Despite what you may have heard about VCs abandoning cleantech, the truth is that it remains a major plank for venture investment, holding steady at 15%-17% of total dollars. And what data we have so far suggests that returns are in line with VC overall. But that doesn’t mean cleantech VC doesn’t have issues.

The cleantech and energy venture models are very much still evolving, so it was interesting to hear the latest thinking from investors on that process at the HBS VC/PE Conference panel “Clean Technology Venture Capital” yesterday. The panel featured Jim Matheson of Flagship Ventures, Zaid Ashai of Point Judith Capital, and Rob Day of Black Coral Capital. (Let me quickly plug Day’s blog. If you care about cleantech VC you should be reading it.)

I should note that I came in late and was still easily able to get a seat, whereas the internet and mobile investment panel ran out of standing room before it started. As Day said of cleantech, “this is a sector that lends itself to hype and PR,” but perhaps not any more than other sectors.

There were a lot of good issues raised, most of them familiar to anyone who has been watching the sector for the past couple of years, but I want to highlight a few of them here.

Business Model Innovation: A Zappos for Lighting?

There was pretty strong consensus that the next phase of cleantech will be built around innovative business models just as much as innovative technologies. Day and Ashai are going as far as looking at funding service businesses, and even Matheson, whose focus is more technical, agreed that “the technology itself is only a small part of the solution.”

Day used the example of the LED to explain how traditional channels will need to be disrupted for cleantech to succeed.

“We’re basically turning lights into computers,” he said. In the old model, the light bulb is plugged into a dumb lighting fixture, and every part of that system can be sourced from someplace different. But with LEDs you’re ultimately integrating the lighting into the building management system so it can be controlled by software. That kind of integration totally changes how building contractors need to think about sourcing their lighting.

Lighting could end up being sold as a service, or LEDs could be sourced via a “Zappos for light,” said Day. That kind of business model innovation is a big opportunity for the next wave of cleantech entrepreneurs.

Look International

There was also broad consensus on the importance of international markets for cleantech businesses. Matheson noted that nearly all of his portfolio companies are looking internationally, and Ashai highlighted the potential for distributed energy plays in China and India. Both have large off grid populations and would benefit economically from expanded energy access. To that Day added that the implementation of existing technologies fits with the strength of those economies, as compared to technological innovation where the U.S. still excels.

There was at least a little disagreement over whether the U.S. could lose that innovation edge, with Matheson suggesting the possibility and Ashai citing the continued strength of our research universities. Matheson’s argument was that innovation requires proximity to customers and to manufacturing, and that without those, the U.S. will struggle to maintain its leadership.

Don’t Count on a Carbon Tax

One thing that has changed since 2008 in cleantech circles is how investors and entrepreneurs think about a potential price on carbon. The point of such a tax is to include in the price of energy the “externality” of greenhouse gas emissions, which contribute to climate change. But whereas a few years back such a price was generally seen as inevitable, the panel advised the audience not to count on one when considering business opportunities.

“Do we need a price on carbon? Yes. Are we going to get a price on carbon? No.” said Day, when asked about a carbon tax. He said businesses need to focus on opportunities that make sense even in today’s “idiotic policy environment.”

Matheson agreed, saying, “we don’t factor the price of externalities in at all.”

As Day put it, from the perspective of the customer, “at the end of the day a kilowatt hour is a kilowatt hour.”