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The news these days is rife with stories of falling stock prices and failing companies, corporate bailouts and bankruptcies. Cleantech, championed for the last few years as America’s next growth sector, has suffered along with the rest of the economy. PowerShares WilderHill Clean Energy Index, for example, is trading over 70% lower than it was a year ago (versus the S&P 500 which is down about 47% over the same period). Has the cleantech bubble burst? Actually, I don’t think so. There are quite a few bright spots that point out continued growth in extant cleantech companies despite the drying up of investment capital and the falling price of oil.

Without a doubt, there is reason for concern. So far this decade, cleantech has been the darling of venture capitalists (VCs). According to the Cleantech Group, global VC investment in cleantech grew from about $500 million in 2000 to over $6 billion in 2007. Clean Edge charts a similar trajectory for US VC cleantech investment, rising from less than 1% of the total 2000 pot to almost 10% in 2007. Preliminary 2008 figures show another strong growth year - global VC investment in cleantech topped $8.4 billion. But growth was sluggish in Q4 2008 and if current conditions continue then 2009 may be a light year. While it is tempting to say that cleantech’s quick ascent owed itself to high petroleum prices and easy money, that mindset would be missing much of the whole picture. That view sees cleantech innovations as nice-to-haves and feel-goods, aka the first initiatives to be cut from the budget in a downturn. Some product lines and entire business lines fall into that category - that vegan carbon-neutral dog biscuit boutique down the street might not make it. The circuitry of cleantech, however, runs somewhere deeper.

The cleantech companies that are thriving are not providing superfluous products. Rather, they are addressing the core challenge of our time - how we continue to support economic growth and increasing standards of living without destroying the earth (and engaging in conflicts over resources) in the process. Moreover, many cleantech firms are not early-stage startups focused on R&D - these companies and their technologies are providing significant value here and now. Take First Solar, which produces thin film solar cells without using silicon, a component that has driven up costs for other firms. Their fourth quarter earnings surpassed Q4 2007 seven times over - that’s almost unheard of! What accounts for this growth? With increasing awareness of climate change and with renewable portfolio standards already deployed in many states and looming at the federal level (not to mention forthcoming carbon legislation), utilities throughout the US and Europe need companies who can produce utility-scale solar arrays in a cost-effective manner. As in any business, those who can create the best product for the lowest price rise to the top.

Even companies that aren’t explicitly cleantech, but that provide products in the space, are benefitting. Look at Toyota: hybrid cars take braking energy, normally wasted as heat, and store it for future use, reducing emissions and dependence on foreign oil in the process. By selling a product line that is better positioned for a carbon constrained economy and rising fuel prices, the firm has so far maintained a better grip than Ford and GM (although now even Toyota has asked for aid). Unsurprisingly, mimicking Toyota’s model is part of the recovery plan for the major US automakers - GM is betting its future success on the Volt and Ford has just launched a class-leading hybrid, the Fusion (the Prius of the mid-size hybrid market)

With comprehensive, realistic business plans and sustained consumer demand, these companies are exploiting inefficiencies for the benefit of consumers and themselves. As companies and individuals scour for cost savings and efficiency improvements in lean economic times, nothing is more relevant. For these established companies, the future looks bright. The question mark for me is the next wave of cleantech startups. Access to startup capital, either from VCs or the federal government, will set the stage for their success.