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The last clean energy boom turned to bust. Will this time be any different?


Investors who back upstart companies are known for their optimism. But when it comes to the wall of money pouring into clean energy, their enthusiasm is tinged with concern.

“I always worry something is going to happen and it will suck the wind out of the market,” said Craig Lawrence, who led energy and clean tech investing at Silicon Valley’s Accel Partners between 2008 and 2010.

Funding for clean tech projects is undergoing a massive boom. A record $501 billion was pumped into the energy transition in 2020, according to BloombergNEF. The WilderHill New Energy Global Innovation Index, which tracks shares in 125 global companies that aim to address climate change, hit an all-time high earlier this year.

But the failures of a decade ago still loom large. Before the Great Recession that followed the global financial crisis, Silicon Valley investors poured billions of dollars into sustainable energy startups they thought could become as big as Google. Then, as losses mounted, they fled — tainting the sector for years. By 2012, the value of venture capital deals in climate technology had slumped to a measly $1.1 billion.

A lot has changed since then. The cost of producing renewable energy has dropped dramatically, making wind and solar power competitive with fossil fuels, while investors, governments and top companies, from Amazon to JPMorgan Chase, are injecting billions of dollars into sustainable projects. Lawrence, who left venture capital for executive roles during the crash, has returned with a new $75 million fund called Energy Transition Ventures.

But investing in young firms and complex new technologies always carries risks. The question is whether this time around, investors are prepared to stand by their climate convictions and stay the course, even if things get tough.

“I believe the fundamentals are there to build world-changing businesses,” Lawrence said. “That doesn’t mean all the companies funded right now are going to be that.”

From boom to bust

This isn’t the first time sustainable investments have attracted a tsunami of money from those aiming to do good while collecting monster returns. Between 2006 and 2011, venture capital firms anticipating major growth put over $25 billion into clean energy technology, according to a 2016 report published by the MIT Energy Initiative.

But it wasn’t long before they ran into problems. Venture capitalists that were used to securing returns after roughly five years had portfolios full of startups that were struggling to deliver, thanks in part to the realities of developing and scaling up complicated and fresh technology in an established energy market.

“There was a sort of hubris among venture capitalists in treating the energy industry like they treated the tech industry,” Lawrence said.

Ultimately, venture capitalists lost more than half of the money they invested during this period. Then, at a crucial moment for solving the climate crisis, funding dried up. The political controversy over Solyndra, the solar technology startup that went bankrupt after receiving roughly $500 million in US loan guarantees, didn’t help.

“When you hit these major bumps in the road, it gets scary,” said Carmichael Roberts, who serves on the investment committee at Breakthrough Energy Ventures. “And I think, we had a lot of folks come in and for their own sets of reasons, when it got really complicated, they left really quickly, instead of figuring out how to fix things.”

Clean tech 2.0

In recent years, though, fears have started to subside. Crucially, technological innovation and huge investment from China have pushed down the costs of renewable energy sources, which are increasingly competitive with traditional fossil fuels.

“This current surge is all about economics,” Lawrence said.

Investors are also taking a broader view of sustainability, looking not just at solar and wind projects but also food, agriculture and manufacturing processes.

Meanwhile, governments are getting more aggressive. Earlier this week, ahead of a virtual climate summit of 40 world leaders convened by President Joe Biden, the United Kingdom said it would slash emissions by 78% by 2035 compared to 1990 levels. Biden, who wants to cut US carbon emissions by as much as 52% by 2030, has proposed a $2 trillion legislative package that includes billions of dollars on clean energy projects.

Consumers are demanding sustainable business practices, persuading hundreds of major corporations to issue net zero emissions commitments. They’re stepping up their investments, too. This month alone, JPMorgan Chase said it would finance or facilitate investments of $2.5 trillion over 10 years to support solutions that address climate change and contribute to sustainable development, while Apple announced a $200 million investment fund designed to remove carbon emissions from the atmosphere and support sustainable forestry.

The wider investment community is also rushing in, as clients push fund managers to create sustainability-focused portfolios, and spectacular growth for companies like Tesla sparks enthusiasm among everyday investors. Assets in sustainable funds hit a record high of $1.65 trillion at the end of last year, up 29% from the previous quarter, according to Morningstar. BlackRock, the world’s largest asset manager, has identified sustainability as a key priority, and is pushing the companies it owns to increase their climate disclosures.

Investors “caught up all in one go in 2020,” said Angus McCrone, chief editor at BloombergNEF. “That’s the explanation for the big burst of the enthusiasm we saw.”

The dynamics have lured back many venture capitalists, who pumped more than $11 billion into climate tech deals in 2020 compared to just $2.6 billion in 2015, according to PitchBook data.

Breakthrough Energy Ventures — which was launched by Bill Gates and other wealthy investors in 2016 as a $1 billion fund — has raised an additional $1 billion after investing in more than 50 startups that could help the world approach net-zero emissions.

“We’re out of time on climate, so we’re not patient,” Roberts said. “But we’re realistic.” Breakthrough Energy Ventures’ funds run for 20 years, instead of the 10 years typical in the venture capital industry.

Where the risk lies

PitchBook sees the climate tech market growing to more than $3.6 trillion in 2025. But that doesn’t mean all parts of the clean tech resurgence are safe from another pullback.

Clean tech stocks have dropped from their highs in January. For some, the declines have been particularly severe. Shares of the fuel cell maker Plug Power have plummeted more than 60% since its January peak. In March, the company disclosed accounting errors that had affected financial statements in 2018, 2019 and 2020.

Among some investors, there are concerns that given past jitters, one scandal could spark withdrawals just as the sector starts to gain momentum. The magnitude of money now looking for a home is also feeding concerns that some will inevitably flow to unworthy companies.

One area of particular concern is the sheer number of clean tech startups taking advantage of special-purpose acquisition companies, which have grown increasingly popular on Wall Street. These “blank check” firms get funding from investors and then go hunting for takeover targets they can take public. According to PitchBook data, 16 companies focused on clean, sustainable energy have been taken public via SPACs since 2020 — up from just four in 2019. Electric vehicle makers have especially favored this route.

Regulators have grown increasingly concerned that SPACs can mask flawed accounting practices, while market watchers point to the explosion of SPAC listings as signs of a broader market frenzy that’s bound to pop. Should enthusiasm wane, it could bring a legion of clean energy companies down, too.

“The amount of risk being put on the public market is higher than it should be, and I worry if some of those fail catastrophically, and retail investors get hurt, it will stain the whole category,” Lawrence said.

And investment in new technologies is always inherently risky. While carbon capture technology has become increasingly buzzy, with backing from top oil companies such as Chevron and ExxonMobil, it still isn’t commercially viable, McCrone noted.

“It’s probably going to require government grants or some other kind of government assistance to enable projects to go ahead,” he said.

Venture capitalists explaining why this time is different make a lot of good points. But that doesn’t mean clean investing is immune to to the whims of the market and investors — just when the world really needs solutions.

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