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April 27, 2009

Let’s Stop Bailing Out on Alternative Energy

Stuart Pearlman

Promise Versus Practicality

Results of the deployment of alternative energy technologies to date have been hard to demonstrate. Alternative energy has been largely about potential and much less about immediate practicality, with understandable concerns about costs versus coal, gas, hydro, and nuclear. Solar power continues to be inefficient. Wind power is erratic—capable of producing abundant, cleaner power when and where it can, but rarely when and where it’s needed. Fuel cells don’t easily scale up. As for biomass, ethanol has proved to be far from carbon neutral and also presents society with the issue of food versus energy—a choice that usually favors comestibles over combustibles.

But there are paths worth taking to address these alternative-energy problems. Clearer public policy is the place to start. Alternative energy policies have the potential to create jobs and offer many environmental benefits. State and federal governments should stop waffling on how they approach, support, and implement alternative energy strategies, and stress the positives: American jobs and environmental improvements.

One former client of mine engineered and built a major alternative energy–powered facility for a retailer in an eastern state. A committed grant from the location’s state government augmented the project’s economics, but cutting and signing the rebate check took nearly a year longer than promised, contributing to the company missing its revenue forecasts for several consecutive quarters.

Governments must make their strategies and policies clear and guarantee that their word is their bond. That, in turn, will help make alternative energy investments consistently attractive to venture funds, other private equity organizations, and even individuals. Governmental support at all levels—which can stimulate and sustain the private sector’s supply of capital, ideas, technologists, and entrepreneurs—can’t come soon enough.

Unfortunately, there are warning signs that private equity is getting cold feet. According to recent preliminary figures from the Cleantech Group, energy-tech venture capital investments reached a total of $8.4 billion in North America, Europe, China, and India during 2008, but quarter-over-prior-quarter totals are decreasing. The reported decline was 35%, to only $1.7 billion in the final three months of 2008, and reduced levels of inveastment are expected for 2009.