Are Wussy Investors Hurting America—and Themselves?

Are Americans wusses when it comes to clean tech,? And could this wuss-ness allow other countries like China to create new jobs, economic growth and investor returns on the backs of American innovators?

That’s the growing fear among a broad spectrum of venture capitalists, technology experts and industry analysts who spoke during panel discussion at the National Clean Energy Summit in Las Vegas last week. Combined with America’s sudden surge in natural gas production and continuing policy disarray, some experts worry that investors’ austerity could leave the U.S. ill-prepared for whatever energy sources follow petrocarbons.

Matthew Nordan, Vice President, Venrock

“My fear is that we’re going to lose a generation of innovation ready to come out of the labs, because no one is willing to go first,” said Matthew Nordan, vice president of VC firm Venrock.

The situation is not all bleak, of course. The U.S. retains a significant lead in new technology development, said Arati Prabhakar, director of Defense Advanced Projects Research Agency (DARPA). Many of the best opportunities in the short and mid term lie not with billion-dollar investments in world-changing technologies but rather in tackling the hard and soft costs required to optimize mature technologies.

“We haven’t really begin to enjoy the true benefit of low technology costs” brought on by things like more efficient customer acquisition and installation costs, said Ethan Zindler, head of policy analysis at Bloomberg New Energy Finance.

Nordan sees huge opportunities in speculative technologies such as resonating solar (a.k.a. rectifying antenna), which converts solar energy into vibrations that can be converted into electricity at efficiency rates of 80 to 90 percent, Nordan said. (Top photovoltaic systems now are about 30-percent efficient.)

So what’s the holdup? Nordan chalks it up to American wussy-ness. He regularly pitches potentially game-changing ideas to large institutional investors, none of whom want to go first.

“We make the rounds to large U.S. investment funds, to big U.S. corporations,” Nordan said, adding that many of those fund managers often say, “‘Call me once you’ve built a big one,’” Nordan said.

That’s the opposite of what happened at First Solar, where Venrock convinced institutional investors to take a risk on upending the residential solar market and created “a national champion,” said Nordan.

“We have hundreds of billions of dollars waiting to go third of fourth for something that is proven, bankable,” Nordan said. But “we have a giant sucking sound” when it comes to scientists, engineers and investors “who are willing to risk their careers and do something crazy.”

Given recent VC promises that green energy would produce “the next Google,” such reticence is understandable.

“I think we’re coming through a period where we had a lot of venture in the U.S. and the next pieces weren’t really in place,” said Prabhakar. “And as a consequence, venture has retreated.”

Perhaps that retrenchment has gone too far, Prabhakar said. The way out may involve much greater participation by corporate investors than previously anticipated.

“The upshot is that in the U.S. I think we are clearly lagging,” said Prabhakar. “I’m a little frustrated because I wish we’d get all this sorted out a little bit more quickly.”

Nordan sees the problem in his own portfolio, a third of which is now comprised of essentially Chinese companies. These were business started in the U.S. by American entrepreneurs who ultimately found their manufacturing, customers, workers and investors in China. The trend appears likely to grow as sovereign and Asian investors prepare for the inevitable end of hydrocarbon extraction.

“When we have a conversation with Southeast Asian sovereign funds … that have been built on extraction who realize that it doesn’t matter if it’s 20 or 50 or 100 years, at some point the extraction stops; they are far more far-reaching in their thinking than we are in this country,” Nordan said.

The natural gas boom may prolong that trend. In addition to short-term growth in jobs and co-located renewable facilities, “it also means we probably take our eye off the ball in terms of what comes next,” said Nordan.

About gas and green energy, Zindler joked: “I think they’re best frenemies forever.”

Where do the next opportunities lie, then? Investors will find profit by optimizing the hard costs of renewable energy, for example in smoothing out solar’s uneven electricity delivery or halving the number of inverters in each system, Nordan said. Others will find success by moving Chinese advantages in scale and manufacturing elsewhere in the value chain, such as reducing the installation costs of distributed solar, said Zindler.

If China is a frenemy to American renewable energy, so too is natural gas. There may be new opportunities for green energy at remote natural gas drilling and processing sites, but the resulting lower energy costs from gas competition may be difficult for some green sectors to overcome—especially wind, Zindler said.

And then there are companies like Sapphire Energy, another Venrock investment, which converts algae to bio crude for under $80 a barrel. But even with efficient production and relatively low costs, it’s hard for Sapphire to compete when natural gas is so plentiful and cheap, and when investment is running high in all aspects of natural gas industry, including pipelines and export.

“Their economics work,” Nordan said. “However, it’s really hard to see a tremendous interest in deploying that kind of tech in scale in the U.S. We have a lot of options.  We have shale gas and shale liquids and the Keystone Pipeline and whatever else.”

 

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