President Obama is touting alternatives to foreign oil, research funds are flowing into renewable energy and venture capital is again surging into the clean technology sector. But the shift to clean energy is still a long way off. As established startups move towards building their first commercial facilities, some are struggling to find the funding to scale up. They’ve exhausted much of their venture capital and can’t yet satisfy the strict risk terms of traditional lenders.
The struggle to find funds to commercialize innovative clean technologies is turning into what industry insiders call the “valley of death,” delaying implementation of wind, solar power, low-carbon fuels, and systems that make energy use more efficient. To build their first full-scale facilities, clean technology startups can require up to 100 times more capital than new software or biotech companies. “Instead of dying for lack of $5 million, clean tech startups can stall and die for the lack of $50 million or $500 million,” says Greg Neichin, vice president of Cleantech Group, which tracks market trends. It may be easier to invent green technologies than to finance their commercial production.
Consider GreatPoint Energy. The Cambridge, Mass., company has raised $150 million in venture capital and strategic investor funding since 2005 to develop a process that converts coal into cleaner burning natural gas and that can capture and store its carbon dioxide emissions. Big companies, including AES Corp., Dow Chemical, Peabody Energy and Suncor Energy, lined up early to invest and team up with GreatPoint. Now that the process has been proven on a pilot scale, GreatPoint needs another $200 million to $400 million to build a plant big enough to prove the technology will work at commercial scale. That’s more than many venture capitalists are willing to risk. And because the technology is still evolving and GreatPoint’s business model is untested, project financiers and private equity investors lack the experience to assess the project’s risks…