Who is prepared to finance the “Global Technology Funding Gap” in the current economic environment?
Without a massive increase in the scale of investment in early-stage technologies, we will face a huge shortfall in the scale of technology deployment that is required to mitigate the challenge of climate change. There is an indisputable need for governments and the private sector to prioritize the establishment of a “Global Technology Fund” to bridge the global technology funding gap.
For the needed technologies to be created, developed, and deployed at scale in a steady-state requires financial risk to be taken. R&D budgets (both public and private) typically fund the creation phase. The development and deployment stages need other forms of financial support to underwrite the risks of getting the technology to perform reliably and for them to become established in the market. Even once deployed, new technology assets are typically more expensive than those they replace and require support before the economies of scale and improvements bring the costs down — so either cash or financial back up (balance sheet) is needed to get through the ramp up stages to full scale once the technology is proven.
In our current economic climate, the typical financial participants in this chain of risk are either constrained or have partially withdrawn from the market due to the economic downturn – so the overall financial capacity has been severely reduced. However, the need for new technology deployment on a massive scale and across many spectrums has grown exponentially — e.g. new platforms for clean energy generation, smart grid and storage technologies, carbon capture and storage systems and energy efficiency initiatives are required as quickly as possible – and all have what the financial community calls “technology risk.”
The resulting “Global Technology Funding Gap” is widening and deepening dramatically, but this is not being sufficiently addressed even regionally, let alone on a global basis. The current public and private financial market mechanisms that are designed to provide the resources and expertise to bridge this gap internationally are outdated, inadequate in scope, and not designed to meet the scale needed today.
So who is still in the game to take technology risk in the energy sector? Not the banks, nor the broader financial community who historically have played a limited role, and in today’s economic climate will play an ever-diminished role. Not the broader private equity sector – apart from a rapidly diminishing venture capital industry that is fighting to reposition itself and ditto hedge funds. Not the large power utilities, they wait for the technology to be developed by other players. Other large corporates and Original Equipment Manufacturers are sometimes involved at the creation stage and through to deployment, but they are very selective on the technologies they back and are slow to admit mistakes. The broader financial sector – such as insurance companies – have some capacity, but there is a heavy price to pay and like the banks, are they really interested at the moment? Governments – not really at the scale or pace required, and their contribution is inevitably tied into complicated politics, in the case of Carbon Capture and Storage for example; their subsidies/feed in tariffs, which the consumer ultimately pays for, are there for the support for expensive systems, before the ramp up to full scale and reduced costs. Private individuals and small companies – they do the best they can with risk equity money they raise to push new ideas forward with mixed success, but they generally lack the muscle and staying power to get to scale, are hugely fragmented and the collective contribution is not significant enough. Multilaterals and other global financing entities – they typically do not take technology or development risk and those that are looking at a different role are limited. In summary, a mixed bag, weakened by the global downturn and collectively not able to deliver the co-ordinated outcome for the scale and timing required. The market will not get the job done alone!
So what can be done? Simply, it will only be a globally organised public/private Global Technology Fund, underwritten by the leading governments of the world, in partnership with the private sector, but administered by an independent non-political body, that will have any chance of successfully bridging the Global Technology Funding Gap in time. While the European Investment Bank Risk Facility and the recently-announced US Clean Energy Investment Fund provide helpful models, an adequately-funded initiative on a global scale does not exist. It will challenge the accepted political and market systems of the past and will be complex to execute fairly and effectively. But, we have no choice. The alternative is multiple still-born innovations, that could have had profound contributions to make, or too little too late deployments of critical technologies that have not had the backing to bring them to scale in time.
In conclusion, bridging the “Global Technology Funding Gap” is of critical importance to ensure the safety of the planet. The Global Technology Fund would be a fraction of the stimulus packages committed to avoid economic disaster and would be money much better spent to avoid environmental disaster. What is more, the technologies launched, deployed and scaled would form the foundations for new economic prosperity and employment on a global scale.
Trevor Nash is CEO of Tessera Solar International