Cleantech Rising in the East, Sets in U.S.

So-called green technologies such as solar and wind power are fizzling in the U.S., while heating up in Canada, Europe and especially China.

Asher Schechter
Asher Schechter
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Asher Schechter
Asher Schechter

With United States President Barack Obama being elected to a second term, not Republican candidate Mitt Romney, the American clean technology industry can breathe easy again.

After weathering dark times, the solar and wind power industry has been saved from the brink - or at least from four horrible years with a tight-fisted president. In the months before of the election, many Americans in cleantech were biting their nails. An Obama defeat would have cut off billions in federal funding for the industry, delivering a heavy if not fatal blow.

But that very reliance on government support is sad for an industry that once was considered the great hope of the American economy. It's not clear how the “industry of the future” became so dependent on the good graces of the White House, but dependent it is.

American cleantech has witnessed several especially painful bankruptcies in the past year, and its sources of funding are drying up. Today, it is falling behind its counterparts in other countries and is being equated more with the failed Detroit automakers than the prospering start-ups of Silicon Valley.

Among industry professionals, there are two commonly accepted explanations for the difficulties besetting American cleantech. One is that Obama over-invested in the industry, particularly in risky ideas that didn't prove to be sustainable. The other is that Obama didn't invest enough and that other countries that invested much more in their cleantech industries have left the U.S. in an inferior position.

What is indisputable is that the Obama administration has so far directed $90 billion toward renewable energy – particularly into the areas of biofuels, solar panels, wind turbines and electric vehicles. The president promoted these investments as part of an effort to create a new economy that would generate the “green jobs” of the future. All told, between 2009 and 2014, the federal government will have poured an estimated $150 billion into cleantech – more than three times the amount it invested in the industry between 2004 and 2009, when George W. Bush was president.

But the federal investment certainly didn't pay off. Instead of leading to market-driven growth, it created a bubble completely dependent on government investment. Ultimately, the Obama administration's ambitious energy plan yielded many failures and few success stories. Venture capital funds, whose investments were dwarfed by government funding, at first pounced on renewable energy companies but then pulled back. The primary beneficiary, as well as the primary victim, was the solar panel industry, which found itself at the center of the presidential race due to two highly publicized bankruptcies.

In August 2011, the solar panel manufacturer Solyndra went bankrupt after burning through $528 million it had received in federal loans. A short time later, the solar energy company A123 Systems also declared bankruptcy, after having received $249 million in government funding. These bankruptcies provided Republicans with political ammunition, which they used to attack the Obama administration for burning through taxpayers' money on unproven technologies that hadn't solved the country’s energy problems. In the past few months, American wind power companies laid off 4,000 employees amid fears that Congress wouldn’t extend government tax credits for the industry.

"This week [in November] a young startup with a potentially disruptive energy technology was able to do something pretty rare these days: It managed to raise a large round [of financing] from some of Silicon Valley’s leading venture capitalists," popular blogger Om Malik wrote last month. He continued, "About five years ago, cleantech startups with ambitious ideas were commonly able to raise such rounds to build next-gen solar panels, electric cars and battery technologies. But over the past 18 months, in the post-Solyndra era, the mood of many venture capitalists toward cleantech has decidedly soured."

Even after Obama's reelection, federal funding for cleantech is expected to drop 75 percent by 2014, making it unclear whether the industry has bought itself several more years of tranquility or is entering a period of transition.

"Cleantech's dead in the same way that the Internet was dead in 2000,” Mitch Lowe, a partner in an incubator for software-based clean tech startups called Greenstart said recently at the VERGE@Greenbuild conference in San Francisco. Lowe's point was that just like many start-ups that didn’t make it through the 1990s laid the groundwork for today’s Internet, the many unsuccessful cleantech companies in recent years have laid the groundwork for the future of the industry.

American entrepreneurs in the field can't help but be jealous of their colleagues across the Atlantic, who have seen the number of European cleantech companies grow by five percent since 2011. The global cleantech market is forecasted to grow to 4.4 trillion euros by 2025, according to an estimate by Roland Berger Strategy Consultants, a global strategic consulting firm, and Europe is a major player.

In Germany, the size of the cleantech industry is expected to grow 125 percent by 2025 to 674 billion euros, according to Bloomberg News. The number of cleantech jobs is forecasted to jump by one million and its share of the global cleantech market is expected to reach 15 percent. Germany, the largest European economy, is currently in the midst of shutting down its nuclear power reactors, and its cleantech industry will play a crucial role in finding alternative energy sources, particularly if the country is to meet its goal of reducing greenhouse gas emissions by 40 percent by 2020.

The long-time leader in green technology is Denmark, with an economy largely driven by cleantech, especially during the financial crisis when cleantech companies out-performed companies in other industries. Danish cleantech companies employ 34,000 workers in Copenhagen alone, and the industry grew 55 percent between 2004 and 2009, compared to 8 percent growth in Danish manufacturing overall. In the same period, Danish cleantech exports grew by 77 percent, compared to 12 percent growth in Danish exports overall.

Closer to the U.S., in Canada, the cleantech industry is growing and shows no signs of distress, even if it constitutes just one percent of the global cleantech market at this point. The Canadian industry is estimated to be worth $11 billion and is expected to be bigger than the national space industry within the next five years. Canadian cleantech today employs more than 52,000 workers, having experienced 17 percent job growth between 2009 and 2011. The industry includes more than 720 companies, which spend more than $1 billion per year on research and development, and is expected be worth $26 billion by 2016.

It's impossible to forget the new empire in cleantech, China. Thanks to China's ambitious goals for reducing emissions, Western cleantech companies are investing billions of dollars in developing ties and cozying up to Chinese government officials to gain a foothold in the world's largest cleantech market. In China, the government invests no less than $9 billion per month in renewable energy and is expected to become the world's largest solar panel and wind energy market by 2016. Altogether, 50 percent of today's investments in green energy are made outside of the U.S. and Europe. So naturally, many Western cleantech people are buying plane tickets to China, learning Mandarin and hoping to find local Chinese partners who won't pilfer their technology and undercut them on pricing.

Indeed, many American cleantech companies are looking to take their products to market in China.

This article was originally published in the December 2012 edition of TheMarker Magazine, in Hebrew.

The collapse of solar panel manufacturer Solyndra took some of the shine off cleantech in the U.S.Credit: Bloomberg

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