More From Less: Cleantech’s New Wave
This is the first post in a two-part series.
Cleantech is thriving. This may sound like the jawing of one of those clipboard-yielding, sidewalk-canvassing, save-the-planet types, but the data are clear: As bruised and imperfect a descriptor as it is, cleantech not only has a heartbeat, it’s booming.
Last year, 44 percent of total global new electric-generating capacity came from renewables (not including hydropower), preventing an estimated 1.2 gigatons of CO2 emissions from entering the atmosphere. The cost of renewable energy continues to fall, and in twelve states you can get—unsubsidized—cheaper electricity sourced from solar than from your old electric utility, passing the oft-discussed point of grid parity.
In the U.S., about a quarter of new power generation capacity was from solar—second only to natural gas. And even though slightly less is being spent on new solar arrays—globally, solar generating capacity increased 26 percent in 2013 even though dollars invested fell 23 percent—that’s because solar is costing less and less. Panels are becoming more efficient, too. You could say the renewable energy economy is getting more from less.
Private equity funds are springing up to support this new wave of energy innovation, including looking to traditional energy sectors such as oil and gas to get more from less (yes, making oil and gas cleaner and more efficient is cleantech, too). Innovative models such as Hannon Armstrong’s publicly traded energy REIT (NYSE: HASI) are blossoming similarly to back major renewable energy projects and companies like Apple and Google are loudly investing in energy technology, to reduce their own electricity usage and to strengthen their sustainability efforts. Recently, Apple pledged to run all of its datacenters off clean energy and if you haven’t heard Tim Cook speak about their massive, breathtaking solar arrays in North Carolina, a state run in large part by coal.
Google is an even more remarkable example. The search giant has invested nearly $1 billion in solar generating assets beginning in 2006 and, in 2010, received approval from the Federal Energy Regulatory Commission to sell and buy electricity like a utility company. Google has invested over $350 million into funds for solar service companies Clean Power Finance and SolarCity and supported fourteen projects worth more than 2 gigawatts of capacity. Then, of course, their VC arm, Google Ventures, invested in thermostat maker Nest which Google acquired this past February for $3.2 billion mainly to capitalize on its ‘Internet of Everything’ data backend.
Meanwhile, the investment arms of other companies in the cleantech ecosystem such as ABB (my employer), General Electric, Chevron and Saudi Aramco are playing bigger roles with new corporate venture capital funds sprouting weekly. Siemens announced a $100-million Industry of the Future fund, and Cisco recently established a $100-million sidecar vehicle focused on the Internet of Things.
So, given all this positive activity, why do so many think cleantech is on life support? Why, in Washington, has cleantech become something people don’t like to talk about, lumped together with the ACA and healthcare.gov as well-intentioned but ultimately overreaching and unrealistic?
For starters, cleantech had a rocky, rocky start. As the saying goes, pioneers wind up with arrows in their backs and large, accomplished venture firms like Oak Investment Partners, CMEA and New Enterprise Associates got severely stung by the category. Abysmal returns woke investors up to the fact that solving these large, hairy energy problems is a lot tougher than iPhone apps and daily deals sites.
More money was being spent on more expensive electricity and the government’s involvement in blowups such as Solyndra, Beacon Power and Fisker Automotive were well publicized with its principal players—including the Department of Energy’s Loan Program Office and its former head, Jonathan Silver, a partner at my former employer, Core Capital Partners—excoriated before the full story had been heard.
The media has only exacerbated this. 60 Minutes, in a ham-fisted effort to drive ratings earlier this year, aired “Cleantech Crash,” in which cleantech pioneer Vinod Khosla and the entire industry were raked across the coals and scapegoated with clearly inaccurate reporting. Talking about government-related failures and the seeming waste of tax dollars even when the government spends orders of magnitude more on failed defense technology programs can make for decent headlines but, once again, the full story wasn’t heard.
The facts are that the 1703 and 1705 DOE programs have created 55,000 jobs, enjoyed a 97-percent success rate and are expected to turn a profit for the government. Around 10 percent of the 10 gigawatts of U.S. solar energy now online came from LPO-backed projects. If you’d invested in Tesla—a recipient of government subsidies from the DOE’s Advanced Technology Vehicles Manufacturing program—stock a year ago, you’d have more than doubled your money. Tesla repaid its loan to boot, with interest. This loan repayment occurred nine years ahead of schedule, with taxpayers netting over $12 million on the original $465 million loan.
Not only are these renewables programs critical to getting U.S. down the path toward true energy independence and away from over-reliance upon foreign oil and fossil fuel subsidies, they’re effective as a portfolio at creating jobs and profits for the government. Perhaps this is why the DOE is putting a new pool of money—as much as $4 billion—to work targeting smaller-scale, distributed and grid-integrated projects after its last investments in 2011 and why cleantech is increasingly competitive against traditional fuels, even though the U.S. spent $502 billion subsidizing fossil fuels in 2011.
Even in the eyes of the government, cleantech today is a very different beast that it was eight years ago when Valley hubris was first helping drive dollars into the space. Cleantech has moved into adulthood, past the capital intensive days that 60 Minutes seemed so intent upon villainizing and finally started focusing on what it can get accomplished in reasonable time periods, shedding its albatross of capital inefficiency and focusing increasingly on lightweight software solutions and innovative business models around efficiency and automation.