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Innovation policy (direct and indirect) effects

(1a) Innovation policy and Cleantech innovators

Policy makers put different mechanisms in place to either push technology or pull demand from the marketplace as a first-tier (direct) effect. In our discussions with market participants, we observed that technology push is mainly seen as suitable for R&D and seed phases. In comparison, later-stage technology push is regarded mostly as “picking winners.” Consequently, in the US and Germany, investors and innovators alike prefer market-pull mechanisms like feed-in tariff or cash rebates at later stages, whereas straight tax incentives through rebates are seen as too dependent on the existence of taxable positive returns. From the perspective of VC investors direct influence or even investments by governmental authorities are not seen as helpful as they often distort the private sector: “For Cleantech, it is a deal-breaker if the business model is reliant on subsidies” (GER10 - PE Investor). Sometimes they compete with private market participants and affect their returns, or even crowd-out private investments. In early phases public officials stress the need for government involvement: “The government is trying to make sure we grow the innovation base and provides a source of capital to get products out of the classroom to the market” (USA6 - Policy maker).

Additionally, Germany-focused investors state that, government regulation can build up frameworks to strengthen innovative businesses. For innovators as well as VC investors, long-term and stable regulations are seen as the most important driver for adoption of technologies and investments in new and innovative companies. In particular, support through long-term and reliable measures fostering the demand side is regarded as an appropriate method to develop certain industries. The solar and wind industries are prime examples of CT industries that have flourished due to regulation provided by the German feed-in tariff. Policies with a similar mechanism are regarded favorably by innovators and investors alike. However, events such as the cancellation of feed-in tariff rules in Spain have given rise to a more skeptical view by investors and focus has shifted to business models entirely independent of support mechanisms, according to our interview partners from the investment world.

In the US, initiatives such as the Department of Energy Loan Guarantee Program (US- DOE LGP) are regarded as very important by some, but criticized by others. A former LGP official portrays it in the historical tradition of energy support mechanisms. “The notion was that the government had an important role to play in the creation and the support of a new and important energy sector, much as the government has supported different kinds of energy development over the last hundred and fifty years” (USA19 - Policy maker) (cf. Greentech Media, 2014). Investors see the program as problematic: “The most unsuccessful program without question has been the loan guarantee program. ” (USA11 - PE Investor). This ambivalence of the LGP was illustrated by stakeholders who discussed examples of firms that went bankrupt, resulting in loses for the taxpayer, most notably Solyndra or A123 on one hand, and cases that continue to be successful, such as Tesla on the other.

Compared to Germany, where regulation in the field of CT is perceived by all interview partners to be guided by stronger political will and social commitment towards sustainability, an existing but none the less fragmented und not coherent regulatory environment and support framework in the United States is observed: “the subsidy environment and the understanding of the need for renewable energy is so much lower in the United States versus Germany" (USA12 - Policy maker). Also PE investors state that: “in the US there is really no regulatory inputs [on greenhouse gas emissions] at all for most of our companies" (USA18 - PE Investor). This did not necessarily limit the adoption of renewable energy as can be witnessed through the additional capacity in wind and solar built in the US in recent years (IRENA, 2016).

Above all, market-driven adoption of technology through competitive prices and efficiency has been explained by investors and innovators alike to be a suitable way to achieve a sustainable transformation. VCs focus on business models independent of government support. Innovators and investors criticize that part of public money spent on “wrong” industries; however as businesses government initiatives could also fail as part of the innovation processes.

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