Venture capitalists led off the morning session at the AlwaysOn GoingGreen conference Tuesday. Raj Atluru of Draper Fisher Jurvetson, Samir Kaul of Khosla Ventures, Ray Lane from Kleiner Perkins Caufield & Byers and Bill Green of VantagePoint Venture Partners all discussed the challenges they face investing in green technologies.

The challenges are substantial — from the amount of capital the companies need to build plants to the time needed to “influence” government officials for subsidies, and actually developing technologies that can be cost-effective compared with the energy options in the market today. But perhaps the greatest challenge is that VCs are having to push out their time frames for when they expect to see returns on their investments.

“We strive [to invest in] companies that can be competing technologies in five to seven years without subsidies,” Kaul said. “If you want to push even further to solve the climate conflict, within seven to 10 years. It takes time.”

The VCs said the difficulties are even more pronounced in the U.S., where energy prices are much cheaper than in many other countries. Also, the U.S. government is not funding competing technologies aggressively — one reason why current opportunities for VCs often are found overseas.

For example, VantagePoint invested in a Swedish company, Chemrec AB, that converts so-called black liquor, which is a bi-product of pulp mills, into a highly concentrated form of biomass that can be used to produce electric power and motor fuel. Green said if plants are built to scale it can produce one-third of the motor fuel needed in that country.

But many of the best opportunities may still lie in the U.S., which is the largest consumer of energy in the world. States including Arizona and California are ripe for widespread adoption of solar energy, and consumers are slowly waking up to the necessity for change.

“This country can respond to wakeup calls,” Kaul said. “We are behind. We’re behind in investing. But the smartest minds are now working on this.”

For more on cleantech investing and dealmaking, see Tech Confidential's special report. —David Shabelman

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See Tech Confidential's special report on cleantech

Tags: Clean Tech, vc, venture+capital