There are also rising hopes that Congress will pass stimulus bills that would funnel massive amounts of money into clean tech, much as the Obama administration did during the global financial crisis.
Regardless of what happens on the US federal level, growing numbers of states, nations, and corporations are committing to achieve net zero emissions in the coming decades. Those targets alone promise to create significant demand for clean energy and other climate-related technologies.
The ultimate size and fate of the next boom, however, could depend on how quickly and fully the economy recovers from the devastating covid-driven downturn—and how well investors learned their lessons from the last bust.
The original clean-tech boom was a bloodbath. The global recession dried up the market for new or follow-on investments. The collapse of silicon prices as China scaled up solar panel production hammered thin-film startups and others pursuing alternative approaches. And the advanced biofuel sector struggled to compete as the downturn undercut oil prices and the rise of fracking tapped into new domestic natural-gas reserves.
The bigger issue was that startups still deep in the research-and-development stage were a poor fit with the venture capital industry, which was counting on the sorts of high returns in three to five years that it enjoyed in software.
Clean-tech companies required too much money and time to demonstrate and scale up their technologies, says John Weyant, a professor of management science and engineering at Stanford, who coauthored a book examining what went wrong. Advanced biofuels, thin-film solar companies, and all sorts of energy storage startups of the era were simply too immature and too expensive to be commercialized—and in many cases they remain so today.
That made it hard to compete in commodity fields with powerful incumbent players and ultra-thin margins. Clean technologies themselves have gotten better and cheaper. Renewables can now largely compete directly on cost with coal and natural-gas plants, following a massive buildout of manufacturing plants and solar and wind farms around the globe. Likewise, the improving price and performance of lithium-ion batteries is making electric vehicles more attractive to consumers and automakers.
Meanwhile, Japan , the European Union , and China have all committed to effectively decarbonize their economies by around midcentury. Together, these trends have eliminated the technical risks from big parts of the clean-tech sector and set the stage for the development of major new markets.
Two other technology areas, transportation and solar, accounted for 21 percent and 16 percent, respectively. Together with bioenergy 10 percent and energy storage 8 percent , those five sectors accounted for nearly 80 percent of total cleantech VC funding and 62 percent of deals. These and other trends reflect that VC investors have become extremely wary of any technology that would take a decade or hundreds of millions of dollars to commercialize.
These technologies are less capital intensive than other clean energy technologies, have a shorter time horizon, can be applied to a wider range of energy products and services, and are less reliant on government incentives or subsidies that may be withdrawn. Even in the solar sector, more VC money now goes to solar finance and installation companies such as SolarCity, SunPower, Sunrun, SunEdison, and Sungevity, instead of to solar startups such as First Solar and now-defunt Solyndra, which have focused on manufacturing better solar panels.
Take the case of nuclear, where VC funding remains extremely weak. Since then nuclear deals have been stuck in the single digits. In a similar fashion, VCs are reluctant to fund high-risk, capital-intensive ventures like offshore wind farms, biofuel refineries, and unproven solar cell technologies. Last year less than one percent of cleantech VC dollars reached wind and about eight percent landed in bioenergy—a particularly capital-intensive slice of cleantech.
As VC funding in the cleantech space has slowed in the last few years, with many VCs and late-stage financiers reining in investment, corporate investment is partly picking up the slack. Some corporations like General Electric, Google, and Duke Energy are directly investing money into startups, with an eye toward acquisition down the road. In , deals had at least one corporation or corporate VC involvement, compared to deals in However, the share of corporate involvement in startup funding has remained steady since , with 22 percent of total deals in both and attracting corporate funding.
While the trend of corporate investment cuts across several cleantech sectors, from advanced green materials to solar, corporate funding is geared toward the transportation and energy efficiency sectors. In , corporations, including their VC arms, invested in 23 energy efficiency and 26 transportation startups, accounting for 23 percent and 26 percent, respectively, of deals that had corporate backing. For instance, with new automakers like Tesla and tech giants like Google and Apple eyeing autonomous vehicles and developing the car as a new software platform, traditional car manufacturers have set up venture arms and are betting on startups focused on car development and battery technology.
At the same time, the role of large corporations in sparking fundamental innovation should not be overestimated. These companies, with legacy businesses to protect and sustain, are unlikely to expand their involvement and pick up more of the slack in funding disruptive clean technologies. There is no doubt that VC investment has played a critical role in the takeoff of the cleantech sector.
However, as this analysis reveals, VC money has not been reaching many promising technologies, especially the riskiest ones, often with the heaviest financial demands, that are urgently required to address climate change. At the same time, the highly disproportionate concentration of cleantech VC investment in a handful of metro locations may be excessively narrowing the sector while complicating the challenges startups in the rest of the country face in raising capital. These findings are in line with a growing body of evidence that suggests that the traditional VC model may be ill-suited for many cleantech sectors.
Overall, Silicon Valley cleantech startups from those years failed—or failed to thrive. Against this backdrop, new models of financing that are aligned with the nature and needs of the cleantech sector are sorely needed. Yet there remains immense scope for new types of investment vehicles that deploy patient risk capital over a longer time horizon.
In all this, the role of the public sector, especially the federal government, cannot be minimized. But so will smart new partnerships between government and industry.
ARPA-E has provided critical seed money, usually up to a couple of million dollars, to more than projects in diverse technologies including solar, wind, natural gas, fusion, bio-engineered fuels, and batteries. Instead of radically reducing or eliminating an array of cleantech programs, the federal government needs to continue to support programs like ARPA-E and the LGP that can increase the odds of survival of early-stage business ideas into commercialization.
One of these initiatives, Cyclotron Road, at Lawrence Berkeley National Laboratory, addresses the gap between early-stage energy technology invention and high-impact commercial outcomes by providing a home for entrepreneurs to advance and commercialize technologies. In the face of federal drift and inaction, meanwhile, state and local action to help increase the success rate for cleantech startups is becoming even more critical. Beyond public support, finally, the cleantech sector needs to experiment in its own right with new finance models designed to bridge resource gaps.
There is no doubt that corporations and corporate VCs are going to need to play a larger role in financing start-ups. This corporate role is already significant; it will need to expand, at a moment when many companies are sitting on large cash piles and say they are looking to spur innovation. Meanwhile, a few new developments justify optimism. In this regard, a new set of investors with a long-term commitment to new technologies and a willingness to put patient risk capital to work have arrived on the scene.
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