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Despite Volatility, US VC Investment in Clean Technology Is Up

US venture investment in clean technology (cleantech) so far this year has been “volatile,” according to consultancy Ernst & Young LLP. Although funding dropped significantly in the third quarter of 2010, the general trend has been upward.

Venture funding for cleantech — which includes alternative fuels; energy/electricity generation; energy storage; energy efficiency; recycling and related services — dropped 55 percent from year-ago levels to reach $576 million in the third quarter of 2010. However, this is coming off the highest level of funding since 2008, with $1.5 billion invested in clean technology in the second quarter.

“[Q3 2010] reflects the ongoing volatility in cleantech investment that we have observed over the past two years, depending on the presence of the very large transactions we see in cleantech,” says Jay Spencer, Ernst & Young's Americas Cleantech Director. “However, a number factors point to the continuing strength in the US cleantech sector, including growth in energy efficiency investments and corporate involvement throughout multiple industries — from utilities to technology to consumer products.”

Venture investors have been cautious since the dotcom bubble and the recent credit crisis. But purse strings have been loosening up. Approximately 23 percent of the VC cleantech deals in the third quarter included participation by corporate investors, according to E&Y — many of which are also big players in the supply chain. BASF Venture Capital GmbH, {complink 6933|Intel Capital}, and {complink 12709|General Motors} Venture Group all did two deals apiece. Another indicator of corporate interest in cleantech was {complink 8019|General Electric Co.}'s announcement of a $200 million smart grid fund along with Emerald Technology Ventures, {complink 6561|Foundation Capital}, {complink 6812|Kleiner Perkins Caufield & Byers}, and Rockport Capital.

The largest deal in the quarter was in a low-power data center chipmaker. Smooth-Stone Inc., based in Austin, Texas, raised $48 million.

Investors have also been casting a wide net. Funding in the first half of the year centered heavily around the automotive and solar sectors. In the second quarter, Better Place, a Palo Alto, Calif.-based provider of electric vehicle (EV) support infrastructure, raised $350 million in second-round financing. Additionally, Fisker Automotive Inc., of Irvine, Calif., a plug-in hybrid EV manufacturer, raised $35 million, and Eco Motors, a manufacturer of diesel engines that are fuel efficient and have lower emissions, from Troy, Mich., raised $23.5 million.

Five of the top 10 VC deals in the second quarter 2010 were in the solar segment, which received $438.8 million, an increase of 182.6 percent compared to the second quarter 2009. BrightSource Energy Inc., an Oakland, Calif., company that provides solar energy to utility and industrial companies, received the second-largest deal of the quarter, a $180.0 million later-stage round.

In spite of the third-quarter drop-off, there are a couple of things to note around the E&Y reports. Although China is spending heavily on solar and wind technology, most of that is coming from the government, not from corporate or venture funding. It also turns out the US does pretty well in terms of global investment in clean technology. According to watchdog blog networks Clean Technica and CleanTech, the US has led the world in venture investment in clean energy for the past three years, followed by Europe and Israel.

Do you think US investors are spending enough on clean energy?

9 comments on “Despite Volatility, US VC Investment in Clean Technology Is Up

  1. DataCrunch
    November 2, 2010

    Hi Barbara, clearly China is on a spending spree since there are aggressive government mandates and targets to install solar power and wind turbines to meet its country’s demands for energy.  They have a strong manufacturing base which allows them to build the devices and components necessary for solar power and for wind turbines, among other forms of renewable energy.  While in the US, as you mentioned, the private sector is leading the spending on cleantech investments as the US outpaces the world in spending by the private sector.  The US needs to spend more and the government has to set mandates, like China is doing, which will create jobs and enhance our position in the world in this sector.  This has proven difficult because anytime cleantech or renewable energy is mentioned, it is usually lumped in with global warming concerns which then becomes politicized and stalls any moves by the public sector.  The US needs to put global warming topics aside as it pertains to cleantech, and invest much more in this technology or the country will totally lose its competitive advantage.  China is on its way to becoming the main exporter of cleantech technologies, which is what the US should be striving for.

  2. Barbara Jorgensen
    November 2, 2010

    Thanks, Dave, and you bring up a great point–expertise in cleantech is going to be exported around the globe as best practices and/or best technologies are adopted. It's also a shame that the issue is so policitized in the U.S. that private industry has to take the lead on this issue. I wonder if the fact that companies expect to profit from these investments will accelerate their development?

  3. DataCrunch
    November 2, 2010

    To shed some more light on the subject on worldwide cleantech investing by country and sector, here is an interesting chart that provides a good overall picture, courtesy of the Pew Charitable Trusts , a non-profit think tank:

    For those interested in more details on the subject of worldwide cleantech investing and China’s increased activity in this sector, the PEW Charitable Trusts released a very good report with a bunch more stats, which can be found here: http://www.pewglobalwarming.org/cleanenergyeconomy/pdf/PewG-20Report.pdf

     

  4. Ariella
    November 3, 2010

     I wonder if the fact that companies expect to profit from these investments will accelerate their development?   I would think so, Barbara.  With private sector investments, profit is the ultimate motivator.  Concern for the environment alone is usually not enough to get companies to put money into clean technology, though I'm sure it is a factor.  Another factor, of course, is the good will a company can gain with a reputation as a green company.  But the payoff for those is not as tangible as the bottom line of the business.

  5. Barbara Jorgensen
    November 4, 2010

    Yep, Ariella, it's all about the profits. This goes back to some other discussions we've had on this site: As long as a company does the right thing, does the motivation matter? I'll admit I go back and forth on this matter. Sometimes, I feel the motivation to do do good is important; in others, as long as the result benefits the planet whatever spurred the action is cool. In yet others, companies need a kick in the pants in the form of a law or mandate.

    These are questions well worth asking and worth discussion and thanks as always for your feedback!

     

  6. Ariella
    November 4, 2010

    That takes it the question to philosophical heights. (or should I say depths?)  Does one deserve credit for doing good if the motives were less than altruistic.  It is a rare person indeed who only has the purest motives for his/her actions.  Even when politicians pass laws that are beneficial to the public, they are also thinking about how popular that will make them, so it becomes a step towards re-election.  I'm still influenced by Election Day, I suppose.  In truth, though, it is almost impossible for an individual or a company to not take such considerations into account.  I'm sure that corporate sponsors of the arts, parks, wildlife conservation, etc. do value what they promote, but they also must be thinking about the good will they gain when their names are up there, as well as the tax write-off.

  7. Ashu001
    November 6, 2010

    Dave,

    Having gone through the reports and charts you posted here,it looks like China is winning the Cleantech battle hands down(thanks to an extremely strong push from the Govt).

    While our Politicians only talk about making America a cleantech superpower the Chinese are actually walking the Talk.

    But how strong a factor are NIMBY(Not in my Backyard) in your opinion? like that one opposed by the now deceased Senator Kennedy in the North East who refused to allow offshore windfarms because it would spoil the view from his property there?

    In China the Govt does'nt care about NIMBY,what the Govt wants it gets,regardless of opposition from the local people.

    Regards

    Ashish.

  8. DataCrunch
    November 6, 2010

    Ashish, this is a very important factor that has contributed to China becoming the leader in cleantech production. In the US, for example, when acquiring lands to build wind farms, there is usually a long legal battle that can ensue to delay or halt a clean energy project, not to forget protests.  In China, on the other hand, if the government decides that a specific tract of land is required as a candidate for a wind farm, they take it over, relocate the population and are not intimidated by protesters.  There is no debate or drawn out legal battle or any concern of potential noise pollution or unsightly views.  Clearly when a government can act like this, it can have a competitive advantage, so to answer your question Ashish, I do believe that this kind of policy is a major factor in their leadership position, but I also don’t want to take away from China’s strategic approach to this as well.

    Right now China’s cleantech investments are money losers, but this is a long term strategic vision.  Not many governments around the globe in today’s current economic environment can invest the way China is in cleantech.  They intend to become the leading exporter of clean energy in the future and are on track to achieving this.  The US government should be doing much, much more.         

     

  9. hwong
    November 30, 2010

    Cleantech investment should not only be provided by VC, but also government funding is necessary.  The resources of the World will not sustain our population growth if you look at our system dynamics. If we don't do something to reuse the natural resources now, human population's standard of living will decrease when resources run out. Hence, it is critical that we plant some seeds now to save the future for our grandchildren and great grandchildren

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