With the economic downturn that hit in full force last fall, many cleantech VCs' minds made a pretty big shift away from capital-intensive solar, EV and biofuels investments, and (to the extent that checks were still being written) toward relatively more capital-efficient smart grid and energy efficiency bets.
Regular readers of this column will know that I've been beating the drum for these kinds of investments for a while, for market and investment model reasons. But it's sure true that they look that much more attractive in an environment where exits are a long way off and LPs aren't putting capital into new funds -- capital-efficiency looks better when capital is scarce, naturally.
However, as a (hopefully not temporary) sense of stability starts to return to the marketplace (and even accounting for the more bad news undoubtedly yet to come), many investors are starting to dream big again. In the spring, a VC's fancy lightly turns to thoughts of radically reinventing the electricity industry, as it were.
Two strong potential candidates for the Next Big Thing in cleantech venture capital are nuclear and carbon capture and storage.
I've spoken with numerous VCs recently who are looking for innovative ways to play in nuclear power. Bets have already been made by VCs in small-scale nukes, hot fusion, and technologies related to big-scale nukes. The hope is to find a low-cost solution that is practically zero carbon emissions and also provides reliable "base load" power. So in other words, the hope is for a lower-carbon replacement for coal power. The challenges are also significant, however, not least of which being time to market for any new innovations, as this interesting article illustrates.
With the recent news that the DOE will be putting $2.4B into carbon capture and storage, and its inclusion in emerging climate legislation, it's also clear that CCS will be leaned upon as a hoped-for way of making our existing coal-fired generation infrastructure less impactful on the atmosphere, while still preserving its value as low-cost baseload power. So in other words, the hope is for a lower-carbon "fix" for coal power.
These will be challenging sectors for VCs. Like solar and EVs and biofuels, they are capital-intensive and, insofar as new tech development is concerned, face a long path to market readiness. And unlike solar and EVs and biofuels, success will very often require getting major buy-in from the notoriously slow-moving utility industry and regulatory bodies. But the government dollars could help with that. And the market for anything related to baseload power is huge. And we live in interesting times. So these two controversial technology areas could well end up being the focus of a lot of investors' attention over the coming months.