Is Clean Tech On the Verge of Death?

With the recent bankruptcy of Solyndra many are beginning to question the sustainability of clean tech industries. Is clean tech on the verge of death? Not really. Investments in clean tech have been slightly rising with new deals on the frontier.

When looking into the current state of clean tech, one would find that while the funds invested in clean tech industries have increased since 2010, there has not been an increase in the number of newly formed clean tech projects. There have been a slew of recent bankruptcies in the clean tech industry. Some companies, such as Applied Materials, have dropped their clean tech divisions to avoid losses. The list of bankrupted U.S. clean tech companies includes Evergreen Solar, Spectra Watt, and, most recently, Solyndra in September 2011. Surprisingly enough, the number of deals in clean tech Venture Capital (VC) funding increased in Q3 2011 with 29 more deals than Q1.

Thought VC investments in the clean tech industry increased in Q3 of 2011, the majority of the funding went to follow-on rounds for capital-intensive companies. Many investors seem to be more inclined to back well-established clean tech start-ups than newer clean tech projects. 81% of the funding generated in Q3 was for the 55% of VC clean tech companies in Series B or later rounds. Funding totaled $1.8 billion.

The newest trend in clean tech investment has seen an upswing in the amount invested in energy storage. Energy storage accounts for $514 million of the clean investment sector, with solar at $350mil, energy efficiency at $223mil, and transportation at $177 mil.

One of the largest obstacles comes from global competition in clean tech. China currently leads the world in IPOs and clean tech investments. The cheap cost of labor and manufacturing makes it very hard for other countries to compete domestically. China accounted for 49% of global clean tech proceeds. The country is particularly competitive because of its incentives. Many clean tech companies enjoy a preferential tax rate of 15%, compared with the 25% tax rate on other corporations. China is renowned for its cheap labor and manufacturing costs. In addition, all renewable energies are guaranteed purchase by utilities. As a result, Ernst and Young scored China higher than the U.S. in terms of attracting potential clean tech investors.

For the clean tech industry in the U.S., survival may actually depend on investment from the government and not VC funding. The Department of Defense (DOD) is the single largest energy consumer in the world, surpassing the energy consumption of 100 nations. 75% of DOD energy costs are spent on fuel, while only 25% are spent on infrastructure. The DOD has begun to heavily invest in clean tech, it is predicted by 2030 its investment will total $10 billion. One current military project consists of a $2 billion 500-megawatt solar power installation that will be built on a military reserve at the National Training Center in Fort Irwin, California.

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