Funding a ‘green’ industrial revolution
Advanced clean technologies, like all radical technologies, have many hurdles to
clear. Some hurdles may relate to technical development (such as improving or
inventing production techniques), others are due to market conditions or competition. In the case of renewable energy sources, like wind or solar power, broad
social acceptance or the need to provide energy at a price lower than possible by
other firms and technologies are also major hurdles (Hopkins and Lazonick, 2012).
Given these challenges, the financial risk of supporting a firm until it can mass
produce, capture market share and reach economies of scale, driving down unit
costs, is too great for most VC funds (Hopkins and Lazonick, 2012).
In the innovation game, it is therefore crucial that finance be ‘patient’ and be
able to accept the fact that innovation is highly uncertain and takes a long time
(Mazzucato, 2013a). Patient capital can come in different forms. The German feedin tariff (FIT) policy is a good form of public ‘patient capital’ supporting the longterm growth of renewable energy markets (Lauber and Mez, 2006). By contrast,
the availability but also frequent uncertainty surrounding tax credits in the US and
the UK are a form of ‘impatient capital’ – which indeed has not helped industry
take-off (Porritt, 2011; Cowell, 2012). The most visible patient capital made available
to renewable technology manufacturers and developers has been delivered through
State-funded investment or ‘development banks’. According to the Global Wind
Energy Council (GWEC):
The main factor that distinguishes development banks from private sector
lending institutions is the ability of development banks to take more risk
associated with political, economic and locational aspects. Further, since they
are not required to pay dividends to private stakeholders, the development
banks take higher risks than commercial banks to meet various national or
international ‘public good’ objectives. Additionally, long-term finance from
the private sector for more than a ten year maturity period is not available.
(Fried et al., 2012, p6)
The role and scope of development banks is more diverse than simply financing
projects (Griffith-Jones and Tyson, 2013; Mazzucato and Penna, forthcoming 2014).
Development banks can set conditions for access to their capital, in an effort to
maximize economic or social value to their home country. Most development banks
deliberately seek to invest in areas that have high social value and are willing to
make risky loans that the commercial sector would shy away from. Additionally,
while these banks support consumption of renewable energy, they can also support
manufacturing. Development banks are flexible financiers and can provide
significant capital to renewable energy projects, which can represent as great an
investment risk as the development of new technologies. Given the amount of
financial resources in their possession, their investment decisions play an important
role in economic development trajectories. In this sense, it came as good news
The green entrepreneurial state 137
Advanced clean technologies, like all radical technologies, have many hurdles to
clear. Some hurdles may relate to technical development (such as improving or
inventing production techniques), others are due to market conditions or competition. In the case of renewable energy sources, like wind or solar power, broad
social acceptance or the need to provide energy at a price lower than possible by
other firms and technologies are also major hurdles (Hopkins and Lazonick, 2012).
Given these challenges, the financial risk of supporting a firm until it can mass
produce, capture market share and reach economies of scale, driving down unit
costs, is too great for most VC funds (Hopkins and Lazonick, 2012).
In the innovation game, it is therefore crucial that finance be ‘patient’ and be
able to accept the fact that innovation is highly uncertain and takes a long time
(Mazzucato, 2013a). Patient capital can come in different forms. The German feedin tariff (FIT) policy is a good form of public ‘patient capital’ supporting the longterm growth of renewable energy markets (Lauber and Mez, 2006). By contrast,
the availability but also frequent uncertainty surrounding tax credits in the US and
the UK are a form of ‘impatient capital’ – which indeed has not helped industry
take-off (Porritt, 2011; Cowell, 2012). The most visible patient capital made available
to renewable technology manufacturers and developers has been delivered through
State-funded investment or ‘development banks’. According to the Global Wind
Energy Council (GWEC):
The main factor that distinguishes development banks from private sector
lending institutions is the ability of development banks to take more risk
associated with political, economic and locational aspects. Further, since they
are not required to pay dividends to private stakeholders, the development
banks take higher risks than commercial banks to meet various national or
international ‘public good’ objectives. Additionally, long-term finance from
the private sector for more than a ten year maturity period is not available.
(Fried et al., 2012, p6)
The role and scope of development banks is more diverse than simply financing
projects (Griffith-Jones and Tyson, 2013; Mazzucato and Penna, forthcoming 2014).
Development banks can set conditions for access to their capital, in an effort to
maximize economic or social value to their home country. Most development banks
deliberately seek to invest in areas that have high social value and are willing to
make risky loans that the commercial sector would shy away from. Additionally,
while these banks support consumption of renewable energy, they can also support
manufacturing. Development banks are flexible financiers and can provide
significant capital to renewable energy projects, which can represent as great an
investment risk as the development of new technologies. Given the amount of
financial resources in their possession, their investment decisions play an important
role in economic development trajectories. In this sense, it came as good news
The green entrepreneurial state 137