Silicon Valley is by nature an optimistic place. After all, inventing the carbon-free future and making boatloads of money along the way is fun. And even though California is slouching toward apocalyptic collapse these days, there’s always another innovation wave to ride.

In Chu We Trust?In Chu We Trust? It may take big bucks from the U.S. Dept. of Energy to fun some of the renewable energy projects that California entrepreneurs have on the drawing boards.Photo Illustration / Tonya RicksSo it’s always interesting to get a more-or-less unvarnished assessment of the state of green tech, as happened last week when a group of regulators, venture capitalists and entrepreneurs gathered at the University of California, Berkeley’s business school. They were there for the Cleantech Institute, one of those pricey, closed-door seminars for executives and government officials. (I was present to “facilitate.”)

The good news: Speakers reported that investors are starting to turn on the taps again when it comes to funding green tech startups.

But don’t expect a return to the halcyon days of 2008 when $4 billion poured into all manner of green technology companies. In the wake of the “Great Recession,” VCs are reassessing their investment strategies as it becomes clear that the success of their portfolios will be influenced to a large degree by government policy and incentives.

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“This has been the biggest August in 10 years,” said Annette Finsterbusch, director of Applied Ventures, the investment arm of semiconductor and solar equipment maker Applied Materials. “September didn’t slow down at all and October is looking pretty hot and heavy as well. Things are feeling different — there is a happy ending to this sluggish time.”

Alex Kinnier is a partner at Silicon Valley venture capital firm Khosla Ventures, which recently raised $1.1 billion to invest in green tech startups. He said Khosla currently has investments in 65 companies, many of them in stealth mode or “what you might call sponsored research at universities.”

These days Khosla is taking a harder look at renewable energy companies that will require billions of dollars in startup costs before they begin generating revenue — like getting a utility-scale solar power plant online.

“The questions we’re asking have changed,” he said. “For investments that require huge amounts of capital for big plants and need massive changes in infrastructure, you need to take a collaborative approach.”

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That’s VC-speak for using other people’s money to spread the risk around.

“The scary thing is that anything that is a game-changer will take a billion dollars to just to test whether the technology will scale,” said Neal Dikeman, a partner at Jane Capital Partners, a San Francisco merchant bank.

Google, meanwhile, is taking a different tact, as Google does.

Luis Arbulu, a member of the investment team for — the search giant’s philanthropic arm — said the company is not fixated on making a killing on its investments. (No surprise there: Sergey Brin and Larry Page could probably fund a slew of green startups from the change rattling around the coin compartment of their Priuses.)

“You want to be binary,” said Arbulu. “You want a technology to either blow it out of the water and be the next big thing or collapse.”

But disruptive startups will depend on government policies and largesse, given credit-crunched investors’ aversion to bankrolling new technologies to the tune of billions of dollars.

Take BrightSource Energy, a solar power plant builder backed by Google and a clutch of Big Oil companies. It is depending on securing a federal loan guarantee to build its first solar farm. The project, to be built in the Southern California desert, will deploy a new technology untried on a commercial scale.

“There are no disruptive technologies in energy, only disruptive polices and incentives that make technologies look disruptive after the fact,” Dikeman declared.

I’m not sure the other panelists bought that line, but they did appear to be in agreement that the U.S. Department of Energy will guide renewable energy technologies in the coming years.

Pam Contag is a serial entrepreneur now running a startup called Cygnet Biofuels. “I’ve been out looking for funding and investors are asking, ‘What are your chances of getting DOE money,'” she told the Cal audience, noting the first thing she did at her last startup was to hire a lobbyist in Washington.

Thomas Glascock, an attorney in the global finance practice of San Francisco-based law firm Orrick, said federal loans will backstop startups that scare away conservative bankers unwilling to finance a $2 billion solar thermal farm deploying a novel technology.

He said solar power companies generating power from tried-and-true technologies like photovoltaic panels may be able to obtain loans to finance 70 percent of a project. But a new solar thermal technology with greater “equipment risk” may only secure enough bank financing to pay for 40 percent of the construction cost.

“Photovolatics have a couple of advantages,” Glascock noted. “PV is not viewed as a risky. PV is scalable. You can do a power plant in chunks.”

In other words, you can just keep adding solar panel arrays to generate more electricity and profits. On the other hand, a solar thermal power plant, which uses mirrors to concentrate the sun’s energy on a liquid to create steam to drive an electricity-generating turbine, doesn’t begin producing power until the entire project is completed.

There was a reason the seminar agenda was heavy with top officials from the California Energy Commission, the California Public Utilities Commission and the California Environmental Protection Agency: No matter how good your green technology, if you can’t navigate the Golden State’s environmental bureaucracies you’re dead in the desert.

Regulators said many of the dozens of massive megawatt solar power plants planned for the arid Southwest are not going to get built; there’s simply not enough deep-pocketed bankers to finance all the projects, enough transmission lines to connect them to cities or enough water to cool them. Inevitably, some projects will die on the drawing board as regulators start taking harder looks at untried technologies.

“Our strategy has been to let a thousand flowers bloom but we have realized that more is not necessarily better and we’re now being more selective on procurement strategies,” said Paul Douglas, an official the California Public Utilities Commission, which must approve large-scale solar green energy projects.

“We’re taking a 100-year-old electrical infrastructure, turning it on its head and asking it to connect thousands of renewable energy sources, many of them out in the desert.”

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