After a banner year in 2008 of investments directed to capital-intensive technologies like solar and wind, US venture capitalists backed away from that plan in 2009. So where are they putting their money now? Where the fastest payback is likely to be. New analysis shows a surge of investments in energy efficiency solutions —such as smart grid, and commercial and residential energy management.
by Debbie Van Der Hyde, Green Economy Post
US venture capital investment in clean technologies dropped by half in 2009, and shifted away from capital-intensive technologies to energy efficiency solutions, according to a new analysis released by Ernst & Young LLP.
Investment in 2009 reached $2.6 billion in 193 financings rounds, a decline of 50 percent in terms of dollars and 16 percent in terms of deals compared to the record investment levels of 2008. The transition can be tracked readily in final quarter numbers, which shows a lower dollar amount spread over more deals. Compared to Q3 2009, venture capital investment decreased 45 percent to $564.5 million in Q4 2009 while the number of deals climbed 21 percent to 62.
“These results reflect the easing of an investment cycle largely driven by the significant capital demands of solar companies and a shift toward energy efficiency products with lower funding requirements and potentially faster commercialization,” says John de Yonge, Ernst & Young LLP, Associate Director, Americas Cleantech Network.
Investments Move Toward Smart Grid, Energy Management Solutions
In 2009, the number of financing rounds in the Energy Efficiency category—encompassing technology areas such as smart grid, and residential and commercial energy management solutions—grew in absolute terms by 11 percent to 61, making it the number one area of clean technology deal activity.
The Energy Efficiency category share of total financing activity in 2009 rose from 24 to 32 percent. At the same time, the share of financing rounds directed to the more capital intensive Energy/Electricity Generation category fell from 30 to 18 percent. Similarly, the share of deals going to Alternative Fuels declined from 13 to 8 percent.
“Energy efficiency is in the sweet spot of many venture capital investors in terms of skill sets and funding parameters, particularly given its basis in information technology. Consequently, we may see investor participation in clean technology broaden,” says de Yonge.
Investment in Top Clean Technology Categories
The Energy Efficiency category received the most US venture capital investment in Q409, with $252.8 million and 22 deals, compared to $133.7 million and 14 deals in Q309. This category raised $593.3 million for all of 2009. The largest deal of Q409 in Energy Efficiency—and across all clean technology segments—was the $105.0 million investment in Silver Spring Networks Inc, a provider of networking infrastructure and services for smart grids, based in Redwood City, CA.
The Energy/Electricity Generation category garnered $118.5 million with 11 deals in Q409, down from the $316.5 million invested in eight deals in the prior quarter; $654.6 million was invested in this category in 2009. The largest deal in Q409 was the $38 million raised by Nordic Windpower Holdings Inc., based in Berkley, CA.
The Industry-Focused Products and Services category raised $76.7 million in Q409 with 11 deals and $608 million throughout 2009. The funding in this segment was led by the transportation industry, which raised $33.8 million in Q409 and $362.7 million for the year, propelled by investments such as the $82.5 million in the electric car company Tesla based in San Carlos, CA.
Clean Technology Market Drivers Beyond Venture Capital
The US government continues to serve as an influential clean technology investor. Under the Section 48C Advanced Energy Manufacturing Tax Credit of the American Recovery and Reinvestment Act, $2.3 billion was recently awarded to 183 clean technology manufacturing projects in 43 states.
The US Patent and Trademark Office is further supporting government commitments to clean technology solutions by examining certain green technology applications to reduce the time required to patent these technologies by an average of one year.
US public markets investment in clean energy totaled $2.8 billion in 2009, according to Bloomberg New Energy Finance. With capital markets showing signs of improvement, three clean technology companies recently filed to raise up to $500 million in initial public offerings, according to Thomson Reuters. The largest transaction is expected to be the offering by Solyndra, Inc., which anticipates raising $300 million.
US clean technology merger and acquisition activity reached 53 transactions with a disclosed value of $3.5 billion, according IHS Herold. Nearly half of this activity took place in Q4 2009, which saw 22 transactions with a disclosed value of $1.7 billion. One notable fourth quarter deal is the acquisition of Clipper Windpower by United Technologies Corporation for $327.4 million.
