Cleantech Leaders Concerned Stimulus Dollars Altering Competitive Landscape

The Government Is Picking Winners, and Private Investors Are Following Its Lead

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Cleantech industry leaders worry the U.S. government is picking the country’s energy winners with its hefty fiscal stimulus handouts, when the market could be better equipped for that task, a new survey shows.

The U.S. Department of Energy hopes to give or loan $110 billion in stimulus funds to cleantech businesses dealing in everything from smart grid technology to wind power to electric cars and high-speed rail.

Start-ups that snag the cash could see a rush of private capital, analysts say.

Big winners so far include next-gen battery maker A123 Systems, electric-car company Tesla Motors and BrightSource Energy, the solar giant. Combined, these three firms have landed over $2 billion in taxpayer funds. A handful of lucky winners could be next, and therein lies the fear.

Around three-quarters of the 70 clean tech, high tech and energy industry executives surveyed said they were concerned the federal government was influencing the competitive landscape of the still-evolving industry, according to the survey, conducted by Deloitte and the Cleantech Group on the eve of the one-year anniversary of the stimulus package.

Respondents were not asked to explain their concerns. But Scott Smith, a partner at Deloitte & Touche, said he believes the executives worry that the technologies landing the loot — whether in solar, wind, batteries or transportation — will "accelerate more quickly than those not getting stimulus funding."

David Gold, head of cleantech investments at Colorado-based Access Venture Partners, said much of the concern stems from the fact that the lion’s share of the funding is going to government grant programs, not "disruptive R & D." Further, most of the money is still sitting in the Treasury Department, he said.

"By definition, if it’s still sitting in the Treasury Department, it hasn’t stimulated the economy," Gold, who formerly worked at the U.S. Department of Commerce technology programs, told SolveClimate. "And it actually hurts a number of cleantech industries by slowing things down."

Gold said companies have put their planned purchases and investments on hiatius in anticipation of a potential government handout, choking progress in certain sectors.

"Our grand cleantech stimulus actually has, in the near term, caused a further slowdown in the cleantech sector at the time when the economic stimulus was mostly needed," Gold said.

Venture capital firms have long been the sector’s No. 1 source of cash. In 2010, they poured $5.7 billion into clean energy companies, according to data from the Cleantech Group. The Department of Energy, meanwhile, approved roughly $30 billion in grants and $18 billion in loan guarantees since the spigots opened on the stimulus funding.

That makes the government the biggest cleantech venture capitalist of all, with much more cash ready to flow.

According to, the government website that is tracking stimulus spending, about $3.2 billion has so far been paid out.

The whole issue of government intervention rankles opponents, who say industry hot shots should be able to stand on their own legs. They want markets to reward energy companies based on market principles.

The Department of Energy, they argue, is funneling capital and attention into a select bunch of firms based — at least partially — on politics.

"Very few industry people with hands-on knowledge of the real-world demands, needs and technology have been able to participate in the selection process with DOE bureaucrats," Gold said.

In a twist, private investors are following the government’s lead, going with stimulus winners and shunning the losers, observers say.

For instance, the once-promising, decade-old battery-maker Imara, a Silicon Valley start-up, said it closed its doors early this year in part because it fell out of investor favor after being turned down by government support, according to a Cleantech Group report.

Clean energy advocates see a price on carbon and laws that mandate that a portion of electricity come from renewable sources as wiser policy bets, signaling a long-term market to wary investors.

But the U.S. government and proponents of the stimulus program see it differently. They say the billions will kickstart the clean technology revolution here at home — at a time when China is ahead in the cleantech arms race.

In 2009, China invested $34.6 billion in the clean energy economy while the U.S. invested $18.6 billion, according to a March report from the D.C.-based Pew Environment Group

Most of the Deloitte survey respondents would seem to agree, at least in principle, that the investments could give the U.S a leg up on the competition. Seventy percent of respondents said the stimulus will be successful in fostering technology and innovation. Fifty-five percent said it will help stimulate economic growth, and just over half said the money will create jobs.

Still, almost two-thirds said they would not apply for the funds. According to Smith, one main reason is that they are satisfied with the funding they have as the market continues to rake in private money.

"It may be that companies, especially those that were already seeking private financing, were comfortable with their existing financing and development plans," Smith said.


See also:

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