Clean Tech Needs Scale to Succeed
Clean Tech Needs Scale to Succeed
The clean-tech field is a decade old by some measures, which seems like a good time to take stock and ask: How are we doing?
I say "we" because, for more than a decade, I have advised large companies on clean tech, as well as green business generally, and I've been an early-stage investor in the sector. (By clean tech, I mean technologies that address resource and environmental challenges -- and I'm thinking mostly of new companies, though some large corporations are notably active in the space.)
In my view, success for clean tech means achieving scalable impact in terms of returns for both investors and the environment. By these standards, are we succeeding?
Global investment in clean energy has grown five-fold over the last six years to $243 billion in 2010, but still needs to double to $500 billion annually for us to have any hope of reaching global warming targets, according to Bloomberg New Energy Finance.
Clean Edge's annual clean-energy report notes that, between 2000 and 2010, the global solar photovoltaic market grew from $2.5 billion to $71.2 billion, and the wind power market expanded from $4.0 billion to more than $60.5 billion. The US went from having fewer than 10,000 hybrid vehicles on the road to more than 1.4 million, and the number of LEED-certified green buildings went from almost none to more than 8,000.
This all sounds impressive -- until we consider the size of these markets: Solar and wind together make up just 2 percent of the $6 trillion global energy market. Hybrids represent less than 1 percent of America's 250 million passenger vehicles, and green buildings represent a fraction of 1 percent of the roughly 5 million commercial buildings in the U.S. With this context, we don't even need to look at the latest atmospheric carbon levels to know that clean tech's impact so far has been modest.
Of course, change takes time. But can we accelerate it? It is promising that the percentage of venture capital invested in clean tech grew to more than 23 percent in 2010 from less than 1 percent in 2000 -- and some of the smartest VC firms are leading the charge. Similarly, many corporate leaders are investing in clean tech. For example, as part of its ecomagination strategy, GE invested $5 billion in R&D in cleaner technologies between 2005 and 2010, and last year committed to invest twice that amount between 2010 and 2015. Indeed, the progress cited by Clean Edge over the last decade may have less to do with startups than with large companies such as GE (in wind), Toyota (hybrids) and Johnson Controls (buildings).
A full evaluation of clean tech's progress would require rigorous analysis of average ROI for investors, measurable environmental benefits, and the long-term viability of winners by technology and geography. I haven't seen such an analysis -- but I know it would be valuable. My guess is that the sector overall would earn much higher grades for entrepreneurial zeal than for "commercialization" (i.e., widespread sales), which is the best measure of impact -- both financial and environmental.
Put another way, a brilliant clean tech idea can't save the planet or a VC fund unless it is executed at scale. Over the past decade, a clean tech development funnel has emerged -- from idea generation to lab test to pilot to commercial deployment -- but very few companies have made it all the way through. How many can you name?
Even companies that have gone public with fanfare, such as Amyris and Tesla, are relatively small when measured by revenue or environmental benefit. While Tesla has a market cap of $2.6 billion and recently announced its best quarterly financial results -- $49 million in revenue in Q1 -- it unfortunately lost about the same amount during that quarter. And in terms of displacing gasoline vehicles with its cleaner electric engine, which is where it can make a difference environmentally, Tesla has sold fewer than 1,700 cars. Much as I would like one myself, my friends at Tesla will have to sell a lot more cars before achieving a real commercial or environmental win.
What can we do to achieve scalable impact? Here are three high-level ideas:
- First, we should look to other industries as models. While there may never be a Google, Facebook, or Twitter of clean tech, a new group of green companies are using the web, data, and social media to create asset-light businesses that could scale up quickly. We should also learn from biotech and other capital-intensive sectors that have cracked the commercialization code.
- Second, we must feed the clean-tech funnel with more and better early-stage ideas that can develop into superior technologies. This can be done via university labs, competitions, and innovative programs like the DOE's ARPA-E agency, which funds "'out-of-the-box' transformational energy research."
- Third, and perhaps most important, we must build bridges across the perilous divide between R&D and commercialization known as the "valley of death". A robust carbon price might have done that, but in its absence we need creative strategies such as public-private partnerships, innovations in finance, collaboration between companies large and small, and transnational cooperation -- particularly with China and other fast-growing economies. We need to innovate not just technologically, but in the ways we invest in clean tech and bring these offerings to market.
Next week in New York, Dan Reicher, the chairman of the American Council on Renewable Energy and Director of Stanford's Center on Energy Policy and Finance, and I will gather a group of entrepreneurs and industry leaders to discuss new strategies to accelerate the commercialization of clean tech. Following that session, I will report back here on what we've learned.
I welcome your ideas as well: How do you think clean tech is doing? How should we measure success? And how can we get there faster?