America Beats Europe on Clean Energy Funding for 6 Straight Years, and Counting

Aug 28, 2009

While America's clean energy technology sector has grown dramatically in the past few years, the exact opposite has occurred in Europe.

Its one-time promising sector has headed south fast.

The two regions had almost identical cleantech investment in 2003. But by 2008, things had changed. North America had outstripped Europe to invest nearly three times as much in clean energy, according to a report undertaken by New Energy Finance for the UK-based Carbon Trust, "The Rise and Fall of Clean Energy Investment."

The Carbon Trust is rightfully worried. Europe stands to lose out on the lucrative shift to a low-carbon economy, the report warns:

"While Europe may have initially been much faster to promote clean energy technologies, the rate of investment clearly has not kept up with North America. In today's global marketplace this could have profound effects on the ability of European economies to benefit from demand for clean energy generation, products and services."

The study examines the total dollars invested in clean energy companies, including all venture capital, private equity, public markets, corporate R&D and government R&D.

The disparity between Europe and North America in venture capital funding is of particular concern.

"It means that relatively few companies, compared to North America, are likely to reach a point where they can be considered financially 'robust.' This could eventually result in fewer European companies operating in the clean energy space."

The numbers are eye-catching. From 2003 to 2008, $13.2 billion of venture equity funding was invested in clean energy across Europe and North America. Some 27 percent of that flowed into Europe. The rest of it, $9.7 billion, was shoveled into North America's blossoming sector.

Even as the global economy came under the grips of a recession in 2008, North American venture equity investment stayed roughly at 2007 levels, while Europe's sunk further.

Venture capital funds are seen as vital to the long-term development of any new technology, of any economy. The idea is that these cleantech dollars turn promising firms into "investment ready" enterprises, so they can produce the innovative technologies of tomorrow – the wind farms, solar installations and enhanced geothermal systems that will shape the world's energy future for generations to come.

"Failure to fund at this [early] stage would stifle the next generation of technologies," the authors write.

In addition, the nations failing to help make these technologies commercially viable could lose the clean energy race.

Inadequate overall funding isn't the only problem plaguing Europe's cleantech sector. In North America, investors tend to ramp-up funding to see portfolio companies through all of the crucial stages of growth. Not so in Europe.

Deal size is another critical issue. And on this measure, too, Europe lags behind North America.

The report finds that North American investors tend to ante up larger sums for their start-up companies compared to Europe. "This difference is a trend that only increases through subsequent rounds of funding," says the report.

Total financing for an average company increased by 103 percent in North America between 2003 and 2008 to $93 million, versus a decrease of 4 percent in Europe to only $38 million per company.

The report is clear on one vital matter. The global credit crunch has also crunched funding for new clean energy projects, everywhere. The number of deals in 2008 compared to 2007 fell by 45 percent to 199 deals, for example.

But this is not the Carbon Trust's prime concern. And here's why. Coming global climate regulation and heightened awareness of energy security across all the major economies all but guarantee a sector rebound. In fact, it's already happening.

Following the collapse in venture capital activity during the first three months of 2009, investments in clean energy technology rose 73 percent during the second quarter, compared to the first quarter of this year, according to data from Dow Jones VentureSource.

And the truth is, it's just a matter of time before North America isn't their top worry, either.

Enter China, which is said to be spending $12.6 million per hour on clean energy and is preparing to invest $440 billion to $660 billion in boosting its home-grown sector just this year alone.

"Capital investment in clean energy has been outstripped by North America and may soon be dwarfed even further by China," the report warns.

 

See also:

Why Cleantech Investors Haven't Panicked

Survey Says: Cleantech Is the Only Sector That Will Grow in 2009

Report Urges U.S.-China Cleantech Partnership, Not Competition

Knocked Down But Not Out: America Could Be Global Solar Leader by 2014

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