Here is a brief excerpt from an article written by Sara Hastings-Simon, Dickon Pinner, and Martin Stuchtey for the McKinsey Quarterly, published by McKinsey & Company. Here’s one of their key points: Don’t be fooled by high-profile setbacks. The cleantech sector is gaining steam—with less and less regulatory assistance.To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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The world is on the cusp of a resource revolution. As our colleagues Stefan Heck and Matt Rogers argue [in The Resource Revolution], advances in information technology, nanotechnology, materials science, and biology will radically increase the productivity of resources. The result will be a new industrial revolution that will enable strong economic growth, at a much lower environmental cost than in the past, thanks to the broad deployment of better, cleaner technologies and the development of more appropriate business models. But how do we reconcile this bold and heartening prediction with recent challenges experienced by cleantech, the general term for products and processes that improve environmental performance in the construction, transport, energy, water, and waste industries? Over the past couple of years, many cleantech equity indexes have performed poorly; in January 2014, the American news program 60 Minutes ran a highly critical segment on the subject. The former chief investment officer of California’s largest public pension fund complained in 2013 that its cleantech investments had not experienced the J-curve: losses followed by steep gains. It’s been “an L-curve, for ‘lose,’” he said.

So, is cleantech failing? In a word, no. Rather, the sector has experienced a cycle of excitement followed by high (and often inflated) expectations, disillusionment, consolidation, and then stability as survivors pick up the pieces. We’ve seen this before with other once-emerging technologies, such as cars, railroads, elevators, oil, and the Internet. Much of cleantech is just leaving its disillusionment or consolidation phase. For example, in transport, Tesla Motors is looking good; Fisker Automotive went into bankruptcy in 2013. In energy, SunPower is making healthy margins and SolarCity raised $450 million in 2013, but over a hundred other solar companies are gone. The shakeout is brutal—and typical. It has weeded out weaker players, making the industry as a whole more robust. Despite the rough patch, annual growth is at double-digit rates.

It’s also important to look beyond financial statements. Global wind installations, for example, have soared about 25 percent a year since 2006 (exhibit). And global commercial investments in clean energy have more than quadrupled, from nearly $30 billion in 2005 to about $160 billion in 2012. Even countries with vast reserves of oil and coal—in the Middle East and Central Asia—recognize that they can’t miss out and are developing substantial programs for renewables. Meanwhile, the average real cost per oil well has doubled, and new mining discoveries have been flat, despite high investment. And, clearly, new ways are needed to meet the needs of the 1.3 billion people who lack electricity and of the 2.7 billion who rely on traditional biomass, such as wood and dung, for cooking.

Cleantech is no passing, unprofitable fad. The sources of underlying demand—a growing middle class around the world and resource constraints2 —aren’t going away, and cleantech is pivotal in dealing with both. There are three major myths that undermine confidence in cleantech’s future.

[Here is the first of three myths that are dispelled.]

Myth 1: Deployment and influence will be marginal

Not so, and we know this because we see what is actually happening. According to the International Energy Agency (IEA), renewables already accounted for 18 percent of global consumption in 2010, and are growing faster than any other form of energy. Given the radically lower marginal costs of renewables, their position is even more promising over the long term. In fact, the IEA predicts they will account for more than 60 percent of new power-plant investment by 2035.

The effects of clean technologies will vary significantly by industry and geography. In some cases, they may truly transform markets, as light-emitting diode (LED) technology is now doing in lighting. In cases where penetration rates are lower, they can still have a dramatic impact on industry structures and market dynamics. Among US electric utilities, for example, the traditional business model relies on putting capital in the ground. But the potential of distributed solar generation to meet the majority of new demand growth can upend that model entirely. As more people install solar panels on their roofs and add new capacity, demand will increase more slowly for utilities. Some utilities are responding to this by trying to get regulators to allow them to include investments in energy efficiency or renewables in their rate base. In addition, shale gas, which already makes up about 40 percent of gas production in the United States (largely at the expense of coal-fired generation), has lowered the wholesale price of power, cutting into revenues and profit margins for deregulated utilities.

It’s important to remember, too, that the cleantech space is diverse; it cannot be painted with a broad brush. We looked at 16 important clean technologies3 and found that while every single one has made progress over the past decade, some are moving much faster than others. Just over half of them—advanced building technologies, advanced agriculture, food life-cycle optimization, grid analytics, grid-scale storage, intelligent transport, next-generation vehicles, solar PVs (photovoltaics), unconventional natural gas, and water treatment—could become truly disruptive to the incumbent industries. The others have enormous potential and could well succeed, but without disrupting the status quo.

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Trends can accelerate, slow down, or even reverse. But it’s unlikely that all these technologies will fail, and many are now at the stage where management practices, and not regulation or subsidies, are the defining factor for success. Those that do succeed could be highly disruptive to incumbents, even (or especially) well-entrenched ones. Big changes in resource use and business models are just around the corner.

To be sure, some cleantech companies will go bust, and some technologies will not make the cut. But these ups and downs are simply the nature of business—part of progress. Notwithstanding the failures of individual companies, cleantech is not going away, either on the ground or as an investment opportunity. And that’s no myth.

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Here is a direct link to the complete article.

Sara Hastings-Simon is a specialist in McKinsey’s Calgary office, Dickon Pinner is a principal in the San Francisco office, and Martin Stuchtey is a director in the Munich office.

The authors would like to acknowledge the contributions of Jason Baum, Stefan Heck, and Sean Kane to this article.