by Richard T. Stuebi
As a class, new energy technologies have proven to be quite difficult to successfully commercialize. Often, they must surmount substantial technical, scientific and engineering risks to get from concept to the market. And, to prove at scale and expand to broad application, very large sums of capital are typically required.
Accordingly, many private sector capital sources — venture capitalists, private equity firms, corporations, and banks — are wary of funding new energy technologies on their own. Put another way, for the clean energy economy to emerge in a major way in the coming decades, the public sector will have to participate in new and significant ways in financing the development and deployment of new energy technologies. Innovative public-private partnerships in the capital arena will be essential. And, given the massive amount of dollars required, these programs will have to be Federal to score any major successes.
For the most part, Federal engagement in the financing of new energy has been historically limited to various subsidies embedded in the tax code, such as the production tax credit for large-scale renewable energy projects or investment tax credits for customer-sited renewable energy or energy efficiency investments.
More recently, stemming from the Energy Policy Act of 2005, the Department of Energy has been authorized to provide loan guarantees underlying private sector loans for projects employing new energy technologies.
Although somewhat effective, clearly the Federal programs to complement the private sector in financing new energy technology development and deployment have not had impact anywhere near the magnitude that pretty much everyone but guardians of the status quo desires.
To that end, both the Markey-Waxman bill that passed the House last year and the Bingaman bill being floated in the Senate include the creation of a Clean Energy Development Administration (CEDA), whose purpose would be to provide debt capacity that is otherwise inaccessible to innovative energy technologies.
Ordinarily, I’m not a big fan of new government bureaucracies. Indeed, a CEDA might not be necessary if the pricing signals for clean energy were set in a manner that induced the appropriate level of investment in RD&D. However, without political will to take on energy pricing — i.e., taxes and carbon policies — it’s clear that finance capacity for clean energy is currently inadequate, and that only a player of the heft of the Federal government can make any meaningful dent in improving the situation.
Perhaps Wall Street agrees as well. Two finance industry leaders — Eric Fornell, the Vice Chairman of Investment Banking for J.P. Morgan Chase (NYSE: JPM), and Mark Heesen, the President of the National Venture Capital Association — recently wrote a thoughtful article providing both support and words of wisdom in establishing a CEDA.
Richard T. Stuebi is a founding principal of NorTech Energy Enterprise, the advanced energy initiative at NorTech, where he is on loan from The Cleveland Foundation as its Fellow of Energy and Environmental Advancement. He is also a Managing Director in charge of cleantech investment activities at Early Stage Partners, a Cleveland-based venture capital firm.