Volume 9, Number 4 – December 2012

What’s Next for Cleantech

America’s cleantech industries—those that help improve performance while reducing environmental impacts or using natural resources more efficiently—have been on a bit of roller coaster ride in recent years.   Five years ago, cleantech was the next big thing, touted by leading venture capitalists and industry experts.  Today, the media is filled with stories of company bankruptcies and major facility closures.  What happened and what’s the near future for cleantech?  This issue of EntreWorks Insights takes a brief look at what might lie ahead.

If we go back to 2008, barely five years ago, cleantech was hot.  In that year, venture capitalists (VC) invested $4.1 billion in cleantech firms-up from a few hundred millions dollars in 2005.   Investments via Federal programs were even larger, accounting for nearly $45 billion between 2009 and 2011.

Unfortunately, the boom has been very short-lived.  Bankruptcies of major industry players like Solyndra and A123 Systems along with major job cuts from established players like Siemens and Vestas are in the news every day.   Investments are similarly down.  2012 VC funding for cleantech is also declining, and Federal dollars, many of which came from the 2009 Stimulus bill, are also drying up. 

For cleantech advocates, it feels a bit like something of a perfect storm.  After slogging through the Great Recession, these companies face an environment where:

• Potential investment dollars, particularly from Washington, are drying up.
• Many key policy supports, particularly the renewable energy production tax credit (PTC), are at risk of expiring at the end of the year.
• The boom in natural gas production places increased price pressure on other energy sources.
• Some communities are finding that the benefits of past cleantech projects were overhyped and overstated.  (See this story on issues related to new solar plants in California).
• This challenging market situation has led many observers to over-react and declare that cleantech is dead.  On Capitol Hill, conservative advocates are pushing a new effort, the Electricity Freedom Act, are seeking to repeal state renewable energy mandates.   Critical industry supports, such as the PTC, are being derided as unnecessary pork.

These short-sighted moves are dangerous, because cleantech is not dead.  In fact, it’s probably more accurate to say that, as one blog post recently put it, “Cleantech is dead like the Internet was in 2000.”  Today, the Internet and related industries are key drivers of our economy.  In fact, a recent industry study found that direct employment in the Internet ecosystem has doubled over the past four years—at the height of the Great Recession.   These jobs are not just in big players like Google and Facebook.  The fastest job growth is actually occurring in less glamorous sectors like advertising and data analytics.

A similar prospect is likely for many cleantech sectors.  How can this more positive set of outcomes be supported?  Here are a few guidelines:

• Foster Market Stability:   Many cleantech sectors have suffered from considerable market instability.  Wind power is a classic example.   Because the PTC has been allowed to expire on numerous occasions, the industry has developed via a risky boom and bust cycle.   Long term investments will not occur in an environment where market instability looms.  Renewing the PTC for an extended period of time will help counter these trends.
• Capitalize on the Energy Boom:  While the boom in shale gas production creates major pressures on many cleantech firms, it also creates opportunities.   Innovations that improve the efficiency of gas extraction or that aid in the development of new gas-based power plants will likely see a boom market in coming years.
• Not all Cleantech is Created Equal:  Cleantech is a catch-all term that includes a vast array of industries.   Declining Sectors like solar and wind get a lot of public attention, but the exciting trends in cleantech are in the less sexy areas like smart grid, LED lighting, and energy efficiency are booming.   These sectors face bright growth prospects in the future. 
• Smart Policies Matter:   While it’s unlikely that the large scale investments tied to Federal stimulus are going to resurface, Washington still has a critical role to play by investing in energy innovation and by supporting the commercialization of new cleantech technologies.  A highly recommended April 2012 report (from researchers at the Brookings Institution and the Breakthrough Institute), Beyond Boom and Bust:  Putting Cleantech on a Path to Subsidy Independence, offers an excellent series of recommendations on this front.

Despite some recent hiccups, the prospects for cleantech are bright.  A combination of smart policies, patience, and a continued commitment to cleantech innovation, can help ensure that the long-touted benefits of cleantech will come to pass.

A Note of Thanks

At the end of this year, EntreWorks Consulting will be celebrating ten years in business.  Over the past decade, we’ve gotten older, grayer, wiser (maybe), but certainly more grateful than ever for the good friends, partners, and supporters we’ve found along the way.   Thanks to all and we hope to see you soon as we move into our 2nd decade!!

What’s New at EntreWorks Consulting?

We’ve added some new materials to the EntreWorks Library.  They include:

• “The Forgotten Fifth?  Understanding and Supporting your Community’s Independent Workforce.”  IEDC Economic Development Journal, Summer 2012.
• “Career Pathway and Cluster Skill Development:  Promising Models from the US.”  Organization for Economic Cooperation and Development Report, 2012.

We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog.  Recent postings have covered the rise of Silicon Prairie, the latest on community indicators, and new resources for veteran entrepreneurs.  You can also access blog updates at our Facebook page.