Cleantech VCs cool on Obama stimulus package

UPDATE: After the following story went to press late last week, the U.S. Senate began to debate a pared-down version of the economic stimulus package. The U.S. Senate was expected to vote on the bill, now worth about $780 billion, early this week.

President Obama’s proposed stimulus plan aims to kick start investments in green energy and infrastructure. But some venture capitalists are skeptical as to whether it will change what is normally a slow-moving industry.

Among the many questions that VCs and businesses have about the $825 billion economic stimulus package is how much money will be parceled to certain sectors, such as cleantech.

The economic stimulus plan, which is currently under consideration by the U.S. Senate, calls for pumping money into public works construction and energy research, as well as providing tax credits to lower middle class and poorer households, expanded safety net programs, credits for businesses that create jobs in the U.S., aid to state governments and deploying broadband communications to underserved areas.

Obama has called for $11 billion to go toward research, development and pilot projects to improve the electric grid. The money would be administered through a program called the “Smart Grid Investment Program.” Beyond that, however, it is too early to say what that money is going to go to or how it would be administered. Many experts don’t agree what improvements to the power delivery system would classify as “smart.”

“I don’t think [the cleantech portion of the economic stimulus package] is a panacea,” says Diana Propper de Callejon, a cleantech investor with Expansion Capital Partners. “Policy changes will be more game changing in the long term than a short term stimulus package. We’re not going to government-spend our way out of our problems.”

Instead, she says that efficient building standards, a cap-and-trade carbon emissions policy and renewable portfolio standards would provide a greater benefit to Expansion’s cleantech portfolio.

“It’s continued funding over the years that brings down technology costs and creates a policy environment that pulls these technologies into the marketplace,” she says.

Even if the stimulus package does help venture capitalists and their cleantech portfolios, the effect may take years to sink in. Propper de Callejon says that her portfolio companies are “optimistic about the economy in the long term while thinking about surviving in the short term.”

Mark Donohue, who founded Expansion and is currently teaching cleantech entrepreneurship at Babson College, says that the expansion of the investor tax credit last year was crucial to the cleantech industry. Donohue isays that the renewable energy would have been poised for growth, even with the economic stimulus package.

“The stimulus package is not going to profoundly turn the tides,” Donohue says. (Donohue talks more about public policy in a Q&A on page 3)

Grant Seiffert, president of the Telecommunications Industry Association, says that doling out cash from the proposed stimulus is going to be a huge challenge. The TIA is a Washington, D.C.-based trade group representing the communications industry.

Seiffert says that the TIA is considering whether to add cleantech companies to its membership and currently maintains a database of environmental rules and regulations worldwide.

“There are lots of moving parts to the stimulus package,” Seiffert says. “Once both houses of Congress come together and approve it, they still need to figure out how to roll this out. We’re excited for the opportunity the stimulus package will bring, but lots of questions still need to be answered.”

VCs in addition to Propper de Callejon are skeptical that the stimulus package will provide any immediate boost to the cleantech business. “The near term effect is building awareness,” says Battelle Ventures General Partner Tracy Warren. “The impact on the demand side isn’t going to happen in the next 12 to 24 months, at least not in a meaningful way.”

Warren is an investor in electricity metering company SmartSynch, which could directly benefit from Obama’s desire to install 40 million “smart meters,” a plan he articulated earlier this month. The company has raised $79 million in venture funding through five rounds.

But Warren isn’t optimistic the initiative will improve SmartSynch’s sales, at least not quickly.

“You won’t see a million-unit deployment at a utility in the next 12 months,” she says. “You’ll see trial deployments until the utilities really understand what the best technology is to deploy. There are multiple steps in this. It can’t be a fast deployment, but it will put pressure on folks to show they are adopting and deploying new technology.”

One of the technologies that @Ventures Principal Rob Day says should be key to the stimulus package is demand-response monitoring. This technology allows users to monitor their power usage and decrease it during peak times and could lead to variable pricing for electricity.

Day’s firm took part in $7.1 million Series A investment round for demand-response company PowerIt Solutions in 2007. He views the lack of demand-response adoption subsidies as a shortcoming of Obama’s plan.

“Demand-response incentives are state-driven right now,” Day says. “There’s been strong support for demand response in California, for example. Those incentives have been really helpful in getting the market up and going. That kind of incentive at the national level is missing.”

Josh Green, general partner of Mohr Davidow Ventures, says that nowhere is the tension between government and innovation more evident than with regard to cleantech initiatives.

“We must embrace and engage government as an important ally to assist getting cleantech products and services off the ground,” he tells Greentech Media.

Alastair Goldfisher contributed to this report.