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The Exchange is part of an ongoing series on The Hive tackling the questions facing Boston’s entrepreneurs, investors, and innovators. This week, we ask participants: Green Energy: Are investments and incentives in specific green tech companies responsible and helpful?
Below Nolan Browne, managing director of the Fraunhofer Center for Sustainable Energy Systems, argues that investments are successful when they cultivate an environment that supports green energy companies and does not force governments to pick winners in the market.
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As everything else in life, investments of any sort are not without risks. The challenge is to structure the investments not only to recoup their costs within a reasonable time frame, but also to create the necessary market demand that spurs further industrial development and creates jobs. In the case of green energy, the key to growing the sector is not to focus solely on direct investments to specific companies but rather to consider investments that build an ecosystem to support these companies.
Just five years ago, through the Massachusetts Clean Energy Center and the Massachusetts Technology Collaborative, the Commonwealth seeded the establishment of the non-profit Fraunhofer Center for Sustainable Energy Systems in Massachusetts to establish commercialization labs in building energy efficiency, photovoltaic solar technology, and smart grid technologies. These labs are helping green tech companies develop and commercialize early-stage technologies from basic research discoveries in universities and national laboratories through focused R&D projects that reduce risk and uncertainty.
The Fraunhofer model, in which researchers are expected to earn two-thirds of the organization’s operating budget with revenues earned from the companies they work with, has an excellent 63-year track record in part because it allows governments to help develop the local cluster without actually having to pick winners. It provides all companies in an industry cluster with technical capabilities and expertise that they often individually would not otherwise have access to, allowing them to better compete in the marketplace.
Originally developed in Germany and funded by the U.S. Marshall Plan to accelerate the rebuilding of German industry, the Fraunhofer Society has grown into one of the largest applied research organizations in the world and is credited by economists and policy experts as one reason the German manufacturing industry is still healthy and competitive today. In the United States, the Fraunhofer Center for Sustainable Energy Systems has evolved the model for the U.S. environment and works in the service of American industry although the core principles are the same as in Germany.
The Fraunhofer Center for Sustainable Energy Systems supports both large and small manufacturers and start-ups helping them to develop, validate, and commercialize their new product ideas quickly and effectively, making them more competitive in the global economy. Massachusetts is particularly well suited for these types of investments because of its highly educated workforce, its strong cluster, its vibrant start-up community and its proximity to leading universities which the Center is partnered with. By leveraging the Fraunhofer model and the clean energy ecosystem of Massachusetts, the Center has already created success stories.
One example is Fraunhofer TechBridge, which has worked with 11 green tech start-ups over the last two years helping them to attract private investment of more than $24 million. Dozens more have been supported through collaborations with the ACTION incubator network, the New England Clean Energy Foundation and the Northeast Regional Cleantech Open. The program, partially funded through the Department of Energy, has supported start-ups with access to R&D services otherwise unavailable to them, as well as mentorship and incubation opportunities.
Efforts like Fraunhofer are great examples of how local investments create exponential returns for the Commonwealth, where as a whole Massachusetts has leveraged their initial capital outlay 30:1, creating 72,000 jobs over the past few years, promoting the success of green tech companies in our area, and laying the foundation for long-term economic growth and success for the citizens of Massachusetts and the rest of the United States.