The Cleantech Group released the third quarter 2011 numbers last week. Their CEO, Sheeraz Haji, reassured the press that “Solyndra’s downfall seems to have little impact on VC’s appetite in cleantech”. More than $2.2Bn was invested across 189 deals, marking an improvement of 12% over last quarter and 23% over the same quarter last year.
The PR debacle over Solyndra is certainly intensified by the political climate ahead of the 2012 Presidential Election. Nonetheless, it raises some crucial questions on the role of the US Government. Recent reports show that a number of VCs shared concerns about the loan to Solyndra. A close adviser to President Obama, Larry Summers, shared the view that the “Government is a crappy VC” and suggested changes to the DOE loan program.
The opposite view argues that the US does not do enough. Last quarter confirmed China in the number one position in liquidity events with 11 of 14 IPOs according to the Cleantech Group. President Obama commented in the news last week that “if we want to compete with China, which is pouring hundreds of billions of dollars into this space, if we want to compete with other countries that are heavily subsidizing the industries of the future, we've got to make sure that our guys here in the United States of America at least have a shot."
The question really is how to do it? The difficulty with investing in cleantech infrastructure and integrating sustainability in our life-style choices, is that it involves a wide spectrum of financial transactions. Green activities span from thousand dollars investment in local communities all the way to billion dollars infrastructure projects as depicted in the graph above. Every stake-holder must be involved, one way or another, to carry that transformation. The "innovation engine" made of University inventions, start-up entrepreneurs and VC investments is only one component.
If Governments must be involved consistently in infrastructure and research programs, corporations and local communities are very much part of the eco-system that needs to come together to pick the right solutions. The notion of "free market" could be extended to be socially inclusive and remain financially sustainable. In countries where intellectual property is not protected and corruption can happen more easily, million dollar investments are not the best way to get the “most bang for the buck”.
Cleantech and sustainability challenge our thinking of innovation limited to our image of successful entrepreneurs from Silicon Valley, which every developped country has been trying to replicate. We can certainly learn lessons from Silicon Valley but we can do better than that. If the United States of America remain the leader in VC investments and innovation, creating in less than 10 years company giants like Google that are very active in cleantech projects, the country has struggled to develop a consistent energy policy and a stable environment.
The number of green jobs in the country has been disappointing despite the US Government stimulus program. Many observers point to Germany as an example of Government involvement. By creating a stable incentive environment, the country helped launch a vibrant cleantech market and create hundreds of thousands of jobs. The Feed-in Tariffs system is cited as effective Government tools because it provides a long-term incentive without making particular choices in one or another company. The private sector is better armed to do pick winners and losers.
But can the US replicate the German model in country with more complex and Federal regulations? The point of the German example is consistency and stability. The delays in US Congress regarding tax incentives and uncertainty in general has harmed American companies in solar and wind because they face important inventory and deployment cycles. A 6-month delay can kill a bottom-line.
The US can also learn from emerging countries. It is particularly true for environmental and social entrepreneurs. It is interesting to see that neither Europe nor the US have effective solutions in low-income neighborhoods. The Grameen Bank in Bangladesh remains the reference in micro-financing and impacting a poor country from the ground up. Multinationals like Danone have created joint ventures with the Grameen Bank and improved dramatically the morale of employees within the company and their involvement.
Solar Mosaic is an interesting example of California. The start-up that took a concept from emerging countries, micro-financing, to engage local communities to invest and deploy mid-size solar systems that create local jobs. The first deployment started in Oakland with hundreds of people backing the project by buying "tiles" of $100.
More jobs might be created with these bottom-up programs compared to large DOE loans in solar companies struggling to be competitive with Chinese vendors and building factories overseas. Where is China in all of this? China leads cleantech because of the level Government support and its vibrant economy.
China also faces many social challenges when the growth rate will slow down and the effervescence of opportunities will no longer hide the needs of the population living under the radar. Just this year, the number of kindergartners in Shanghai will go from 80,000 to 200,000. Many day cares are being improvised in the basements of buildings in a city where only a third of population has an official permit to live there.
China and US can also learn from the rest of the world. Hopefully, they will join the rest of the world in Copenhagen instead of creating their own environmental rules and social problems. Competition is healthy but collaboration is needed when it comes to environment sustainability and social responsibility.
There have been also disappointing results in Government loans to emerging countries. The US Government is not alone with its $560M "Solyndra debacle". The key is to learn from it and have an honest debate... and maybe find solutions from other places around the world that might teach you a thing or two.