Clean Energy Finance

Challenges and Opportunities of 

Early-Stage Energy Investing

National Renewable Energy Laboratory 

Industry Growth Forum

December 3 – 4, 2013

Golden, Colorado

NREL/PR-6A50-60882-1
Clean Energy Finance–Challenges and Opportunities of Early-Stage Energy Investing

Disclaimer: the analysis and recommendations presented are solely those of the researchers mentioned and do not represent the opinions of

the National Renewable Energy Laboratory, the Joint Institute of Strategic Energy Analysis, or the Colorado Center for Renewable Energy

Economic Development. All referenced sources are available publicly. Interview commentary was obtained with the consent of

participating interviewees. 

Supporting organizations include:

NREL Industry Growth Forum

The premier event for clean energy startups to maximize their exposure to receptive venture capital, 

corporate investors, and strategic partners.

Joint Institute for Strategic Energy Analysis

Providing leading-edge, objective, high-impact research and analysis to guide global energy investment 

and policy decisions. 

Colorado Center for Renewable Energy Economic Development

A catalyst for economic development in Colorado through clean energy and energy efficiency 

innovation and entrepreneurship.

Wells Fargo Bank 

A provider of banking, mortgage, investing, credit card, insurance, and consumer and commercial 

financial services.

EY

EY’s Global Cleantech Center offers a worldwide team of professionals in assurance, tax, transaction 

and advisory services who understand the business dynamics of cleantech.

Clean Energy Finance

Challenges and Opportunities of Early-Stage Energy Investing 

Vision and guidance for this effort was provided by Niccolo Aieta and Richard Adams of the National 

Renewable Energy Laboratory. The paper was authored by JISEA researchers David Heap and Jacquelyn Pless 

under the supervision of Morgan Bazilian and Doug Arent.

2 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing

Contents 

 Overview 

 Clean Energy Investment Current Situation

 Investment Classes and Stages

 Challenges

 Solar PV Market Analysis

 Industry Comparisons

 Investor Insights

 Opportunities 

 Conclusion.

3 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 4 

Overview 

Characterized by a changing landscape and new opportunities, today’s 

increasingly complex energy decision space will need innovative financing

and investment models to appropriately assess risk and profitability. 

This report provides an overview of the current state of clean energy finance

across the entire spectrum with a focus on early-stage investing, and it

includes insights from investors across all investment classes. 

Further, this report aims to provide a roadmap with the mechanisms,

limitations, and considerations involved in making successful investments by

identifying risks, challenges, and opportunities in the clean energy sector. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 5 

The term Clean Energy (CE) is used throughout this paper, encompassing multiple

energy subsectors including renewable energy, energy storage, energy efficiency,

smart grid, biofuels, and systems integration technologies. 

In addition to the references cited in the main text of this paper we also found the

following useful: Olmos 2012; Delina 2011; Hesser 2013; Bhattacharyya 2013; Sadorsky

2012; Gujba 2012; Wüstenhagen 2012; Masini 2012; Kann 2009; Managi 2013; Hofman

2012; Nelson 2013; Aguilar 2010; Kayser 2013; Mills 2010; Saunders 2012; Mills 1991; 

Abhyankar 2012; Pollio 1998; Bond 1995; Giebel 2011; Money Matters 2005; Fatemi

2013; The Energy Finance Handbook 1995; Olmos 2012. 

Full references are provided on pages 57 to 61. 

Clean Energy
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing

Key Observations 

6 

Clean energy investors today face an increasingly complex decision space, needing to consider

economic and policy realities and multiple developmental risks such as technology, market, and

team risk. 

Global investment in renewable power and fuels was $244 billion in 2012. Although this was a 12% 

decrease from 2011’s record $279 billion, 2012’s total was still the second-highest ever (8% higher

than 2010) (UNEP/BNEF, 2013). 

Global investment by venture capital and private equity investors fell 30% in 2012 relative to 2011

(to $4 billion)—the lowest since 2005. Investment in specialist renewable energy companies by

public market investors also dropped to $4 billion (61%) (UNEP/BNEF, 2013). 

A large proportion of recent clean energy investment has been driven by growth in emerging 

markets, particularly in China. There was a shift in activity from developed, to developing,

economies (UNEP/BNEF, 2013). 

Solar photovoltaic technology has experienced a significant reduction in costs from 2011 to 2012. 

This decline contributed to an 11% fall in the dollar value of overall solar investment even though

capacity installed increased significantly; indeed, 2012 marked a record year for PV capacity

installed at 30.5 GW (UNEP/BNEF, 2013). 

Policy uncertainty was a major contributor to a decline in investment in the United States, which

was down 34% to $36 billion in 2012 (UNEP/BNEF, 2013). 

Clean Energy Investing
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing

Key Insights 

7 

Funding gaps in technology innovation between the angel and venture capital

investment stages, as well as in the growth stage between the pilot project phase of

development and full-scale commercialization, have resulted from decreased venture

capital investments. 

CE is frequently compared to the investment cycle for IT, but it relates more

accurately to the chemical industry. Energy and chemicals are both commodity

markets with strong incumbent players and high cost of capital for project and

technology development. 

Challenges to CE investment range from economic and policy obstacles to

development risks such as technology, market, and team. 

Opportunities to increase early-stage investing include improved government

policies, partnerships, business model innovation, and multiple financing mechanisms

including program related investments, efficient government loan and grant

awarding, crowdsourcing, and efficacy insurance. 

Clean Energy Investing
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 8 

 Overview 

 Clean Energy Investment Current Situation 

 Investment Classes and Stages

 Challenges 

 Solar PV Market Analysis

 Industry Comparisons 

 Investor Insights

 Opportunities 

 Conclusion. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 9 

Complex Decision Space

Today’s energy decision 

space is increasingly complex, 

characterized by:

Changing priorities

Energy reliability and 

resiliency concerns

Energy security 

considerations

Quality of life requirements

Water and food security 

implications

Global market implications

Increased access to 

economically viable natural 

gas resources

Changing economics of 

renewables 

Policy uncertainty

Environmental concerns

Aging infrastructure.

Investors today face an increasingly complex energy decision

space; innovative models are needed to assess risk and

profitability. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 10

Global New Investment in Renewable Energy By Asset Class, 

2004-2011, $bn

China was the 

dominant country in 

2012 for renewable 

energy investment, 

mostly attributed to 

a significant jump in 

solar investment. 

There were also 

sharp increases in 

other emerging 

economies, such as 

South Africa, Mexico, 

Chile, Kenya, and 

Morocco 

(UNEP/BNEF, 2013).

Globally, there has 

been a continued 

upward trend in 

clean energy 

investment. Since 

2004, RE investment 

has been resilient, 

with expansion even 

through the 2008-

2009 recession 

(UNEP/BNEF, 2012).

Global Investment
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing

New Investment by Technology ($bn) 

11

Clean Energy Investment

Investment in renewable power and fuels was

$244 billion in 2012 (down 12% from 2011’s

record figure of $279 billion), representing

declines in all renewable sectors except for

small-scale hydropower and ocean energy

(BNEF, 2013a). 2012 still marked the secondhighest year ever, up 8% from 2010 

(UNEP/BNEF, 2013). However, global new

investment in Q1 2013 was down 36% ($40

billion) relative to Q4 2012 (the lowest level of

any quarter since Q1 2009) (REN21, 2013). 

Solar was the leading sector in terms of

money committed in 2012, accounting for

more than 57% of total new investment in

renewable energy in 2012 and totaling $140.4 

billion (REN21, 2013). This was driven by falling

PV costs, where the “China” price for a 

multicrystalline module was $0.78 per Watt in

December compared to $0.93 in January

(BNEF, 2012). 

Wind investment—coming in second—totaled

$80.3 billion (about 33% of the total) in 2012 

(REN21, 2013). The remaining 10% of

renewable energy investment in 2012 was

made in bio-power, waste-to-energy, smallscale hydropower, biofuels, geothermal, and

ocean energy. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 12

Top 15 Countries for New Investment in Clean Energy in 2012 and 

% Change on 2011 ($bn) 

2.95

3.42

4.05

4.31

4.41

5.34

5.46

6.19

6.85

8.34

14.71

16.28

22.80

35.58

65.13

-68%

179%

11%

-34%

-23%

-32%

20563%

40%

-45%

-17%

-51%

75%

-27%

-37%

20%

Spain

Greece

Belgium

France

Canada

Brazil

South Africa

Australia

India

United Kingdom

Italy

Japan

Germany

United States

China

Note: excludes corporate and government R&D. Source: Bloomberg New Energy Finance

 China was the 

dominant country 

in 2012 for 

renewable 

energy 

investment, which 

was mostly 

attributed to a 

significant jump in 

solar investment 

(UNEP/BNEF, 

2013). 

 There were also 

sharp increases in 

other emerging 

economies, such 

as South Africa, 

Mexico, Chile, 

Kenya, and 

Morocco 

(UNEP/BNEF, 

2013).

Global Investment
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 13

Investment Shifting to Developing Economies

Cumulative Power System Investment 2012-2035 Estimated at USD 16.9 Trillion

Non-OECD countries account for 60% of cumulative investment.

IEA WEO, 2012; BNEF, 2011 

In 2012, there was

a further shift of 

investment from 

developed 

economies to 

developing 

economies. Total 

investment was 

down 29% at $132 

billion while it was 

up 19% at $112 

billion in developing 

economies (the 

highest ever) 

(UNEP/BNEF, 2013).

Total Investment in Clean Energy by Region, 2007-2011 ($bn) 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 14

U.S. Natural Gas ‘Revolution’

Source: Presentation by EIA Administrator

Unconventional natural gas has transformed the domestic 

energy outlook:

Total natural gas production from 2011 through 2040 is 

projected to grow 44%, mostly driven by increased shale gas, 

tight gas, and coalbed methane development (growing by 

113%, 25%, and 24%, respectively).

EIA expects the share of total production from shale gas to 

increase to 50% in 2040 from 34% in 2011.

Natural gas prices have declined significantly; however, 

lower prices also lead to less drilling and lower production, 

placing some upward pressure on prices.

Source: EIA Annual Energy Outlook 2013 with Projections to 2040
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 15

U.S. Investment Declining

• While some regions are 

experiencing increases in 

investment, total CE 

investment in the United 

States is declining.

• According to Ernst & Young 

(2012), the United States’

share of global PE/VC 

investment in cleantech 

companies declined to 50% 

in 2011 compared to 60% in 

2010. 

New Private Sector Investment in Renewable Energy by 

Country and Asset Class, 2012, and Growth on 2011, $bn

Asset Finance of Renewable Energy Assets by 

Country, 2012, and Growth on 2011, $bn
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 16

U.S. Investment Declining

Global New Investment in Renewable Energy by Region, 2004-2012, $bn
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 17

 Overview 

 Clean Energy Investment Current Situation

 Investment Classes and Stages

 Challenges 

 Solar PV Market Analysis

 Industry Comparisons 

 Investor Insights

 Opportunities 

 Conclusion. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing

Investment Classes in Early-Stage Energy Investing

18

Venture Capitalists

(VCs)

Corporate VCs

Corporate

Strategic Partners

Private Equity

• Wealthy individuals who provide financial capital for startup companies in 

exchange for equity.

• Organize into networks or groups through which they collectively vet promising 

technologies and decrease risk.

• Commonly one of the first sources of outside investment in a startup.

• Large corporations seeking to leverage technical innovation with core strengths.

• Long time horizon and cash flow to allow technology to mature.

• Post-VC and pre-public markets.

• Involved in growth stages, leveraged buyouts (LBOs), and taking companies to 

and through the IPO process.

• Venture arms of established companies.

• Offer additional benefits beyond financial capital: industry expertise, supply chain 

knowledge, manufacturing capacity, brand marketing.

• Structured partnerships with hired managing members (general partners).

• Raise money from large investors or wealthy individuals (limited partners) and 

identify companies in which to invest around a predetermined investment thesis.

• Focus on specific industries, and invest in emerging companies that offer the 

potential to provide significant financial returns.

• Also offer management expertise and industry connections.

Angel Investors
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 19

• Venture capital has typically existed in the form of high-risk capital provided by

institutions or wealthy families to aid early-stage businesses. Such capital is often

provided when there is no other viable source. 

• VC firms seek new companies with significant growth potential and help these

companies succeed through not just cash investments, but also sharing management

and technology expertise, networking, and helping with other tasks (US PREF, 2010). 

VC firms are selective---typically choosing only 1% of business plans they evaluate,

and consider closely the technology, business model, management team, potential

market size, capital requirements, required time to scale, and more (US PREF 2010). 

Further, many firms take on “follow-on” investments as the company grows, investing

millions more over the lifetime of a company if it’s successful. VC firms can also pool

their resources together so that multiple firms invest in a company simultaneously (US

PREF, 2010). 

• Venture capital also plays a critical role in economic growth, especially in the United

States (US PREF, 2010). Over roughly the last three decades, the U.S. VC industry has

invested about $465 billion in approximately 27,000 companies – including companies

that are now industry leaders such as Apple, Google, Amazon, and eBay (US PREF,

2010). New industries—such as information technology—have been supported, and in 

2008, U.S. companies once supported by VCs employed roughly 12 million people,

making up about 11% of the private sector and generating $3 trillion in revenue

(about 21% of U.S. GDP that year) (US PREF, 2010). 

• Investing opportunities fluctuate over time, shifting from sector to sector as industries

mature—in recent years, industries such as telecommunications and information

technology matured, allowing for increased venture capital investments in energy (US

PREF, 2010). 

• Venture capital investment in emerging U.S. renewable energy companies grew

significantly in the late 2000s. Around 2005, the renewable energy sector only

accounted for less than 2% of total VC investment in U.S. companies, but this figure

jumped to 6% in 2006, 9% in 2007, and 15% in 2008 (US PREF, 2010). Out of $28 billion of

total VC investment, more than $4 billion of total U.S. VC investment was invested in 

U.S. renewable energy companies in 2008 (NVCA/PwC). 

• As illustrated on the right, VC investment in renewable energy has been declining 

since 2010. The next two pages provide more detail on this trend. Source: (UNEP/BNEF, 2013)

VC New investment in RE by Sector (2004 to 2012 $bn) 

VC/PE New Investment in Renewable Energy by Stage, 

2004-2012, $bn

Source: (UNEP/BNEF 2013)

The Changing Role of Venture Capital
Globally, venture capital and private equity (VC/PE) investment in renewable energy fell to $3.6 

billion (30%) in 2012, which represents the lowest year since 2005. Such a decline reflects the difficulty

of achieving adequate exits and a generally dampened investor appetite (UNEP/BNEF, 2013). Of this

decline, 75% was in private equity expansion capital, while most of the rest was due to early-stage

venture capital (down $300 million to $530 million). However, late-stage VC remained steady at $1.7 

billion (down just slightly from $1.8 billion) (UNEP/BNEF, 2013). Contrary to the trend, seed funding—the

earliest stage of VC—experienced a 145% increase relative to the previous year, and Series C 

funding rose 21%. 

The decline in 2012 came as VC/PE investors faced bleak economic conditions and unattractive

trading conditions for renewable energy stocks. Overcapacity, declines in product prices, continued

policy uncertainty (particularly in the United States), and decreases in production subsidies in Europe

contributed to this trend (UNEP/BNEF, 2013). At the same time, VC/PE investment across the economy

as a whole—the aggregate value of all deals across every industry worldwide—fell 22% to $39 billion

(UNEP/BNEF, 2013). 

So far in 2013, clean energy and energy efficiency venture capital and private equity investments

have declined significantly, totaling 68 venture capital and private equity investments in Q2 2013

(worth $1.3 billion) down from 86 deals in Q1 2013 that totaled $2.4 billion. The decline in Q2 2013 was

most significant in early-stage venture capital, where there were 19 series A, B, and seed investments

compared with 40 in the previous three months (BNEF, 2013). This totaled only $86 million, the lowest

volume since BNEF started recording such figures in 2004. Late-stage venture capital was also down

but not so significantly (totaling $519 million, which was 25% below the four-quarter average (BNEF,

2013)). However, Q2 2013’s investment was only marginally below 2012’s quarterly average of $1.4 

billion (BNEF, 2013). Private equity expansion capital for clean energy companies was also lower in

Q2 2013 than Q1 at $653 million (41% less than the first quarter). However, this was actually relatively

robust more generally as it was higher than the quarterly average for all of 2012 (BNEF, 2013). 

 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 20

VC Funding Trends

Clean Energy Funding Trends by Quarter 2010-2013

Growth in Cleantech Funding Compared with Total Venture Funding

Clean Energy Funding by Stage Each Quarter, 2010-2013

2013 Second Quarter Sequential Growth Factors (Q/Q Growth)

Source: PwC, 2013
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 21

VC Funding Trends

VC/PE New Investment in RE by Region, 

2012, and Growth on 2011 $bn VC/PE New Investment in RE by Stage, and 

Growth on 2011, $bn

VC/PE, Public Markets, and Asset Finance 

Investment in Renewable Energy in the United 

States by Sector, 2012, $bn

VC/PE New Investment in Renewable Energy by 

Sector, 2012, and Growth on 2011, $bn

Source: UNEP/BNEF, 2013.

Declines in 2013 contradict the typical trend across all

industries. Market watchers generally agree that venture

investment increased across all industries in Q2 2013

(Preqin recorded a 14% increase in the global value of

venture deals and Pitchbook notes a 12.5% 

improvement in the U.S. market) (BNEF, 2013). 

Further, first-time funding in renewable energy

decreased 95% to $3 million in Q2 2013 relative to Q2 

2012. PwC reports that early-stage investment was just

$52 million during Q2 2013, a decrease of 69% relative to

a year prior, while cleantech investment for late-stage

opportunities decreased by 59% to $312 million. Earlystage average deal size decreased 56% and late-stage

average deal size decreased 50% over the same time

period (PwC, 2013). 

BNEF notes that trends reflect investor wariness of clean

energy (BNEF, 2013). For instance, VantagePoint Capital

Partners abandoned fundraising for a new $1.25 billion

clean-tech fund earlier this year citing insufficient

interest from limited partners. Others such as Draper

Fisher, Silver Lake, NEA, and more have also pulled back

from the sector (BNEF, 2013). One cited reason for

investors being wary of the sector is a lack of exit

opportunities (BNEF, 2013). 

VC/PE New Investment in RE by Region, 

2004-2012, $bn

The broader picture is more positive according to BNEF. The U.S. National Venture

Capital Association notes there were 21 venture-backed IPOs in the United States in Q2 

2013, raising $2.1 billion—more than double the volume and dollars seen in the first

quarter. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing

The Classic Investment Stage Progression for Technology Investing, Including Funding Sources and Development 

Processes/Activities (IRENA, 2013; UNEP, 2013)

22

Technology Investing Stages + Funding Gaps

There is now a funding gap between the angel investment round of funding and that of venture capital (the 

technology “valley of death”). Where venture capitalists typically would fund a Series B round, many have 

opted to move down the continuum to a later stage with less risk (Rosen, 2013). There is an additional funding 

gap in the growth stage (the commercialization “valley of death” or “debt-equity gap”) as the capital 

requirements for commercializing CE technologies is beyond the risk tolerance and timelines of most existing 

debt and equity markets (BNEF, 2010).

Process Technology Research Technology 

Development Manufacturing Rollout (project finance)

Activity Basic R&D Applied R&D Demonstration Market Development Commercial Diffusion

Funding Source Government and 

University Labs

Angel 

Investment Venture Capital Private Equity

Process Technology Research Technology Development Manufacturing Rollout (project finance)

Activity Basic 

R&D Applied R&D Demonstration Market Development 

(Scale-up)

Commercial 

Diffusion

Funding Source

Government 

and University 

Labs

Angel

Technology 

Valley of 

Death

Venture Capital Commercialization 

Valley of Death Private Equity
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 23

 Overview 

 Clean Energy Investment Current Situation

 Investment Classes and Stages

 Challenges 

 Solar PV Market Analysis

 Industry Comparisons 

 Investor Insights

 Opportunities 

 Conclusion. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 24

Overview 

Economic Conditions: Wider economic problems have had an impact on investment since 2008, 

despite growth, and they remain a threat (UNEP/BNEF, 2013). The euro area sovereign debt crisis

started to impact the supply of debt for renewable energy projects in Europe, as well as increased 

cost of funding and upgraded risk assessments involved in lending to borrowers abroad. Natural gas

prices also affect the attractiveness of CE investments. 

Policy Complexity: Policy affects market demand, which in turn affects technological innovation. In

the United States, Congressional support for clean energy and a price on carbon has ebbed in the

face of low natural gas prices and new concerns about the cost of renewable energy support

(UNEP/BNEF, 2013). However, state policy tends to drive local clean energy markets given the lack of

federal movement in this area. Direct financial incentives can help make a project more

economically attractive, while a Renewable Energy Portfolio Standard (RPS) may reflect a 

hospitable market and support. Nonetheless, policy environments and actions to either remove or

create new ones are highly uncertain and often volatile. Further, regulatory uncertainty (access to

the grid) can drive feasibility. This uncertainty increases investor risk. 

Development Risks: For any technology to proceed through investment stages, it must have three

components: solid technological advantage, a market for the technology, and a talented team to

commercialize it. The challenges to CE development in each of these areas are unique. 

Barriers for Early-Stage Clean Energy Investors
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing

Policy Complexity

25
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing

Policy regime instability was the main issue

dampening investment in 2012 in important

developed economy markets (UNEP/BNEF, 2012). 

Government support in the United States is 

complicated by a complex framework of varying

state incentives, which can easily be changed or

repealed depending upon the political winds. For

example, of the 30 states to have RPS, eight 

considered legislation to repeal them in the

summer of 2013 (Midwest Energy News, 2013). 

 

Policy Complexity

26
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 27

In addition to a complex web of varying state

credits, the federal Production Tax Credit (PTC)

and Investment Tax Credit (ITC) have gone

through a repeating cycle of extensions, with

credit horizons being different for different

forms of generation. Whereas both wind and

solar have a PTC of 2.3¢/kWh, wind projects

will have the ITC of 30% until the end of 2013

(AWEA, 2013), and solar projects have the 30% 

ITC through to 2016 (SEIA, 2013). 

Investors prefer to base investment decisions 

on longer-term policy. The PTC in particular has

affected U.S. wind power development from

1999 to 2013. Investor confidence in policy

allows for increased investment, as can be

seen starting in 2005 through to 2010, and then 

in the decrease in investment as the policy

future became uncertain in 2010. 

Policy Complexity

Source: DSIRE, 2013

Tax Credits for Renewables 

U.S. Wind Annual Capacity Additions (GW)

Source: AWEA, 2013
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 28

Development Risks - Technology

With a few notable exceptions, technology development in the clean energy space is 

complex, time-consuming, and capital intensive. Key challenges to technology development 

include:

The incumbent utility industry has had public support for over 100 years, and therefore had 

time to perfect their business model.

Unlike most consumer products that are tangible and with which consumers can clearly 

evaluate the benefits, the realities of “clean” versus “dirty” power can’t be distinguished. Home 

and building occupants simply expect the lights to come on.

Environmental stewardship is mostly a public initiative, and private investors are incapable of 

reaping all the returns that an innovative technology might offer (CEG, 2013).

Technology risk can include 

performance of the technology, 

potential equipment defects, 

financial strength of the 

manufacturer, and future 

technological change (GCPF & 

DB, 2012). Critical 

success 

factors for 

new 

technologies

Significantly 

better than the 

incumbent(s) (i.e. 

faster, cheaper, 

etc.)

Scalable and 

benefit from 

economies of 

scale

Profitable without 

subsidies

Supply a large 

market
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 29

Development Risks - Market

When the cost of per installed MW of clean energy is still often higher than that of conventional energy production, risk is incurred, and investors consider

the potential returns on investment. Clean energy related products and services mainly sell into highly regulated and entrenched marketplaces, such as

power generation markets, commodity chemicals, or energy efficiency products. The returns and investment horizons of clean energy are fundamentally

different from other industries. For instance, returns on software focused funds that closed before the early 2000's dot.com crash routinely saw 10X returns. 

These historical success stories are not prominent in clean energy's history. In fact, stemming from this dot.com crash, many of the funds that were still open

were looking at a very bleak exit market for software companies and began to search elsewhere for places to allocate the funds. This led to an “unnatural

bubble” of investment from about 2004 to about 2010. This last-ditch-effort strategy was bound to produce many more failures than successes, and it did,

creating part of the current reluctance to invest in clean energy. 

Although the general perception is that returns must be sacrificed when investing in clean energy, some argue that investors are now placing a greater

premium on reducing overall volatility in their portfolios considering the wide swings in equity markets since the turn of the millennium. Thus, investors pursue

different risk reduction strategies. While one approach is to reduce risk assets in a portfolio, another is to find ways to account for a broader spectrum of risks

relevant to invested assets. A sustainability focus in investment portfolios can help address concerns about volatility and risk, but many investors still question

performance results (assuming a returns trade-off for a focus on sustainability) (UBS, 2013). 

However, although some sustainability-oriented funds have indeed generated mixed performance results, this also holds true for any active investment

approach (UBS, 2013). Sustainable investing strategies perform approximately in line with mainstream benchmarks (UBS, 2013). Actively managed portfolios

should diverge from the benchmark in proportion to the risk taken, and active funds are expected to underperform by investment costs, on average. 

Source: UBS, 2013.

In addition, sustainable investing isn’t always just about risk

reduction—some investments are indeed more risky and

require a more sophisticated fund holder. Thematic portfolios,

for instance, are less well-diversified than broader portfolios

since they focus on specific types of companies. 

This figure shows that investors in the S&P Global Clean Energy

Index indeed “sacrificed” returns, but this was because of the

risks associated with the limited number of companies

available to provide exposure to the theme. This indicates that

investors shouldn’t view the risks and opportunities associated

with sustainable investing themes in isolation, but rather that

they should consider them as part of everything that is

relevant (UBS, 2013). 

In addition to the risk of returns, other market risks can include 

off-take (demand/price and quantity), financial strength of the

purchaser, and supply risk (availability of resources, resource

costs) (GCPF & DB, 2012). 

Thematic Funds Offer Different Risk/Return Profile
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 30

Development Risks - Team

As with most technology ventures, the technology inventors and company

founders are not necessarily best equipped to grow the company to the size it

needs to be to realize venture capital-type returns. In some cases, the direction

and tactics of those who are best equipped to scale the company do not align

with the founders. The vast majority of founders don’t go the distance in growing

companies up to and through IPOs, as the skillset needed to do so is different from

those needed to start the company (Sangani, 2013). 

Team 

Characteristics 

Solid track 

record

Strong work 

ethic

Technical 

aptitude

Communication 

skills

Integrity

Industry 

connections

Investors in most sectors, CE

included, prefer to see

geographically co-located teams. 

There are several characteristics a 

potential investor looks for in a 

management team to grow the

company beyond the initial R&D

phase. It is widely viewed as

disadvantageous to install outside

members to the team in order to

execute an investment round, but

if these characteristics are not

evident in the current team they

must be added. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 31

 Overview 

 Clean Energy Investment Current Situation

 Investment Classes and Stages

 Challenges 

 Solar PV Market Analysis 

 Industry Comparisons 

 Investor Insights

 Opportunities 

 Conclusion. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 32

U.S. Solar PV Market – Past and Forecasted Installation Trends

 The capacity of solar PV installations in the United States has seen significant growth since 2010, driven by the significant cost reductions

as well as other market and policy drivers. The most significant transformation from 2010 to 2012 was the growth of utility-scale solar as

utility PV installations grew 670%. Solar PV installations increased 76% in 2012 relative to capacity installed in 2011, and 1,769 MW of utility

PV was connected to the grid (57% more than the cumulative total in all previous years) (SEIA/GTM, 2012). 

 Annual nameplate capacity of solar PV installations in the United States is expected to continue growing—total installed capacity of

solar PV systems is expected to nearly triple from 2013 to 2016 (SEIA/GTM, 2013), although some note that this may be an optimistic

projection considering BNEF predicts U.S. PV demand will be 5.2 GWs in 2015. Either way, significant growth is expected through 2016. 

 Although installations in Q1 2013 declined 45% from Q4 2012, this is still 33% growth over Q1 2012—utilities generally experience booms in

the fourth quarter of each year. 

 When the federal ITCreverts to 10% in 2017 for commercial and third-party-owned systems and drops to zero for directly owned

residential systems, 5,115 MW installed in total is projected, which is 44% below the 2016 total but still higher than what is expected for

2013. As developers look to take advantage of the ITC, 2016 will likely be an active year, depressing the 2017 total (SEIA/GTM, 2013). 

U.S. Solar PV Installation Forecast, 2011-2017

Source: SEIA/GTM , 2012

Key Economic and Policy Solar PV Market Drivers

• Significant cost reductions (discussed in detail on the next 

page)

• Federal tax benefits 

• ITC/Treasury 1603 grants

• MACRS depreciation 

• State policies, regulations, and incentives 

• RPS

• Net metering 

• Interconnection standards

• A range of financial incentives (rebates, loans, etc.) 

• Financial incentives for utilities 

• Electricity prices. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 33

U.S. Solar PV Market – Declining Costs

 From 2004 to Q3 2008, PV module prices remained approximately flat—around $3.50-$4.00/W. This is largely attributed to German and Spanish tariff

incentives allowing developers to buy at such a price, in addition to a shortage of polysilicon constraining production (preventing competition)

(Bazilian et al., 2012). Thus, the 18 largest quoted solar companies followed by Bloomberg made an average operating margin of 14.6% to 16.3% from

2005 to 2008 (Bazilian et al., 2012). 

 In 2011, solar prices dropped so much that deployment increased 54% over the previous year to 28.7 GW—which was 10 times the new build level of

2007 (Bazilian et al., 2012). 

 As competition increased, prices fell dramatically from $4.00/W in 2008 to $2.00/W in 2009. Despite this 50% decline, manufacturers still made positive

operating margins because of the reduced costs which were driven by scale and advances in manufacturing processes and improved performance

(Wesoff, 2012). 

 As of April 2012, the factory-gate selling price (ex-VAT) of modules from ‘tier 1’ or ‘bankable’ manufacturers was $0.85/W for Chinese multicrystalline 

silicon modules and $1.01/W for non-Chinese monocrystalline silicon modules (Bazilian et al., 2012). 

 Regardless of module prices, system prices have also steadily declined since 2004 because of better racking systems (IPCC, 2012) and falling BOS costs

(Bony et al., 2012). 

 Financing costs have also decreased as understanding and comfort with PV deployment risk have improved (NEA et al., 2005; WEF, 2011). 

Solar PV Installed Costs by Market Segment, 2011-2012

Source: Bloomberg New Energy Finance, 2012 Source: SEIA/GTM, 2013

Forecast Costs for Utility-Scale, Ground-Mounted PV Projects, 2010-2020 

($/W)

PV Module Experience Curve 1976-2011

Source: SEIA/GTM, 2012

Average Installed Prices by Market Segment, Q1 2011-Q1 2013

Source: SEIA/GTM, 2013
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 34

U.S. Solar PV Market – Third-Party Ownership Model

 One dominant ownership model in all sectors for distributed PV installations is third-party ownership, a structure that is most

commonly referred to as a power purchase agreement (PPA) or a lease. Third parties own the systems while consumers

make payments to the owner. Electricity is generated onsite at either the consumer’s home or facility. 

 This business model innovation allows consumers to avoid paying the large upfront capital requirements required for a PV

system, and the consumer can experience the benefit of lower energy bills with little to no upfront cost (SEIA, 2012). 

 Third-party ownership residential PV systems are an attractive option for homeowners in most state markets. Not surprisingly,

residential leases and PPAs continued to gain momentum in 2012, increasing to more than 50% of all installations in most

major residential markets (SEIA/GTM, 2012). 

 However, some markets—California, Arizona, and Massachusetts—are starting to see a slight reversal of this market share

growth as a result of increased PACE financing availability (California), systems being financed via mortgages with the

housing market rebound (Arizona), and regional banks providing direct loans to homeowners to purchase and install solar

systems (Massachusetts) (SEIA/GTM, 2013). 

Percentage of New Residential Installations Owned by 

Third Party in CA, AZ, CO, and MA, Q1 2011-Q1 2013

Source: SEIA/GTM, 2013

Roles of Solar PPA Participants

Source: EPA, 2012
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 35

U.S. Solar PV Market – The Role of Early-Stage Investing

 In 2008, the cleantech sector

experienced $7.5 billion in 350 deals (all

investment types). 

 In Q1 2013, total solar investment

(including all types of investing, ranging

from angel to VC to private equity) fell

to its lowest level in 5 years (with only 18 

investments). Q12013 also marked the

first quarter in the last 5 years with less

than 25 financings (CB Insights, 2013). 

 The decline is most commonly attributed

to perception being poisoned following

failures and asset sales. 

 Despite the overall slowdown of solar

deals, early-stage deals are continuing. 

 Nearly 45% of investments in solar over

the last year have been at the

seed/angel and Series A stages (CB

Insights, 2013). 

 In Q2 2013, solar venture capital

investments increased to $189 million in

19 deals relative to $126 million in 26

deals the previous quarter (Mercom

Capital Group, 2013). 

 Solar third-party finance companies

raised $1.33 billion in disclosed residential

and commercial solar project funds this

quarter, which is a record (Mercome

Capital Group, 2013). 

Source: CB Insights 2013

Solar VC Funding Q2 2013 

Source: Mercom Capital Group, LLC 2013

Solar Funding in 2012 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 36

Solar PV - Lessons Learned

The solar industry’s success can serve as a model for other clean energy sub-sectors. 

Transparency and knowledge-sharing will continue to be critical for reducing risks. 

Although the clean energy sector may never see investment intensity as it was in 2008, 

there is still activity and VCs are looking for new ways to invest (GTM, 2013). 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 37

 Overview 

 Clean Energy Investment Current Situation

 Investment Classes and Stages

 Challenges 

 Solar PV Market Analysis

 Industry Comparisons

 Investor Insights

 Opportunities 

 Conclusion. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing

Hype Cycle

Technology Trigger

- Technology breakthrough kicks things off

- Early proof of concept

- Media interest triggers publicity

- No tangible product or proven viability.

Peak of Inflated Expectations

- Publicity produces success stories

- Investments flood the space

- Some companies succeed, many do not.

Trough of Disillusionment

- Interest wanes as investments fail to deliver

- Companies shake out or fail

- Investment continues if the survivors improve products.

Slope of Enlightenment

- The technology/industry becomes more widely

understood

- Second- and third-generation products appear

- More projects are funded, but not 100% participation.

Plateau of Productivity

- Mainstream adoption

- Criteria for assessing viability are more clearly defined

- Market applicability and relevance pay off.

Developed by Gartner Research, the Hype Cycle 

categorizes the five key phases of a technology or 

industry’s life cycle. This methodology offers a 

graphical representation of how development will 

evolve over time, and allow for stakeholders to 

incorporate the information into risk strategy.

Source: Gartner

38

Contributing to the peak of inflated expectations of the Hype Cycle is the media attention devoted to specific subsectors. 

The amount of media a subsector receives isn’t indicative of investor activity. In 2012 energy efficiency had approximately

the same amount of media attention, but triple the number of VC investment deals (Dow Jones, 2013). This discrepancy

paints a picture of the CE landscape that might not be accurate to the uninformed investor. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing

Hype Cycle for Clean Energy

39

Hype Cycle Comparison

Hype Cycle for Information Technology

CE is being compared by early-stage investors to other more recent industries. The returns and 

investment horizons of these fundamentally different industries can’t be compared favorably. 

Firms were able to invest in IT companies and expect a 10X return on investment (ROI) within a 

few years. These metrics don’t exist for most CE companies, as their capital requirements and 

development horizons are fundamentally different from dotcom companies (Malone, 2013). As 

valuation increased with hype, a larger amount of under-qualified investors flooded the market 

with capital, thereby contributing to over-valuations, subsequent down-rounds, and eventually, 

a significantly more bleak fundraising environment. 

Source: Gartner
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 40

Industry Comparison: Pharmaceuticals 

High-tech

High costs

Long time from 

prototype to 

market

Many layers of IP

Clear, definable, and bankable 

valuations at various stages of 

development (patent, lab tests, FDA 

trials, etc.)

Clear identification of (and 

competition between) funding 

agencies (corporations and 

foundations) to fund development 

along commercialization pathway

Previous success (e.g. Lipitor)—top 

ten commercial drugs do between 

$4 and $15 billion in annual sales

Quantifying the intangible benefits 

of a clean energy project for 

valuation purposes is still 

undefined and remains a 

challenge

As demonstrated, funding and 

financing mechanisms for clean 

energy are complex and 

inconsistent across sectors and 

markets

While there have been successes, 

the industry maintains a relatively 

negative reputation because of 

large failures that were covered 

extensively in the media.

Lesson Learned: Clear, definable, and bankable valuations are critical for reducing risk,

especially for long-term, capital-intensive projects; proven successes help reduce risk

perception. 

Pharma Clean 

Energy
Clean Energy Finance–Challenges and Opportunities of Early-Stage Energy Investing – Executive Summary 41

Industry Comparison: Pharmaceuticals 

Lesson Learned: To be successful in 2013, cleantech companies no longer need just exciting

technology, defensible IP, and a compelling value proposition. Successful companies need to

have a clear path to a reasonably large addressable market from the outset of fundraising. 

• The current state of cleantech can be compared to the biomedical and 

pharmaceutical industry of the late 1990s and early 2000s.

• During this era, it was quite reasonable for companies to raise significant amounts 

of capital with a firm IP position and demonstration that the drug or device 

resulting from the IP was effective.

• Quickly it became clear that even with defensible IP, and an effective product, a 

company could still fail to become profitable without a clear reimbursement 

strategy. 

• Questions arose. It wasn’t only who would use the device or drug, but who would 

pay for it. Medicaid? Insurance? Local government programs? Out of pocket? 

• Biomedical companies showed that, without a clearly defined reimbursement 

pathway, a technology based business could have significant trouble scaling or 

raising future funding rounds.
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 42

Energy 

+ 

Chemicals

Commodities 

with a global 

marketplace

Strong 

incumbent 

industry that is 

not 

incentivized to 

take risks

Difficult to 

quantify green 

value to the 

end consumer

Extremely 

high capital 

costs to build 

pilot projects

Subsidies 

can’t drive the 

system 

indefinitely

Compelling 

stories with 

clear market 

value receive 

investment

Industry Comparison: Chemicals

The Energy Industry Compares Accurately to The Chemical Industry

Lessons Learned: 

 Providing educational opportunities and

access to information for all stakeholders,

including consumers, workers, government

representatives, and investors, increases 

transparency and enhances market

confidence. 

 Effectively communicating the benefits of

such market development, and finding

ways to appropriately quantify those

benefits, will drive investment. 

 In both industries, green alternatives were

promoted through appropriate

regulations and supporting policies (PERI,

2011). Subsidies and financial incentives 

can help promote initial market entry, but

they will not drive the system indefinitely. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 43

 Overview 

 Clean Energy Investment Current Situation

 Investment Classes and Stages

 Challenges 

 Solar PV Market Analysis

 Industry Comparisons

 Investor Insights

 Opportunities 

 Conclusion. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 44

Over the course of one month (July/August 2013), interviews were conducted in person and

via telephone with various early-stage CE investment participants, with the purpose of

gathering commentary on the current investing realities and opportunities for increasing

investment in the sector. Investor classes ranged from the initial sources of seed capital to the

entrance of public markets. “Investor Insights” and their respective topics are listed in the

following pages. 

Investor Insights

Angel Investors

• Impact Angel Group

• King Hill Capital

Family Offices and Advisors

• New Island Capital

• Elan Management

• Prime Fund

Governmental 

Organizations

• UNEP

• United States 

Department of Defense

Venture Capital

• Kholsa Ventures

• Kleiner Perkins Caufield

& Byers

• Venrock

• DBL Investors

• Sail Capital Partners

• Southern Cross Venture 

Partners

• CalCEF Clean Energy 

Angel Fund

• Renewable Tech 

Ventures

• Aravaipa Ventures

• Lux Capital

• Nth Power

Corporate VCs & Strategics 

• Saint Gobain

• IBM

• DOW

• BASF

• Siemens

• Delta

Private Equity 

• Hudson Clean Energy 

Partners

• IMPAX Asset 

Management 

• NEA

• Greetch Capital Advisors

• Hamilton Clark 

Sustainable Capital
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 45

Investor Insights – Development Risks - Technology

Unlike other sectors, energy must work 99.99% of the time. The end user expects the 

lights to come on when he/she flips the switch. It is a great burden that innovative CE 

technologies must overcome. Once reliability can be established, the sector can 

compete with fossil fuels and nuclear. What is important is for technology developers to 

learn from mistakes, including others than have preceded them. Developers and 

investors must understand the horizon needed to develop tech in this space.

Winning technologies aren’t incremental innovations. Revolutionary ideas that challenge 

existing processes are what attract investment.

“Even if you don’t reach your goal as quickly as hoped for, there is always something to 

learn and value in what’s been done.”

“Investors should look for technologies that will have a radical effect on the world. If you 

only number crunch and look for safe bets, you’re missing out on the revolutionary 

opportunities. Some investments simply have an unknowable upside.”

“IP is everything. If you can’t protect that you don’t have a leg to stand on.”

“Clean energy has a problem with expressing the tangibility of green electron to the end 

user. Quantifying the environmental and social values of clean energy technologies will 

motivate demand and innovation.”
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 46

Investor Insights – Development Risks - Market

With the rise of clean energy investment in the mid-2000s, there was a “feel good” 

attitude of investing in promising environmental and socially conscious technologies. 

When these investments didn’t pan out similarly to earlier sectors such as IT, the green 

premium connotation was lost. There may even be a clean “discount”. CE must now 

compete with other sectors on return expectations, but also reassure investors of their 

capacity to commercialize technologies, all while dealing with external factors such as 

competing energy commodities and varying government support.

However, energy has an enormous global market, and the boom/bust cycle has 

repeated itself many times. Oil and gas has already been up and down the curve in 

1985 and 1999.

Furthermore, given the long development cycle of CE technologies, most past 

investments have yet to see their exit strategy come to fruition. Over the coming years 

we will see what has worked and what hasn’t. With that wisdom the sector will progress.

Put your quotes down here.

“Energy always comes back, and so will clean energy. If it shows value it will make money.”

“Don’t underestimate the rate of sales adoption. It always takes more capital than you think it 

will.” 

“The market responds to sound economics. Compelling stories will get investment.”

“There is a misconception that clean energy is dead. That VC is pulling out. There’s no way 

that’s true. It’s a core part of industry growth across all sectors. More and more new products 

are coming onto the market, just maybe not defined as clean energy.”
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 47

Investor Insights – Development Risks - Team

Finding the right team to commercialize an innovative technology is the most difficult 

part of development. A mediocre team can run a good idea into the ground, but a great 

team will find a way to make a concept succeed. There is a consensus that there is an 

abundance of promising technologies, but a disconnect with the talent available to bring 

them to market. Investors will walk away if they question the dedication or credibility of 

the team, or if there is litigation among stakeholders or customers.

Investors prefer to get involved when there is more than one founder. Multiple founders 

bring varied expertise, as well as an attitude of compromise. In CE it is very important to 

have industry expertise. The incumbents are very powerful. Knowing how to manage the 

landscape is tantamount.

“We run away from CEOs with big egos. It’s a tough transition of running a company 

versus being in the lab.”

“Bad behavior or questionable integrity of the team during due diligence is a reason to 

walk away.”

“Management with energy industry expertise is invaluable. But talent is just as 

important.”

“Team members with a track record are important, but they also need to have passion.”

“The triple bottom line is starting to attract top talent from other industries.”

 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 48

Many CE investors came from the IT world, expecting similar returns and exit strategies. 

However, CE is fundamentally different from IT. Whereas an innovative software platform or 

device could be developed within a few years (and in some cases months) for millions or even 

hundreds of thousands of dollars, CE technologies can take more than a decade to develop 

and require millions in investment at multiple stages of development: proof of concept, 

prototype, pilot project, field trial, demonstration project, first commercial project, etc.

Additionally, many of those investors within the IT industry didn’t understand the fundamentals of 

the energy industry: incumbent players, energy being a commodity under government 

regulation, etc. When considering customers, IT is mostly B2C, whereas CE is primarily B2B. The 

utility ultimately sells electrons to individuals and businesses, but the sale of a CE technology 

company is made with the utility, with a long associated sales cycle.

CE compares more favorably to the chemical and biotech/pharma industries: long 

development cycles, strict government regulations, and strong incumbent players.

“In the dot.com days, if you had $10m you could give 10 companies $1m each, and expect two or three 

to hit. With clean energy it’s $10 to $20m just to get a prototype, and then another $30m or more to get 

to a pilot project. A full demonstration could be in the hundreds of millions.”

“The VC world is encumbered by expectations of returns that don’t like large-scale projects.”

“There’s been a disconnect between hard tech and soft tech. Hard tech can’t be developed with 10 year 

LPs.”

“It’s still relatively early in the CE continuum. In a few years we’ll see more opportunities enter the space.”

Investor Insights – Industry Comparisons
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 49

Governmental policies need to complement each other, and provide a clear statement 

of objectives as well as a defined horizon. Additionally, state initiatives should be 

coordinated with those of the federal government. Energy is a global commodity, but 

differences in state policies will increase risk and force uncertainty into demand.

Government should stay away from picking winners and losers. It should make it easy for 

a vetted technology coming from a university or lab, or with existing seed money, to get 

a second round of financing to bridge the first development gap. 

“The proper policies can bridge the market to bankability.”

“To be effective policy must be prudent and timely.”

“Markets are regional, but influential policies are set by states. Coordinated state 

policies, especially in adjoining states, would do much to increase market 

development.”

 

Investor Insights – Opportunities – Government Policy
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 50

Partnerships allow for energy ventures to de-risk development without losing economic 

potential. Investors at all stages considered strategic partnerships an instrumental part of 

CE progress, without which they would consider not investing in a company. 

Government partners help in the initial stages, in de-risking early stage development. 

Large corporate partners are essential in later stages of development, with industry 

wisdom, supply chain expertise, and most importantly, an existing customer base.

“It’s very important for a startup to understand the culture aspect of a partnership. 

Misaligned values can derail even the most promising technology.”

“Few startup companies fail because the tech didn’t work. Usually it’s because the sales 

cycle wasn’t understood and they ran out of money, or the regulatory and tax process 

can’t be navigated. This is where partnerships really add value.”

“Innovators are usually clueless. They have no idea about commercialization costs or 

issues in the supply chain.”

“Clean Energy 2.0 will be based upon strong partnerships between innovative companies 

and visionary incumbents.”

Investor Insights – Opportunities - Partnerships
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 51

Developed decades ago, the current regulatory framework is not set up to take 

advantage of current investing realities. There are millions of unaccredited investors who 

are willing but don’t have the mechanism to invest in promising CE technologies. 

Crowdsourcing offers the ability for the average citizen to get involved, but SEC rules 

must be changed. Additionally, SEC Rule 506, allowing the solicitation of investors, would 

allow companies seeking investment to pitch to a larger audience.

Significant opportunities are available with the philanthropic organizations/investors. 

Billions of charitable capital has been sitting on the sidelines, unable to navigate the IRS 

framework. Changing tax terminology to allow CE as a charitable effort (i.e., as was 

done for vaccines) would unleash billions in investment.

Mechanisms such as efficacy insurance and warranties could improve the bankability of 

technologies and projects.

“Philanthropic money can be the game changer. We need to create a mechanism by 

which a 501c3 can make a profit through environmentally beneficial risk taking.”

“10 year terms are round pegs in square holes. We need innovative mechanisms.”

“An extra 2 years crashes the IRR for an LP. Venture capital funds need to be setup for a 

10+ year life cycle. Clean energy investing will require a recalibration by investor 

stakeholders.”

Investor Insights – Opportunities – Financing Mechanisms
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 52

 Overview 

 Clean Energy Investment Current Situation

 Investment Classes and Stages

 Challenges 

 Solar PV Market Analysis

 Industry Comparisons

 Investor Insights

 Opportunities

 Conclusion. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing

Opportunities – Government Policy

Policy Mechanisms Should...

53

Loud

Clearly improve the 

economic bankability of 

projects or technologies

Long

Duration should 

coincide with the 

financing horizons.

Legal

Confidence in the 

government’s ability to 

ensure compliance 

and due diligence

Incentivize market demand

 (US PREF, 2010)

• Real Estate Investment Trusts (REITs)

• Master Limited Partnerships (MLPs)

• Property Assessed Clean Energy(PACE)

• Income Trusts and Securitizations.

Incentivize 

Indirectly

• Investment Tax Credit (ITC) 

• Production Tax Credits (PTC)

• Feed-in Tariffs (FiTs). 

Incentivize

Directly

• Purchase clean energy technology and 

components for use on government 

property and facilities.

Government 

as a 

Consumer

Contrary to undermining innovation, government policies can stimulate innovation. The various mechanisms 

should complement each other, be aligned with the public interest, and lead to mature markets that ultimately

don’t need the policy assistance and therefore become more politically sustainable (CPI, 2011). 

A wave of new strategies has started to appear in the United States to drive down the cost of capital. 

Developers are turning to publicly-traded “yield cos,” synthetic MLPs, self-help MLPs, REITs, foreign asset income

trusts, and securitizations as new financing tools or exit strategies to raise capital around operating projects

(Chadbourne and Parke LLP, 2013).

Be “loud, long, and legal” 

(Hamilton, 2009)
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing

Considering the market and technological challenges that CE investors face, partnerships

frequently are attractive strategies as they allow for risk-sharing and the opportunity to leverage 

combined resources. Potential partners for collaboration include universities and national labs,

government agencies, and corporate strategic partners. 

54

Opportunities – Partnerships

Government Partners

Department of Defense

- Largest single user of energy 

in the United States. 

- Quantifies value beyond cost 

(security, reliability, resiliency). 

- Congressional mandates (i.e., 

must meet a 25% target of total 

facility energy use from 

renewable sources by 2025. 

(NDAA, 2010) 

- SERDP and ESTCP programs 

promote partnerships to 

develop innovative, cost, 

effective, and sustainable 

solutions. 

Department of Energy

- Continue or re-establish 

agency programs. 

ARPA-E  formed in 2007 via 

the American Recovery and 

Reinvestment Act and has 

funded over 275 projects for 

nearly $1 billion (DOE, 2013). 

DOE Section 1705 loan 

program  $34B and more 

than 60,000 jobs created 

between 2005 and 2012. 

(US DOE LPO, 2013) 

Universities and National 

Labs

- Innovative hubs that can de-risk technology 

development. 

- Capitalize on technology transfer capabilities 

via mechanisms by which private industry can 

license or purchase academic or lab IP. 

Corporate Strategic Partners

- Ability to handle a longer investment horizon. 

- Capital and revenue streams to make large 

capital investments. 

- Industry know-how: supply chain, 

manufacturing, customer base, industry track 

record. 

- Low cost scaling and path to market. 
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing

Opportunities – Financing Mechanisms

55

Cost-effective clean energy will require the use of a broad range of financing tools, with roles across many 

aspects of the technology lifecycle. In particular, soliciting early-stage financing is especially challenging for 

clean energy companies because of inherent challenges, including costs and access to potential investors. 

However, proposed solutions such as crowdfunding, investor networks, and matchmaking could direct angel 

investors into clean energy—an investor segment with more than 300,000 angel investors that represent $22.5 

billion in investments in 2012 (James, 2013). There are also opportunities to unleash the billions available in 

philanthropic funds which, so far, has largely been sitting on the sidelines of clean energy investing.

Program 

Related 

Investments 

Government 

Loans + Grants

Crowdfunding

Efficacy Insurance

• Change IRS rules to allow clean energy as a charitable purpose.

• Allow tax exempt organizations to make investments in for-profit enterprises.

• Over $600bn available in private foundations and family offices.

• Mitigate the risks of early-stage investments.

• Manage development risk on a public market.

• Roadmap to follow from preceding industries .

• New SEC rules to allow non-accredited investors to participate.

• Offers opportunities to a wider pool of investors.

• Limited to raising $1m per year per start-up company.

• Increases community participation and communication on CE benefits.

• Match government funds to private investment.

• Keep the government from picking winners and losers.

• Expedited process, with action in weeks, not months or years.

• Government input should not exceed $50m per investment.

SEC Rule 506

• Allows a company to sell securities to an unlimited number of accredited investors and raise 

an unlimited amount of funds.

• Additionally can sell to sophisticated non-accredited investors .

• Financial statement requirements.
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing 56

Conclusion 

The are numerous challenges to the progress of the clean energy sector,

including fluctuating economic conditions, government policy

uncertainty, and various developmental risks. 

However, opportunities exist for investors with the expertise and

investment strategy to take advantage of market conditions and

technological innovation. 

Appropriate government policies aligned with innovative business

models and financing mechanisms will allow investors to realize

attractive risk-adjusted, long-term financial returns. 

Strong partnerships between investors, start-up companies with

innovative technologies, and the incumbent industry participants will

allow all stakeholders to reap the rewards of a clean energy future.
 Clean Energy Finance – Challenges and Opportunities of Early-Stage Energy Investing

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