Climate change was absent during Presidential debates apart from a few Republican jabs at Solyndra and other federal loan guarantees in green energy. It came back strongly to the front scene two weeks ago when Mayor Bloomberg, a moderate Republican who ran last as an Independent , endorsed President Obama for a second term after Sandy Storn hit New York City (picture right).
While some residents of Big Apple are still waiting for their lights to be back on, Obama's reelection is good news for the cleantech sector. But investments have dipped significantly in 2012 due to a lack of profitable exits. So, realistically, what's next for cleantech?
The situation today is very different from 2008. There is little hope to get carbon trading passed a divided Congress. The Golden State is moving alone on this issue and California's auction cap-and-trade starts tomorrow. It will be interesting to see the impact on the local economy in a State struggling with budget cuts and high unemployment rates.
PG&E representatives don't know what the cost of cap-and-trade will be on the customers. Yet, they believe there will be one. California is also leading discussions to favor the adoption of electric vehicles (EV's). Governor Brown is behind an initiative to see 1.5 million EV's on the road. According to a recent Pike Research study, one of four EV will be purchased in California between 2012 and 2020.
The California Energy Commission recently awarded more than $20M in grants to facilitate innovative transportation projects, and create local jobs. One awardee, Zero Motorcycles, is bringing back its manufacturing line from Asia and hopes for growth. It becomes only the second US-based motorcycle manufacturer, in addition to Harley-Davidson. As a result, the company was honored by in the Made in USA Foundation last summer (picture left).
Telsa Motors was the largest awardee with $10M for its next vehicle, the Model X. Tesla remains one of the few success stories of the past few years in cleantech. The Model S was voted the best car of the year by several automobile magazines. It stands in stark contrast with many cleantech companies that had to postpone or cancel their IPO plans this year. This forces cleantech companies like Brightsource to raise late-stage rounds in private markets.
Like for most industries, notes Paul Fox from California Clean Energy Fund that invested in Tesla Motors, it takes on average 8-10 years for a company to mature and exit succesfully. That is twice the time VC firms usually take to raise a new fund so they are not incline to wait. With a sluggish economy, he thinks we will see more failures in the next couple of years before we see some cleantech companies making it big. Then, VC investments should rebound.
I talked to Paul at a gathering of Australian cleantech start-ups who came last week to the Bay Area for the Cleantech Open Global Forum. Over half the companies that make top 100 list of cleantech companies around the world, according to the Cleantech Group, come from North America. Most of them are in California, and Silicon Valley remains a big draw to cleantech entrepreneurs who want to get more visibility.
Many countries were represented. I met with the CEO of one the finalists of the Global Ideas competition. Dr. Alain Lunati comes from France and is the CEO of S3PH. I asked Alain about his experience at the Cleantech Open. "I was not looking for money here but it was great way to get international visibility", he explains. "We also got a few contacts that we are planning to follow-up on".
Dr. Alain Lunati is a pragmatist and saw a big opportunity several years ao to make car engines more fuel efficient using optical spectroscopy after an early career at BP. The sensor that SP3H designs and sells to automakers in partnership with OEM's recognizes in situ the type of fuel. Engines can be then tuned to lower fuel consumption and pollution. SP3H finished second in the international competition, and was one of the few good surprises this year.
The overall level in the national and international competitions, expecially among semi finalists, was not as good as last year. It is an indicator of the difficulties that the cleantech eco-system has faced in 2012. Chicago's HEVT (picture above) won the national competition and its $250,000 Grand Prize. Heidi Lubin, CEO and co-founder of HEVT stated that “The validation we have received as part of the Cleantech Open accelerates our growth and helps us meet growing customer demand in a challenging macroeconomic environment."
However, companies like HEVT and SP3H are good news because they defy the stereotypes that put traditional energy sectors and greentech at odds. The clash of "oil and gas" and "wind and solar" marked some of the Presidential debates between Barack Obama and Mitt Romney (picture below). Both parties agree though that it is the role of the Government to continue to invest in research projects.
The Cleantech Open hosted a session on "The Cleantech Economy: Post Election Survival?". The Republican representative, Steve Schmidt, acknowledged that the GOP lost touch with the general public but reassert that it is not the role of Government to be a Venture Capitalist. Ed Lambert, who replaced on the spot Donal Fowler who could not make the conference, voiced what many moderate Democrats think: the billions of dollars in loan guarantees could be better spent in smaller chunks.
Many entrepreneurs raised their hands when he asked the audience if $10M would make a big difference in advancing their technologies. Another issue is access to pillot projects and the city of San Francisco and Paris announced that they will open some of the infrastructure to selected cleantech companies in order to test and showcase their solutions.
Last week, A number of Silicon Valley executives talked about what Obama's re-election means for the cleantech sector. Democrats are certainly more supportive of the cleantech industry than Republicans in general , but Obama's re-election likely won't change much, according Rex Northen, executive director of theCleantech Open. "The issue (of cleantech) has become politically toxic," Northen stated. "Both parties have disastrously failed us."
The biggest opportunity in the US remains its aging infrastructure. Hurricane Sandy showed that the failure of a transformer could take down Manhattan, the wealthiest area on Earth. Earth2Tech made the case for a smarter, cleaner and distributed power grid Hurricane Sandy. More smart grid projects and infrastructure projects are likely to be funded in the next few years.
In the meantime, the US and other countries are preparing to step up their oil and gas production to be more energy independent as the situation on the Middle East becomes more unstable. Paradoxically, any crisis in the Middle East would create another spike in gasoline prices and likely accelerate the adoption of EV's for instance. Ask the folks who had to wait hours in line to get fuel at a gas station last week (picture right).
While the water levels are rising, the dead-lock in Washington DC continues but the narrative has evolved. Obama's administration abandonned its 2-degree commitment made in 2010 because it is afraid that "old orthodoxies" in climate change calcultions will reinforce the deadlock. More Republicans are putting pressure on their party to accept climate change as scientific fact and start to be part of debate on how to deal with it.
In a surpise move yesterday, Grover Norquist, the influential Republican lobbyist against tax raises, suggested to pair carbon tax with a cut in income tax. Norquist's bombshell is another sign, after John Boehner's change of stance about immigration reform, that elected officials have heard the disapointment of the general public and that they must go back to work. The question is for how long, before partisan politics prevails, and whether the environment will benefit from it.