The market for clean energy technologies is expected to reach $2.2 trillion by 2020,1 but the U.S. will need to make substantial investment in renewables, carbon capture and storage (CCS), and next-generation nuclear to capture a significant portion.2 Even at the peak level of investment in clean energy, the U.S. has underinvested by 60% to meet our clean energy goals.3 Our current financing mechanisms are insufficient, failing to motivate adequate private investment or leverage public funding for deployment, development, and innovation. If the U.S. wants to reap the benefits of the clean energy market of tomorrow, we need to implement the policies to incentivize investment today.
Clean energy technologies (“cleantech”) are challenging to develop, often requiring scientific breakthroughs, long timelines, and substantial amounts of capital to reach scale. Unlike internet innovations or even pharmaceuticals, cleantech often must cross a “valley of death”;4 a need for funding between the traditional startup requirements and the point when it can go public or be acquired.
This unmet need could be filled through one of two kinds of capital: government funding or traditional investors—both early-stage, like venture capital, and late-stage, like private equity or investment banks. Government funding, as seen with the DOE Loan Programs,5 can help companies with the costs of scaling. But such programs have been highly controversial.6 Private capital has been even more difficult to obtain, requiring higher returns to compensate for the risk involved.7 With the proper incentives, private capital could help bring more clean energy technologies through the valley of death to scale commercialization, taking advantage of the clean energy economy of the future.
Although these efforts won’t completely resolve the challenges faced in financing clean energy, some short-term policy changes would help level the playing field and encourage private capital investment.