WARNING: Personal political opinion and discussion follows. Feel free to ignore if you think it's not relevant to you. But trust me, it actually is...
It is a dangerous time for the cleantech sector, which is now under pressure on multiple fronts.
The moribund economy continues to hinder the revenue growth efforts of many cleantech products and services companies that, often after several years of development efforts, now have a product ready for the market.
Cleantech VCs are also increasingly tapped out -- at or near the end of their funds. And as we've discussed here recently, many VCs who had been investing in cleantech are either narrowing where within the sector they'll invest, or getting out altogether. Certain sectors like energy efficiency, advanced lighting and batteries are still "hot" subsectors, but for many power generation, transportation and alternative fuels subsectors it remains tough sledding to get new financing.
Project finance, particularly so-called tax equity, remains tight. Which makes it even tougher for any innovative powergen technology to successfully get traction in the marketplace.
It hasn't been getting a lot of attention because of other news items like the general debate on income taxes in Congress, and the carbon talks in Cancun. But because of congressional ineptitude inaction, multiple supportive regulations are in danger. Especially for many power generation projects and manufacturing operations, some critical incentives are either expired or in danger of expiring.
The cash grant option in lieu of an investment tax credit ("Section 1603"), for example, has been crucial for the wind and solar industry over the past couple of years. When credit got tight (and lacking profits themselves to take advantage of tax credits), many projects couldn't get financing to do the build-out that the existing ITC and PTC were intended to promote. So the ARRA allowed the industry to access the equivalent amount of government support in the form of a cash grant from the Department of Treasury. According to the Clean Economy Network (full disclosure: I'm co-chair of the board of the Clean Economy Network Educational Fund, a related but separate entity), the Sec. 1603 program had distributed grants to support almost 1,500 electricity projects, and created 15,000 jobs related to solar and 55,000 jobs related to wind and geothermal projects.
According to one account, 100,000 U.S. jobs are at risk if this particular provision isn't extended.
And let's be clear about this: Section 1603 is not about more government spending. It's about making sure that existing government spending is done more effectively.
Another important incentive at risk is the Sec. 48C advanced manufacturing tax credit, which has helped finance domestic solar panel and battery production, among other stated priority industries. It's also due to expire.
We've already seen what can happen. The past decade's bi-annual boom and crash of wind power generation additions, for example, as Congress repeatedly failed to extend the PTC in a timely fashion. The collapse of the U.S. biodiesel market as the PTC for that market expired last year. Etc. Letting these things lapse has immediate negative impacts on these industries. And it has horrible long-term impacts as investors learn to be wary of the entire sector if it's going to be whipsawed around like that by Congress, like Lucy yanking the ball away from Charlie Brown.
It's the ultimate example of utter failure by U.S. political leadership: They signal legislative priorities and encourage significant private sector investment in a sector, and then pull the rug out from underneath all the investors, entrepreneurs, and workers who subsequently went into the sector. And this isn't a partisan statement. Even if you disagree with the strategic choice to support these markets, you have to agree that if it's to be done it should at least be done right. Senate leaders from both parties have stated they want to support these industries and then allowed this to happen. And it was the White House that most recently capitulated on these priorities when making the compromises on tax policy that are now the subject of more visible public debate.
I'm sure a lot of cleantech investors and entrepreneurs like me would prefer to not have to worry about all this political nonsense at all and just put our heads down and get to work, driving innovations and installations. But unfortunately, cleantech companies and those that service the industry now need to once again get involved in the process, in hopes that Congress can be encouraged to at least not COMPLETELY drop the ball.
There's a credible free-market argument (albeit one I disagree with) that says government shouldn't be supporting any new emerging markets at all, just staying out of economic and technology policy altogether (and I guess just being okay with being increasingly dependent on middle eastern oil and Chinese equipment for our energy needs). There's an even more compelling free-market argument (and one I strongly agree with) that says you can't subsidize emerging technologies and markets forever, but need to limit such subsidies only to helping them get through their early small-scale phases -- to ramp them up and let them drive down to competitive prices, and then let them either succeed or fail on their underlying appeal to the free market by reducing and eventually eliminating subsidies. But even under that argument, now is not the time for such support to be withdrawn from these markets. It's too early. And incoherent and inconsistent political "leadership" from the White House on down Pennsylvania Ave., and on both sides of the aisle, does more harm than never having tried to help the industries at all. I know at my firm, it makes us want to invest less in the U.S., and more in overseas projects and companies.
Unfortunately, this is a critical time in the policy arena that cleantech entrepreneurs and investors and workers need to pay attention to. And as painful as it is, they need to think about getting involved (for example via groups like CEN) if it threatens their businesses and jobs. Because it's completely unclear that the politicians "get it".
>>NOTE: the above opinion is mine and mine alone, and may or may not reflect the opinions of anyone I may have ever worked with, met, exchanged emails with, thought about in an idle moment, or simply made up.
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12/10 update, from an email I received today:
"As you have hopefully all heard by now, the 1603 Treasury grant program was put back in the extenders package late last night. While 48c unfortunately did not make the cut, the re-inclusion of 1603 is a big victory for the clean economy community. In a 48 hour period, we were able to make 1603 the top issue during the negotiations on the final language. CEN was a big part of this effort and while we aren’t out of the weeds yet with final passage still required, we sent a strong signal to both parties that the clean economy community is not just up for the fight in California."
Now we'll have to see if that can survive through the rest of the broken process.
