US Clean-Tech Investments Increase 18% in Q1 2008
Venture capital investments in cleantech companies continued to show robust growth in the first quarter of 2008, according to an Ernst & Young report based on data from Dow Jones VentureOne. Capital invested grew by 18% to $571.6 million in Q1 2008 compared to $483.9 million for the same period in 2007, while the number of deals declined by 11% to 34. This growth in cleantech investment bucks the trend of overall US venture capital investment in Q1’08, which declined by 7% to $6.5 billion.
Three cleantech industry groups accounted for the majority of the capital invested in the quarter. The Alternative Fuels group was the largest recipient of capital with $178 million invested-31% of the quarterly industry total.
Energy/Electricity Generation group’s investments represented 26% of the cleantech industry and totaled $148.3 million. Energy Efficiency group deals accounted for 20% of investment, netting $116.4 million for the quarter.
Cleantech investing also suggested that the industry is maturing as deal volume shifted from early stage financings to later stage investments this quarter. Early stage deals, largely seed and first round investments, accounted for 37% of cleantech financings in Q1 ‘08, down from 51% in Q1 2007, but represents a consistent percentage of the total venture capital industry investments directed toward early stage enterprises. Conversely, later stage deals accounted for 43% of financing rounds, up from 24% in Q1 ‘07, reflecting the progress of technology development in existing cleantech companies.
Fastest growing segments
The Energy Efficiency group contained two of the fastest growing segments this quarter. Year-on-year, capital invested in Power and Efficiency Management Services increased 454% to $66.5 million. The Efficiency Products segment grew by 148% to $49.5 million. BridgeLux, a provider of energy saving power-LED chips based in Sunnyvale, CA, raised $40 million in the largest Energy Efficiency deal of the quarter.
Investments in the Solar segment, part of the Energy/Electricity Generation group, also grew by 136% over the last year to $132.4 million. A key deal in the solar category was Infinia, a concentrated solar company based in Kenniwick, WA that raised a $57 million round during the quarter. Reports of technology development and an increasingly supportive regulatory environment are attracting investor attention to this segment. For example, in 2007 four more states instituted mandatory renewable portfolio standards (RPS), bringing the total to 25 states and the District of Columbia accounting for 46% of national retail electricity sales, according to Lawrence Berkeley National Laboratories.
“While solar and biofuels investments continue to grow, we’re observing increased investments in efficiency-related technologies as VCs balance their renewable energy portfolios with companies that have a shorter prospective time to exit,” said Joseph Muscat, Americas Director of Cleantech and Venture Capital, Ernst & Young LLP. “Efficiency technologies are less capital intensive than renewables, which enable more venture capitalists to participate in the cleantech industry,” Muscat continued.
Market drivers
From 2002 to 2007, cleantech investments grew from 1% to over 8% of annual total US venture capital investment. During the same period venture capital investment grew 37% to $30.2 billion. Industry projections and developments suggest that the cleantech venture capital market will continue to develop. Key indicators include:
-The global market for biofuels, solar technologies, new wind installations and fuel cells is expected to grow from $77.3 billion in 2007 to $254.5 billion by 2017, projects Clean Edge, a leading research and publishing firm. According to Cambridge Energy Research Associates, the global response to climate change could result in $7 trillion in total clean energy investments by 2030.
-Public company investors have been supportive of cleantech companies, indicating receptivity to eventual public market exits for venture backed cleantech companies. The WilderHill Clean Energy Index (ECO) has realized a 102% cumulative return since 2002, outperforming the broader Russell 3000 index by 32%; from Q1’07 to Q1’08, the WilderHill outpaced the Russell 2000 by 9%.
-Government policy and regulation is also increasingly supportive. The recently passed US Energy Independence and Security Act of 2007 sets a mandatory Renewable Fuel Standard (RFS) requiring fuel producers to use at least 36 billion gallons of biofuel in 2022 and implements a range of energy efficiency improvement measures.
“Cleantech is enabling the business response to climate change,” said Muscat. “The fundamental challenges that corporations face today related to carbon emissions, energy costs and resource scarcity will continue to provide opportunities for innovative cleantech solutions.”
Ernst & Young uses the following definitions to classify the cleantech industry and its sub-sectors:
Clean technology encompasses a diverse range of innovative products and services that optimize the use of natural resources or reduce the negative environmental impact of their use while creating value by lowering costs, improving efficiency, or providing superior performance.
Three cleantech industry groups accounted for the majority of the capital invested in the quarter. The Alternative Fuels group was the largest recipient of capital with $178 million invested-31% of the quarterly industry total.
Energy/Electricity Generation group’s investments represented 26% of the cleantech industry and totaled $148.3 million. Energy Efficiency group deals accounted for 20% of investment, netting $116.4 million for the quarter.
Cleantech investing also suggested that the industry is maturing as deal volume shifted from early stage financings to later stage investments this quarter. Early stage deals, largely seed and first round investments, accounted for 37% of cleantech financings in Q1 ‘08, down from 51% in Q1 2007, but represents a consistent percentage of the total venture capital industry investments directed toward early stage enterprises. Conversely, later stage deals accounted for 43% of financing rounds, up from 24% in Q1 ‘07, reflecting the progress of technology development in existing cleantech companies.
Fastest growing segments
The Energy Efficiency group contained two of the fastest growing segments this quarter. Year-on-year, capital invested in Power and Efficiency Management Services increased 454% to $66.5 million. The Efficiency Products segment grew by 148% to $49.5 million. BridgeLux, a provider of energy saving power-LED chips based in Sunnyvale, CA, raised $40 million in the largest Energy Efficiency deal of the quarter.
Investments in the Solar segment, part of the Energy/Electricity Generation group, also grew by 136% over the last year to $132.4 million. A key deal in the solar category was Infinia, a concentrated solar company based in Kenniwick, WA that raised a $57 million round during the quarter. Reports of technology development and an increasingly supportive regulatory environment are attracting investor attention to this segment. For example, in 2007 four more states instituted mandatory renewable portfolio standards (RPS), bringing the total to 25 states and the District of Columbia accounting for 46% of national retail electricity sales, according to Lawrence Berkeley National Laboratories.
“While solar and biofuels investments continue to grow, we’re observing increased investments in efficiency-related technologies as VCs balance their renewable energy portfolios with companies that have a shorter prospective time to exit,” said Joseph Muscat, Americas Director of Cleantech and Venture Capital, Ernst & Young LLP. “Efficiency technologies are less capital intensive than renewables, which enable more venture capitalists to participate in the cleantech industry,” Muscat continued.
Market drivers
From 2002 to 2007, cleantech investments grew from 1% to over 8% of annual total US venture capital investment. During the same period venture capital investment grew 37% to $30.2 billion. Industry projections and developments suggest that the cleantech venture capital market will continue to develop. Key indicators include:
-The global market for biofuels, solar technologies, new wind installations and fuel cells is expected to grow from $77.3 billion in 2007 to $254.5 billion by 2017, projects Clean Edge, a leading research and publishing firm. According to Cambridge Energy Research Associates, the global response to climate change could result in $7 trillion in total clean energy investments by 2030.
-Public company investors have been supportive of cleantech companies, indicating receptivity to eventual public market exits for venture backed cleantech companies. The WilderHill Clean Energy Index (ECO) has realized a 102% cumulative return since 2002, outperforming the broader Russell 3000 index by 32%; from Q1’07 to Q1’08, the WilderHill outpaced the Russell 2000 by 9%.
-Government policy and regulation is also increasingly supportive. The recently passed US Energy Independence and Security Act of 2007 sets a mandatory Renewable Fuel Standard (RFS) requiring fuel producers to use at least 36 billion gallons of biofuel in 2022 and implements a range of energy efficiency improvement measures.
“Cleantech is enabling the business response to climate change,” said Muscat. “The fundamental challenges that corporations face today related to carbon emissions, energy costs and resource scarcity will continue to provide opportunities for innovative cleantech solutions.”
Ernst & Young uses the following definitions to classify the cleantech industry and its sub-sectors:
Clean technology encompasses a diverse range of innovative products and services that optimize the use of natural resources or reduce the negative environmental impact of their use while creating value by lowering costs, improving efficiency, or providing superior performance.
- Alternative Fuels: Biofuels; natural gas (LNG)
- Energy / Electricity Generation: Gasification, tidal/wave, hydrogen, geothermal, solar, wind, hydro -Energy Storage: Batteries, fuel cells, flywheels
- Energy Efficiency: Energy efficiency products, power and efficiency management services, industrial products
- Water: Treatment processes, conservation & monitoring
- Environment: Air, recycling, waste
- Industry Focused Products and Services: Agriculture, construction, transportation, materials, consumer products
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