and money. Even though they didn’t grow up with social media, they’re currently using it and more so every day. Last weekend I went on a brewery tour locally and was told by the tour guide that the brewery will be installing an anaerobic digester ( http://tinyurl.com/3gbj3t5 ). I believe geothermal cooling and energy efficient equipment and lighting at the plant are already online ( http://tinyurl.com/4ygrkjv ). It happened because the packaging area of the plant had a large fire three years ago. So when they rebuilt that specific area of the plant, geothermal energy was included in the plans. The family owned brewery ( http://www.saranac.com/page/family-history ) is forward looking and they’re doing very well. Their company uses social media very well and they’re very popular in the community as they support many charities and social events. As an example, they are the founding sponsor of the largest 15K run in the country. So, in conclusion, I’m saying all generations are using social media and if they’re not, they’re most likely employing the services of another generation. The conversation I really want to hear is the one between Gen Y and their children and grandchildren when they’re in the workplace. How they just don’t know how to use the latest technology to leverage it to its full potential. I think it’s a continuum that lasts throughout the whole history of mankind.

    Reply

Trackbacks/Pingbacks

  1. Clean Tech Battle Cry For Generation Y | The Life and Times of an Energy Careerist - May 25, 2011

    […] recently wrote about the struggles of clean tech to thrive without incentives from government funded research, federal tax cuts, and consumer financial programs. It stemmed […]

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