Skip to Content

Venture Capitalists Back Away from Clean Energy

Their shift toward low-risk projects could strand innovative renewable-energy technology in the lab.
August 11, 2011

As governments around the world are scaling back support for renewable energy, venture capitalists are shifting their clean technology investment strategy. They’re focusing less on high-risk technologies and more on ideas that could have a faster payoff but a smaller impact, such as technologies for improving energy efficiency. The shift is raising concerns about how innovative energy technologies will  be commercialized.

Rooftop solar: Solar City installed the solar panels on this house. Lately, investors would rather fund companies that put solar panels on roofs than ones that manufacture the solar panels.

Venture capitalists have traditionally focused on companies with low capital requirements that can quickly get bought up or go public. Many Internet startups fall into this category. But in recent years, many venture capitalists have been enticed to risk longer-term, high-capital energy investments in clean energy, thanks to generous government subsidies in renewable energy markets. In particular, they spent hundreds of millions of dollars on solar-cell startups that need to build expensive equipment and factories to prove their technologies, and can take many years to generate a return on investment.

Now many venture-capital firms are going back to their roots. Dozens recently stopped making initial investments in clean technology companies, according to Dow Jones Venture Source. Many that continue to invest in clean technology are shifting to areas such as energy efficiency, which includes low-capital projects such as software for monitoring and reducing energy consumption, according to an analysis by the Cleantech Group.

The money that still goes to the solar industry is now directed to companies with small capital requirements. Rooftop solar panel installers are one example. (In June, Solar City got $280 million from Google to fund solar installations.) There’s still some funding for solar-cell companies, such as for 1366 Technologies and Alta Devices, that are developing technology that the companies say can compete with fossil fuels. But “it’s a harder place to raise funds for new ventures,” says Sheeraz Haji, CEO of Cleantech Group.

The shift has been propelled by a number of factors. There are fewer good companies available. Many of the most promising companies—those based on technology developed over decades in labs—have already been funded. Large investments in conventional technologies, such as silicon solar cells, are also driving down prices and making it more difficult for new companies to enter the market.

And now government support is being cut, and some analysts doubt that the fast growth of the clean energy markets can be sustained. Germany, Italy, and Spain are cutting back subsidies for renewable energy. In the United States, funding for clean energy from the 2009 stimulus legislation  is running out. Next month is the deadline for projects to get funding from a loan-guarantee program worth tens of billions of dollars. The program is important for companies that want to build large-scale projects using technology that private investors would normally consider too risky. Budget cuts in the United States could also hurt funding for R&D and new energy technologies.

Globally, nearly seven-eighths of clean-energy funding—including financing for wind farms—goes to established  technologies, says David Victor, director of the Laboratory on International Law and Regulation at the University of California, San Diego. “We’re on the cusp of a severe challenge for energy innovation,”  he says.

Keep Reading

Most Popular

VR is as good as psychedelics at helping people reach transcendence

On key metrics, a VR experience elicited a response indistinguishable from subjects who took medium doses of LSD or magic mushrooms.

This nanoparticle could be the key to a universal covid vaccine

Ending the covid pandemic might well require a vaccine that protects against any new strains. Researchers may have found a strategy that will work.

How do strong muscles keep your brain healthy?

There’s a robust molecular language being spoken between your muscles and your brain.

Stay connected

Illustration by Rose Wong

Get the latest updates from
MIT Technology Review

Discover special offers, top stories, upcoming events, and more.

Thank you for submitting your email!

Explore more newsletters

It looks like something went wrong.

We’re having trouble saving your preferences. Try refreshing this page and updating them one more time. If you continue to get this message, reach out to us at customer-service@technologyreview.com with a list of newsletters you’d like to receive.