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With Tesla officially filing their IPO papers, it seems like renewable energy is entering a new era of marketability. Such small successes, however, may not be representative of trends. As a panelist of experienced investors explained at the RETECH 2010 conference, the renewable energy industry is facing a host of serious challenges but these difficulties may give way to new opportunities.
Taking Stock of the Challenges
Regulatory and policy uncertainty take precedence at the top of the list of challenges stifling the growth of renewables. Add to this a growing fear of federal deficits—and the limits on stimulus funding it implies—and potential investors are left with a legislative and administrative environment that makes investments in clean tech less attractive.
Government whimsy is not the only challenge faced by those looking to invest in renewable technologies. The young nature of the industry also presents problems. With certain sectors missing or in very early stages of development, new companies are forced to create the parts they are missing. This makes coming to scale a slow, difficult, process.
In addition to this, clean tech and renewables remain highly capital intensive industries. The panel agreed that this is not inherent in the technology and business—as is often thought—but is rather a characteristic of all new industries. Though it the price of entry should decrease over time, the fact remains that a huge amount of capital is still required to finance a renewables start-up.
Finally, global competition poses a threat for domestic companies. While past booms were limited to small cities on the east and west coasts—and the United States was left to dominate innovation unchallenged—the current clean tech explosion is taking place around the world—from China to Europe, India to Brazil.
In spite of these challenges—or more accurately, because of them—the opportunity for companies, entrepreneurs, and investors willing to take the risk is huge. The panel pointed out that never before has there been so much talent leading an industry, so much cross-pollination of knowledge, such opportunity for companies to streamline production lines through outsourced manufacturing.
Indeed, companies that have experience management and a smart business plan, the panel agreed, will be able to capitalize on many of the advantages of green technology, namely that operating with the environment in mind reduces risk, cost, and enhances revenue growth.
Jim Long of Gabriel Venture Partners, gave a few key characteristics that successful renewable startups will need to embrace to attract investors and find success in the uncertain market. First, he said that entrepreneurs should work in multi-disciplinary teams that are able to share knowledge and responsibilities. Second, they must develop complete, long-range, business plans that consider future—not just immediate—growth. Finally, startups must focus on disruptive, breakthrough, technologies that have the potential for a large return.
Raising funding in stages and forming strategic partnerships, he explained, are essential techniques for reducing risk.
Development in the renewable energy and clean tech industries will continue to be a challenge but, as the panel explained, the opportunity for growth, return, and a more secure future make it an essential field for investment.
Read more about RETECH and green business:
RETECH 2010: Negotiating the Bumpy Path to a Renewable Future
RETECH 2010: Municipal Governments Fostering a YIMBY Culture
Industry Leaders Consider Why America has Fallen Behind at the National Climate Summit