Clean Tech: A New Way to Hasten Energy Solutions

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Solar panels cover the rooftop of the Staples Center in Los Angeles

If we're going to find a way to fix our long-term energy woes — whether through biofuels made from algae or miniature nuclear-power plants — the solution is likely to come from Northern California. Yes, in Silicon Valley, the same entrepreneurs who brought us the Internet — and, O.K., — are exploring new ways to make and use energy. And we'll need them, as much for our economy's well-being as for our planet's.

The research and advisory company Cleantech Group estimates that by 2020, the global clean-tech sector will be worth more than $3 trillion and could account for as much as 15% of some nations' GDP.

"We know the potential benefit of focusing on energy or electricity is still valid, no matter what happens with the climate debate," says Amit Chatterjee, CEO of Hara Software and the author of The Post-Carbon Economy.

The problem is that clean-tech start-ups run on venture capital — and VC money, like just about every other form of financing, fell off a cliff during the recession, dropping 33% in 2009 from the previous year. Not to mention that creating a new energy company is much more challenging than building, say, a major dotcom player, because energy companies often need lots of capital to finance major manufacturing. "The cost of scaling up capital is a real business risk for us," says Jonathan Wolfson, CEO of the algal-biofuel start-up Solzyme.

But help could be coming from an unlikely source — the giant, slow-moving corporations that many clean-tech start-ups are trying to replace. According to the Cleantech Group, which monitors and guides investment in the sector, the next major investments are likely to come from large companies looking to snap up or form joint ventures with spunky start-ups. If done right, the relationship can benefit both sides: start-ups get a major name and funding to work with, while Fortune 500 companies can take advantage of insurgent innovation. "Big corporations now want to get an edge on this," says Sheeraz Haji, president of the Cleantech Group. "Clean tech is something big companies see as a growth area."

Those changes are already beginning to happen. At the Cleantech Group's forum in San Francisco on Feb. 25, the $50 billion French environmental-services company Veolia announced the launch of the Veolia Innovation Accelerator, which will seek to build partnerships with clean-tech start-ups. It will start with NanoH20, a small company that has pioneered membranes for use in desalinization plants, which can make it less expensive to provide clean water. The program is a tacit admission that even the best corporations need to look beyond their borders to find smart ideas; in this world, innovation can happen anywhere. "The idea is to capitalize on the smart ideas that are out there," says Philippe Martin, senior vice president of research and innovation at Veolia Environment. "It represents a new way of doing business."

It also might represent the best way for revolutionary ideas to scale up fast, to go from promising pilot projects to products that can really change the world. But the role of major corporations isn't without risk. As a venture capitalist at the Cleantech meeting put it, start-ups can suffer "death by pilot project," where a promising idea gets caught in the institutional eddies of a major corporation and never fully develops. "We've all heard the horror stories from entrepreneurs," says Haji. "But ultimately, we have to go with optimism." That's because there's really no other choice — not for start-up CEOs desperate to stay afloat or for the rest of us waiting for a clean-tech miracle.