Clean-energy futures: From niche to mass market

Ron Pernick & Joel Makower, Clean Edge Inc.

It is, at once, an exciting and confounding time for clean energy.

In a world buffeted by the challenges of national security, global climate change, and sluggish economies, clean-energy technologies such as solar, wind, and hydrogen-based fuel cells offer a compelling array of benefits to individuals and nations alike. These benefits include energy security, stabilized energy costs, reduced emissions and public health risks, and the creation of millions of jobs.

But building a clean-energy future is filled with equal parts promise and pitfalls, particularly in the United States, where government commitments to clean-energy development over the past three decades have been tepid at best, frustrating com-panies seeking a sustained, orderly market to fuel their growth. The hundreds of early-stage companies offering breakthrough technologies that could dramatically lower the cost of clean energy represent unparalleled potential in this arena, but many have been stymied by the recent economic downturn. Many early-stage companies will likely wither on the vine for want of consistent policies and sufficient capital.

Such gloom notwithstanding, market indicators demonstrate that many clean-energy technologies are on the rise, and a confluence of forces is making clean energy one of the few bright spots in an otherwise bleak economy.

Continuing market growth

While most industries, especially in the technology sector, are seeing sluggish or negative growth, many clean-energy technologies are experiencing double-digit annual growth rates. According to a recent study released by Clean Edge Inc., solar power, wind power, and fuel cells will continue to exhibit aggressive annual growth for the foreseeable future.

According to the study, solar photovoltaics (PV) (including modules, system components, and installation) are projected to grow from a $3.5 billion global industry in 2002 to more than $27.5 billion by 2012. Wind power is projected to expand from $5.5 billion in 2002 to approximately $49 billion in 2012. And fuel cells for mobile, stationary, and portable applications are projected to grow from $500 million to $12.5 billion over the next decade.

Combined, these high-growth technologies could grow by nearly an order of magnitude–from just under $10 billion today to $89 billion by 2012–offering significant economic opportunities for companies, investors, and governments pursuing clean-energy goals.

Clean energy is growing in both size and scale. In 2002, more than 6,500 MW of wind-power generating capacity was installed around the globe. This represents the equivalent of more than six large-scale nuclear or fossil-fueled power plants. In many regions, wind power is now cost-competitive with conventional utility-scale power sources. And solar photovoltaics, with more than 500 MW shipped in 2002, continues to see a decline in costs. Some manufacturers now sell solar modules for $2.50 per peak watt wholesale, compared to around $6 just a decade earlier. Clean Edge foresees further decreases in costs as the solar industry scales into a mature manufacturing base and breakthrough PV-manufacturing technologies enter the market.

Venture capital, corporate, and government funding

Venture capital investments in clean energy, while trending downward with the rest of the market, have grown as a percentage of the total venture market. Clean energy now accounts for 2.3 percent of total venture capital activity in U.S.-based companies, compared to 0.7 percent just three years ago.

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Large corporations are investing, too. General Electric Co. last year acquired Enron Wind to establish GE Wind Energy, now the largest wind turbine manufacturer in the U.S. BP Solar is rolling out Home Solutions, an ambitious and aggressive effort to create mass markets for residential solar PV systems in the U.S. and Europe. Japan-based Sharp Electronics Corp. has doubled its output of solar PV modules over the past two years. Meanwhile, Ballard Power Systems, BASF, Duke Energy, Mitsubishi Corp., Shell Hydrogen, and others have joined forces as limited partners in Chrysalix Energy Management, a venture fund focused on hydrogen and fuel cell investments. And ChevronTexaco continues to invest in clean technology through its Technology Ventures group as well as through its holdings in Energy Conversion Devices.

And governments around the world are increasingly recognizing that their global competitiveness and future economic growth rest in part on their investments in clean-energy technology. For many, it has as much to do with economic vitality and job creation as with energy production and security. Japan and the European Union, for example, have been among the most aggressive players, implementing a variety of policies and initiatives to grow their burgeoning clean-tech industries. Much of the growth of clean energy in Europe and Japan comes at the expense of the United States. While solar PV and wind power were first commercialized in the U.S., they are now the domains of other countries: Japan has become the leading producer of solar PV modules, while Denmark and Germany rule the wind turbine world.

In the U.S., government leadership on clean energy has come less from the White House or Congress and more from the state and local level. California has implemented and oversees a range of innovative and high-impact programs, including a statewide renewable portfolio standard (RPS), fuel-cell research and development centers, and progressive rebates and incentives. The city of San Francisco has embarked on an ambitious program to install solar PV systems, including on the roof of its convention center. Michigan, under Gov. John Engler, recently launched a roughly $50 million NextEnergy program that would make that state a leading developer of fuel cells for the transportation sector. Gov. George E. Pataki of New York recently announced a bold plan calling for 25 percent of the state’s energy to come from renewable sources by 2010. Government-supported clean-energy incubators from California to Connecticut are helping to grow new companies.

All of this activity points to a clean-energy industry in transition from a niche to a mass market. From state-based renewable portfolio standards to increased venture and corporate activity, the still nascent clean-energy sector is getting a boost from the convergence of capital investments, government policy, and technological innovation.

Pernick and Makower are co-founders of Clean Edge Inc., based in the San Francisco Bay Area. The company is a research and consulting firm that helps companies, investors, and policymakers understand and profit from the clean-tech marketplace. More information on Clean Edge’s report can be found at www.cleanedge.com.

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