Tag Archives: Solyndra

Top 3 Takeways from The Cleantech Meltdown

The February 2012 edition of WIRED magazine has an excellent and depressing article by Julie Eilperin on “The Cleantech Meltdown”. Whether oil runs out in 50 years or 500, it will run out. We owe it to the generations that follow us to develop clean and green tech long before that happens. People, we only have this one planet! If we continue to think of the social and environmental impacts of industry and investment as “externalities” that we can ignore with impunity, we are doomed.

In trying to develop (maintain?) my voice as an #impinv industry thought leader, I find myself looking for things that are not working and brainstorming how we can fix them. Usually, I’m worried about one big broken thing at a time – like the cost, utility and ethical implications of some social impact assessment tools/practices. Reading “The Cleantech Meltdown”, however, I was utterly dismayed at the number of big broken things I was looking at simultaneously. Ms. Eilperin’s subtitle “How high hopes, false promises and brutal economics shattered an industry” captures the heartbreak, but my takeways  go further. Here are  three serious breakdowns we, as a society, need to explore:

1.     The Cleantech Meltdown is the perfect argument for having coherent, articulated, integrated national industrial policies.  The power of government to build and finance public goods (roads, bridges, schools, etc) fell sharply through the prosperous last decades of the 20th century. Much of this has to do with the “Anti Big Government” focus on cutting expenses (and people’s quality of life) rather than asking “What goods and services SHOULD we really deliver to the American people? And what’s the most efficient way to do that?” Working collaboratively, we should be able to identify the carrots and sticks needed to align the incentives of inventors, renewable producers, investors and John Q. Public. When we don’t collaborate, each stakeholder pursues his perceived best outcome and we end up with a cleantech meltdown, dependency on Chinese solar panels and a host of other unpalatable negative “externalities”. Please note, these are only “externalities” if you think single (financial) bottom line. Most of us pursuing multiple bottom lines are thinking more holistically and longer term.

2.     Venture Capital (VC) and Private Equity (PE) are broken: forget defining best practice, these industries need wholesale “re-thinks”.  VC developed a financing model suited to the fast-paced evolution of tech (primarily digital) innovation and eagerly applies this to any hot sector that needs early-stage financing. Many of these sectors have entirely different capital needs and lifecycle patterns than tech. Cleantech is about creating new fuel sources, production techniques, distribution systems and altering engrained consumer behavior. On what planet would you expect a cleantech company to accomplish all of this to scale in three to five years? Are we perhaps arrogantly assuming that the existence of sun, wind, corn, algae & hydrogen means that all the other challenges of going clean and green will be a walk in the park?

Those who argue that VC “is” 3-5 year money are missing a critical point. Is VC early stage TECH finance or early stage finance? If the latter, then take note.  3-5 years will generally get you your exit (one way or another) in digital tech. But if solar innovations or fuel cell ventures will need 7 – 10 years and a couple of major business model pivots to succeed, shouldn’t VC darn well create instruments and governance mechanisms that prime the pump for success?

PE, which used to be a smart and dignified source of capital for corporate change and mid-market growth, is now known for mega-deals, excess leverage and screwing the little guys. Regarding the Solyndra saga, I can’t help thinking that there should have been a PE club deal that brought enough cash and brains to the table to capitalize on what the company had already achieved and avoid further meltdowns in a much needed sector. DOE tried to create a climate for more patient capital and has been ripped apart in the press for “wasting taxpayer dollars”. DOE’s loan guarantee program had its flaws, but end game efforts to help Solyndra survive were not the problem.

I’d bet money that none of the “wasting money” pundits have lived someplace where the lights might not turn on at the flick of a switch, water might not run when you turn on the faucet and sanitary facilities refer to a hole in the ground outside. Just because you or I personally might have it good, that doesn’t mean that our neighbors are OK. And the fact that we are OK today doesn’t mean that things will stay OK tomorrow. What happens when the national grid fails regularly, or too many ancient water conduits leak or burst at the same time? Sustainability requires that we think about these things now and then start taking action now.

We have an innovation obligation to ourselves and to the future. We must learn to make better use of renewable resources and smarter use of all the rest. That will mean taking risks and absorbing the occasional failure. We know that this is true and yet we’d rather punish failure than learn from it. Why is that? Which brings me to broken thing #3

3.     Our values – or at least our priorities – are broken. Much of the US was OK spending $7-10 billion a month in Iraq. Yet the notion of spending a billion a month on green urban renewal programs around the US is unthinkable. Why? Shouldn’t we be putting more effort into ensuring that we attain the highest and most equitably distributed socio-economic well-being of any country on the planet? Doesn’t superpower status mean taking good care of all of our people, as well as looking out for the rest of the world? I’m damn proud to be an American – but that doesn’t mean I think we’ve achieved a status quo that is the best we can hope for or aspire to.

The 1% is increasingly full of lawyers and bankers, while teachers, firemen, soldiers and social workers struggle to get or keep a foothold in the middle class. What is that saying about our values? That people who “serve” should live in servitude while others take disproportionate returns? Maybe you’d argue, for example, that lawyers must invest more years and dollars on education than firemen or soldiers. On average, that’s most likely true. Firemen and soldiers, however, risk their lives to protect the rest of us on a daily basis.  How can 4 years of college and 3 years of law school be worth so much more than a lifetime of selfless risk?

On what basis are we deciding how different professions should be compensated? It clearly has little to do with risk and reward, nor can you argue “brains versus brawn” unless you’re willing to claim that it doesn’t matter who teaches our children or what materials they have with which to do so. Mostly we are NOT thinking at all about aligning values and compensation.  I suspect that many compensation practices are hangovers from high society’s adaptation to the Industrial Revolution. The children of the wealthy were taught by servants – tutors and governesses – so why would an emerging public education sector stop to think about what value a teacher provides to society. They already “knew” there was labor available at a low price.  Besides, the demagogues will point out, think of the cost to taxpayers if teachers earned more money!

The answer to that question brings me back to where I started, arguing about falsely labeled “externalities”. Before we start calculating costs, let’s go back to the question of a teacher’s value. Our children spend the majority of their waking hours between ages 5-18 under a teacher’s stewardship. They absolutely should be learning “reading, writing and ‘rithmatic”, but they are also learning how socialize and interact with others and who they are as individuals distinct from their parents and peers. What if our children left K-12 ready to pursue whatever vocation they were most drawn to? What if you knew with certainty that the quality of your child’s education today could ensure their socio-economic well-being later in life.  Every parent who sends their child to private prep schools is already thinking this – and yet the overall pace of educational reform is glacial.

My heart – and significant work experience – has focused on improving life at the base of the pyramid. I believe, however, that a sustainable society needs ALL investment to be multiple bottom-line (MBL) in nature. Whenever and wherever our economic activity has a direct impact on people or planet, the social and environmental returns are either positive or negative – but they are NOT externalities. If, as my mother was fond of reminding me, our sins of omission are as great as our sins of commission, then the pursuit of a single (financial) bottom line is a sin! Repent now!!

Put more money into clean and green and impact investment! Although please do take the time to think through whether your planned financial structure will help or hinder performance. Are you aligning incentives or trying to come out ahead of the next guy? 100% of nothing is always worth less than 10% of something good. Are you being realistic about likely hold periods and time to maturity, or hoping that luck and a fluffy IPO market will be adequate substitutes for realism? If you screw up the financial structure, the outcome will probably be sub-par as well, furthering a vicious chain of short-term thinking and me-first logic.

Remember, we have only the one planet. F*** it up irretrievably and we can kiss the human race goodbye. We’re all in this for the long haul, like it or not. Are we going to start thinking about sustainability, or just keep rolling the dice? As I watch the US election campaign, my fear is that we’re going with the dice. What a shame!

What are your takeaways from the Cleantech Meltdown? What “big broken things” are keeping you up at night?

Lauren Burnhill – @LaurenOPV