Cleantech Investing Drops 33% in 2009, But Recovery Hope Grows

Sector Continues to Strengthen, Despite Lack of a Climate Treaty

Worldwide cleantech investment fell in 2009 just like the rest of the economy, but a recovery appears to be under way, driven by energy efficiency and public offerings in Asia that underscore the global march of the sector, a new report released Wednesday shows.

Overall, "cleantech had a pretty good 2009," said Dallas Kachan, managing director of the Cleantech Group, a research and advisory firm, which issued the preliminary 2009 report with Deloitte.

"Several new records were set in the cleantech sector, and that's despite the lack of a binding agreement in Copenhagen."

The firms reported that investment in clean technology tumbled 33 percent to $5.6 billion in 2009 from $8.4 billion in 2008.

Despite the drop in total money invested, though, there were likely more cleantech venture capital deals in 2009 than in any other year.

According to the Cleantech Group, the number of VC deals across North America, Europe, Israel, China and India, now at 557, could increase 5 to 10 percent when the final numbers are calculated next month. That's compared with 567 in 2008.

The sector continued to outpace software, biotechnology and "virtually any other industrial sectors," Kachan said, with a quarter of all global VC going to cleantech in the past 12 months.

Continuing a multi-year trend, solar was the leading investment category "but just barely," Kachan said.

"Transportation and energy efficiency now stand to eclipse solar as leading subsectors for cleantech investment," he said. This was not the case a year ago, he added.

Solar took 21 percent of the year's cleantech investment, down 64 percent from 2008. A big part of that was a single deal: Solyndra, the high-efficiency solar panel maker, which landed $198 million in VC funding in the third quarter.

In the fourth quarter, solar snagged just $187 million, a three-year low for the sector.

Particularly hard hit for the year were concentrating solar power (CSP), down 91 percent from 2008, and thin film, down 71 percent.

Energy efficiency, however, "is up," said Kachan, having had a record year. In fact, by deals done, efficiency is already ahead of solar, he added.

"You can read the rise of energy efficiency and the fall of solar as a move by investors toward less capital intensive sectors," said Kachan. "Efficiency technologies are faster to bring to market are usually based on proven technologies, are less expensive, are net negative in carbon emissions and have virtually no land or water."

Transportation also had a record year, taking in 20 percent of the year's cleantech investment.

"It was a good year to be an electric car company," Kachan said.

The U.S. still leads VC investment, but North America's share of cleantech was down from 72 percent in 2008 to 62 percent in 2009, a four-year low. Europe and Israel, meanwhile, hit a five-year high, as their share jumped from 22 percent last year to 29 percent in 2009.

All in all, 2009 "underscored that cleantech is becoming increasingly a global phenomenon," Kachan said.

Several countries hit all-time record years, particularly Norway, France, Switzerland, the Netherlands, Belgium and Denmark.

Perhaps the best evidence of cleantech's "global march" was in the year's initial public stock offerings, IPOs.

There were 32 cleantech IPOs worldwide, raising $4.7 billion. While the most visible of them was Massachusetts-based car battery maker A123 Systems, which raised $380 million in September, nearly all of the IPOs took place in Asia. Half were in China, said Kachan.

"Asian countries absolutely dominated," he said, taking in nearly 75 percent of IPO dollars. In the previous 3 years, Asia was less than 10 percent.

The leading IPO of the year was China Longyuan Power Group, the country's largest wind power producer, raising $2 billion on the Hong Kong stock exchange.

Kachan cited significant levels of government backing as the reason for Asia's IPO dominance, especially in China and Korea, where "cleantech leadership is a stated objective."

On the back of a promising 2009, Scott Smith, U.S. cleantech leader for Deloitte, predicted the number of IPOs for 2010 to be "disproportionately cleantech."

Similar findings were reported earlier in the week by Greentech Media.

While the numbers in the studies varied, the overall picture was the same:

"Although the fundraising numbers are slightly down from last year, 2009 was still one of the strongest years ever in the history of the cleantech sector with almost $5 billion raised," author Ira Ehrenpreis, general partner at Cleantech VC Technology Partners, said in the Greentech Media report, which did not include China and India.

While the value of cleantech VC investments sunk to $4.85 billion from a record $7.5 billion in 2008, it was the second-best year for the sector, Greentech Media concluded. It counted a record-breaking 356 deals, exceeding last year's count of 350 and the 222 in 2007.

Approximately 20 percent of cleantech deals came from outside the U.S., "with plentiful deals from the UK and France," the Greentech authors wrote.

Government funding for renewable energy helped to restore venture firms to investing across all sectors, the report said.

In the U.S., $22 billion in funding from the American Recovery and Reinvestment Act was earmarked for cleantech.

This "should be watched closely in 2010-2011," Greentech Media said. As of Dec. 25, 2009, just $1.76 billion, or 5.3 percent of awarded funds, had been spent by the Department of Energy.


Copenhagen Non-Factor

According to the Cleantech Group, slowing global climate change is just one of many drivers of clean technology investment.

"The big takeaway for us ... is that the rest of the world is not waiting for Copenhagen," Kachan said, referring to the international treaty that was once expected to come out of the two week climate talks in Denmark in December. The private sector and governments are "putting capital to work today."

The reason, Kachan said, is that "clean technologies are increasingly becoming the obvious no-brainer option." They now "make economic sense," he said, "aside from any environmental benefit."

"That's the main driver," said Winston Fu, a general partner with California-based U.S. Venture Partners.

For cleantech executives, getting renewable portfolio standards at the state and federal levels is perhaps more important right now, rather than "what might come out of some international agreement," said Smith, when asked by SolveClimate about the potential of an international agreement to rapidly drive the sector.

Driving this point home, yet another new survey released this week showed optimism from cleantech investors for 2010.

A survey of 200 participating institutional investors from Europe by investment bank Jefferies found that the important factors for cleantech growth are government subsidies and the recovery of credit markets — not a global agreement.

Investors showed a high level of confidence that government subsidies are likely to remain the same, or even increase.

Still, a climate treaty could be a game-changer, suggested Kachan. We shouldn't mistake a "healthy skepticism about the role of Copenhagen impacting the industry with a desire to see a global agreement," he said.

"You'd be hard pressed to find an executive in this industry who wouldn't want to see a binding, comprehensive global accord," he added.

 

See also:

Top Financiers, Business Leaders Look Into Clean Tech's Crystal Ball

Low Carbon Prices: Just a Phase or an Indictment of Cap and Trade?

Clean Tech Jobs Spring Up as Investment Pours in and Factories are Transformed

Five Big Surprises on the Global Cleantech 100 List

What's Next in Smart Grid? IBM Picks 5 Companies to Watch

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