Governments, investors and individuals are pumping money into clean tech to stoke innovation and find solutions to issues such as the increasing demand for energy. According to one estimate, oil demand may peak as early as 2020 due to more stringent CO2 reduction policies, higher fossil fuel prices and declining clean energy investment costs.

However, clean tech also suffers from the shortcomings that all industries in their early stages face. It lacks a clear pathway to success. Most clean tech investments seem fragmented and are unable to deliver the consistent returns investors expect. Also, regulation remains inconsistent.

For emerging economies, it is vital to choose their clean tech battles—and early.

As a small-car hub for combustion engine based vehicles, India's strategy could have been to develop policies and encourage R&D for hybrid/electric cars. Consider China. It announced its Revitalization and Readjustment Program for the automotive industry two years ago and aims to sell 500,000 hybrid/electric vehicles this year.

Despite the evolving landscape, for clean tech pioneers this is an opportune time to press ahead. If they map the right course, they can extract the full potential of clean tech's promise, strengthen their existing businesses and develop new adjacencies. Take GE's ecomagination, which generated revenues of $18 billion in 2009.

More companies can deliver such results if they develop a well-defined game plan for coping with clean tech's current challenges. One challenge is that little clarity exists on what truly defines cleantech. Recently, when Bain & Company interviewed 15 global cleantech experts, no one could agree on a generic definition. Not surprisingly, India's focus on cleantech is broad and multi-pronged, encompassing from a three-phase solar mission to renewable energy for rural applications to energy recovery from urban waste. But it has not translated into green joy for the states. Overall, nearly 300 projects are awaiting clearances across the states, showing varying commitment to cleantech. Tamil Nadu ranks number one in terms of installed renewable energy capacity at about 5,000mw, while Maharashtra is ranked second with almost half that much capacity installed. At the other end is Bihar, with 50mw.

Even as disparities play out across states, technological momentum is relentless. The fast pace of cleantech innovation means companies continually contend with evolving new technologies—and often, global events resulting in creating the `hot' technology of the day, which influences strategic thinking. For example, the 1980s saw the first wave of cleantech investments, when oil & gas companies focused investments on renewable energy generation for off-grid applications. Ten years later, a second wave emerged, concentrating on solar and wind energy for large-scale power generation. Later, companies exited many of these investments. In the past two years, BP Solar closed its solar plants in Spain and the US.

A third wave saw companies and investors diversify their cleantech bets by backing multiple technologies, many untested and at different stages of maturity. While urgency prompted many such investments, it became hard to sustain a broad portfolio without adequate returns.

For example, many utilities invested in a number of power-generation technologies early in the last decade, only to find that, in practice, their capacity addition targets for clean energy ruled out all other technologies exception-shore wind.

Another challenge for developing a clear cleantech game plan is the evolving nature of regulations. Globally, governments recognize the need to support cleantech using subsidies and trading mechanisms. Last year, India started giving a 20% financial incentive on the ex-factory price of electric cars and scooters. This year, it proposes to cut the excise duty on hybrid vehicle kits to 5% from 10%. But as governments fine-tune regulations or introduce new instruments, they can impact long term investor confidence. The introduction of feed-in tariffs and tax breaks for renewable energy in Spain and Germany accelerated the development of the wind and solar sectors. Later, the momentum stalled when these incentive were reduced. Now, as companies make their next bets—call it the fourth wave—they want to target their cleantech investments with greater precision. Winning firms want to move away from an ad hoc, scattershot approach, which wastes resources. Instead, they seek to identify opportunities where they have the greatest ability to win. These companies first see how cleantech fits into their core activities and then choose options based on the most attractive returns.

Sometimes, the route to cleantech is clear and straight. When the government run Bureau of Energy Efficiency launched a Standards and Labelling Programme in India, testing and rating household appliances on energy efficiency, the consumer durables industry followed suit: it moved to make products green, inaugurating a trend towards energy-efficiency.

The foundation of sustained profitable growth starts with a clear definition of a company's core business. When considering if and where to play in cleantech, companies should consider opportunities in which they have a competitive advantage as well as those that complement their core. This process not only reveals choices for growth but also clarifies the trade-offs.

Avoid: Far removed from a company's core business, these least-attractive opportunities represent the lowest ability to win. These initiatives offer low profitability and come with high investment costs. Companies should aim to exit or avoid these expansions. For example, a wind turbine equipment manufacturer entering the biomass boiler installation & maintenance market will soon discover it does not have the right capabilities or experience.

Screen out early: These are cleantech ideas or opportunities that may already form part of a company's R&D portfolio; they appear to be good investments but do not fit into the long-term strategic objective. Companies should explore opportunities to maximise the value of these forays without utilising more funds and resources. Options include selling technology patents, capitalising assets or spinning off ventures. A number of oil & gas operators have done just that with carbon capture technology.

Maintain options: These are cleantech opportunities not immediately considered core, but could evolve close to the core or pose a future threat to it. Such opportunities entail a long lead time or come with high risk attached. Companies can choose to invest in these through R&D partnerships or act as an asset operator rather than owner. For example, even though the threat from advanced biofuels is years away, leading oil & gas companies are placing early bets to manage the risk to their minerals fuel business. Exxon Mobils aid if R&D milestones were met, it expected to invest a further $600 million in its algae biofuels R&D programme.

Own or develop: These cleantech opportunities are at the core of a company's business and in these areas it makes more sense to focus on one's resources. Technologies that fit here offer the most attractive returns—they have attractive risk profiles (such as stable government subsidies) and hold the promise of maximising returns. One example is Europe's wind power sector. As rapid growth continues, fuelled by an increasingly competitive cost structure and incentives such as feed-in tariffs, the industry is at an inflection point—the focus is shifting from building new capacity to improving operational efficiency of wind farms.

Companies and investors that follow a disciplined and objective process in evaluating how cleantech fits with their core business can build the right strategy in three keyways. One, it can counterbalance the false sense of urgency with a reality check. Two, it can help overcome the challenging aspects—lack of structure, clear pathways and consistent regulation—that characterize cleantech today. Finally, it can help identify the right portfolio of adjacencies to track as they develop. As the industry grows, these portfolio investments can evolve into standalone businesses. In the best scenario, some budding ideas can bloom and even redefine their future.

Sudarshan Sampathkumar is a Bain & Company partner based in Mumbai and heads the firm's Industrials Practice in India. Gopal Sarma is a partner in NewDelhi and leads Bain's Infrastructure Practice in India