Reply #34: How To Turn Clean Energy Into a Powerhouse (Business Week)

[Joanne98]

http://www.businessweek.com/technology/content/sep2007/tc2007094_253556.htm?campaign_id=yhoo

Viewpoint September 5, 2007, 12:01AM EST text size: TT
How To Turn Clean Energy Into a Powerhouse
Better tax incentives and intellectual-property protections are essential to encourage innovators to unleash new technologies without fear
by Elias Blawie, Alison Freeman-Gleason, and Todd Glass

Silicon Valley venture capital is flowing again, but in a new direction: Energy and clean technologies are the next big thing. In 2006, North American VC investment in the energy and clean technology sector totaled $2.9 billion.

As the cost of energy and concerns about global warming and energy security continue to rise, companies focused on developing clean technologies and alternative power have enormous potential. Energy security and carbon emissions will define the future of energy in the U.S., China, India, the European Union, and most other countries for years to come.

But how sustainable is this industry? One problem is that despite investor enthusiasm, the VC community traditionally looks for rapid returns. Market cycles for newer clean technologies from early development to mass deployment often have longer time frames. And while the world's ever-growing need for energy suggests global market potential, can these technologies be deployed reliably and at a scale large enough for utilities and other large sectors of the economy to adopt and use?

Some suggest that a clean-tech bubble is likely, similar to the boom and bust in alternative energy in the 1970s or the Internet and telecommunications in 2000. In fact, some investors are forming funds to buy distressed properties from ethanol production on the assumption that overinvestment will lead to half-built projects on sale for pennies on the dollar. Also, available investment capital appears to be greater than the number of companies with good technology, experienced teams, and significant market potential.

Make Tax Incentives Long Term
Despite the warning signs in certain sectors, such as ethanol, we see a clear path to developing and sustaining robust markets and businesses in energy and many other clean technologies. But the industry is at an inflection point: Will it gain real traction or end up as another fad and set of buzzwords? If we are to avoid another investment bubble where "carbon footprints" become a forgotten yardstick, we must address several private and public issues.

This industry cannot be built on a system of mercurial tax incentives. Tax incentives that pop up one year, only to disappear the next, do more harm than good. The current federal investment and production tax credits are set to expire at the end of 2008. If they are not extended soon, the development and financing of most solar and wind projects in the U.S. will grind to a halt about halfway through next year because such new projects cannot be placed in service before the credits expire. A more effective tax regime would take a longer view, building an incentive window of 5 to 10 years, gradually tapering to create a stable, predictable environment for investment, development, and deployment.

The development of energy technologies that are economically viable independent of tax incentives is paramount. In the long run, these emerging technologies need to be able to compete with conventional technologies in a free market. Within the next 5 to 10 years, wind, solar, and clean coal technologies could become viable and deployed at scale without tax incentives. To reach a scale that cuts costs and makes a difference, the cost and risk associated with clean technologies must become conventional enough that utilities—which are risk-averse and conservative by nature—will own or purchase the output of these new energy facilities.

While there are a healthy number of burgeoning clean-tech companies, if the industry is to thrive, we need to support aggressive research and development of underlying technologies in ways that go beyond the entrepreneurial arena. These include fields from materials sciences and engineering that drive semiconductor and photovoltaic technologies to biological research relevant to producing clean fuel stocks.

Bigger, Bolder R&D
The reality is that the money applied to R&D is currently well below where it could be. In the past, universities have led the development of technologies Continued>>>
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