The way the Obama Administration used the economic crisis to drive a major policy and spending shift regarding clean technologies was very deft politics. The cleantech stimulus (which represented over $45 billion of the $787 billion stimulus bill) was sold in large part as a piece of the solution for our immediate need of job creation.
So, you might be surprised to discover that the cleantech stimulus bill has actually slowed many investments into clean technologies.
As a venture capitalist I have the luxury of talking with many executives of venture funded cleantech companies and their customers. I have heard firsthand from executives in smart grid companies, utilities and battery companies that many stopped or significantly slowed their planned purchases and/or investments this year to await the outcome of the massive federal grant programs. Smart meter companies, arguably the most mature in the smart grid space with several already public, took a direct hit from this. For example, Itron (ITRI) specifically attributed some of its soft 2009 performance to delays resulting from the stimulus bill (see http://www.beaconequity.com/technical-trading-overview-for-itron-inc-itri/). Some venture funds also held off on investments in early-stage cleantech ventures, waiting to see which ones would win dilution-free government funds. (For related info, see http://earth2tech.com/2009/09/16/how-the-stimulus-funds-could-hinder-a-smart-grid-buildout/, http://www.bizjournals.com/boston/stories/2009/07/27/story2.html.)
Why the sluggishness? If I were to tell you I might pay for half of the new furnishings for your home, would you rush out and refurnish your house, losing the potential opportunity to have me foot half the bill? I’m guessing you’d wait to hear more. And that is exactly what so many cleantech companies have done. It’s rational. It’s good business sense. And so our grand cleantech “stimulus” actually has, in the near term, caused a further slowdown in the cleantech sector at the time when the economic stimulus was mostly needed.
Now, I hope you realize that the government is notoriously slow and inefficient (and, some would argue, ineffective as well). The DOE is setting new records for speed in getting grant solicitations out the door, yet only about $600M of the tens of billions DOE has to allocate in cleantech stimulus funds have actually been transferred from the government to private companies, according to Matt Rogers, the senior advisor for Recovery Act Implementation at DOE, who spoke recently at the Boston Cleantech Forum.
Here we are seven months after stimulus was passed, and the reality is that the bulk of the short-term “stimulus” won’t flow to the job-creating private sector until a year or more later – well after the stimulus was critically needed. In the smart grid area, DOE has said it expects initial award announcements in November. Keeping in mind that it typically takes many months after an award announcement to get a contract in place and that many of these are matching grants that will be paid on a reimbursable basis, it is not unreasonable to believe that it will be March 2010 -- or later -- before any of these funds flow to the private sector. And that assumes the November target for announcements doesn’t slip.
Some would say that these are long-term investments and putting them in the stimulus bill was simply the expedient way to get the funding to the private sector. But the combined objectives of making rapid awards to stimulate the economy and making wise long-term investment decisions are fundamentally conflicted. In other words, cleantech stimulus may have been good politics but was likely bad policy. For example, very few industry people with hands-on knowledge of the real-world demands, needs and technology have been able to participate in the selection process with DOE bureaucrats, who largely have only book knowledge to rely upon in trying to hand out money to the “best” proposals. Why? Because most knowledgeable business people face a conflict of interest due to their own company’s proposal submissions.
A large portion of the cleantech world is waiting to hear from the federal bureaucrats who are picking the winners (and, yes, although it is a Republican cliché, thereby designating the “losers”). These awards are so large that they will have a significant impact on which companies in certain sectors (such as batteries and smart grid) ultimately will succeed. The cleantech stimulus was not a stimulus but rather a down payment on the Administration’s plans for continuing direct government spending in clean technologies. So whether cleantech company executives like these grants or not, I assure you they are all applying. As the lottery saying goes, you can’t win if you don’t play!
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