Selling Green Tech to Wall Street

Written by Jim DiPeso on Thursday May 5, 2011

Green tech ideas often face unique challenges trying to win financial backing. But a new proposal could give the feds a role in helping them attract private capital.

Tuesday's hearing of the Senate Energy and Natural Resources Committee saw remarkable harmony regarding legislation to give the federal government a financing and risk management toolbox for helping emerging energy technologies cross the financial "valley of death" between a good idea in the lab to a toehold in the market.

Both a Clintonista who once headed the Department of Energy's (DOE) efficiency and renewables office and an energy maven from the U.S. Chamber of Commerce thought that a bill establishing a Clean Energy Deployment Administration (CEDA) is a good idea.

So do ENR Chairman Jeff Bingaman and ranking member Lisa Murkowski. CEDA was included in the bipartisan energy bill that ENR sent to the floor in the last Congress. That's as far as it went, thanks to Harry Reid's stumbling and bumbling on energy legislation during the 111th Congress.

CEDA would be a quasi-independent agency within DOE that would have various financial and risk management tools at its disposal – loans, loan guarantees, and insurance, for example – to shepherd nascent energy technologies across the "valley of death," so they can scale up, prove themselves, and convince wary financial markets that the technologies make economic sense and developers can pay back loans and offer a return to equity investors.

Dan Reicher, who founded a private equity firm to invest in clean energy after leaving DOE's Office of Energy Efficiency and Renewable Energy, colorfully told the committee what the valley of death is like. It's pretty gruesome.

"It was in my role at this firm – traveling down the (research, development, and deployment) pathway – that I first peered into the Valley of Death. Littering the valley floor are the remains of hundreds – perhaps thousands – of abandoned energy projects. Projects based on exciting technologies backed by DOE or venture capital firms. Technologies that worked well in pilot or demonstration plants but died trying to get to commercial scale. And we saw advanced technologies of all sorts, from wind, solar, biomass and geothermal, to breakthrough coal and natural gas, to nuclear power and beyond. We and most other private equity firms simply couldn't shoulder the risk inherent in the initial commercial scale-up of an energy technology, where a project – a single project – can cost hundreds of millions or even billions of dollars."

What did Reicher's firm end up funding? Mostly corn ethanol breweries. Not exactly cutting edge.

So what, a Randian libertarian might respond. That's the way the market works. If the newbie technologies are too risky for private capital, let 'em die. The free market is all-knowing and all-powerful.

No, it isn’t, said Christopher Guith, VP of the U.S. Chamber of Commerce's Institute for 21st Century Energy. "Clean energy technologies face multiple structural inefficiencies in financial markets," Guith told the committee. He offered three examples:

There are financing bottlenecks – as an old joke in technology development circles goes, bankers love to help developers finance their second projects.

Markets don't account fully for societal costs, such as pollution.

Finally, there is technological lock-in. America's energy economy is optimized for conventional energy sources that have their pros and cons - e.g. cheap but dirty coal and energy-rich oil purchased from manipulative cartel potentates.

Both Guith and Reicher argued that the environmental, economic, and security benefits of deploying clean energy technologies are worth setting up a federal agency that could provide safe passage through the valley of death.

With broad support, chances are good that ENR will report out legislation establishing CEDA in the next few weeks. Whether the bill could cross the political valley of death on the Senate floor and the canyon in the House remains an open question.