In Writing Cleantech’s Obituary, is Washington Writing Our Country’s?

May 30th, 2012

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By Stephan Dolezalek and Josh Freed

Whether it’s major Capitol Hill media Web sites or Congressional hearings, many in Washington seem consumed these days by the question of whether the clean technology sector is viable. The real issue is not whether solar, wind, biofuels or other cleantech will succeed. They will not only succeed; globally, these new technologies will come to dominate the power sector on a long-term basis. The issue is whether the U.S. will lead or follow and whether the jobs and economic growth represented by these industries will be here or elsewhere.

Renewables Dominate New Generation

Renewables already represent roughly half of the annual new additions to power generation globally. The difference between seeing renewables as a tiny percentage of current total electricity production and realizing that these newer, clean technologies already represent 50% of everything being added to the grid is huge. Technologies that reach more than half of net new deployments do not decline, they tend to accelerate.  So for the “some of everything, including a little bit of renewables” crowd, the reality is that the simple passage of time will lead to “some of everything and a lot of renewables.”

The real issue for the United States is whether the job growth represented by the cleantech industries will occur here or elsewhere. The prospects do not look good for us. We are on a path to once again export the jobs and import the product (whether solar panels or wind turbines).  That path is not economically sound. Sadly, however,  as far as much of Washington is concerned, the cleantech boom has gone bust in the United States. Politically, we have chosen to stick with the old, just as the rest of the world embraces the new.

Solar and Wind Represent a Paradigm Shift in Generating Power

At least as far as energy generation is concerned, cleantech involves a paradigm shift. In such paradigm shifts, it is exceedingly difficult for leading incumbents in the old way to recognize the benefits of, never mind the inevitability of, the new way. This is particularly true when the shift involves infrastructure, such as moving from horses to automobiles, carriages to railways, or wire line to wireless phones.

Wind and solar power are not so much “improvements” in how we have historically made electricity as much as they are a completely different means of doing so. For more than 100 years, we have made energy by burning something – wood, coal, gas – often to make steam, which in turn powered a turbine that makes electricity. Similarly, we have used wood and later gasoline to drive engines for industry and for transport. In that paradigm, shale gas and tar sands are incremental improvements over how we today extract and use fossil fuels. As a result, they are also much easier for the incumbent industry to embrace.

As with Wireless, Emerging Economies Adopting Cleantech More Quickly

The good news for renewable energy technologies, as was the case for wireless, is that there are large parts of the world who have not previously committed themselves to either the old or the new. This was equally true for much of Asia, India and Africa when it came to choosing their telephony technology. When faced with a decision between stringing wires and putting up cell towers, the decision could be made purely on the merits and economies of the two technologies. In each case, the new won over the old.

Today, that same decision is being replayed all over the world. The difference is that while there were many places that lacked wire line communication, fossil fuels already exist as an incumbent virtually everywhere. Nonetheless, China, India, and many other emerging economies are now taking over cleantech leadership from the United States and Europe. More interestingly, the heartland of oil extraction – the Middle East – is also strongly accelerating its adoption of solar (witness the recent announcement by the Saudi government to obtain more than a third of its peak-load power supply, or about 41 gigawatts, from the sun within two decades at an estimated cost well over $100 billion.)

Cleantech Requires Embracing Change and Building Infrastructure

There are two hugely important components to these decisions: embracing change, and building infrastructure.

Charles Darwin noted that humans are virtually the only species that responds to stress by protectively embracing the old order rather than changing to meet the challenges and opportunities of the new order. Even simple bacteria get this right – diversify and multiply in order to survive in a hostile environment. Without change, you simply get consolidation of power where it already lies. Change creates the opportunity for growth.

Building infrastructure may be even tougher than embracing change because it is hard, slow and expensive. By comparison, building applications on top of existing infrastructure is easy, fast, comparatively cheap, and often hugely profitable. But the Facebooks, Twitters, Zyngas, and Googles of the world would not exist without the much more costly, and less sexy, Internet and networking infrastructure. We seem to have forgotten the boom and busts we had to go through to build the computer hardware, networks, Internet backbone, and wireless infrastructure that support our robust consumer Internet and wireless applications businesses.

Similarly, we tend to ignore that modern cars would not exist without the investment we put into building a federal highway system. Even earlier, we brought the nation together by connecting the East Coast to the West by rail. In the case of the car, rail, and Internet, the infrastructure that underpins a paradigm shift to a new technology is a necessary first step and often one in which the government plays a critical role. This is more than the government spending a few hundred millions on R&D; it is government spending billions on true infrastructure building. Without these efforts by government, we wouldn’t have the growth engines of today’s U.S. economy.

Making Cleantech “Ship It Then Fix it”

Despite a long U.S. history of investing in infrastructure that helps drive innovation, the current debate in America remains extremely skewed. Some policymakers continue to assert that “solar and wind will never be cheap enough to compete without subsidies,” apparently unaware of the massive declines in the installed price of these technologies over the last several years. They also use this as an excuse to argue that federal energy investments should be spent entirely on early stage research and development for wind, solar, and biofuels, with little or no funding for deployment.

Why?

Because this argument keeps the new technologies “down on the farm” where they are more easily denied. In the technology world, we have a phrase called “ship it then fix it.” This came from the early sales of Apple Computers and it helped accelerate the mass adoption of personal computers by getting units rapidly into the hands of real customers.  That same strategy is being deployed in India to replace diesel generators in India with distributed solar and battery power storage. Each incremental installation not only benefits from technology improvements and cost declines in the solar panels, but also from the learning experience of having deployed systems in the field. This learning would be denied in the U.S. if we stop investing in cleantech infrastructure or are forced to choose between R&D and deployment.

Teetering on the Wrong Side of History

History is not encouraging for the U.S.  In the transition from telecomm to information technology, we were hugely aided by the decision of Judge Harold Green to break up AT&T’s monopoly, which helped transform a big incumbent into a series of innovative competitors; without which we might never have so rapidly transformed the global telecomm and datacomm fields. In the case of cars, trucks and buses versus rail, we have been less fortunate. The powers of incumbency have resulted in a very different and arguably much less efficient result than in Europe, where urban rail, in particular has led to a very different transport landscape.

History is clear that investment in infrastructure provides a platform for innovation. It’s an investment opportunity we’re at ever greater risk of missing. Emerging countries are capitalizing on our failure as they prepare to leapfrog ahead of us in the race to dominate the cleantech sector. Yet, instead of planning how the U.S. can leverage our country’s advantages to retain leadership in cleantech, much of Washington is mired in a debate as to whether the sector is even viable. Instead of rebuilding our aging power generation, distribution and management infrastructures, they are focusing on how deeply they can cut taxes. Unfortunately, as right as investing in infrastructure and cleantech is, it is the hard, slow, and expensive way. We seem to have once again lost our courage. Hoping, however, that we can instead pursue the fast, cheap, and easy will only relegate ourselves to living in the past; a slowly declining, aging and ever less attractive past.

About the Authors

Stephan Dolezalek has been a leading global CleanTech investor for the last decade, in the two decades prior he was a leading Silicon Valley corporate attorney. Josh Freed is Vice President for the Third Way Clean energy Program and can be reached at jfreed@thirdway.org.