Cleantech Market Intelligence
What Cleantech Bust?
This month’s issue of Wired magazine includes a long feature, written by Washington Post national environmental reporter Juliet Eilperin, headlined “Why the Clean Tech Boom Went Bust.” (Disclosure: I’m also a contributor to Wired, and Eilperin is an acquaintance.) The story, which joins a lengthening list of obits for the cleantech industries, has a certain usual-suspects quality to it: John Doerr, Elon Musk, Solyndra, blah blah blah. Beyond that, like most such eulogies, it misses the forest for the trees.
Suffice it to say up front that Pike Research does not see a bust taking down the cleantech industries. Our January 10 webinar, “The Year Ahead in Cleantech,” included a forecast for combined revenue across the industries and technologies covered in our smart energy practice – biopower, energy storage services, distributed solar, wind energy, geothermal, etc. – at nearly $300 billion. By way of comparison, the global automotive industry, which has been in business for about 120 years, generated $1.7 trillion in revenue in 2010 – less than six times the smart energy industries, which are less than 40 years old. Growth rates in 2012 will range from 6.3% for biopower to 116% for stationary fuel cells to 766% for energy storage on the grid. That does not sound like an industry in crisis.
Based in San Francisco, Wired, of course, is the quintessential pinup magazine for Silicon Valley, and Eilperin at first glance confuses a bunch of disappointed venture capitalists for a wider industry downturn. VC funding for cleantech startups, she notes, totaled $4.1 billion in 2008, before the global financial crash. Much of that went down a rat hole. VC firms are temperamentally and structurally unsuited for investment in clean energy technologies: “Venture capitalists tend to work on three- to five-year horizons,” Eilperin acknowledges. “As they were quickly finding out, energy companies don’t operate on those timelines.” VC funding for “the green Google” has almost dried up; that doesn’t mean that large vendors and new startups and angel investors aren’t investing in, and making profits off, nuts-and-bolts clean-energy products like fuel cells, geothermal pumps, smart meters, and so on. Such niche products don’t make headlines like a novel solar panel technology, of the sort developed by Solyndra, does; but they form the core of the real cleantech revolution.
To her credit, Eilperin sheds the narrow, Silicon Valley-centric view late in her article. “And yet, clean tech is far from dead,” she writes, contradicting the headline and premise of her story. “Certain companies and technologies will emerge from the ruins not only to survive but to thrive, just like they did after the bursting of the Internet bubble.” (Among feature writers this is known as the “‘To be sure,…’ paragraph.”)
Among the winners, she predicts, will be electric vehicles – a somewhat surprising conclusion since disappointing EV sales have been in the headlines for weeks – and providers of distributed generation systems. The problem with a story like this one is not that it gets the facts wrong; it’s the six-blind-men-and-an-elephant problem. There is plenty of evidence available that the cleantech revolution is happening at a slower pace than its marketers originally hoped, and in many of the sectors that Pike Research covers, consolidation (including spectacular flameouts like Solyndra) is an inevitable, and healthy, part of the maturation process.
As it happens, the Wired story came out almost simultaneously with former vice president Al Gore’s latest broadside, entitled “A Manifesto for Sustainable Capitalism.” In it, Gore and his partner David Blood (“Blood & Gore” – sounds like a law firm in a Dickens novel) address the very dysfunction that has plagued the cleantech industries. In particular, Gore calls for extending the investor timelines that rule Western capitalism today – abolishing quarterly earnings guidance, for instance, and eliminating short-term performance rewards for investment managers whose liabilities are measured in decades. What we need now, declares Gore, is “a more responsible form of capitalism, what we call sustainable capitalism: a framework that seeks to maximize longterm economic value by reforming markets to address real needs while integrating environmental, social and governance (ESG) metrics throughout the decision-making process.”
This is not warm and fuzzy enviro-correctness; it’s a belated recognition that long-term performance (of corporations, of investment funds, of managers) is inextricably bound up with the notions of sustainability and social costs. That’s exactly the equation that the short-term, IPO-driven models of Silicon Valley VC firms are incapable of solving. To see what’s really happening in cleantech we need to step back, take off the blinders, and see the elephant in full. Unfortunately, gloom and doom stories like the Wired feature don’t help with that.