Clean Edge - The Clean-Tech Market Authority

Clean Energy Outlook: Significant Question Marks Dot the Landscape

In our latest Clean Energy Trends 2010 report, we found many reasons for the clean-energy sector to be hopeful. At the same time, we found a number of not-so-insignificant question marks surrounding the future of clean energy. These include the rise of China as a clean-tech leader and what it means for other nations; the current lack of reliable and sustainable financing for technology and project development, and the need for new innovative financing models like "green banks;" and the issue of when and if initial public offering (IPO) markets will return so that early-stage investors have a viable exit strategy for their portfolio companies.

Before we delve into these issues, let's look at the latest numbers from our report. In 2009, combined global revenue for the three major clean-energy sectors – solar photovoltaics (PV), wind power, and biofuels – grew by 11.4 percent over 2008, reaching $139.1 billion. These three sectors are expected to reach $325.9 billion by 2019, according to Clean Edge research and analysis. Indeed, following one of the worst years in economic history, signs of hope have begun to emerge for the clean-tech sector, with clean energy becoming a driving force for global economic recovery from Beijing to Seoul, and Washington D.C. to Brussels.

Additional findings include:
-- The global production and wholesale pricing of ethanol and biodiesel reached $44.9 billion in 2009 and is projected to grow to $112.5 billion by 2019. In 2009, the biofuel market consisted of more than 23.6 billion gallons of ethanol and biodiesel production worldwide.
-- Wind power (new installation capital costs) is projected to expand from $63.5 billion in 2009 to $114.5 billion in 2019. Last year's global wind power installations reached a record 37,500 MW. China, the first-time global leader in new installations, accounted for more than a third of new installations, with 13,000 MW.
-- Solar PV will grow from a $30.7 billion industry in 2009 to $98.9 billion by 2019. New installations reached almost 6 GW worldwide in 2009, a nearly sixfold increase from five years earlier. But because of rapidly declining solar PV prices, industry revenue in 2009 fell about 20 percent, from $38.5 billion in 2008. This is the first recorded decline in solar PV global revenues since we began tracking the sector nearly a decade ago.
-- According to Bloomberg New Energy Finance, U.S.-based venture capital investments in energy technologies declined from $3.2 billion in 2008 to $2.2 billion in 2009. However, clean energy's percentage of total U.S. venture capital investments continued to rise, accounting for 12.5 percent of total activity in 2009. Globally, investments in clean energy generation assets (private equity, R&D, government, projects, etc.) exceeded those for conventional energy industries for the second year in a row.

But as mentioned above, a host of challenges are present at both the micro and macro levels of clean tech. Perhaps the most notable is the rise of China as a clean-tech powerhouse. Last week, the Pew Charitable Trusts released a new report that echoes the findings in our Clean Energy Trends report: China is now leading the world in the race to dominate clean energy. The Pew report finds that in 2009, China took the top spot in spending on clean energy for the first time, pushing the U.S. into second place. China also now leads the world in manufacturing solar PV and installing new wind turbines. In our report, we make it clear that while China is a formidable opponent, it's too early to declare the country the de facto winner. No one country or region will likely lead in all clean-energy sectors and China still faces significant pollution issues and free flow of information constraints (witness Google's recent departure from China in March) that could stand in the way of true clean-energy leadership.

Another major issue facing the clean-tech sector during the current Great Recession is access to capital – particularly for project development. In the U.S., we believe that at the state and federal level, we need new financing models to bridge this gap. One of the most interesting emerging ideas is the creation of a Green Bank at the federal level, or green banks scattered across the nation at the state level. Other ideas, some of which we highlighted in our recent Five Emerging U.S. Public Finance Models report, are clean-energy victory bonds, revolving loan funds, and investment tax credits and grants. But whatever the combination of public and private investment vehicles, we need to overcome the current lack of financing options.

One of the other big threats to the expansion and growth of clean tech is the dearth of viable exit strategies for clean-tech companies. The exit strategy of choice for successful startups is an IPO. But as we explain in Clean Energy Trends 2010, IPOs in the U.S. continued at historic lows in 2009, with just 13 venture-backed IPOs (up only slightly from a meager six venture-backed IPOs in 2008), according to Thomson Reuters and the National Venture Capital Association. And while U.S. clean-energy venture activity continues to expand – clean energy represented 12.5 percent of total U.S. venture activity in 2009, its largest share in history – the limited number of IPOs remains an obstacle to continued expansion.

Next year, we'll issue our annual Clean Energy Trends report again in mid March. We'll get to see how some of the developments and issues we outlined this year panned out, how the market performed year-over- year, and where we see things headed. Stay tuned. These are, by any measure, interesting times we live in.

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Ron Pernick is cofounder and managing director of Clean Edge, Inc. and coauthor of The Clean Tech Revolution. The firm's latest publication, Clean Energy Trends 2010 can be downloaded free of charge.