The continued global financial crisis has been hurting the green economy. The sudden and very sharp drop in the availability of capital has dried up needed new investments and funding for many new, green economy projects and businesses. Because many green or clean tech businesses are in an early expanding phase of their growth, they have been especially hard hit by the current dearth of capital. Quite a number of green firms are at serious risk of failure because of this capital starvation. This short- to medium-term problem in the global capital markets may have long term-impacts. It is stifling the growth in the green (or clean) technology sectors that are critical to reaching the vital national (as well as worldwide) goals of rapidly reducing carbon pollution and dependence on the world’s diminishing reserves of fossil fuels.
The sharply rising cost of oil from about 2005 to early 2008 helped fuel an investment boom in green technology – particularly in wind, solar and in bio fuels. Capital flows into these sectors fueled unprecedented growth– with hundreds of start-ups popping up like mushrooms after a spring rain. Now this boom has been replaced with a bust by a combination of factors acting in concert. They include the drying up of available capital and lending, a temporary drop in fossil fuel prices, and the global recession.
According to Morgan Stanley managing director Kevin Genieser — speaking at the GoingGreen East conference in Boston — more than $200 billion in market capitalization has been lost from green sector industries since then.
As oil prices (and other fossil fuel prices such as natural gas as well) begin to rise again — as they are bound to do, given the notable price inelasticity of these essential commodities, and the lack of growth in new global supplies or proven reserves for them — capital should begin to make a return to the green technology sectors and especially to the renewable energy sector. This fundamental and growing need for the future capitalization of renewable energy projects will likely be driven by the long term rise in the costs of fossil based energy sources, the Obama administration’s new policy initiatives on energy and climate change, as well as funds that have been dedicated to promoting growth in these sectors that are in the stimulus package. This will likely improve the longer term outlook over the next few years for the green sector and especially for the renewable energy sector.
This was confirmed by the results of a survey of 300 venture capitalists, executives, entrepreneurs and bankers conducted over the past two months ted by KPMG. In part, because of allotments for green tech and renewable energy funding that is in the stimulus package, 53 percent of the respondents expect to see VC investment in the green technology sector increase in 2009, with over two-thirds of this new investment split between renewable energy projects and technologies for energy storage and improved efficiency. By far, most of those surveyed expect to see more federal funding for green technology initiatives for public-private partnerships.
This re-emphasizes just how important a role the stimulus package will play to ensure that renewable energy continues to grow in this country in the short to medium term as the economy is buffeted by the deepest recession in memory. Initiatives, mandates and investment by the government will play a critical role in promoting a transition of our nation’s economy from one that is dependent on fossil energy sources to one that is powered by renewable sources.
© 2009, Chris de Morsella. All rights reserved. Do not republish.