Venture capital in clean energy solutions

Venture capital investment in renewables is the "wrong model", states the Massachusetts Institute of Technology (MIT) in a new paper.The energy research department, which published the whitepaper in July 2016, said the document aims to help stakeholders in the country's clean energy sector better understand why venture capital (VC) funding isn't producing good returns.

The paper 'The Wrong Model for Clean Energy Innovation' also provides recommendations on how best the sector can attract more investments.

Moreover, as investments are more likely to be channeled into the sector following announcements made during the 2015 Paris Climate Change Summit, the paper provides measures that can be implemented to ensure the funding produces a good return on investment.

Clean energy funding - what went wrong?

According to the paper, VC firms invested more than US$25 billion in clean technology start-ups from 2006 to 2011 in the US. Among the invested funds, half were lost to the sector’s inability to record profits.

The MIT paper suggests this is due to startups struggling to take their VC-funded materials, chemistries and processes to manufacturing and commercialisation scale.

[quote] The whitepaper also states that the downfall of US clean energy startups is due to their failure to attract corporate buyers.

According to the findings of the MIT Energy Initiative, in 2006 Silicon Valley VC firms attracted US$1.75 billion in investment due to rising fossil fuel prices, increased implementation of regulation supporting clean energy sources and increased awareness of climate change impacts by consumers.

However, due to the failure by startups to fully manufacture and market their products, in 2011 almost the 150 renewable energy startups which had been founded in Silicon Valley had shut down due to bankruptcy.

In addition to the failure by startups to fully manufacture and commercialise their products, the firms also faced huge competitions from Chinese solar panel firms exporting their products at very cheap prices.

The falling prices of natural gas also played a huge impact on the growth of the startups.

The lack of capital scenario also led to a reduction in the establishment of clean energy startups such that by 2013 only 24 firms were established in 2013 compared with 75 companies which were founded in 2007.

Attracting investment in clean energy

For increased investments and growth of the clean energy sector, the organisation calls for the creation and participation of other investment models besides venture capital.

For instance, corporations need to boost prospects of innovation startups by strategically investing in or acquiring their services. [Clean energy tech firm launches integrated energy storage solution].

The MIT Energy Initiative paper recommends the US government to directly interfere by rising funding for research and development of clean energy technologies.

The organisation states that federal governments should encourage the private sector to invest in energy innovation by sharing some of the risk of commercialising innovation.

 

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