Understanding Risk and Uncertainty in Clean-tech
When the prospects of renewable energy grew in popularity several years ago, people had their hopes up that this “green oil” would be their answer to rising oil prices. In recent years however, this view of renewable resources has evolved from being a mere alternative to being critical solutions that will ensure future energy security as well as protection for the environment.
However, despite the potential renewable energy sources and clean technologies can offer to the world, it now faces a rash of issues and challenges ranging from difficulties in getting sufficient funding as well as uncertainties in government policies and regulations. This trend of uncertainty is making people question the viability of clean-tech as a long-term solution. Unless people understand these risks and uncertainties will they be able to comprehend the long-term benefits clean-tech and renewable energy solutions can offer.
Clean-Tech Industry Risks
The growth of the clean-tech industry is widely celebrated and has been spurred by government initiatives and public-private coalitions. This has been triggered by a global need to ensure energy security, economic security and environmental security for future generations. Developing countries are investing $8 billion a year in clean-tech while China has already attracted over $34.6 billion in investments.
But the United States , as the global economic leader and the primary proponent for clean-tech, only gathered $18.6 billion during the same period, a far cry from the $210 billion required for countries to mitigate climate change. This is attributed to the following risks and uncertainties accorded to clean-tech, creating hurdles for more investments to pour in and finally have these technologies take-off.
  • Financial Risks – Funding for clean-tech and renewable energy comes from sovereign funds and venture capitalists. There is still a lack of understanding from these fund sources, most of whom are still questioning the overall profitability and financial viability of venturing into clean-tech. Many clean-tech projects are perceived as not profitable enough to provide investors with a favorable return of investment level.
  • Legal Risks – Legalities as to who would carry liabilities in case of clean-tech project failures is still being worked out in the legal realm. This also includes the kind and amount of compensation that should be delivered if these goals are not met.
  • Regulatory Risks – The regulatory environment supporting clean-tech is still volatile as policies changes can, in one single blow, kill this fledging clean-tech industry. Just take for example what the California ’s Global Warming Solutions Act (AB32) faced with towards the end of 2010, as proponents of Proposition 23 tried to suspend this already established law – causing a severe blow to clean energy initiatives in the state. While Proposition 23 met its defeat via the California vote, it only shows how vulnerable current clean-tech policies are.
  • Environmental and Social Risks – Every project or installation has certain environmental as well as social consequences and this will put such clean-tech initiatives under intense and severely detailed public scrutiny. Questions would always surface as to how effective a particular clean technology is in mitigating greenhouse gas emissions as well as its overall carbon reduction impact. Many clean-technologies and renewable energy projects are subsidized by taxpayers’ money and various sectors would make sure that all environmental and social safeguards are in place.
What the Future Holds for Clean-Tech
In every market, there are drivers and controllers. In clean-tech, what drives the market is the potential for opening new markets, business expansions, increase profitability and drive down costs. Regulations and policies on the other hand, provided the control that keeps the market in check. For clean-tech to hold a more secured spot in society’s future both these aspects should be met and the first step would be to address all the risks and uncertainties clean-tech initiatives present.