Two years ago, I attended a conference where a panel of leading cleantech VCs were asked if they had ever made an energy efficiency investment. The question was met with uncomfortable shifting and dead silence. Michael Kanellos of CNET, noted a similar tendency last year: 

"Despite the savings, people have a tough time getting excited about energy efficiency. At clean-tech conferences, attendees will pack the room to see an ethanol roundtable. But when the agenda turns to smart grids, a lot of people take a coffee break." 

Marc Gunther of Fortune has also told me that of all of his columns on CNNMoney, the one that elicited the least interest was about energy efficiency.  

But last week it struck me more than ever – especially with talk of a recession – that 'Efficiency-Tech', as I'm now calling it, has entered primetime. I was at another conference, where Duke Energy CEO Jim Rogers pronounced that his vision was for the United States to become the "most energy efficient economy in the world" through grid optimization, which he suggested could be the greatest engineering feat of the 21st century. His thesis was that in an ever more resource-strapped world, the economy that best used technology to achieve the greatest amount of efficiency would have a distinct advantage. Mr. Rogers was not alone. Many of the speakers – Dan Reicher of Google, John Podesta of the Center for American Progress, and yes, even leading VCs – invoked the importance of energy efficiency in their remarks. With the US economy poised for a potential downturn and Corporate America starting to tighten its collective belt, the argument can be made that efficiency is also poised — poised to finally take its long overdue place as a legitimate target for significant investment.

It was refreshing to hear Mr. Rogers frame the issue from a perspective of economic competitiveness in the global marketplace. That is a message that resonates with the business community — self-sacrifice, saving the planet, etc have proven repeatedly to fall flat with consumers. Precisely for that reason, another speaker at last week's conference, CEO of PNM Resources Jeff Sterba, said that there is a need for technology to produce devices that deal with the issue of energy savings, rather than asking the consumer to – "prices to devices, not prices to people" as he put it so well. Tom Konrad of AltEnergyStocks.com had a thoughtful analysis on why energy efficiency is such a hard sell last fall, surmising that people only buy energy efficiency if they are made to feel that they are part of a "conspicuous" movement. The issue is how to make energy efficiency cool. EnerNOC and Comverge have certainly helped the business case, with successful IPOs for the two demand-response companies last year. Mr. Rogers had one other insight that stayed with me, which he said was gaining currency – namely that efficiency should be viewed as a form of production of energy. If this happens, the economics will shift in favor of efficiency even more.  

"The mindset that has stymied energy efficiency efforts for a generation has been altered", says Kevin Klustner in his upcoming book "Energy Efficiency: The Future is Now". Klustner, also the CEO of Verdiem, is doing his part through addressing PC power waste, a huge issue. And he's not alone. An energy efficiency survey of business executives done by Johnson Controls in mid-2007, revealed that 50% planned to use capital and operating budgets to increase investment in energy efficiency over the next 12 months. A recession was not in the cards at the time of the survey, so I'm sure that the inclination is now even that much stronger. Ironically, Efficiency-Tech is finally getting what it deserves – more power behind it.

Software as a service (SaaS) has already been declared by Forbes as a recession-averse part of the tech sector, citing the fact that it weathered an earlier downturn in 2000-2002. Cleantech barely existed as a category in 2002, so we don't have historical performance to go on. Would consumers and businesses continue to spend on green? Would investment remain hot? Would many of the positive environmental gains made in the past several years stall or even reverse?

Those are some of the questions posed informally to companies that I work with. The conclusion? Cleantech, like nearly every other sector, would take a hit, particularly the companies still in need of funding, but it would also find distinct opportunities – in particular efficiency plays (some are already calling 2008 the year of energy efficiency given that energy costs are at record-breaking highs and that the most significant energy-efficiency legislation in three decades was recently enacted.

If we think back to the dot-com shakeout, while the losses were staggering for many, the collapse separated the wheat from the chaff. Current blue-chips like Amazon, Ebay and Expedia all proved that they were more than just clever ideas and marketing gimmicks and used a tough business environment to propel themselves. If a recession hits, it is likely to have a similar outcome for cleantech, a market ripe for a shakeout.  Who will be the winners and the losers? Here are some comments to consider:

From David Rosenberg, CEO of Hycrete, whose product makes concrete waterproof in an environmentally-friendly, cost-saving way:

"The answer is yes and no. All of construction is effected by a recession and we are already starting to see some projects getting delayed and cancelled and financing getting tighter. On the positive side, a slow down often allows greater time to investigate and improve construction practices – like green.  On the negative side, where budgets are slimmer and profits are less, greater upfront costs associated with green construction get harder to justify – of course this is not a Hycrete problem as we are better, faster, and less expensive.".

From Matt Heinz, senior director of marketing at Verdiem, a developer of power management software for PC networks: 

"The polar ice caps don't care too much about recessions. Less flippantly, I think in the not-too-distant future, sustainability will be a fundamental, 'table stakes' part of doing business for global enterprises. Reducing the impact companies have on the world around them will soon become non-negotiable, and a requirement for doing business with customers (commercial and consumer) that expect them to act responsibly.

"Today, that isn't the case – at least not yet. While several businesses have blazed a trail with significant corporate responsibility and sustainability initiatives, not enough of those efforts have paid off – either in increased sales or decreased operational costs. Unless such initiatives demonstrate a consistent ability to provide value to the organization, they'll be close to the chopping block in leaner times.

"That said, technologies are emerging that allow companies to 'go green' and save green at the same time. And if this kind of savings is both real and verifiable, it's the kind of thing that will get prioritized higher in lean times."

From CEO Michael Ford of Choose Renewables, a source for consumer information and products on renewable energy content and commerce: 

"It's tough to make a broad projection regarding cleantech because there are so many facets. In general I think the entire space will perform better than most other segments – but I doubt it's entirely recession proof.  I think energy efficiency / fuel efficiency will actually see a significant bump from recessionary times. And maybe even the biofuels movement, though I personally think the overall philosophy around ethanol in particular is questionable. However, I think some of the more expensive pure play renewables (solar, small scale wind, fuels cells, hydrogen, etc...) will suffer a bit – but still grow. I think big wind is going to keep going no matter what – unless Congress continues to screw up with the PTC."

Michael Meehan, CEO of Carbonetworks, software platform that helps companies create effective carbon emissions strategies: 

"Cleantech as a whole will definitely feel the crunch, but it's a two-sided coin – how clients' requirements will likely change, and what will happen to vendors as a result.

"The market is still immature and spans a lot of industries. 'Niche-fication' (as Will put it in his blog) is only starting to occur. Especially in technology markets, niches can provide some insurance against recessive markets because the need for the service/technology is clearly defined and the incumbents are often well established. Cleantech is still a bit nebulous and a recession will have a direct effect on many areas of the cleantech spectrum: funding sources for startups, increased cost of outsourced services (e.g., int'l support, sales), and decreased demand for point products. That's one side of the coin: increased competition, consolidation, and likely a more protectionist industry as the US/CAN dollar weakens against the Euro, inhibiting growth in an emerging market.

"The other side of the coin (the clients) will hasten this process as their expectations and requirements change out of necessity. Faced with increased demands on potentially shrinking budgets, companies will be forced to place more stringent diligence on technology investments, and cleantech is no exception. But there's a somewhat unique opportunity for cleantech in this: the key here for vendors is to increase the focus on cost savings, process efficiencies, or uncovering opportunities that will help lower operational costs for these companies. That's where the defining line will be for successful cleantech vendors and those that simply react to the market as it tightens up. Unlike other supply/demand markets such as manufacturing or distribution, cleantech has an edge because it can become strategic by helping companies be more competitive through improving their bottom line. This of course is our strategy at Carbonetworks, but it is also true of Verdiem, GreatPoint Energy, IT virtualization technologies, and other innovators who help companies do more with less and diversify. That's the other side of the coin: rather than fighting over decreasing market share, successful cleantech companies will instead seek to increase the clients' competitive position through cost reductions and diversification. Recession may be the impetus for this cleantech market shift, but it will be the clients under pressure that will drive it to consolidation. Whether that's good or bad depends on where you sit, but cleantech is definitely not immune to market recession."