The Hindu Business Line : Govt should lead the way in clean-tech funding

But the surprising fact is the perceived apathy among Indian (or even foreign) entrepreneurs in coming up with new innovative solutions and technology, despite the increasing demand for such technology.

As discussed earlier, the currently available solar technologies are commercially unviable when compared to the electricity generated by thermal power plants. While an Indian company, Suzlon, ranks among one of the top five wind-turbine manufacturers worldwide, electricity generated from wind-power in India is negligible. Although India ranks fifth in the world with a total wind power capacity of 9,587 MW in 2008, wind energy constitutes only 3 per cent of all electricity produced in the country.

But why are the venture capitalists and private sector energy companies not making the requisite investment in developing green technologies and commercialising innovation?

The answer lies in the fact that developing commercially viable green economy and clean technology solutions are highly resource-intensive, and substantial investments in basic research and development are necessary before renewable energy technologies (even in wind and solar, the two most mature of the clean energy sectors) evolve sufficiently to substitute fossil fuels.

The problem is not unique to India. In a recent article, Jeff Immelt lamented that even the highly innovative and entrepreneurial US is falling behind on clean-tech and green economy innovation, whereas China appears to be clearly in the lead. It has reportedly invested about 10 times more than the US as a percentage of GDP on clean energy, in an attempt to contain its carbon emissions.

In 2007, China overtook the US as the world’s largest CO{-2} producer. But more importantly, China is now expected to continue maintaining and even increasing the innovation gap vis-À-vis the US in clean-tech R&D and its adoption.

What may be the key reason of the emerging innovation gap in a critical technology front such as clean-tech, deemed “the biggest economic opportunity of the 21st century”? Can government policy incentives (by means of tax credits, for instance) sufficiently infuse necessary innovation and private entrepreneurial interest in renewable energy?

The Chinese way

While the Chinese innovation edge in clean-tech can be interpreted as a function of timely policy intervention and the ability of the Chinese government to rapidly implement decisions, I would argue that the determining factor remains the crucial role played by the Chinese government as the lead investor in funding basic research in this field .

The significance of state intervention in funding clean-tech development stems from a specificity of clean-tech investment, namely,. the inordinate length of its average incubation period, which calls for a much stronger role of the state in green technology development and its adoption than seen today. China has clearly demonstrated its commitment therein.

But why should state participation be a determining factor in successful gestation of clean-tech?

It appears that relying entirely on the market for development of clean-tech solutions is frustrated by fact that venture capital (VC) is not among the world’s most scalable businesses. The US-style market-led innovation has its limitations, one being that even the most promising ideas rarely get funding if their commercial potential lies beyond venture capitalists’ 10-year investment horizon. Furthermore, VC funding is likely to flow into more traditional businesses and start-ups innovating on proven technologies, where quick returns are guaranteed, rather than supporting promising new technologies that take time to gestate.

Unfortunately, as the US experience in the past 40 years has shown, developing viable clean-tech solutions require more time and entail more risk than the VC firms and corporate entities are willing to take.

Given the limitations of their balance sheets, such market-based solutions/incentives cannot be expected to sustain support for start-ups with the 30-40 year funding timeframe necessary for successfully developing, perfecting and commercialising clean-tech.

So the only viable provider of such very-long term funding remains the nation-state, which can afford to invest in basic research without worrying about return-to-capital.

But can resource-constrained countries such as India catch up? And does it make sense for the country to further increase the already high deficits in search of an elusive albeit green dream?

India’s imperative of moving onto a sustainable low-carbon high-growth economy path justifies that the Government leads from the front, by significantly increasing its outlay in basic clean-tech research simultaneously with exploring public-private-partnerships with select countries and companies in order to scale up as well as efficiently commercialise that basic research.

Energy efficiency initiatives are important, but they need to be complemented by state-led clean-tech innovation programmes and their aggressive adoption.

Also, being a technology-follower in this critical area may be counterproductive as optimal renewable energy resources differ between countries.

China’s recent deployments are aimed at taking it ahead in wind-power, clean-coal and use of LED, but with about 200 clear sunny days in a year, India should focus on solar energy as an important element of its renewable energy basket.

India’s sun resource is grossly underutilised, mainly due to a total lack of policy incentives but due also to lack of initiatives in solar technology innovation.

Increased focus on clean-tech R&D and green economy policies should be the way forward for the Indian Government.

(The author is a Visiting Research Fellow with the Institute of South Asian Studies, National University of Singapore. The views are personal. blfeedback@thehindu.co.in)