Cleantech Investment Is Up. So Why Isn’t the Sun Shining on Solar?

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Cleantech investments have (mostly) rebounded according to a new joint study by Cleantech Group and Deloitte.

After two quarters of decline, 2Q09 cleantech VC investment hit $1.2 billion.  The transportation sector was the clear winner—funding for biofuels, advanced batteries, and electric vehicles reached a new quarterly record of $607 million.

Meanwhile, investors cast a shadow over solar.  It’s paltry $114 million is an order of magnitude less than the $1.2 billion it received at this point last year.  What happened?  An answer after the jump….

In an effort to shine light on the drop in solar investment, I offer three viewpoints.  One for each level of optimist in the spectrum.

The Optimist: The solar market is reaching maturity
The drop in VC funding “represents a fundamental shift in the solar market away from technological innovation and toward retail installations”, says Alex Sarly, an energy consultant with Borrego Solar.  In other words, the technology has been proven.  Now it’s time to install more of it.

Sarly knows his stuff—Borrego Solar just received $30 million from Taiwan’s Walsin Lihwa to offer Power Purchase Agreements (PPA’s) to its customers.  Such agreements allow customers to pay only for the power they use.  Since they don’t have to put up any capital for the solar system installation, going solar through a PPA makes solar as affordable as buying conventional power from the utility.

While R&D investments for new cell technologies are capital intensive and risky—a terrible combination in the current economy—the retail end is relatively safe.  Installers use proven technologies, and it’s likely the sun will be with us for a few billion years.

In short, reductions in solar investments may simply signal the maturity of the solar market.

The Middle-Roader:  Incentives are too complicated
In the alphabet soup of ITC’s, PBI’s, and FIT’s (some of which are explained here), even industry experts must stay on their toes.  Even with a MBA, I get confused.  How can the average American be expected to understand these programs?

Many incentive programs are complicated to allow market forces to dictate electricity prices.  In the end, that should benefit the consumer since renewable electricity costs can drop over time as more capacity comes online.  In the meantime, it creates a lot of 3-letter abbreviations.

One of the key incentives for installing commercial solar PV has traditionally been the Business Energy Investment Tax Credit (ITC).  Under this type of program, large commercial banks or other investors would actually own, operate, and maintain the PV system.  In exchange, they were able to shelter revenues (of up to 30% of the required investment) from Federal taxes.  When the financial system melted down, these firms were no longer able to take advantage of these tax benefits and exited the solar market.

To fix the problem, provisions in the Recovery Act replaced the ITC with an actual cash grant which should be easier to understand and easier to use.  However, due to a lag between the investor exit and the new grant program, solar financing dropped severely.  With the grant program in place, future investment in solar is looking brighter, as evidenced by Borrego’s successful $30 million funding round.

The Pessimist:  This is what happens when the government owns a car company
And there is always the cynic’s view:  Government Motors wants a return on its investment so Congress is putting more money into the U.S. automotive industry rather than solar.  (Not to mention the inherent conflict of interest between “Cash for Clunkers” and having ownership stakes in Chrysler & GM…)

While it’s true GM could use some help competing in the electric car market, funding seems to actually put cleantech money where it is needed most.  While we have a proven technology for converting the sun into electricity, the Recovery Act still offers $2.5 billion in funding for renewables.  The $2 billion investment in battery technology would help firms like Tesla and Smith Electric Vehicles develop faster-charging, longer-range vehicles.  I don’t see any Government Motors conspiracy there…

For now, I’m keeping my clunker in hopes of better options down the road.

Matthew Holtry is a full-time Consultant for PRIZIM Inc. and a seasonal Journalist for Triple Pundit. His previous experience includes greenhouse gas & energy consulting, eco-business journalism, and various IT roles. He recently received his MBA from Penn State University, where he also served as the President of Penn State Net Impact. He was a former AmeriCorps Team Leader with Outward Bound, has driven cross-country twice, visited 19 countries, and now resides in Washington, DC.

4 responses

  1. Originally, VC’s were investing in solar to help small tech startups “prove” that generating electricity from solar works. Then the funding went to improving the technology to bring down costs. Now… consider it proven! So VCs should really be investing in these companies more like banks investing in a proven solar technology & business model.

    But eventually – for any business model to be successful it needs to stand on its own. Can solar stand on its own without tax breaks from the government? I’m not so sure. Customers aren’t willing to pay the high money down without help from Uncle Sam.

  2. I would also venture that solor energy continues to be expensive, only competitive – during daylight hours – in the most expensive electricity markets like CA and HI. Only when (and if) solar is truly low cost OR the cost of fossil fuel electricity soars to tremendous heights will solar have a natural uptake.

  3. Solar IS expensive, and so are nice items. Alternative energies are expensive, so are the technologies that surround them. In order to be good stewarts of the land in which we live, it is our duty to treat it as an expensive item.

  4. Solar IS expensive, and so are nice items. Alternative energies are expensive, so are the technologies that surround them. In order to be good stewarts of the land in which we live, it is our duty to treat it as an expensive item.

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