Earth Talk:
Is alternative energy still the next big thing?
Investors have lost money on clean technology.
-- Jeffrey Moss, Fairfield, Conn.
A decade ago, in the wake of Al Gore’s documentary, An Inconvenient Truth, and rising prices for gas and oil, many venture capitalists who had made fortunes betting on software, hardware, internet and biotech start-ups began shifting significant chunks of their investment dollars to alternative renewable energy and related investments.This put the so-called clean technology sector in the spotlight as the “new new thing.” Given growing global concern about greenhouse gas emissions and other pollution, it made sense that our highest-stakes investors would be attracted to placing big bets on little companies jockeying to be the next major players in the fast growing alternative energy sector.
But a funny thing happened on the way to the next round of initial public offerings: The clean technology bubble burst. According to a July 2016 report from the MIT Energy Initiative, some three dozen U.S. venture capital firms poured $25 billion in clean technology start-ups between 2006 and 2011—and lost over half their money: “The results are stark—clean technology offered a dismal risk/return profile, dragged down by companies developing new materials, chemistry or processes that never achieved manufacturing scale.”
The MIT researchers studied the performance of hundreds of clean technology investments and compared the results against medical and software technology investments over the same six-year period. Their conclusion? “The VC (venture capitalist) model is broken for the cleantech sector, which suffers especially from a dearth of large corporations willing to invest in innovation.”
So where did clean technology go wrong? Unlucky timing may have had something to do with it, given the overall market collapse at the end of 2008. But the MIT researchers point out that clean technology start-ups have a longer time frame of growth than, say, software ventures—and venture capitalists don’t want to wait 15 to 20 years to cash in on their bets. Also, the clean technology sector suffers from underdeveloped supply chains and an “immature acquisition space” compared with more conventional tech start-ups.
The result is that most of the 150 renewable energy start-ups launched in Silicon Valley since 2006 are long gone. The flame-out of high-flying solar tube manufacturer Solyndra—after securing $500 million in federal loan guarantees—undermined investor confidence in clean technology, while cheap natural gas and a glut of Chinese solar panel exports undercut the competitiveness of American start-ups in the sector.
But clean technology’s fortunes may be turning around, given an influx of interest in leveraging technology and efficiency to help the U.S. meet its emissions reduction commitments under the Paris Climate Accord. Just before the landmark December 2015 Paris meeting, Bill Gates announced he was launching a new venture fund, the Breakthrough Energy Coalition—with a little help from 27 mega-rich friends like Jeff Bezos, Richard Branson and Mark Zuckerberg.
The nascent billion-dollar fund is focused on “fighting climate change by investing in clean energy innovation” and represents a new type of venture financing that aims to not only make money but to help solve social and environmental problems as well. Gates and company are optimistic that other funders will follow in their footsteps to re-energize American clean technology innovation, create millions of new domestic green jobs and help finally move us beyond fossil fuels.
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This column was reprinted with permission. EarthTalk is produced by Roddy Scheer and Doug Moss. Send questions to: question@earthtalk.org
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