Clean energy falls short so far

Clean energy companies have made money for some investors, but that doesn't mean they're successful businesses. Clean energy – or clean tech – will create winners eventually, but maybe not in the United States.

Robert Galbraith/Reuters/File
A sign at the entrance to the headquarters of Solyndra LLC is shown in Fremont, Calif., last month. The recent bankruptcies of solar-cell manufacturers Solyndra and Evergreen Solar are evidence that clean energy technologies – or clean tech – has not delivered on its promise.

Recently PayPal cofounder Peter Thiel made headlines when he declared that "Clean tech is an increasingly large disaster that people in Silicon Valley aren't even talking about anymore."

The sector doesn't have enough original ideas, Mr. Thiel said, and many clean energy technology companies are being run by idealists who are short on business savvy.

Those comments drew a sharp rebuke from fellow venture capitalist Vinod Khosla: "I challenge anyone to claim that clean tech done right is a disaster." Over the past year, Mr. Khosla noted that the three clean tech initial public offerings that he has been involved with have generated more than $1 billion in profits. Six more IPOs are in the pipeline.

So who is correct? Are clean tech sectors – such as biofuels, wind power, solar power, efficiency, green chemistry, and automobiles – flops or booming successes?

It depends on who's doing the measuring.

If the goal of clean tech is to displace consumption of fossil fuels, then we have to call some sectors a flop at this point. The US Environmental Protection Agency has rolled back the advanced biofuel mandates by more than 90 percent because companies could not deliver. To date, there is still no qualifying production of cellulosic ethanol, even though 350 million gallons were mandated for 2010-11. None of the IPOs Khosla mentioned are yet producing and selling commercial quantities of product.

If the goal of clean tech is to make money for investors, then call it a winner – but only for some.

The industry has been very successful at attracting investment: from $20 billion globally in 2005 to $150 billion in 2010, according to the Renewables 2010 Global Status Report, and it continues to grow. However, the report also notes that the investments are being driven by governments, and that venture capital and private equity investment in clean tech fell from $9.5 billion in 2008 to $4.5 billion in 2009. This may signal that private investors have lost some of their appetite for the sector.

If the goal is to create jobs, then clean tech has not yet proved itself. Just because companies make venture capitalists money doesn't mean they're successful businesses. Look at the recent and highly publicized bankruptcies of solar-cell manufacturers Solyndra and Evergreen Solar.

Why did they fail? Not because they were clean tech, but because they couldn't compete with Chinese manufacturers. This is a situation some other US industries know all too well.

Perhaps the best we can say at this point is that the report card on clean tech is incomplete. It is likely that the industry will create some long-term winners, just as the dot-com bubble produced some very profitable Internet companies. But those winners might not produce transportation fuel, and they might not be located in the United States.

For the world, clean tech can still qualify as a success if new sources of power significantly reduce reliance on fossil fuels and cut global emissions of greenhouse gases. In terms of American policy, such a turn of events would probably be viewed as a failure if we import the majority of our clean tech products.

While it's too early to conclude that the Silicon Valley brand of clean tech has failed, we can say that it has not yet delivered on its potential.

Robert Rapier is chief technology officer of Merica International, a Hawaii-based renewable energy company, and writes the R-Squared Energy Blog.

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