For clean tech, both private capital and government incentives are needed

Aeronautica Windpower, which refurbishes and repairs wind turbines is one of the growing number of Massachusetts green tech companies.
Aeronautica Windpower, which refurbishes and repairs wind turbines is one of the growing number of Massachusetts green tech companies.
Tom Herde / Globe Staff / File 2008

The Exchange is part of an ongoing series on The Hive tackling the questions facing Boston’s entrepreneurs, investors, and innovators. This week, we ask participants: Green Energy: Are investments and incentives in specific green tech companies responsible and helpful? Read the rest of The Exchange. Have your own opinion, or an idea for another topic? E-mail Hive@Boston.

When should government get out of the clean energy investment role?  When policies and standards for deployment and adoption are no longer on-and-off year after year; when tax structures that large industries enjoy become equally available to emerging clean energy; when full life-cycle costs are factored into the cost of fossil and all energy sources; when utilities are encouraged to invest in a smarter more efficient electricity grid; and when barriers are removed for new energy technologies to come to market. Then private investor uncertainty will be a thing of the past and government as investor can step aside.  Then we will truly leverage our distributed entrepreneurial strengths and lead this global market. Until that time, government needs to be a strong partner in building this vital and economically beneficial industry.

The clean energy industry is one of the fastest growing industries in Massachusetts. The Massachusetts Clean Energy Center August 2012 Industry Report showed that there are 5,000 clean tech companies in the state, with an increase of 11% in clean energy employment over the last year. This growth is due to the Commonwealth’s strong base in technology research and development, its entrepreneurial community, and a strong private investment capital sector.  But in the capital-intensive, regulated market that is energy, government policy and programs play a critical role as well.

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Strong renewable and energy efficiency policies in Massachusetts have provided market signals for clean energy companies to invest to meet the standards set.  These investments, along with demand response and a transition to natural gas, have actually been accompanied by energy bills that have declined faster than most other states over the past 4 years.  And our energy and air are cleaner, we are less susceptible to the volatility of fossil fuels, more of our dollars are staying in the regional economy, and we’ve grown regional jobs.  This success wouldn’t happen without clear policies and programs that create the market for clean energy growth.

The mantra in recent months has been “government shouldn’t pick winners and losers.” There’s broad agreement that the market is the most efficient allocator of investment capital in emerging and growth industries.  But young industries face funding gaps and policy-induced uncertainty that prevent private capital from taking the lead in various stages of research, development, commercialization, and scale-up. Without government funding of research, early customer use, standards for deployment, and tax credits to drive private investment, a diverse set of industries from oil, to gas, to airplanes, to communications, to steel, to natural gas hydraulic fracturing would not have become mature industries.

The most successful model of state government as a direct company investor is when the government makes small investments at specific stages where the private sector is not leading, so that the public dollars encourage private investors to make follow-on investments to companies that stay and grow here. The Massachusetts Clean Energy Center is a semi-independent agency that has a successful track record of 6-figure investments that have strong ROI and job creation outcomes, leveraging follow-on investments 29 times over in Massachusetts-based companies.

Government has a critical role to play, framing the market and attracting private capital investment in clean energy.  This isn’t picking winners and losers.  It’s building options that will ensure Massachusetts an affordable, secure and clean energy future.

Peter Rothstein is President of the New England Clean Energy Council. Weigh in on The Exchange: Let us know what you think of government investment in the clean tech sector at hive@boston.comor on Twitter at @HiveBoston. This week’s exchange was compiled by Sanjay Salomon.