As a venture capitalist, I spend much of my time on the unvarnished edge of capitalism. It’s a place where some level of failure is inevitable, survival of the fittest is an understatement, and success is usually the result of a combination of merit, relentless hard work and a little luck thrown in for good measure.
It’s in this spirit that I, along with colleagues like the Silicon Valley Leadership Group, support current proposals to create a California Green Bank to help grow clean energy innovation. Today, the Senate Budget Subcommittee on Resources, Environmental Protection, Energy and Transportation will consider spending priorities for the cap-and-trade auction revenue, estimated to be $850 million in 2014. They should consider spending a quarter of that to launch a Green Bank.
We believe that a Green Bank can help expand the benefits of clean energy and create more innovation in this critical area. It also can create more jobs, revitalize our manufacturing sector and help solve pressing climate issues associated with global warming.
A publicly funded Green Bank would provide low-cost, long-term financing to support clean, low-carbon projects. And it would leverage the public funds through the use of financial mechanisms to attract private investment so that each public dollar supports multiple dollars of private investment.
The concept of a green bank is part of a long tradition of our country supporting new energy transitions. In the 1800s, states rallied to help new businesses exploit their coal resources. In the early 1900s, tax and accounting benefits helped to allow oil and gas development to proliferate. In the mid-20th century, government programs including insurance guarantees put the nuclear power industry on the map.
A California Green Bank can help low-carbon industries get to scale, a critical point in a new product’s evolution. There are several “Valleys of Death” a company has to survive before it produces its product at scale. It has to get from concept to demonstration phase. It has to get from demonstration to commercialization – the ability to make not one but thousands of a product. Then it has to make that product at scale – being able to manufacture product as the market demands, at a price competitive with the traditional alternative.
Examples of technologies navigating this transition today are electric vehicle charging stations and battery storage. Each faces a significant state mandate to produce more of its product in the next 10 to 12 years; each will be challenged to meet that target without significant cooperation from the public and private sectors.
A Green Bank can also help consumers access green technologies. In the solar rooftop sector, a Green Bank could guarantee solar leases for people with lower credit scores who don’t qualify for leases from solar companies. Thus, a Green Bank can help a technology make it to market and help the market come to that technology.
The state government has seen a number of successes in partnering with venture capitalists to bring green technologies to scale. One of DBL’s first investments was a company called Powerlight (sold to SunPower in 2007); it also received $350,000 from the California Energy Commission in 1994, and the commission has received $1.8 million back in royalties.
The electric carmaker Tesla and the solar rooftop leasing company SolarCity are also beneficiaries of CEC programs and a wide array of venture funding, including ours. Over the years, these companies have grown from employing several dozen people in California to several thousands today.
That said, there needs to be investment at a much larger scale than we’ve seen to date to meet the state’s long-term greenhouse gas reduction goals.
A California Green Bank could act in coordination with existing state and federal programs to achieve the state’s climate goals by bolstering existing programs and filling gaps not currently addressed by the state or the private market. The Green Bank could help by focusing on specific sectors, like battery storage or electric vehicle charging infrastructure. Finally, this funding could have a significant multiplier effect by encouraging private banks to follow with further lending.
California has an opportunity to fund a Green Bank with cap-and-trade auction revenue generated by the selling of permits to pollute. This revenue has to be invested in programs that further achieve greenhouse gas reduction goals. A Green Bank offers a way to foster policy goals while scaling one of our state’s most precious resources: our entrepreneurial economy and the jobs it creates.
Nancy E. Pfund is managing partner at DBL Investors, a Silicon Valley Leadership Group member.