Investing in clean tech – successfully – is still a work-in-progress. Numerous publications have recently pronounced clean tech investing in renewable energy, bio-fuels and green chemistry to be dead due to a 34 percent decline in venture capital investments in solar and clean tech.
But, the growing price competitiveness of clean tech suggests that such declarations are off base. If the price of oil had dropped at the same rate that solar panel prices have fallen since 2007, we would be paying $10 per barrel of oil! Similarly, higher efficiency lighting continues to win price competitiveness due to manufacturing economies of scale and technology improvements. Re-lamping a building with higher efficiency lights offers returns on investment of two years or less. But even with clean tech winning price competitiveness, the investor path to monetizing clean tech investments remains challenging. The successful IPOs of ENOC, Tesla and Solar City are still more the exception than the norm.
Three “800-pound gorillas in the room” confronting clean tech investors
There are three huge issues that dominate the clean tech investor’s path to profit. One is China. China’s thirst for manufacturing exports can overwhelm their own economic good sense. In terms of solar panels, China’s manufacturing strategy has resulted in a panel surplus that has driven price competition to levels that are unprofitable for most or all solar panel manufacturers. This price competition has greatly benefited customers, solar panel installers and the environment but it has ruined the economics for most investors in solar technology and manufacturing.
The second issue is natural gas prices. Natural gas fracking has created a massive new supply that has driven prices from their $15 per mmbtu peak at the time of Hurricane Katrina into the $3 price range. The good news for consumers and the environment is that natural gas is displacing coal as the preferred fuel for generating electricity. This is keeping meter prices in check and reducing emissions. The challenge for renewable energy is that natural gas-fired generation is setting a lower price bar.
The third issue is the electric utility regulatory system. Revenue erosion is the economic reality for a utility if their customers shift to non-utility owned clean tech generation and/or adopt energy efficient smart buildings and factories. The solution for the utility industry is to control the process to insure their continued ability to financially support their capital investments in power plants and lines. For consumers and clean tech investors, the utility’s controlling actions can slow or negatively alter the economics of a clean tech investment.
Clean tech investing: A lot of money looking for commercially viable deals
At the recently held Clean Tech Investment Summit, I talked to investors and investment managers about their appetite for clean tech investment. What I heard was that they had money to invest in clean tech but that the deal flow was not meeting their investment criteria. What I also saw was a growing number of angel investors who demonstrated a level of sophistication comparable to venture capitalists but with investment criteria more conducive to clean tech investing. Among all attending investors, the focus was shifting toward the smart grid in a “if you can’t beat them (the utilities) then join them” strategy.
Kiki Tidwell: Clean tech angel investor interview on investing best practices
The clean tech investment community now has almost fifteen years of intense experience. There are now proven best practices. To learn more, I interviewed Kiki Tidwell, experienced clean tech angel investor. As a women investor, Tidwell is also part of an important investment trend. In the U.S. women control or influence 80 percent of economic decision-making. Tidwell’s interview offers insights on clean tech investing best practices and provides a quality example of the emerging role women are playing in clean tech investing.
Bill Roth is an economist and the Founder of Earth 2017. He coaches business owners and leaders on proven best practices in pricing, marketing and operations that make money and create a positive difference. His book, The Secret Green Sauce, profiles business case studies of pioneering best practices that are proven to win customers and grow product revenues. Follow him on Twitter: @earth2017.