What did it feel like to publish a book on the future of cleantech in the U.S. just as the sector became a target in national politics?
“It was pretty tense there for a while. We were holding our breath,” says Ron Pernick, managing director of the market research firm Clean Edge and co-author of the new book, Cleantech Nation.
Forget about selling books. This is an industry that Pernick, along with his co-author and Clean Edge co-founder Clint Wilder, lives and breathes. And for people who’ve watched the industry grow from lab-scale tinkering to a full-on industrial powerhouse, the vicious attacks were, well, insulting.
“It was very disconcerting to all of us to watch the amount of money that came from entrenched interests and helped influence a very strong partisan line attacking and marginalizing the industry,” says Pernick. “But it backfired. It didn’t work.”
In 2007, about a year after I started covering this sector, Pernick and Wilder released their first book, Cleantech Revolution. It was one of the best resources out there on activity in the public and private sectors. At that time, cleantech was just becoming a mainstream term in investment circles. It was also right around the time when some of the biggest industrial companies started making strategic investments in renewables, smart grid technologies, and advanced transport.
Driven by concerns about climate and bi-partisan support for diversifying our energy mix, 2004 through 2011 was a period of incredible growth in cleantech. In 2004, global clean energy investments amounted to $53.5 billion. In 2011, global investments reached $260 billion — surpassing fossil fuel investments for the first time and marking the trillionth dollar put into the sector.
But in the last 18 months, the turbulence that has always defined the clean energy sector intensified: Countries have pulled back financial support due to economic struggles; venture capitalists have changed investment strategies after realizing the amount of capital required to scale; once-promising companies have fallen in dramatic fashion due to intensifying competition; and a new unconventional fossil fuel boom in the U.S. driven by fracking has deflated some of the bipartisan enthusiasm for renewables.
If Cleantech Revolution marked the first era of major growth, then Cleantech Nation marks the second: one filled with even greater political uncertainties and market risks, but even greater rewards as the sector continues to expand. For anyone who wants to understand the scope of investment activity underway in cleantech — along with the political imperative for encouraging growth in the sector — Cleantech Nation is a good read.
My biggest gripe with Pernick and Wilder’s new book is that it focuses almost entirely on the positive stories when there are so many important lessons to be learned from countries over-investing in certain sectors, companies being too optimistic in their technologies or market forecasts, and the realities of how political ideology can present enormous barriers. The authors touch on these a bit in the book, but mostly breeze over them in favor of success stories.
As a book designed to provide a forward-thinking framework for policy making and corporate planning, I suppose that makes sense. Indeed, it does provide a detailed look at the forces driving the sector — from CEOs, to mayors, to venture capitalists, to the biggest countries in the world — and wraps them together into an action plan for capturing the sector’s value in America.
Post-election, as we come out of an intense period defending the industry, it’s time for proponents to go on the offense. Cleantech Nation provides a blueprint for a potential game plan to get the job done.
I spoke with Ron Pernick about the post-election environment for cleantech and about what excites him about the next phase of growth. Below is an excerpt from our interview:
Stephen Lacey: What have been the biggest market changes since you wrote your first book in 2006?
Ron Pernick: Back in 2006 when we were wrapping up the book — we came out with the book in 2007 — cleantech was just becoming part of the vernacular. By 2007 when our book came out, it was very clear that there were a lot of governments, a lot of investors, a lot corporates, and a lot entrepreneurs that were just starting to get pretty active.
Fast forward to today, a lot has changed. The industry actually did grow. You see a lot of the negative headlines, but they don’t often focus on the fact that we’ve doubled our energy production from renewables over that period of time, and venture capital has increased considerably over the last decade from 1% of total venture activity to 23% of total venture activity in 2011. So a lot of markers have changed.
Unfortunately, I think the big shift over the last five years or so was how it was framed nationally as a positive bipartisan activity to, in this most recent election cycle, being seen as a very partisan topic. That was really a huge shift from when we wrote our first book.
SL: What, in your opinion, has driven a lot of this partisan shift?
RP: Well first of all, I think it’s really important to remember that at a city level, metro level, or state level, you have a lot of public officials who are very much supportive of clean energy and cleantech. And you also have that within the corporate realm. What I think has happened — mostly in this recent election cycle — is that the entrenched fossil fuel interests were looking at the same exact data that you and I are looking at. They saw the enormous growth in this industry. And I think they put their dollars into playing it down or defeating it.
The New York Times did some interesting research that came out in September. And it showed that in the last election, four years ago, more money was spent on clean energy election-related advertisements than fossil fuel advertisements. And in this most recent election that we just finished, it was more like four to one in favor of fossil fuel interests. [Note: we covered that story here.] So, a lot of this is entrenched interests that are looking at how they can protect their interests.
Now, let’s just move to the reality of time frame. The venture capitalists in many ways did not really understand how difficult and how much time it takes to move to massive penetration. And if you look at the history of energy, the shift from one resource do another doesn’t happen over one or two or three years; they happen over decades.
During our research for the book, we talked to Dan Reicher when he was Google, which is a big clean energy investor. And he said, ‘Ron, it’s amazing. Google gets an idea, they develop the code, they spend three months or so perfecting — and then they put it up on the internet and it has millions of customers within months.’
That’s a very different reality from what we see primarily from clean tech industry where you’re dealing with real bits and atoms. And it takes much longer time to reach real scale and penetration, as Google has found out too.
SL: On a political level, you lay out a long-term action plan for how the U.S. can be an even better cleantech leader. What are some of you favorite pieces of that action plan that you think can accelerate the market fastest?
Ron: We try to do two things. One, make them mid-term and make them as bipartisan as possible. Hopefully we’ve achieved that. We wouldn’t expect that all of them would get traction.
We really like opening up things like Master Limited Partnerships that have been used so successful in the naturally gas industry, and have leveraged more than two hundred billion dollars in assets. [For a primer on how MLP’s work, check out our post on the tool here.] We also like the real-estate investment trust, or REIT, that have been used so successfully in real-estate development.
The real challenge right now is how to deploy the technology, not invent all of them. That’s not to say that innovation isn’t important on the technology side. But for deployment, both MLPs and REITs would be very good models. I think if we could get the MLP parity act passed and if we could get IRS tax code ruling changed around the REIT model and open that up to efficiency and renewables, that would go a long way.
We have Renewable Portfolio Standards in 29 states, including the District of Columbia. And so, if we could get a national Renewable Electricity Standard — a real renewable electricity standard not a “clean” energy standard — of 30% by 2030, I think that would be a very important and effective tool. Those two together would go a long way.
I would also love to see the phasing out of energy subsidies, starting with fossil fuels now. We do not need to be giving billions of dollars annually in breaks and incentives to very established industries. So getting rid of those subsidies now, and then phasing out subsidies to renewables and nuclear over a five to ten year period, would be very helpful as well.
SL: What kind of resistance from people in the clean tech sector about phasing out certain subsidies in exchange for losing fossil fuel subsidies?
RP: I think this is probably the most controversial of all the ideas we outline. You really want to use subsidies for the early stages of an industry. Renewables, efficiency, and some of the other technologies are still are in their early stages. I think with the caveat that you would end certain fossil fuels subsidies now, you could give clarity on nuclear and renewables subsidies for a four, five, six, seven-year period and then phase them out. When you look at it that way, you do get acceptance.
I think everybody understands if you can get rid of subsidies, you level the playing field. And we’ve had decades and decades of subsidies and regulatory support for fossil fuels. The truth is today, we have no subsidy-free or regulatory-free energy. They don’t exist. If you can get rid of them in the right order, I think that people are accepting of that. On the other side, unfortunately, you have some people calling for like “let’s get rid of renewables now, we’ll figure out fossil fuels later.” That’s not a bargaining position that I think anyone should be looking at.
SL: The clean energy industry has done its best to remain bipartisan and to foster significant support from Republicans, and historically people across the political spectrum have been supportive. What we’ve seen in the last election is that it has become more partisan. Mitt Romney made it part of his campaign platform to say he would scale back support for clean energy, calling it a fringe industry. What’s your reaction to all that?
RP: Romney tried to turn clean tech into a punch line and I think the joke was on him. It was very disconcerting to all of us to watch the amount of money that came from entrenched interests and helped influence a very strong partisan line attacking and marginalizing the industry. But It backfired. It didn’t work. He called Tesla a failure. And yet, it’s now been named Motor Trend car of the year. He missed the mark.
Let’s look at the polling: 70, 80, 90 percent of the people, depending on what question is asked, support clean energy and advancing energy innovation. It crosses political boundaries. It goes both left and right. You talk to governors and others on the local level about, say, the Production Tax Credit. They see the jobs it creates. They see that it’s an exportable energy source.
Of course, I do think that it’s going to be difficult. Let’s be honest: the stock market hasn’t been great for clean energy. We track the clean energy market. It goes up 60-70% one year. It drops 60-70% the next year. It goes up 40%. It goes down 40%. There hasn’t been a great investment thesis from an equity perspective. It’s done very well from a deployment perspective, however. We’re seeing much more wind that got out there. We’re seeing lots of growth in solar deployment, on rooftops, as well as on commercial-industrial buildings and the utility scale. We’re also seeing massive energy efficiency deployment.
Of course, there’s a whole bunch more we can do there. At the end of the day, I really believe the public supports this. Government officials on both sides of the isle support this. There was a real disruption over the last year. I the industry felt attacked. I’m hopeful we can move beyond some of those attacks and really get down to the business of growing a very innovative and competitive industry here in the United States.
You can learn more about the book Cleantech Nation here.