In October 2004, then California Governor Arnold Schwarzenegger rolled up to a pioneering fueling station at Los Angeles International Airport in a hydrogen-powered metallic blue Hummer loaned to him by General Motors (GM).
The "California Hydrogen Highway," Schwarzenegger's vision to ensure that every Californian would have access to a hydrogen fueling station by the end of 2010, called for the state to spend more than $50 million to help deploy up to 100 hydrogen fuel stations that would serve 2,000 fuel cell vehicles. "We got 200 stakeholders around a table, literally, and mapped out who could get stations where," said Terry Tamminen, a top adviser to Schwarzenegger.
But nearly nine years later, California has just nine hydrogen stations open for the public, and only about 200 fuel cell cars that can use them.
The global financial crisis helped slam the brakes on dreams of a Hydrogen Highway, but the roots of green energy's mid-life crisis -- marked by a rash of recent corporate collapses in everything from electric cars to solar panels -- run far deeper.
Other factors have contributed to the shakeout, which has happened as climate change has dropped down the list of Americans' top concerns. Many new companies were far too optimistic about their prospects and were selling products that could not compete on price against traditional transport and energy sources, not to mention increasingly cheap imports from China. Many were -- and are -- very reliant on fickle government support, and some were simply mismanaged.
Whether it's survival of the fittest or survival of the subsidized, there have been success stories, and there's even a little froth in the stock market. But as the sector moves beyond its youthful phase, it faces many of the same problems and nobody will be surprised by more failures.
"The general economic thesis of the renewable energy sector hasn't changed," said Karl Miller, chairman of Newco Energy Acquisition Holdings, which acquires energy-related assets. "It's still a heavily subsidized industry. It requires a major federal tax credit to make it work." It still doesn't appeal as "a capital market investment," he said.
Apart from the relative success of Tesla Motors (TSLA) in putting nearly 10,000 of its pricey luxury electric cars on the road, the electric vehicle sector has been among the biggest duds in clean tech.
Major automakers like Nissan Motor (NSANY), with its all-electric Leaf, and GM, with the Chevrolet Volt, bet heavily on electric vehicles. But they are struggling to get over the high cost and lack of charging infrastructure, as well as questions about the short driving range of some models. Both Leaf and Volt sales have lagged well behind company expectations, and vehicles from startups like Fisker Automotive and Coda Holdings barely made it off the assembly line before the companies ran out of cash.
Nissan Chief Carlos Ghosn, who plowed $5 billion into battery-electric technology, has backed down from an earlier forecast of 10 percent market share for electric cars by 2020. Ghosn's company sold 9,819 Leafs last year in the United States, well under its target of 20,000.
The Obama administration has pulled back from its aggressive goal of putting 1 million electric cars on U.S. roads by 2015. Total plug-in car sales last year were only around 50,000 in the United States.
"EVs are a really difficult sell today," the CEO of Toyota's (TM) North American business, Jim Lentz, said in an interview. "Until we see substantial change in battery technology it's going to be difficult to see EVs really take off."
Even as electric car technology has proved disappointing, the clean-tech movement has helped make traditional combustion engines less polluting, with new models showing fuel efficiency gains that are popular with consumers both for environmental and economic reasons. A push to run more vehicles, especially trucks, on cleaner-burning natural gas is also gaining momentum.
Automakers are also heading back toward Schwarzenegger's old friend: hydrogen fuel cells.
Daimler (DDAIF), Ford (F) and Nissan plan to launch affordable fuel-cell cars within five years, while Toyota and BMW aim to do so by 2020. Cars powered by hydrogen fuel cells, which emit only water vapor, can cover much longer distances and refuel more quickly than electric cars.
Toyota's Lentz even used Schwarzenegger's term "hydrogen highway" to describe a network of fueling stations he expected to see between Los Angeles and San Francisco in the next few years. The Golden State last year unveiled a revamped goal that envisions 68 hydrogen stations by 2016 that will serve 10,000 to 30,000 vehicles. The stations, some of which are already in the works, are expected to cost about $160 million. California has awarded nearly $28 million for stations under development and allocated an additional $29.9 million for future stations.
Development of renewable energy technology has been undermined by an explosion in fossil fuel production in the United States, particularly cleaner-burning natural gas -- a development that wasn't expected when many green energy projects were being dreamt up.
Cheap natural gas "clearly has an impact on how much renewables we'll do," said Alex Urquhart, CEO of GE Energy Financial Services, the unit of General Electric (GE) that invests in energy projects.
The shale oil and gas boom in the United States has also provided opportunities for companies that had been more focused on pure green tech.
Take OriginOil, a U.S. startup that developed a process to convert algae into renewable crude oil. It now markets technology to oil and gas producers for the cleanup of water that is contaminated in the fracking process used to extract shale oil and gas.
Other water-focused startups, too -- like Houston-based 212 Resources Corp and Everett, Washington-based WaterTectonics -- are counting on the oil and gas industry's need to clean and recycle the millions of gallons of water that is mixed with chemicals and sand and injected into the ground to "frack" wells.
GE is one of the world's top two makers of wind turbines, but it isn't just banking on renewables. It is making significant bets on shale, scooping up oilfield pump maker Lufkin Industries Inc for $2.98 billion to add to the well services business it bought from John Wood Group in 2011.
Walking on Sunshine
Some of the biggest failures in the green-tech sector have been in the solar energy sector - notably Solyndra, the maker of next-generation solar panels that collapsed in 2011 after receiving a $535 million loan guarantee from the U.S. Department of Energy. Its failure sparked an 18-month investigation by Republicans who faulted President Barack Obama's administration for failing to cut the government's losses, and suggested the loan was made in part as a favor to a Democratic donor. The White House said the decision to make the loan was "merit-based."
More than 18 months after Solyndra's fall, there's a lot more road-kill in the green energy sector. China's Suntech Power Holdings, once the world's largest solar company, filed for insolvency in the last few weeks, following the path of battery maker A123. And tiny SoloPower, which was awarded a $197 million DOE loan guarantee and opened a factory in Portland in September to much fanfare, has said it will suspend operations.
Clean-tech initial public offerings in the last year have either been canceled, as in the case of BrightSource Energy, or priced below targets, like SolarCity and Enphase Energy. With investment "exits" a challenge, venture capital funding for clean-tech startups slid 29 percent last year to $3.33 billion after peaking at $4.6 billion in 2011, according to the National Venture Capital Association.
The U.S. solar market has suffered because top market Europe pared back its price guarantees to generators of solar power just as China built hundreds of panel factories that flooded the market with cheap products. In 2012 alone, the price of solar panels slid 50 percent, hammering industry profits and scaring investors away from clean-tech stocks.
But in the bigger picture, solar energy is still making strides.
Cheaper solar panels have made the clean energy source more affordable to many. Worldwide, photovoltaic solar installations are expected to increase 12 percent this year to 35 GW as growth in the Middle East, Africa, the U.S. and Asia will offset declines in Europe.
Walmart Stores (WMT), which began installing solar on its big box stores in 2007, plans to put panels on at least 1,000 of its buildings by 2020, up from about 200 currently.
"We really feel comfortable with where the prices and the technology are going," said Walmart's vice president of energy, Kim Saylors-Laster.
The retailer initially focused its solar program on California and Hawaii, where high power prices make solar more competitive with electricity from the grid, but cheaper solar has helped it expand to new markets. Walmart has saved $2 million since 2007 by using the renewable power generated on its rooftops.
Companies that install those panels are growing rapidly. SolarCity (SCTY), which put up many of Walmart's solar systems, has seen its share price soar to $45 since December, when it struggled to get its IPO done at $8 a share. The company, which is backed by Tesla's Elon Musk, offers homeowners the chance to pay a monthly fee for solar, eliminating the large upfront investment.
Further signs of life in the sector: Swiss industrial group ABB made a $1 billion bet on solar with plans to buy U.S. solar inverter maker Power-One Inc at a premium of 57 percent; and First Solar Inc's shares rallied by 45 percent on April 9 after forecasting better-than-expected results for the next three years.
Money, Money, Money
That kind of outsize stock move is a trademark of green tech. Tesla stock has soared 64 percent since May 8, when it reported its first ever quarterly profit after selling more battery-powered luxury cars than expected, and SolarCity stock jumped 40 percent in two days after announcing on Thursday it had secured $500 million in financing from Goldman Sachs (GS).
The overall direction of the market, however, has been down. You can get a sense of the amount of money that has been lost by investors from the WilderHill Clean Energy Index, which tracks the performance of publicly traded green energy stocks ranging from solar and wind to rare earth minerals and water companies. The market value of the companies in the index has fallen from a peak level of $231 billion in late December 2007 to about $108 billion today, a decline of 53 percent, according to Reuters data. The S&P 500 over that period is up around 9 percent to an all-time high. And while the number of components in the WilderHill index has risen to 51 from 42 since 2007, the average market value of those companies has tumbled to $2.1 billion from $5.5 billion.
Moreover, the index only reflects publicly traded companies. More has been lost by venture capital firms and other early investors in companies that never got much past the start-up phase. Fisker and Solyndra, for instance, each raised close to $1 billion in venture capital money.
Some advocates for green investing say that thanks to a more realistic assessment of risk, a period of relative stability is setting in for green companies and their investors. The WilderHill Clean Energy index may be much lower than it was in 2004, but it is up 31 percent this year.
"The industry has become much more efficient, much more purposeful. There's not this sort of green hype," said Vinod Khosla, the co-founder of Sun Microsystems who later joined Kleiner Perkins. In 2004, he launched Khosla Ventures, which is known for investing in next-generation energy companies such as biofuels maker KiOR. "What has changed is we make fewer bets and we plan on investing more in them and take more time."
But investors like Shawn Kravetz, who manages several funds for Boston-based Esplanade Capital, including one focused on the solar industry, compares investing in the sector to "a long and bumpy flight."
"It will remain turbulent because policies change, companies will have issues," Kravetz said. "It's wise to keep your seatbelt fastened."
Wind Beneath My Wings
Government support has been a double-edged sword. It's hard for businesses and investors alike to make plans for the future in an environment of tight budgets and opposition from conservative lawmakers to taxpayer money being spent to favor one sector over another.
In the solar sector, for example, a 30 percent tax credit for solar system owners is set to fall to 10 percent at the end of 2016. Solar proponents want a more gradual decline and point to the experience of the U.S. wind industry, which is struggling with a dependency on a tax credit that keeps being extended by Congress in one-year increments.
GE has seen the impact of that directly. Wind turbine sales slowed in 2012 because a key tax credit had been expected to expire. It was renewed at the eleventh hour shortly after the new year, and that has helped GE sell 1 GW of wind turbines since January.
"The economics associated with the tax credits are how these projects get done," said GE's Urquhart. "Without those credits, investments would be far less attractive."
President Barack Obama's 2009 economic stimulus program allotted $90 billion to various clean energy programs, but those funds have been tapped. Big European players like Germany have slashed their generous green subsidies. And U.S. states that are requiring utilities to buy more renewable energy are close to fulfilling their goals.
U.S. green energy companies face a somewhat chaotic environment at the state level, with efforts underway in 16 states to weaken renewable energy mandates that have been key support mechanisms for solar and wind power. At the same time, 18 states have moved to strengthen those mandates.
That patchwork of policies in countries like the United States and India -- which also has policies that vary from state to state -- is a major concern.
"There is no way any reasonable management team of a company can do meaningful corporate planning without an understanding of what the rules of the road are," said Jonathan Silver, who oversaw the Department of Energy loan guarantee program from 2009 to 2011. "We've made it incredibly difficult for people in the energy industry."