Smart Grid Manufacturers Struggle for Funding

Government and Private Investment is Flowing, but to Research Instead

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Although generally left out of stimulus funding, the less glamorous side of cleantech — manufacturing — got its day in the spotlight when the Obama administration announced $2.3 billion in tax credits last week for 183 manufacturing projects in 43 states.

The credits will help offset about 30 percent of costs for the projects, which should help speed things along for multiple U.S. cleantech sectors.

However, a breakdown of the credits highlights another gap in support. While renewable energy-related projects grabbed over half the credits — two of the three companies receiving more than $100 million in credits each are solar companies — only nine purely smart grid projects will be receiving credits, together totaling about $35 million.

Despite the fact that smart grid seemed to have been the cleantech press darling of the year, the companies producing smart grid-related products have not necessarily seen the influx of money analysts kept predicting.

Utilities have made out like bandits on stimulus funds, and venture funding has been flying out the door for early stage and application-based smart grid start-ups like Tendril and for established smart grid infrastructure companies like Silver Spring, but for smart grid companies with a product to manufacture — and thus large capital costs — securing funding has been tough.

Smart meter company Itron, for example, has been tapped by several stimulus-funded utilities to provide meters for dozens of smart-grid deployments throughout the country. But those partnerships still don’t provide the tens of millions of dollars needed to, say, build a new factory or greatly expand an existing facility. That’s why the $5.15 million in tax credits that Itron is receiving to re-equip its factory in order to make its advanced residential smart meters is a huge help.

These are the types of projects that companies need financing for, and with banks not able to loan the money and private investors not interested in such projects, government funding is crucial.

Paradoxically, it’s that sort of dependence on government involvement that is keeping some private investors from investing in smart grid.

Dot-com-millionaire-turned-cleantech-king Vinod Khosla is a prime example. He has famously not yet invested in smart grid, not because he doesn’t see the potential but because, as he told the audience at VentureBeat’s recent GreenBeat conference, it’s too dependent on utilities and government regulation, and he hasn’t yet found an investment that cuts through the hype.

Smart grid companies are hopeful that the green manufacturing tax credits could help attract those investors.

“Hopefully this will have the effect of sparking more private investment,” said Katherine Hamilton, president of GridWise Alliance. “Between stimulus funding and this tax credit, investors should feel more comfortable. This will help them to see that there’s a business case and it’s not just the utility business case. There are real products with value being produced.”

In the meantime, the smart grid industry and other cleantech sectors are hoping Obama gets approval for the additional $5 billion he wants to throw at clean U.S. manufacturing.

The funding has a good chance of being approved if it can continue to ride the green jobs wave, particularly as the administration continues to wrestle with double-digit unemployment numbers.

The Department of Energy estimates that the projects enabled by this initial round of tax credits could create up to 17,000 jobs and given that it now has a backlog of “technically acceptable” applications.

“Instead of turning down worthy applicants who are willing to invest private resources to build and equip factories that manufacture clean energy products in America, the administration has called on Congress to provide an additional $5 billion to expand the program," the DOE said.

The DOE announced the release of more recovery act financing today: $80 million for advanced biofuels research and ethanol fueling infrastructure. Once again, though, the money is primarily targeted toward research.

The National Alliance for Advanced Biofuels and Bioproducts, a consortium of companies and labs led by the Donald Danforth Plant Science Center in St. Louis, will receive $44 million to develop "a systems approach for sustainable commercialization" of algae-based gasoline, diesel and jet fuel. The National Advanced Biofuels Consortium, led by the National Renewable Energy Lab, will receive up to $33.8 million for research to develop infrastructure compatible, biomass-based hydrocarbon fuels. The remaining $1.6 million is targeted for eight fueling infrastructure projects involving E85 pumps.


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Overcoming Obstacles to a Smart Grid Future

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Will Smart Grid Benefits Be Limited by Dumb Buildings?