The Energy Innovation Challenge: Lack of Adequate Venture Capital Funding

Innovation has always driven the World’s economy and financial markets. One of the best examples of this was the technological innovations (computers, microchips, software, automation, etc) occurring in the 80’s and 90’s which propelled the Dow Jones Industrial Average from around 1000 in 1982 to over 10,000 in 2000.

Less revered innovations that have affected financial markets include the advent of toxic “mortgage backed securities” and “credit default swaps”. While they looked good on paper and were given investment grade ratings by the incompetent credit rating agencies, these particular innovations are credited with stoking the “housing bubble” and eventual “great recession” of the late 2000’s.

The Energy Evolution is Coming:

In the next 10-20 years, I personally believe innovations in energy efficiency and alternative energies are going to have a dramatic positive effect on the world economy and financial markets.

From advances in solar, wind, tidal, nuclear, hydrogen, and geothermal energy, to improved efficiencies in the use of traditional fossil and bio fuels, the prospect of job growth and value creation within these areas is mind boggling.

The Greatest Challenge to Energy Innovation:

Unfortunately, there is one great barrier that remains to be broken in terms of bringing these exciting new energy innovations to market: the lack of funding.

Because of the extreme amount of money (capital) it takes to bring alternative energy projects to scale, venture capitalists, financial institutions, and governments are reluctant to fund new businesses. If they did, they would be exposing themselves to a huge amount of risk on various technologies that are largely unproven. It is indeed a catch 22 situation.

For example, the pharmaceutical industry has traditionally been considered a capital intensive industry when it comes creating a new product. It has been estimated to cost over $800 million in research and development costs to bring a new drug to market. In comparison, developing the country-wide distribution infrastructure to support a fleet of hydrogen powered vehicles could cost 150 times more than that ($120 billion).

Technology exists today that would almost eliminate our dependence on foreign oil, but so far, no one has developed a viable way to fund the projects on the scale that would bring them to parity (in terms of costs) with current energy technology.

With the US Government already $14.3 trillion in debt, I don’t see any new government bonds being sold in the near term to be used towards funding alternative energy products, unfortunately, this may be the only way such projects could be funded.

Another alternative might be to issue some form of blended government/corporate bond made up by a network of “volunteer” companies where the risk/rewards can be more evenly shared. But this would never work due to the public outcry of corporations getting into “bed” with the government.

One thing is for sure, before any major energy innovations or breakthroughs are brought to scale, there will need to be innovations in the way these capital intensive projects are funded.

Please leave your own ideas for funding new energy innovations in the comment section below!

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One Response

  1. Ben 6 years ago

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