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-6A50-60882-2

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

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 

One of the world's leading professional services organizations; helps companies across the globe 

to identify and capitalize on business opportunities.

2 

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

multiple energy subsectors including renewable energy, energy storage, energy 

efficiency, smart grid, biofuels, and systems integration technologies. 

A full reference list is provided in the complete Clean Energy Finance document. 

Supporting Organizations
Clean Energy Finance–Challenges and Opportunities of Early-Stage Energy Investing – Executive Summary 3 

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)—which is 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 U.S., which was

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

Clean Energy Investing - Current Situation
Clean Energy Finance–Challenges and Opportunities of Early-Stage Energy Investing – Executive Summary 4 

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 fullscale 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 and pharmaceutical industries as they are 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, and SEC rule changes. 

Interviewed investors provided numerous insights into the current realities of early-stage CE

investing, ranging from development challenges, policy positions, and opportunities including

partnerships, business model innovation, and innovative financing mechanisms. 

Key Insights
Clean Energy Finance–Challenges and Opportunities of Early-Stage Energy Investing – Executive Summary 5

• 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. 

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

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

in the late 2000s. 

• VC investment in renewable energy has been declining since 2009. 

• The decline in 2012 came as VC/PE investors faced challenging global economic conditions,

supply overcapacity, declines in product prices, natural gas competition, and continued

policy uncertainty. 

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

Clean Energy Venture Capital

Clean Energy Funding by Stage Each Quarter, 2010-2013

Source: PwC, 2013 Source: (UNEP/BNEF 2013)
Clean Energy Finance–Challenges and Opportunities of Early-Stage Energy Investing – Executive Summary

The classic investment stage progression for technology investing, including funding sources 

and development processes/activities (IRENA, 2013; UNEP, 2013), is shown below.

6

Technology Investing Stages + Funding Gaps

There are now funding gaps between the angel investment round of funding and that of venture 

capital (the technology “valley of death”), and in the growth stage (the commercialization 

“valley of death”).

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 – Executive Summary

Policy Complexity

7

Policy affects market demand, which in turn affects technological innovation. Government support in

the U.S. is complicated by a complex framework of varying federal and state incentives and financing

mechanisms, which can easily be changed or repealed depending upon the political winds. 
Clean Energy Finance–Challenges and Opportunities of Early-Stage Energy Investing – Executive Summary 8

Complex Risk Environment 

There are a wide variety of risk types companies face in the clean energy space. They 

include categories such as: market, technology, and team.

MARKET: CE technologies mainly sell into highly regulated and entrenched marketplaces. 

Thus, the returns and investment horizons of clean energy are somewhat unique. 

•It is not a market that can provide enormous (10x) returns at a quick pace; the internet

software industry is not the right analogy. 

TECHNOLOGY: Conveying a compelling value proposition is critical. Technology development

is a long-term proposition. 

•Environmental stewardship is primarily considered a public initiative, and private investors are

incapable of reaping all the returns innovative CE technology might offer to the public. 

TEAM: A delicate balance between group dynamics and overall expertise must be found

within the teams at small companies. It is widely viewed as disadvantageous to install outside

members to the team in order to execute an investment round. 

•A vast majority of company founders are unable to scale the growth of the company

through IPO as the skillsets needed for growth are fundamentally different from those needed 

to start the company (Sangani, 2013). 
Clean Energy Finance–Challenges and Opportunities of Early-Stage Energy Investing – Executive Summary 9

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, and proven successes help reduce risk

perception. 

Pharma Clean 

Energy
Clean Energy Finance–Challenges and Opportunities of Early-Stage Energy Investing – Executive Summary 10

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 get 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. Who would use the device or drug, and 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 – Executive Summary 11

Energy 

+ 

Chemicals

Commodities 

with a global 

marketplace

Strong 

Incumbent 

industry which 

is not 

incentivized to 

take risks

Difficult to 

quantify the 

value of green 

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

increases transparency and enhances

market confidence. 

 Effectively communicate and quantify the

benefits of green. 

 Promote green alternatives through

appropriate regulations and supporting

policies. 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 – Executive Summary

Opportunities – Government Policy

Policy Mechanisms Should...

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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

• 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, governmental 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). 

Be “loud, long, and legal”
Clean Energy Finance–Challenges and Opportunities of Early-Stage Energy Investing – Executive Summary

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. 

13

Opportunities – Partnerships

Government Partners

Department of Defense

- Largest single user of energy 

in the U.S. 

- 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 – Executive Summary

Opportunities – Financing Mechanisms

14

Bridging the gaps in clean energy funding will require the use of a broad range of financing 

tools, with roles across many multiple stages of the technology lifecycle. 

Program 

Related 

Investments

Government 

Loans + Grants

• Change IRS rules to allow Clean Energy as a charitable purpose.

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

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

• 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.

Process Technology Research Technology Development Manufacturing Rollout (project finance)

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

(Scale-up) Commercial Diffusion

Fundng Source Government and 

University Labs Angel Technology Valley of Death Venture Capital Commercializaiton Valley of Death Private Equity

Opportunities to bridge 

the gaps

 Program Related Investments Corporate VCs 

 Government Resources Government Resources 

 SEC Rule 506