How Will We Fund the Clean Tech Revolution?

As exciting as new ideas are, they need money to become reality. And for America's clean tech sector, it’s not entirely clear where that money is going to come from. Finding funding for any new business is a challenge, but the obstacles facing clean tech are piling up so quickly that some thinkers, inside the Beltway and out, are predicting a crisis in clean energy.

Say you’re a solar entrepreneur with a great idea for how to cut the cost of manufacturing solar panels. First, you must look for funding to investigate and test your idea. More likely than not, that funding will come from the government, one of the most generous funders of clean tech research and development. But you’ll be lucky to get a slice of the money on offer: Not only is the government funding clean tech innovation at levels far below what business leaders and climate campaigners say is necessary, it has cut budgets for agencies like the Advanced Research Projects Agency - Energy, which funds leading-edge clean energy ideas.

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But say you do get a little bit of money and develop a prototype of your idea. Your product works, and it promises a better, cheaper product than is available currently, so you start looking to scale up. In the past, you might have applied for a loan guarantee from the government, but that program is ending. Now might be the time you’d start meeting with venture capitalists to sell them on your idea and scrape together enough money to start filling orders for your few customers.

Here you run into a new difficulty: Venture capital is in short supply right now, and although funders have been favoring clean tech over other investment opportunities, they’ve shied away from funding early-stage clean energy companies. A few new clean tech accelerators have opened recently, but they’re more interested in funding projects that focus on software or energy-saving tools. Most clean tech venture capital money is still going to energy production or energy storage projects, but the total amount of available money has shrunk. And investors are balking at committing to new projects because Congress is making noise about ending the subsidies that help make renewable energy projects profitable.

One potential solution is the creation of a federal renewable energy standard, which would require utilities to source a growing percentage of their power from renewable sources. With an assured share of the energy market, clean energy projects would have an easier time attracting private funding. Others have suggested creating a new agency to focus on developing clean energy projects. The agency would expect a return on its investments, just like a venture capital firm.

It’s nice to imagine what the world will look like when clean energy takes over from dirty energy. One day soon, solar power will be the cheaper than fossil fuels. But the technology is not going to become cheap on its own. In order to avoid a crisis in the sector, somebody needs to find a way of getting innovators the money they need—and soon.

Photo via (cc) Flickr user lumaxart