High profile bankruptcies, plunging sales, and canceled acquisitions are raising questions of whether alternative energy can fulfill its promise as the next great growth industry for Massachusetts and the nation.
Struggling with dwindling subsidies, a weak economy, and fierce competition from China, the US alternative energy industry appears to be entering a period of consolidation that is challenging the survival of some firms and claiming others. The failure of the Solyndra LLC, the heavily subsidized California solar company that is now the subject of federal investigations, is perhaps the best known example - but just one.
In Massachusetts, several firms have run into trouble recently. Evergreen Solar Inc. of Marlborough, once valued at more than $1 billion, last week completed a bankruptcy auction of its assets that raised just $34 million. Beacon Power, a Tyngsborough energy storage company, filed for bankruptcy about two weeks earlier.
That same week, American Superconductor, a Devens maker of control systems for wind turbines, canceled its acquisition of a Finnish engineering company, for lack of cash. A123 Systems Inc., the Waltham maker of advanced batteries, soon after cut its revenue projections for the year by roughly 20 percent, or about $45 million, after an unexpected drop in orders.
David G. Victor, who teaches the politics of energy policy at the University of California at San Diego, said he believes such struggles are just the beginning of a far deeper shakeout for the nation’s alternative energy industry. The problem, Victor said, is the sector is still young and capital-intensive with limited markets, a stage that requires government subsidies, patience, and willingness to accept failures - all in short supply given today’s economic and political climate.
Government support is already fading. For example, about 60 percent of the nearly $36 billion of stimulus funding doled out through Energy Department programs has been spent, and many of these programs won’t be renewed.
“When you look at the big picture, it’s a big shakeout for the whole renewable energy industry,’’ Victor said. “Many of these companies are selling products that are just not viable on their own without policy support - and some of that policy support is really expensive.’’
Federal investment in the clean technology sector has come under scrutiny since Solyndra, a California solar company that received federal loan guarantees of more than $500 million, filed for bankruptcy earlier this year and laid off 1,100 workers. Congressional and FBI investigations of Solyndra have some officials warily eyeing government backing of other clean tech companies.
In Massachusetts, Beacon Power’s bankruptcy filing has drawn comparisons to Solyndra because it, too, received a loan guarantee - $43 million to build an energy storage plant in New York.
Theodore O’Neill, an analyst in New York with brokerage firm Wunderlich Securities,said drawing parallels between Solyndra and Beacon Power is difficult. By the time Solyndra received the loan guarantee, he said, the firm’s technology had lost its competitive edge and Solyndra should not have accepted the money.
Beacon Power, on the other hand, has a competitive technology and just got caught in the economic downturn, which dried up capital and hurt its ability to raise money.
The clean energy industry has a history of ups and downs, which have tended to follow oil prices. When the cost of oil soars, money pours in as people look for alternatives. But when oil prices fall, the industry becomes less competitive and suffers.
Interest in alternative energy was most recently propelled by soaring oil prices that topped $145 a barrel in 2008. Venture capital investment in the industry peaked that year, at $5.7 billion, then plunged by a third, or roughly $2 billion, in 2009.
Although it remains below 2008 levels, investment has bounced back somewhat. The Big Four accounting firm Ernst & Young LLP recently reported that venture capital investment in the clean technology industry increased to $1.1 billion in the third quarter, up 73 percent from the same period last year. Massachusetts companies received $170.4 million, second only to California.
Jay Spencer, director of the Americas clean tech practice at Ernst & Young, said the rebound is a sign that alternative energy is far from dead.
“Whenever you see news of bankruptcies and challenging times at organizations, it always has us all stop and pause and step back and kind of ask the question, ‘Why?’ ’’ Spencer said. “It’s the ebb and flow of an industry, [and] there will be companies that exit and companies that prevail in the long term.’’
In Massachusetts, Governor Deval Patrick has bet heavily on the future of clean technology, viewing it as an economic engine that will create jobs in the state. Tens of millions of dollars in state grants, loans, and other incentives have been given to clean technology companies looking to grow.
Alternative energy’s ups and downs are similar to the experiences of other emerging industries, said Peter Rothstein, president of the New England Clean Energy Council, a regional trade group. The computer technology industry, for example, has had its own cycles of booms and busts, including the 1980s, when new tech firms were launched, only to fail after a handful of years.
“In the most competitive segments, such as solar, consolidation is reducing the number of firms while the growth of the sector continues,’’ Rothstein said. “We all have to recognize that over the last couple of years with the recession it has been a difficult and complicated time to grow.’’
David Vieau, chief executive of A123 Systems, acknowledged that clean tech has “been in a rough spot lately,’’ and said many industry leaders have been looking for a “stronger, longer-term commitment from the government.’’
Victor, the University of California San Diego professor, said long term government support for the industry is essential because the sector’s technologies need lots of money to be tested and proven on a large scale. The US government has helped build other technology industries, through defense, research, and other spending.
Government support of alternative energy technologies, however, has often come in short-term deals - such as temporary stimulus funds - that create boom-and-bust cycles, Victor said.What remains a question is whether the long-term government commitment needed to bring the industry to maturity is possible in the current political climate - especially with many using Solyndra as a cautionary tale.
“What I worry about as an analyst is that the lesson being learned is that government shouldn’t be in this space, and that’s what’s happening now,’’ Victor said. “If government is not in this space, then you’re going to have the valley of death.’’