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Working Paper | Financing Energy Innovation: The Need for New Intermediaries in Clean Energy

Soh Young In
Ashby H. B. Monk
2019

Entrepreneurs pursuing sustainable energy innovation need to secure consistent and long-term sources of investment capital to fuel their endeavors. Otherwise, early-stage technologies and companies would not receive sufficient capital to be able to reach full-sized deployment. This financing challenge has been termed the “valley of death” and exists because current financial intermediaries have failed to effectively channel sources of funding to entrepreneurs working in the renewable and sustainable energy sector. Investment opportunities (and risks) are not assigned to the appropriate investors due to the fragmented nature of investor networks and the information asymmetries among investor groups and companies. Hence, it is important to create new platforms where investors can work together to share information and knowledge in a form of coopetition–rather than simply compete. This study thus seeks to redefine the role of financial intermediaries such that collaborative platforms emerge as critical pillars of energy entrepreneurship and energy innovation. We study three new investment vehicles in the US energy sector and propose three functions that are critical to facilitate the intelligent and effective flow of information among investors and the entire technology development cycle. This study concludes by suggesting a new platform design that simultaneously coordinates the three proposed intermediary functions.