What Is the Cleantech Industry, and What Are Its Prospects for the Future?
Updated: Jan 26
The need for renewable and sustainable energy sources and environmentally friendly services has fueled huge growth in the so-called “cleantech” industry. This industry continues to expand and, if current trends continue, will become a major economic force for decades to come.
What Is Cleantech?
Cleantech, or clean technology, refers to a growing sector of the economy devoted to finding and expanding technologies that are environmentally safe and sustainable. This includes various green energy sources like solar and wind power, as well as improvements in areas like recycling.
The term cleantech originated in the world of finance in the late 1990s and early 2000s. The popularization of the term came from the Cleantech Group, founded in 2002 by Nick Parker and Keith Raab. A few years later, the finance industry took notice and began allocating funds specifically for investment in environmentally friendly technologies and businesses.
The cleantech sector was born from the dire predictions of scientists and researchers concerning the shortages in food and water across the globe and increasing environmental damage. For example, the United Nations Food and Agriculture Organization (UNFAO) estimates that by 2025 almost 2 billion people will have no access to fresh drinking water.
These problems inspired people to look for innovative ways to find solutions that would help the environment and create more sustainable energy models. The finance industry took notice of these new developments and recognized an opportunity for investment in the industry.
The growth of the cleantech industry has not been a continuous upward trajectory, however. Any new economic sector will experience unforeseen issues and setbacks. In the case of cleantech, the high startup costs and resistance from traditional energy sectors like the fossil fuel industry caused many cleantech companies to struggle and fail. Technical problems arose, too, and slowed growth until proper solutions could be found. Despite these bumps in the road, the cleantech industry has established itself as a serious target for investment firms looking for new channels of revenue.
The Current State of Cleantech and Its Future
The continuing emphasis on the effects of climate change has led to more attention being paid to the cleantech industry. Concerns over carbon emissions and other environmental damage have moved investors to take more chances regarding cleantech firms. Beginning in 2004, venture capitalists invested over $20 billion into the cleantech sector in less than five years. Cleantech is now a $4 trillion industry. A key portion of this rapid growth comes from a surprising area: Today, investment in renewable energy in developing nations now exceeds that in developed nations.
The global COVID-19 pandemic caused a major slowdown in economic growth in just about every sector of the economy, and cleantech was no exception. The challenges presented by doing business during lockdowns and supply chain shortages hit cleantech and resulted in a general malaise for the industry. Stock prices for cleantech companies stagnated or dropped during the very difficult year of 2020. Labor shortages caused serious problems. The outlook for the immediate future was gloomy.
The creation and widespread distribution of a COVID-19 vaccine changed everything, however, and the worldwide economy began to rebound. Cleantech was a major beneficiary of this turnaround, with venture capital investment rising from $1.5 billion in 2020 to almost $6 billion in 2021. This was well above the predicted level and created optimism in the cleantech sector.
The future, both immediate and long-term, looks very good for cleantech. The increasing public interest in the effects of climate change and how to combat it keep the focus on innovation in environmentally friendly technologies. Despite the ongoing supply chain issues affecting all economic sectors, the cleantech industry continues to grow.
A few related sectors are expected to grow in the near future. One is electric vehicles. The increasing popularity of electric and hybrid cars has only accelerated due to the rising gasoline prices throughout 2022. Hydrogen is another area predicted to grow rapidly. The low carbon production associated with it is seen as a positive. Meanwhile, energy storage solutions are expected to increase commensurate with the growth of renewable and sustainable energy sources.
The main impediment to continued growth in the cleantech sector looks to be impatience. Many of the emerging technologies being developed today may take a decade or more to reach a level where they are perfected. The resulting delays in profitability could cause investors to scale back their enthusiasm in the short term. However, the upward trend of the cleantech industry is likely to continue as the world recovers from the worst economic impacts of the recent pandemic.