Venture capital gets back in the cleantech game

Venture capital gets back in the cleantech game

July 29, 2009 -- By SANDY SHORE

DENVER - Venture capitalists increased investments in alternative energy by 73 percent over the past three months, according to a report issued Wednesday, an indication that the horrible market conditions from earlier this year may have abated.

Investors are also be growing more confident because the government is making good on promises to try to shift the national energy policy more toward wind, solar and other renewable technologies.

Venture capital investment totaled $572 million in the second quarter, according to Ernst & Young LLP.

Even though spending was 59 percent below last year during the quarter, the quick infusion of funds when compared with the first three months of the year may signal that the industry has already bottomed out.

"We were pleasantly surprised to see investors sort of return to the sector and really put some of those other capital market concerns to the side and focus on what the longer-term opportunities were for these companies," said Joseph Muscat, Ernst & Young's Americas cleantech director.

Businesses with products in the shipping stage received 65 percent of the overall investment compared with 54 percent in the first quarter, Ernst & Young LLP said.

"Barring any sort of major capital market event, I do think that we're going to see a continued drumbeat of activity," Muscat said. "Whether or not we'll get back to record volumes, we'll just have to see."

From April to June, businesses devoted to energy generation, such as wind, solar, geothermal and hydrogen power, drew the most investment. At $157 million, investments were up 181 percent from the first quarter. Most of that financing went to solar deals.

About $152 million was invested in companies focused on developing energy efficient products and services, up 168 percent from the first quarter.

The findings mirror a June report from London-based New Energy Finance, which found second-quarter global private investment in renewable energy projects totaled $24.3 billion, up from $13.3 billion in the first quarter.

Also this week, the American Wind Energy Association reported that the industry added 1,210 megawatts of capacity in the second quarter, essentially unchanged from a year ago. Three wind turbine and component manufacturing operations opened, four began expansions and eight new projects were announced.

Renewable energy provides a small fraction of electricity used today, but the wind and solar sectors are the fastest growing in the U.S. In 2008, the U.S. became the world's leading provider of wind power.

Yet companies have been forced to shelve plans and cut jobs because of the economy.

New state and federal mandates for renewable energy could speed any rebound.

Millions of dollars will be funneled toward the industry through the federal economic stimulus package.

"The implementation phase is really just beginning now," said Ethan Zindler, who heads North American research for New Energy.

"Now that that's in place, I think we're going to see a real pickup in the second half of the year," Zindler said of the wind industry. "I think there will be definitely some degree of making up for lost time."