Industry Market Trends

Is Cleantech Research Hurting Deployment?

May 02, 2013

More money, yes, but where? More money, yes, but where?

Everybody agrees that we need more R&D (research and development) in cleantech. The question, however, is do we need more R&D now, when those funds could be used to boost deployment instead?

In other words, do we need to throttle back on the R&D for the time being to focus on deployment? As it turns out, the market is doing just that: The Clean Energy Trends 2013 report finds that "Increased financing from deep-pocketed traditional energy and technology players is also helping to accelerate clean-tech deployment."

Now, nobody in cleantech is running around saying, "Eliminate R&D funding." It's just that some people are running around saying, "Maybe take some of that money and put it to deployment, eh guys? Then maybe we'll start selling some of this wonderful stuff the lab rats are churning out?"

"Deep Needs" Outside Of The Lab.

Take Rob Day, a partner with Boston-based Black Coral Capital. He's been investing in cleantech since 2004, has held lots of important jobs and, according to Cleantech Investing, thinks that "there are deep, deep needs for capital elsewhere in cleantech than just in the R&D lab."

Don't get him wrong -- he believes firmly in the need for more innovation and wants R&D spending: "But it's not enough... we will need to see significantly more dollars being put into implementation than into R&D. Implementation is just as critical as innovation, and takes significantly more capital to do."

And don't think that there's no money going into cleantech deployment. Jigar Shah, D.C.-based partner at Inerjys, a $1-billion cleantech fund and something of a godfather to cleantech, told The Globe and Mail that "last year, more money went into clean-tech deployment of electricity than into fossil-fuel deployment, and that's been going on for the last two years."

"It's Not About Innovation Now."

As Day asked somewhat rhetorically, "Is an additional solar R&D effort going to, by itself, significantly accelerate the pace of adoption of solar technology?" His experience says no: "As one solar CEO put it to me last week, 'it's not about innovation now, we're totally focused on manufacturing'."

In fact, Shah said, "One of the things I would say to you is that everything we install 10 years from now has already been invented."

Look at the real world, Day insisted. Markets resist even proven innovative technology that makes economic sense. Markets, after all, are run by humans, and humans simply don't like change: "They don't want to purchase the new product, even if it promises compelling paybacks, because they haven't tried it and haven't seen others try it before, and they can't guarantee it will work as promised."

So is the answer to that to produce more innovative technologies to sit on the shelf while the markets dither? Give people even more options to confuse them, as well as the sneaking suspicion that whatever newfangled thing they buy now will be obsolete in six months, given the torrent of new stuff coming down the pike?

Is this your purchase six months from now? Is this your purchase six months from now?

Probably not. Waving cost savings in someone's face doesn't mean they'll beat a path to your door for your technology. They have lots of other considerations that go into writing checks for unproven technology, i.e. "Am I screwed if this stuff fails? If so, I'll go with what I know works. Let someone else try it out first." As the old saying went, "Nobody ever got fired for buying IBM."

Richard Stuebi, managing director of the venture capital firm Early Stage Partners with a specialty in cleantech, agrees that fear of (expensive) failure is holding back a lot of promising cleantech deployment. He wrote, "The transition to cleantech -- some would call it a revolution -- inevitably entails change, which implies risk.  In turn, this implies that some things will fail."

Nobody Wants The Failure On Them.

Stuebi is kind of halfway between the "More R&D!" and "More deployment" camps, but put him down as someone who agrees that disruptive innovation by itself isn't enough to ensure deployment uptake.

He thinks that if cleantech's going to catch on in a big way, the Solyndras and A123s need to stop: Huge, costly, public failures give the whole industry a black eye and dampen enthusiasm. It's not that you particularly need more innovation, he would say, it's that you need to be sure of what you're putting out there before you start asking people for their money.

Rushing something to market without sufficient R&D to ensure deployment, he said, means equity holders lose money, creditors get a haircut, taxpayer money is wasted "and pretty much everyone active in the cleantech sector gets tainted by extension."

Stuebi pointed out that on a recent trip to Oahu he noticed the Kahuku wind farm "standing idle in the face of a week of strong trade-winds," because a problem with grid-scale batteries piloted at the site caused three fires, idling the entire operation.

Just waiting on batteries. Just waiting on batteries.

"Why weren't these batteries tested in smaller scale and in a less obvious setting?" he asks quite sensibly. "These visible economic or technical failures give the cleantech sector a black eye," and investment drops.

The industry seems to be getting the message the hard way. As Fierce Energy reported last month, "venture capital investments in U.S.-based cleantech companies totaled $5 billion in 2012, declining from $6.6 billion in 2011, according to the Cleantech Group."

2012's Takeaway: More Deployment.

Ron Pernick, Clean Edge co-founder and managing director, is quoted in Fierce Energy as saying that "a key lesson" of 2012 is that "the focus for investors and industry for the near- to mid-term will be on deployment." He pointed to the fact that so far in 2013, "Warren Buffett's MidAmerican Energy Holdings expanded its solar portfolio with a $2 billion acquisition of the Antelope Valley Solar projects in Southern California and Google invested $200 million in a Texas wind farm," among other projects.

Shah argued elsewhere, in fact, that to get cleantech deployment rolling, it would probably be a good idea to shed cleantech manufacturing, since other countries can do it much cheaper than we can, and having more affordable products would mean more jobs for deployment and installation here: "Cost reduction has helped create a U.S. solar industry that employs more than 100,000 Americans, with growth rates that far outpace the general economy. The vast majority -- about 75 percent -- of solar's job and value creation is in project development and installation." It's a compelling argument.

Day sums it up well: "The cleantech R&D deus ex machina is largely a myth." Just producing a whiz-bang product in a lab isn't going to guarantee implementation. That's why he thinks that in addition to R&D funding, if you provide money for implementation, "people will indeed implement."

"Customers may balk at a three-year payback period but would gladly take on the cost-saving product if it was offered as a lease... that requires the vendor to provide the financing," he said. But just trusting that if you get innovation right the implementation will take care of itself is, he thinks, a "mistake."