2011 is shaping up to be the second-most lucrative year ever for investment in renewable energy technology, second only to 2008. It is well-documented that venture capital for clean technology fell off a cliff along with the rest of the economy in the recession; funding recovered slightly, however, in 2010 and is now expected to grow for a second consecutive year in 2011.
The bad news? While also predicting the 2011 year-end increase in venture funding, clean tech research and consulting firm Kachan and Co. also predicts that investments will drop in 2012, due to, among other things, policy uncertainty and the fallout from the recent collapse of solar panel maker Solyndra, LLC. Kachan Managing Partner Dallas Kachan writes:
There’s no mistaking that the (now expired) American national loan guarantee program helped loosen private cleantech capital in an immediately post-2008 shell-shocked economy. However, continued uncertainty over the future of the U.S. Treasury grants program and production tax credits is holding the U.S. back.
In other words, private investors don’t want to pump money into renewable energy because they’re not sure that existing policy benefits will still be there a year from now. Why?
Don’t expect cleantech-friendly U.S. policy leadership in 2012, an election year. We wouldn’t be surprised if the ghost of Solyndra and other U.S. Department of Energy stimulus grants and loan guarantees continued to haunt American cleantech through the whole of 2012, making any overt U.S. government support of clean or green industry unlikely.
Kachan doesn’t specifically mention that the United States government currently has a congressional majority whose leadership and grassroots are actively hostile to energy sources that do not burn fossil fuels, but one can reasonably assume that “the ghost of Solyndra” is a nod to the politicians and opinion-makers who have used the Solyndra collapse as a hammer with which to continually beat additional investments in renewable energy.
Forward-looking venture capital firms want to invest in clean technology. That’s why, in one example, a team of Minneapolis investors are getting together a $335 million fund to invest in energy startups. That’s why clean tech is projected by Kachan to get $8.8 billion in venture funding in this year alone – almost one third of ALL the government money spent on clean energy and energy efficiency in the controversial 2009 economic stimulus. Add the private investment totals from 2009 ($6.6 billion in a down year) and 2010 ($7.7 billion) and venture capital funding in the last three years comes close to equaling the government’s relatively modest stimulus output (the Department of Energy as a whole is only responsible for about 1 percent of the US federal budget).
The problem for investors is that energy technologies require a lot of start-up money, and without government support, they’re just not that profitable at the very beginning of the investment process. Down the road, however, energy can be quite lucrative (ask the Rockefellers, who were considered crazy at first for thinking that crude oil could be a viable alternative to whale oil). The potential returns for our economy far outweigh spending $27 billion (the stimulus figure) out of a budget of over $3.2 trillion, and coming up with a few Solyndras.
Conservatives are fond of suggesting that the free market take care of investments in renewable energy, or anything for that matter. This is happening – and on a larger and larger scale – but it won’t continue without more policy certainty. Imagine how many investors would flock to the solar and wind industries if the Production Tax Credit were extended for 10 years, instead of being on life support every December.
It’s frustrating that the potentially large-scale development of a nascent yet growing industry with so much promise could be stymied by a political leadership more interested in preserving the status quo than making piecemeal investments in the future of energy. It’s the equivalent of running a sports team that has been successful but whose players are nearing of the end of their careers, and not investing any money in the development of new players who could eventually carry the team. That wouldn’t be good business, and it’s certainly not good government. In a competitive world, you either adapt or die. Just ask the bailed-out American auto companies.
There are some positive indicators for clean technology. Solar remains the fastest-growing industry in America. In the same forecast for 2012, Kachan projects the continued growth of marine energy, a CARBONOCRACY favorite. But how much economic activity is our country losing due to reluctant policymakers? And will these trends continue if one of America’s two major parties continues to throw dirt on clean energy?
New $355 million green energy fund looking for startups (St. Paul Pioneer Press)
Predictions for cleantech in 2012 (Kachan and Co.)