The top ten list (in no particular order) of reasons seemingly good cleantech projects die continues. We pick up where we left off last time at number 6.
6. The technology is unproven at commercial scale. This is real challenge in the cleantech space. Promising developments in the lab just are not going to normally get funded on a large scale. The best example lately is cellulosic ethanol. There have been news articles about breakthroughs at the small scale for over a decade but no one has built or is even contemplating constructing 100 million gallons/year plants that dominate the corn ethanol production space. What pilot scale or small commercial plants that are being built are almost all taking advantage of big government grants or loan guarantees. The bottom line it that it will be nearly impossible to build the first big plant of any given technology.
7. How else can I say this, the investors just aren't that into YOU. I've blogged before about "bankable" entrepreneurs and how certain qualities seem to attract money. Ultimately, investors are investing as much in you, the developer, as in the project itself. This doesn't mean that all hope is lost. Development can be a team sport and a good developer won't be afraid to go out to recruit the talent that the investment community perceives to be missing. Much of the time, the unspoken question from investors is "Can this guy manage and complete the project?" If you can find someone who has just successfully managed the construction of a project like yours, then your team can become very bankable even if you, alone, are not.
8. The project just has too many moving parts. Consider a plan to develop one parcel of land to have both wind and geothermal power production. One piece of land. One transmission upgrade. Greater efficiencies in O&M. What's not to like? Well investors are not very comfortable with such deals. Most renewable energy projects will use a combination of debt and equity to reach financial attractiveness. There also is a tendency for investment analysts to specialize in one technology over another. So both the equity guys and the debt guys will have multiple people judging the project. There may not be any one who feels comfortable endorsing the entire project. Anyone of them saying "no" kills the deal. This is especially true for the debt investors who are looking at default risk. For them, two technologies looks like twice the risk. There is no credit given to a project that only goes a little broke.
9. Officials who ought to cooperate, don't. This is an easy one to get caught on. Working on cleantech project development tends to make the entrepreneur very popular at cocktail parties. You are admired in the community. It doesn't mean that everyone is willing to help. One of the biggest projects that I have ever worked on (a high voltage transmission line) was counting on an agency of the Federal government to make a bid on use of the line to fix some serious reliability problems and enable the importation of significant new supplies of renewable energy. How could a governmental agency not support the idea? The question that every developer needs to ask is "whose bonus is increased or promotion insured by helping me?' In this case, there was no one. Four years and $15 million in preliminary work later, there is still no deal.
10. I know that I said that these are in no particular order but I did save this for last because I'm running into it more often than ever. The project won't get done because it is politically out of favor. I've had more than one biomass project lately that is getting the cold shoulder because some investors don't want to get caught up in the food vs. biofuels debates. These projects are using wood waste or other energy crops grown on land unsuited for food crops. It doesn't matter. Perception IS reality. More and more, if the feedstock was grown in soil it is being blamed for increasing costs at the grocery store. Investors don't want that kind of PR black eye. Developers of biomass based energy projects will have to be very careful to stay in front of the perception wars on this one.
In part one, I mentioned that every successful cleantech project seems to die ten times before it finally lives. While I haven't covered all of the possible causes of death, I hope that I've illuminated enough of them that you will be able to anticipate some, understand the others and bounce back from them all. I wish you success.
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