Green VC: Another Casualty of Economic Meltdown?

by Bill Chameides | January 8th, 2009
posted by Erica Rowell (Editor)

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While I was away in Nepal recently, guest blogger Ben Abrams, a Duke alum who works in the green venture capital area, saw potential trouble in green technology investment from the economic downturn but was mostly upbeat. Now comes less encouraging news from the Wall Street Journal: “venture capital investment in clean technology fell 35 percent in the fourth quarter” of 2008. (“Investment on Clean Technology Suffers Steep Quarterly Decline,” WSJ, Jan. 7, 2009)

With global warming bearing down, the race to be a green tech world leader has been heating up. Venture capital for and international sales of renewable energy technologies like wind and solar have been growing at double digit annual rates (see here and here).

While the United States gave up its leadership role in the development and manufacture of solar and wind technologies from the early 1980s, it is now moving up and challenging the leaders — in wind at least. GE Energy is now the second largest manufacturer of wind turbines with 16.6 percent of the world’s market share just behind Vestas, a Danish company that holds 22.8 percent of the market share (see here [pdf]). While GE Energy’s gain of market share has been strong, solar has been slower to distinguish itself in the global market.

In the case of solar energy, Japan was the world’s leading manufacturer of photovoltaics in 2007, but China was on track to overtake it in 2008. The United States is a distant fifth in world market share for PV, but is the world’s leader in thin film PV production. First Solar, America’s top thin film manufacturer moved into the overall number 8 slot in 2007 and is considered the world’s fastest growing PV company.  So there are some bright spots here as well. However, it’s no surprise that the top PV manufacturing companies are Japanese, German, and Chinese.

Even though recent gains in both PV and solar markets have been encouraging (thanks no doubt to production tax credits leveling the playing field), the lack of US leadership at the top of these areas was highlighted at a hearing of the Senate Committee on the Environment and Public Works yesterday (see here [pdf]). John Doerr, a venture capitalist who played critical roles in the growth of companies like Intel and Google, pointed out that “of the top 30 companies in solar, wind and advanced batteries, just six are U.S. firms.” He also referred to the green technology as “the mother of all markets — perhaps the largest economic opportunity of the 21st century.”

At that same hearing, New York Times columnist Tom Friedman recalled seeing a South African billboard advertising an automobile like so: “German Engineering, Swiss Innovation, American Nothing.”

Interestingly, both Doerr and Friedman opined at the hearing that the biggest impediment to America moving up in the green tech race is our lack of a coherent climate policy. With a price on carbon, they argued, American entrepreneurs would get the signal they need to commit to green technologies. As I’ve noted earlier, such a price on carbon would also help to level the playing field with fossil fuel-based technologies by forcing their price tag to reflect their true costs.

This is the backdrop for the news that venture capital in green technologies is not immune from the economic downturn. Last year’s fourth quarter downturn in this area was the largest drop in two years. All this makes the much anticipated Obama stimulus package all the more critical. Using the stimulus to encourage green technologies could help reverse this trend and maybe even give the country a competitive edge while the rest of the world is still reeling from the downturn. One of the obvious ways forward would be to fund renewable energy infrastructure projects. But there is another, perhaps even more effective approach. The government could encourage private (as opposed to public) investments in green technologies by requiring that any financial institution that receives federal bailout money commit to using a percentage of their funds to invest in green technologies in the future.

Clearly a lot is riding on the new president’s plans for a coherent national policy on climate and stimulating the American economy. An argument could be made that if green technologies are the key to economic competitiveness on the 21st century, the president will need to move aggressively on both fronts.

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