by Greg Silverberg
figures by Kaitlyn Choi

Cleantech is a troubled sector

Scientists know from geological data that carbon dioxide concentrations in the atmosphere have been below 300 parts per million for nearly 1 million years.  However, for about a century, carbon dioxide concentrations have been rising at a rate unprecedented in these data and are now approaching 400 parts per million.  Carbon dioxide acts effectively as an insulator for the Earth, so a sudden change in the carbon dioxide concentrations in the atmosphere can impose large changes on the Earth’s climate.  Researchers have discovered that the excess atmospheric carbon dioxide is the gaseous byproduct of burning fossil fuels.  Suddenly, there is a need for “clean” technologies (cleantech) that reduce or eliminate the use of fossil fuels for power generation, distribution, and consumption.  There have been many exciting research and policy initiatives that have received a lot of media attention, like perovskite solar cells that could make solar energy cheap and efficient (12), high energy-density graphene supercapacitors that could power electric vehicles for hundreds of miles and charge in a few minutes (13), aqueous flow batteries that could be used to safely and economically store grid-scale power (14), and Obama’s Clean Power Plan that may monetize carbon emissions for all power generators.  However, cleantech is a fledgling industry; it is expensive to test and optimize these technologies at scale, and many technologies that function perfectly well on the bench become technologically or financially impractical at the scale required by the energy and environmental industries.  Cleantech startups have the added uncertainty of existing in a high-inertia, commodity-driven industry.  The sector suffered a major blow recently when a wave of startups founded between 2005 and 2010 nearly all failed, even those with heavy public- and private-sector investment (2).

Solyndra, a California-based solar energy startup founded in 2005, is a prototypical example of a large-scale cleantech failure.  Their thin-film solar cells were touted as next-generation mainly because of their tubular design.  Conventional solar panels are made from flat sheets of silicon that generate maximum power only during times of day with direct sunlight.  However, Solyndra’s tubular design ensured that a portion of the cell would be perpendicular to photons regardless of incidence angle, and therefore allowed the cell to absorb diffuse and reflected photons in addition to direct sunlight (Figure 1). This new idea garnered over $700 million in capital investment, but when the price of silicon began to drop (3), the merits of Solyndra’s technology came under intense scrutiny.  Solyndra’s solar cells only produced 7% more electricity than conventional flat-panel solar cells over the course of the day, which was not enough to outweigh the increased manufacturing cost of the complex tubular design (4). The tubular design did improve energy production at dawn and dusk, but at mid-day, flat-panel solar cells performed better. As silicon prices continued to fall, Solyndra filed for bankruptcy in 2011.

Figure 1: Schematic of direct, diffuse, and reflected sunlight incident on Solyndra’s solar tubes. As opposed to the conventional flat panel solar cell, all three types of sunlight are perpendicular to a portion of the solar tube.

Solyndra is not the only startup that has made these mistakes.  Better Place, a Silicon Valley-based startup founded in 2007, hoped to lower the cost of driving electric vehicles by building a network of battery-swapping stations.  Owners of electric vehicles would pay Better Place a leasing fee for their batteries instead of purchasing their own, and simply swap out their used batteries for fully-charged ones at the Better Place stations.  They attracted $850 million in investment and launched their first network of battery-swapping stations in Israel in 2012.  However, building these stations was expensive, and Better Place’s batteries were only compatible with some electric vehicles.  They struggled to enroll enough drivers in their program to turn a profit and after bleeding cash for a full year, they filed for bankruptcy in 2013.

Both Solyndra and Better Place failed because of insufficient technical and economic due-diligence during the scaling process.  These failures, among others, have resulted in a painful recoil by both cleantech investors and entrepreneurs (Figure 2).  Thus, it is timely to consider the reasons for this collective failure and try to determine the next steps for cleantech growth.  First, there is a general lack of industry knowledge in cleantech.  As a new industry, many factors that may be important to consider when scaling cleantech are not obvious.  For Solyndra, the temporary nature of high silicon prices and the marginal benefits of their expensive technology were not acknowledged (5).  Similarly, Better Place did not adequately account for the limited number of electric vehicles currently on the market and the challenge of building a system that requires a large local network of specialized electric vehicles.  Second, cleantech is receiving significant media attention that is often sensationalized.  It is not unreasonable to suggest that the excitement surrounding new solar and electric vehicle technology may have made Solyndra and Better Place entrepreneurs and investors less attentive to these factors than they would have been otherwise.

Figure 2: Declining investment and deal volume in cleantech. (A) Cleantech investment has fallen by over 80% since 2010. (B) Cleantech deal volume has fallen by over 60% since 2010.

However, this is not the first time that an over-hyped and immature sector has produced generously funded startups based on poorly evaluated technology.  The burgeoning field of biotechnology (biotech) in the 1980s was in a similar situation.  By 1990, it developed a much more stable pipeline for new products.  Cleantech could hope to accelerate this process for itself by learning some lessons from the history of biotech.

Biotechnology in the 1980s

Product development in biotech, like that in cleantech, is expensive and carries a high risk of failure through each phase of the scaling process.  Since most biotech firms focus on new drug development, the ultimate goal is to sell their drugs to pharmaceutical companies for large-scale production.  Margaret Sharp, formerly a prolific economist in the Science Policy Research Unit at the University of Sussex, described the historical process of building biotech firms and assimilating them with large pharmaceutical companies in three phases (6).  The late-1970s through mid-1980s (Phase 1) was a period of great uncertainty for biotech firms and pharmaceuticals.  Startups had not yet developed many products that were clear winners.  In fact, according to Hollings Renton, an executive at Onyx Pharmaceuticals, “biotech had almost no products in the 1980s” (7).  Although routes to profit were still unclear, the field did have a lot of exciting research breakthroughs and media attention, similar to present-day in the cleantech sector.  The first U.S. patent in biotechnology was granted in 1980 to Cohen and Boyer, for human insulin production from bacteria that were genetically-modified using recombinant DNA technology (8).  In 1983-84, Kary Mullis developed a technique called polymerase chain reaction (PCR) that allowed for rapid DNA replication (9).  Some of these breakthroughs would eventually become huge commercial successes, but along the way many biotech startups, similar to Solyndra and Better Place in the cleantech sector, would lose large sums of money trying to scale as-yet-unsubstantiated technologies.

One of the first biotech firms, Cetus, was founded in 1972 and suffered from large, premature investment in the wrong kind of technology.  Its flagship product was a highly promising anticancer pharmaceutical called interleukin-2 (IL-2).  Cetus poured $127 million into scaling the production of IL-2 for cancer treatment prior to FDA approval.  Cetus’ less glamorous technologies, such as their new polymerase chain reaction (PCR) technology, could have acted as a more reliable source of revenue, but were left underfunded (11).  IL-2 was promising in lab results, but was delayed in clinical trials and ultimately rejected by the FDA in 1990, illustrating yet another large-scale failure in an immature industry.  Cetus was cheaply acquired by Chiron in 1991.

It took until the late 1980s to enter Phase 2 of Sharp’s framework, when many biotech products became viable and pharmaceuticals began acquiring them.  Cohen and Boyer slowly developed the intellectual property for human insulin production and sold it to Eli Lilly, which would go on to revolutionize diabetic treatment.  PCR would be developed by several companies and eventually become a standard technique essential to all molecular biology research.  The winners were those who were patient to scale their technologies during Phase 1 when both technical and economic foundations of the industry were uncertain.  By the early 1990s (Phase 3), many biotech products were reaching commercialization, and although the sector has since experienced some major boom-and-bust cycles, biotech startups have remained a major source of innovation for the past 25 years.

Pragmatism in the face of uncertainty

Unsubstantiated eagerness to commercialize biotech during Phase 1 of Sharp’s framework resulted in a series of large-scale failures. Today, the cleantech sector may exist in an analogous Phase 1.  Biotech in the 1980s, like cleantech today, was an immature sector with very little industry knowledge.  Pharmaceutical companies did not understand the value of acquiring biotech startups.  Similarly, for cleantech, carbon-based incentives are still undefined, and the role of large energy and water companies in cleantech innovation is unknown.  Also, research and policy initiatives were often sensationalized in the media for biotech in the 1980s, as they are for cleantech today.  The combination of these two factors led to large premature investments in both the biotech and the cleantech sector.

Cleantech could look to biotech to avoid large-scale failures and stabilize the pipeline for product development.  In biotech, the winners acknowledged the immaturity of the industry and did not try to scale too quickly (e.g., human insulin, PCR).  In cleantech, this approach is even more critical.  Energy is a commodity that is entrenched in infrastructure and regulated pricing.  Thus, cleantech startups, unlike biotech, not only need innovative technology, but also need to either operate completely independently of existing infrastructure at bottom-dollar prices, or integrate seamlessly with it.  Both Solyndra and Better Place poured hundreds of millions of dollars into scaling technologies that promised to revolutionize solar power and electric vehicles, respectively, without proving that they were economically feasible at that scale.  Until some industry-knowledge for scaling cleantech is established, perhaps more diligent technology development and market potential valuations are necessary.

Some cleantech startups may have the right idea.  GridPoint, an energy efficiency management startup founded in 2003 in Virginia, originally tried to focus on the utility, electric vehicles , and home energy efficiency markets simultaneously, but after significant losses decided to focus narrowly on energy analytics of commercial buildings.  Since this shift in focus, GridPoint seems to be growing steadily.  They have not tried to scale too quickly during the cleantech sector’s Phase 1.  Ultimately, GridPoint aims to revolutionize power consumption in general, but they recognize that it may be ill-advised to do so during a period of such great uncertainty in the industry.  As the biotech case study suggests, perhaps the main focus for cleantech right now should not be to “solve the emissions crisis”, but instead to target immediate market opportunities in the short-term, which will allow startups to grow slowly as the industry itself develops.  The companies that do so will be well-positioned for the cleantech industry’s next phase, when the product development pipeline really starts to flow.

Greg Silverberg is a fourth-year doctoral student in Materials Science at Harvard University, studying graphene materials for energy and environmental technologies.

References

(1) PricewaterhouseCoopers. Cleantech Moneytree Report 2015.
(2) Eilperin, J. Why the Clean Tech Boom Went Bust. Wired Magazine 2012.
(3) PVTech. “Polysilicon prices at Wacker fell 50% in 2012.” http://www.pv-tech.org/news/polysilicon_prices_at_wacker_fell_50_in_2012.
(4) EDN Network. “Solyndra: Its Technology and Why it Failed.” http://www.edn.com/design/power-management/4368710/Solyndra-Its-technology-and-why-it-failed
(5) New York Times. “Solyndra Solar Firm Aided by Federal Loans Shuts Doors.” http://www.nytimes.com/2011/09/01/business/energy-environment/solyndra-solar-firm-aided-by-federal-loans-shuts-doors.html
(6) Sharp, M. The Science of Nations: European Multinfdationals and American Biotechnology. International Journal of Biotechnology 1999, 1, 132-162.
(7) SFGate. “Boom in Biotech Stocks Brings Back Memories of Bubbles Past.” http://www.sfgate.com/business/article/Boom-in-Biotech-Stocks-Brings-Back-Memories-of-2799972.php.
(8) Cohen, S. N.; Boyer, H. W., Process for Producing Biologically Functional Molecular Chimeras. US Patent 4,237,224: 1980.
(9) Mullis, K. B.; Erlich, H. A.; Arnheim, N.; Horn, G. T.; Saiki, R. K.; Scharf, S. J., One of the First Polymerase Chain Reaction (Pcr) Patents. Google Patents: 1987.
(10) Jones, D.; Kerr, A. Agrobacterium Radiobacter Strain K1026, a Genetically Engineered Derivative of Strain K84, for Biological Control of Crown Gall. Plant Disease 1989, 73, 15-18.
(11) The Scientist. “Cetus: A Collision Course with Failure.” http://www.the-scientist.com/?articles.view/articleNo/12113/title/Cetus–A-Collision-Course-With-Failure/
(12) Liu, M.; Johnston, M. B.; Snaith, H. J. Efficient Planar Heterojunction Perovskite Solar Cells by Vapour Deposition. Nature 2013, 501, 395-398.
(13) Liu, C.; Yu, Z.; Neff, D.; Zhamu, A.; Jang, B. Z. Graphene-Based Supercapacitor with an Ultrahigh Energy Density. Nano letters 2010, 10, 4863-4868.
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