John Bissell can turn raw sewage into water bottles, raincoats, diapers and other everyday products. But can he turn it into a $10 million industrial plant?

Mr. Bissell owns MicroMidas Inc., a Sacramento, California, start-up that makes plastic out of waste using a technology it developed two years ago. He's now looking to move into a large manufacturing facility from a pilot plant, but says lenders are reluctant to provide the $10 million in capital he needs to make that transition.

"We're stuck in between development and full-scale production," said Mr. Bissell. "It's tough finding lenders who will bet on a first plant."

To bridge that gap, Mr. Bissell and other emerging clean-tech entrepreneurs are eyeing the U.S. Department of Energy's loan-guarantee program. The five-year-old funding initiative is expected to sharpen its focus next year to less-developed ventures in areas such as carbon capture, biofuels and biomass processing as more conventional solar and wind projects gain the attention of private investors.

"We're really focusing on transformative projects that can be grown to scale," said Jonathan Silver, the head of the agency's loan-program office. At the same time, the agency should "back away" from maturing sectors, like onshore wind and smaller solar plants, as private-sector support expands, he added.

The Energy Department's loan-guarantee program is open to clean-tech businesses of all sizes, which in the past have sought loans between $16 million and $1.3 billion. But Mr. Silver says the agency will be casting an even wider net for less-developed technologies in the new year.

Much like the U.S. Small Business Administration 7(a) loans, the Energy Department doesn't disburse cash. Rather, it agrees to cover a venture's debts with a commercial bank in the event of a default.

That provides firms with the kind of access to capital needed to scale up to full commercial production—a stage when new technologies are able to prove their commercial viability and attract outside investors.

Without the government's support, venture-capital firms would be left to shoulder the risk of investing in clean-tech innovators, said Ira Ehrenpreis, a partner with Technology Partners, a Palo Alto, California, investment firm specializing in renewable-energy ventures.

"There's never been more activity in the clean-tech sector than there is right now, and the venture-capital industry is focused on early-stage technology," he said.

(Source: Clean-Tech Entrepreneurs Eye Funding Shift [Wall Street Journal])