The Gold Standard –
Government Grants Leading Cleantech Astray
January 19th, 2010
Editor’s Note: We received several email comments about the excerpt of David Gold’s presentation on “Feel Good Government Grants Leading Cleantech Astray” which highlighted last week’s CORE breakfast meeting in Denver. Some agreeing, some disagreeing — but all basically acknowledging the subject is extremely compelling and timely, in this era of mega-ARRA funding for cleantech and renewables. So, without further delay, here is his full post.
By David Gold, Partner, Access Venture Partners
Grants for smart grid projects. Grants for battery manufacturing lines. Loan guarantees for renewable energy project development. Grants to private companies for energy efficiency projects. And with each it seems that the cleantech world cheers. Yet for all our desire to create sustainability in our consumption and use of energy, this model of getting us there is not only unsustainable but is of questionable value.
I want to emphasize that I am speaking about government grants to the private sector where the government is not the end customer and where the grants are for implementation of projects that businesses may (or may not) have done otherwise as opposed to grants to conduct basic R&D. Projects like smart grid implementations, battery manufacturing lines, biofuels plants or industrial energy efficiency implementationsthat have represented the bulk of cleantech grants to the private sector this year. Instead of focusing on cultivating businesses that can sustain themselves via customers, government handouts have focused company time and money on lobbyists and grant writers.
And if you haven’t noticed, the handouts are huge, with many in the tens of millions and even hundreds of millions of dollars for a single award. Some award winners, like ECOtality, are honest enough to admit that their efforts to secure government funding directly attributed to a drop in their revenues. For every company that wins a cleantech grant, there are as many as 10 times the companies that applied and lost. All those losers spent significant time and money chasing those funds and, in the process, neglecting their real business and real customers. Lately the discussion in board rooms often has concentrated more on how to win the next government grant and which lobbyist to hire than on how to build a successful and sustainable business.
At the most basic level, the goal of current U.S. energy policy should be to speed our transition to sustainable domestic energy consumption – a transition that would occur naturally as carbon-based energy sources declined but likely too slowly to avoid the environmental, economic and national security implications. Presumably, the concept behind hundreds of billions of dollars in grants to the private sector is to enable and encourage acceleration of this change. As such, it also must presume that government employees can select winners better than the private sector, do so without political influence, and that the projects being funded are absolutely ones that would not have occurred without government funding.
Finally, those same government employees; 1) must be able to select projects that will help accomplish our goal and; 2) must either be able to continue to fund those projects or have effectively analyzed that a one-time grant will be sufficient to incentivize the private sector to take over from there. My Democratic friends may scream at me, but those are an awful lot of largely unrealistic presumptions that defy the history of government grant programs to the private sector. (Synfuels and the National Institute of Standards and Technology’s Advanced Technology Program are just two examples.) And to add insult to injury, large amounts of the recent cleantech grants will help the competitiveness of foreign corporations as it was awarded to U.S. subsidiaries or joint ventures of those companies (for example, hundreds of millions in battery grantsinvolving LG Chem, Kokam, Itochu Corporation, BASF and Saft).
While the government has long had a role in advancing basic R&D, the concept that the U.S. will jump-start, let alone build, a sustainable energy economy through government handouts for implementation of manufacturing plants, production facilities or enhanced utility grids is, quite simply, ludicrous.
Government grants to the private sector are great PR and make the cleantech public feel good. But they don’t provide quick economic stimulus to the economy (see Cleantech Stimulus Not Very Stimulating) and will not provide meaningful acceleration on the path to sustainable domestic energy consumption. In the end, the only way to have sustainable change is to have a change in the fundamental economics of energy – both in the cost of non-sustainable sources and in the regulatory infrastructure through which carbon based energy companies and utilities earn money. We all saw how quickly things began to change when oil hit $100 a barrel and how quickly they reverted when prices went back down. Reform the regulatory environment so that utilities can profit from conserving energy instead of from building power plants and watch how things change. In my home state of Colorado, wind turbine manufacturer Vestas just announced it is furloughing all 500 workersat the plant it built not long ago. Why? Vestas notes the challenge of natural gas prices being so low that wind turbines can’t compete. I guess we need to borrow more money from the Chinese and other foreign governments to further increase our grants to the wind turbine market…or, we can focus on a sustainable solution.
Nothing can provoke an economic transformation more quickly than the free market appropriately motivated by profit. That, in fact, is largely how we got to where we are today with our reliance on carbon-based energy sources. And the most sweeping and powerful thing the government can do is to influence the profit motive for the private sector by changing energy economics. But that is a topic for another blog post. (And now my Republican friends can scream).
David Gold is an entrepreneur and engineer with national public policy experience who heads up cleantech investments for Access Venture Partners (www.accessvp.com) in Denver. He is an ardent believer in the critical nature of clean technology to the U.S.’s economic strength and national security as well as to the world’s environmental well-being, and the power of the free market to drive the extraordinary changes that are needed to create sustainable energy production and consumption. David can be reached at dgold@accessvp.com.
Filed Under: ARCHIVES • COMMENTARY • Funding & Capital News
Tags: ARRA • cleantech • David Gold • economic stimulus package • U.S. Department of Energy
It is interesting to note the distinction between what makes for successful support and a flaming disaster. Successful stimulus ...
Indeed a very nice post. I also came from Air Conditioning Denver, HVAC Contractor Denver, Door Side Vent industry. ...
Since industry and government are saving so much money on their natural gas bills right now, now should also be ...
Ya know what else could save a bundle of money? A serious investment in efficiency, and unlike shale gas, ...
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Nice job Graham. It's important to note that what constitutes "green jobs" policy in the US is not the ...
Comment by Carolyn Allen on 27 January 2010:
David, good observations. Where there is BIG money, there are warriors willing to plunder. And that’s what I see in the new energy methods and markets. When I compare the low efficiency of PV panels and the high petroleum needs of wind power, I wonder if we forgot “transparency” and honest effort. Working for the long term is necessary — but you don’t go to market with smoke and mirrors. Didn’t we learn that in the high tech heyday? I’m concerned about the convoluted tax, compliance and fee environment that are very difficult for small, innovative companies with small scale solutions that are the nursery of big solutions. And you’re right — they don’t seem to be getting any of the stimulus money to speak of. Big corporations and government agencies are doing well, though. I hope they make all that research available at no charge to small businesses who know how to commercialize basic research.
Comment by Craig Severance on 16 July 2010:
A much more effective means to encourage investment in clean tech is the use of tax credits and accelerated depreciation tax write-offs, such as the 30% Investment Tax Credit for renewable projects done by businesses.
With the tax credit and depreciation incentives, these are still privately organized and implemented projects, and the tax credit is simply claimed on one’s tax return for the year. No applications or lobbying are required.
Government grants and loan guarantees have funding limits, whereas tax credits typically are not limited. If the solar industry grows rapidly, 30% tax credits will be available for all the projects that occur this year.
In contrast, if a program is set up as a grant or guarantee, there will be a limited number of projects that can be funded. Everything will slow to a halt while the applications are processed and (politically-influenced?) winners are picked. The losers won’t even do their projects.
If you want to slow or stop renewable energy development, structure everything as a grant or loan guarantee rather than a tax credit.