Clean Tech Bust?

There's been much talk this week about the "clean tech bust", particularly after the article in Wired by Juliet Eilperin (national environmental reporter for the Washington Post). While some of underlying macro-trends (huge boost in domestic natural gas production) behind this are undeniable, we can't carry the bubble analogy too far here. Doing so masks very different underlying causes for the internet boom/bust of the 2000s and the current challenges in clean tech. I prefer the term "challenges" over "bust" so as to differentiate it from what happened in the internet sector and because "bust" has a more fatalistic connotation in my mind.

The internet boom was fueled by an explosion of companies with very low capital barriers to entry for investors. This led to a multitude of companies with no clear path to profitability, or in many cases, no business plan of any kind. The advantage here compared to other investment sectors was that the product (e.g. a search engine), or at least a beta version of it, could be developed quickly and the "business experiment" could be run in relatively short order. As an investor you were taking a big market risk here (with the technology risk relatively small), but you could do so on the cheap and get feedback quickly.

In clean tech, we have somewhat the reverse problem. Companies on the supply-side of energy will ultimately have huge capital requirements, and this has posed a huge barrier to entry for many investors. The comparatively long development horizon for most of these cleantech companies (~10 years to exit) means you don't have that quick feedback mechanism offered by the internet/IT investments. Thus, you may not discover flaws in your business model assumptions until $10M-100M of capital has been sunk in a given company. Nevertheless, what keeps investors engaged is the view of a clear, huge market opportunity as everyone uses kWh's, while not everyone absolutely needs those products of the internet boom. Investors have to be sold on this end-game. They must subscribe to ideas like "peak oil", suggesting that conventional petroleum prices will eventually rise once the easily-extracted reserves begin to dwindle, allowing renewables to reach cost-parity or ultimately become cheaper.

Another area where I think clean tech faces unique (but not insurmountable) hurdles relative to internet/IT concerns the lobbying efforts and influence of the incumbents. Take any example you like from the internet-age - say traditional print media battling online publishers, the recording industry battling distributors of digital music - and I would offer that that pales in comparison to the pressures exerted by the petroleum industry on the renewables industry. There's just a different order of magnitude of dollars at stake here.

All this being said, I think we are simply going through the inevitable growing pains that comes with a new technology sector and I remain optimistic about the future of clean-tech.