Green Energy Investment is hot again in the US. For some, the new boom boosts the ter hag of the clean-tech bust that followed an exciting series a decade ago. But there are reasons to believe that this time the trend is not a bubble or a mirage. In the late 2000s and early 2010s, there was an explosion of investment in pure technology — renewable energy and other technologies to reduce carbon emissions. At first, most of the money came from venture capitalists (VCs), but then the federal government stepped in and began offering cheaper loans and subsidies. In 2011, solar manufacturer Solindra failed miserably, causing a political setback. And that was only a very significant failure; Overall, investors lost $ 25 billion when the sector collapsed. Money dries up fast. For years, “clean tech” has been a dirty word for VCs.
But Clean Tech is back. The Bill Gates-led venture fund is committing billions of dollars. Funding for battery companies and electric-vehicle companies is skyrocketing. And investing in solar and wind power obscures everything.
This raises the fear of another bubble for some iteration of history. My colleague Liam Denning believes that the rapid rise in values is a clear indicator of higher prices, which he hopes will collapse when interest rates rise. Others see investors repeating the mistakes they made a decade ago.
I am more optimistic. Although investors are experiencing some ups and downs, I am very confident that the clean-tech industry as a whole will not experience the kind of fall that was made last time. The most basic reason is that the basic underlying technology has matured in a way that was not possible a decade ago. In 2009, the combined cost of solar photovoltaic electricity was 9,359 per megawatt-hour, four times more than electricity from a natural gas plant. By 2019, the price of solar PV has dropped to $ 40 per megawatt-hour, 28% less than gas. This is an 89% decline in 10 years, with even more drops to come. Meanwhile, lithium-ion batteries are also cheaper.
Those order of magnitude costs make all the difference. First, it means that solar and wind are not dangerous new technologies. Solindra failed because it was trying to market an innovative new type of solar cell that was too expensive after being reduced to the tried-and-true design cost. Future investments in solar are not required to bet on any critical technological advancement. Batteries may be a different story; A lot of money is being thrown at startups trying to create solid-state batteries, which is a real breakthrough. But Tesla is fine with the old type, so that sector is fine too. Venture investing works well when not betting on ‘hard tech’ and clean tech is not so difficult.
Second, cost drops mean success does not depend on state intervention. In the previous boom, volatile government subsidies were often needed for the success of capital-intensive energy companies. Now, despite President Joe Biden making large-scale plans for clean-energy investment, the market is investing heavily in renewable resources on its own.
Finally, investors have probably learned their lesson. Pure energy is not always a good fit for a venture. It is capital intensive, because it involves a lot of money before buying solar panels and wind turbines; Venture capital focuses on small, small investments. As in software, instead of companies creating very different products and new markets, clean power companies are basically trying to provide a single commodity product.
This time, VCs are allowing large investors to manage solar and wind, and startups are finding other niches that can add value, such as solar services and financing, lab-increased meat and electric vehicles. Some of those bets fail, but it always is in private equity. Tesla’s success — now more than 28 times the amount lost in a nearly $ 700 billion market cap or clean-tech bust — demonstrates the principle that some big hits can compensate for very small failures.
In other words, Clean Tech is entering the final stages of the famous Gartner hype cycle, a model that illustrates the advancement of emerging technologies and business models, starting with an innovation that climbs expectations and then crashes, and eventually becomes productive before they grow steadily.
Clean-tech bust, like the fall of dot-com in 2000, has sparked investor enthusiasm for new technology that goes beyond technology. But, as few today question the value of companies like Google and Facebook, clean-tech is also pulling in while sinking in investor enthusiasm. In Gartner’s terms, we have crossed the ‘fall of illusion’ and are now going up the ‘slope of enlightenment’.
Noah Smith Bloomberg Opinion Columnist