Green tech investment not just a bubble this time
By Noah Smith / Bloomberg Opinion
Green energy investment is hot again in the US. To some, the new boom would raise the specter of the clean-tech bust that followed a streak of exuberance a decade ago.
However, there are reasons to believe that this time the trend is no bubble or mirage.
In the late 2000s and early 2010s, there was an explosion of investment in clean technology — renewable energy, plus other technologies to reduce carbon emissions.
At first the money came largely from venture capitalists, but then the federal government stepped in and began providing cheap loans and subsidies. Then in 2011, solar manufacturer Solyndra spectacularly failed, causing an immense political backlash.
That was only the most prominent failure; overall, investors lost about US$25 billion when the sector crashed. Money dried up fast. For years, “clean tech” was a dirty word in venture capitalists’ conversations.
However, the worm turns, and clean tech is back.
A venture fund led by billionaire philanthropist Bill Gates — in which Michael Bloomberg, founder of Bloomberg News, also invests — is committing billions of dollars. Funding for battery companies and electric-vehicle companies has skyrocketed, and investment in solar and wind energy dwarfs everything else.
This raises fear of another bubble for some — of history repeating itself. My colleague Liam Denning said that the rapid rise in valuations is a clear indicator of overpricing, which he expects to collapse when interest rates rise. Others see investors repeating the mistakes of a decade ago.
I am more optimistic. Although investors would certainly experience some ups and downs — already the Wilderhill Clean Energy Index has had a major correction since early last month — I am pretty confident that the clean-tech industry as a whole would not experience the kind of bust it did last time.
The most basic reason is that the fundamental underlying technology has matured in a way it simply had not a decade ago.
In 2009, the levelized cost of solar photovoltaic (PV) electricity was US$359 per megawatt-hour — more than four times as expensive as electricity from a natural gas plant.
By 2019, solar PV had fallen in price to US$40 per megawatt-hour, 28 percent cheaper than gas. That is an 89 percent decline in 10 years, with more cost drops yet to come. Meanwhile, lithium-ion batteries have experienced a similar drop in prices.
That order-of-magnitude drop in costs makes all the difference.