Cleantech Crystal Ball Sees Rash of IPOs, Energy Efficiency Focus

Cleantech startups could give investors considerably more to cheer about in 2011, if market conditions do not deteriorate, according to industry analysts.

Startups involved in everything from energy efficiency to renewable power and algae-based biofuels are looking to launch initial public offerings in the coming months to raise funds for growth.

"I'm a big believer in a rash of IPOs assuming the equity markets stay open," Scott Smith, partner and head of cleantech at Deloitte and Touche in the U.S., said in a telephone interview. "That's something I'm pretty optimistic about for what's going to happen in cleantech ... And there are a lot of companies preparing for spring IPOs."

Another common prediction is that energy efficiency will outshine solar, the longtime darling of the sector, across all four quarters.

"In 2011, look for efficiency to become the clear dominant investment theme," said Dallas Kachan, a former managing director of the Cleantech Group and now partner of Kachan & Co., a cleantech consulting firm.

Smith, for his part, foresees a temporary dip in solar deals in the first part of 2010 but expects gains for the year, especially in solar photovoltaics.

"Last year, people were trying to get in front of certain dates on the calendar for tax reasons, tax credits and grants. That's dissipated a little ... but people are still going to have to roll out the big solar deals."

Breakout Year for Energy Efficiency?

In 2010, energy efficiency landed the most venture capital cleantech deals but not the most cash, according to the Cleantech Group. The sector comprised 15 of the world's 100 "most promising" private cleantech firms last year — the most of all sectors.

Frequently called the low-hanging fruit of the green revolution, energy efficiency firms have had staying power in the economic collapse due to low capital costs and a relatively quick return on investments.

Yet most agree something else is at work. Concerns about the cost of oil and security of energy supplies has made "negawatts" preferable to megawatts as a way to slake the world's electricity demand  in a carbon-constrained global economy.

Nearly all scenarios for controlling climate change emissions assume a big role for efficiency. The International Energy Agency, an energy adviser to rich nations, has said that efficiency must count for 50 percent of emissions averted between 2010 and 2035.

States, Big Utilities Main Drivers

State regulations, especially renewable portfolio standards, will continue as the main drivers of cleantech growth in the U.S., with more than 30 states stimulating a "ton of investment," Smith said. Many analysts see federal cap-and-trade as dead for good in Congress.

As of last month, 26 states had adopted energy efficiency resource standards, accounting for 65 percent of the country's electricity demand, according to the American Council for an Energy-Efficient Economy. Current policies, it says, will provide savings equal to 6 percent of the nation's retail electricity sales by 2020.

Such actions are stoking the push for "demand response" solutions that encourage customers to cut usage at peak periods and smart grids that help utilities to deliver electricity from power plants to consumers more efficiently.

"Smart grid is getting a lot of money," Smith said.

And big utilities are leading the way to the digital grid upgrade. "To the extent that they're invested in the grid — and they are — that drives a lot of investment and a lot of innovation," Smith said.