Governments play a major role in support of basic and applied scientific research. The movement from basic and applied science to translational and commercial development is generally played by different levels of venture capital. Private placement adds additional capital to R&D and commercial trials. Positive marketing indicators eventually lead to initial public offerings (IPOs) for equity capital. This has been the traditional flow pattern of investment in innovation.
The first Obama administration primed the pump of innovation by injecting new funds in several Department of Energy (DOE) programs designed to advance renewable energy and electric vehicles for jobs and industrial policy. By the expiration of the renewable energy program in September of 2011, DOE approved 27 projects totaling more than $14.5 billion in guarantees loans, as well as grants. 16 of the 27 project were dedicated to solar technology and represented 80% of DOE’s funds.
A number of companies that received this support have since defaulted, like Solyndra and Abound Solar. Others, like Solopower are currently restructuring; and still others are struggling to stay alive. The entire American solar power industry was badly shaken by a two-thirds drop in the global price of solar panels between 2009 and 2011, due mostly to lower price Chinese export. While U.S. companies may have better technology, low price Chinese solar panels own the global mass market.
The DOE’s Advanced Technology Vehicle Loan Program (ATVLP) faced a similar problem. A123 Systems, Inc., which developed and manufactured advanced lithium-ion (lithium iron phosphate) batteries and battery systems for electric vehicles, failed on its grant of $249 million from the DOE and was auctioned off to China’s Wanxiang automotive company. Rumors have it that Fisker Automotive, an electric vehicle maker that received a $528 million loan guarantee by ATVMLP, may also end up in China’s pocket. Reuters reports that “China’s Zhejiang Geely Holding Group is favored to secure a majority stake in troubled U.S. electric car maker Fisker Automotive, according to two sources familiar with Fisker’s search for a strategic investor or partner (Feb. 18, 20103).
Putting aside the partisan battles clashing on these guarantee loan and grant programs for innovation, there are serious vetting problems to address. Unlike private venture capital, which does not have to be spent, governemnt program budgets have to be spent.
There are technology and financial review processes for applications to these programs, and we know as a matter of course that politics always plays a role in final selection; notwithstanding partisan complaints about the credit worthiness of recipients. But there is a non-partisan issue that should be raised. There is no peer reviewed strategic marketing vetting process for these applications, as you would find in every large industrial company.
Innovation always precedes demand, and it takes time, investment and care to successfully launch innovative products to market. It is done in private industry by marketing departments engaged in careful marketing planning processes teamed up with R&D, operations, finance and other cross company teams.
If real demand for new technologies in renewable energy and electrics cars actually preceded supply, we would not need public funding to support new technologies. Private investment would do the job. The problem is that government is trying to rush these technologies to market with grants and loan guarantees, before demand and competitive opportunity is clarified. The political urgency of job creation and global technology leadership does not mean that customers are ready and willing to buy new things from governemnt funded companies.
All innovations in the private sector, as well as the government sector, face this situation. New technology builds new demand, but only if it is grounded on a careful research based marketing strategy that indicates commercial prospects for success. This has to take into account competitive advantage of the specific technology, sufficiency of company resources, its organization and operations for product development, promotion, distribution and pricing.
The US. Government needs a professional marketing plan requirement for application, and a peer reviewed vetting process to reach an honest assessment of risk and opportunity in each contending application. The professional panel must make suppportable recommendations. We do this for basic science grants. We must do this for energy innovation grants and loan guarantees.
The U.S. Government has always led the world in basic science investment. But we are a relative newcomers to applied research and development, and a novice in translational R&D which aims for commercialization. Other countries like Japan, Israel and China do a very careful job of market analysis and strategy for innovative technologies. They understand the market constraints and opportunities and above all have a long term competitive strategy before making public investment in new technology areas.The U.S. must catch up.
It was no secret that China’s domestic need for nonpolluting solar energy over dirty coal gave it a scale market advantage that the U.S. did not have with low polluting nuclear, gas and oil sources of energy. Scale reduces cost; and hence, price to market. How can small scale, high cost U.S. solar panels compete commercially with large scale, low cost Chinese solars, except by reducing Chinese imports? Last year the Government slapped a 24% duty on Chinese solar panels, resulting in a sharp decline of Chinese imports; the first U.S. green energy surplus with China, based on our component exports to the Chinese renewable enrgy industry’and a lower rate of solar energy growth in the U.S.
In an effort to save our U.S. solar panel companies, we sacrificed our policy a fast renewable energy growth; not to mention that the real benificieries of our duties on the Chine are other Asian panel exporters who are duty free. There are e a lot of marketing issues that government supported investment in solar energy have not addressed. The same holds true with electric vehicle subsidies.
We have to learn how to embed commercial marketing methodologies for innovation investment in government agencies that dole out tax cash for innovation. Politics is only a problem if there is no innovation marketing vetting process. It is not a problem if there is a political preference for one of several companies that score similarly well in a peer reviewed marketing vetting process.
Milton Kotler 3.5.12