Why Rising Oil Prices Won't Help Cleantech This Time

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For the first time since last summer, oil prices are ratcheting higher again. But unlike last year, when surging energy prices sparked an increase in investor interest among alternative energies, an oil price surge in 2009 might make life more complicated for cleantech startups.

Oil on the New York Mercantile Exchange has risen 54 percent so far this year, to $68 a barrel, jumping 3.4 percent on Monday alone. China, aided by government stimulus, has seen manufacturing activity rise for three straight months, marking a steady increase in the country’s thirst for oil. Supplies may not keep up with rising demand for long: U.S. inventories have been falling for four weeks, and many oil companies delayed new development once the economy slowed.

Back again are predictions of triple-digit oil prices. A McKinsey report argues that a new oil shock could come as early as next year. Speculators who agree are helping to push up oil prices even before the economy is recovering.

The trouble is that oil prices can recover much faster than capital flows — the lifeblood of cleantech startups that aren’t generating enough cash to sustain operations. Banks will remain tightfisted with new loans as long as the mortgage and commercial real-estate markets remain weak. Venture capitalists will remain cautious with cleantech investments until they see clear exits. The IPO market might be accommodating for the cream of the crop, but not to those in sorest need of capital.

In the U.S., where oil demand hasn’t risen in recent months, it could have the opposite effect. Concerns are rising that costlier oil could dampen an economic recovery in the U.S. That in turn would make the investment climate even less hospitable to startups. It could also hurt the companies and local governments that would be important customers for cleantech in a healthy recovery.

Many pushing for alternative energies would welcome costlier oil. It means fewer carbon emissions and more demand for alternative energies. In the long run, that makes sense: Oil will become, and stay, much more expensive and cleantech more attractive. But the outlook for cleantech is much more uncertain for the next year or so — a vital question for many young companies in need of capital. To be thriving in five or 10 years, they’ll first need to survive the next 12 months.

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