Venture Funding Takes Off

The economic forecast is not exactly clear but that has not stopped the country's risk takers from stepping out. By all accounts, venture capital investment in the clean technology sector is starting to shine with the electric automobile sector, energy efficiency and wind and solar projects taking in the biggest shares.

Despite the start and stop nature of the financial recovery, investors are allocating capital to projects that they think will be supported by public policy and where federal stimulus monies may be awarded. Toward that end, plug-in vehicles that could help reduce dependence on foreign oil are winning attention as is the intelligent utility that allows two-way communications between utilities and customers.

"Major utilities are focusing on increasing direct investment in alternative energy generation and smart grid projects due to favorable government incentives and improved market conditions as they work to reduce their carbon exposure and comply with renewable portfolio standards," says Scott Smith, partner in Deloitte & Touche.

Other corporate interests, meanwhile, are also continuing to invest in the types of technologies to improve energy efficiencies and to reduce their carbon footprints, he adds. Doing so is not only helping them to cut costs and mitigate risks but it is also assisting them with complying with pending environmental regulations.

According to Deloitte, clean technology venture investment was up 29 percent from the last quarter of 2009. It is also up 83 percent from the same period a year ago, albeit the first quarter of 2009 was miserable. However, the total number of deals that have been recorded in the first quarter of 2010 represents a high water mark.

Ernst & Young generally concurs with those findings, noting that the total value of the clean technology deals that it watches soared by 68 percent over the year before to about $733 million. The consulting firm's report also says that the number of transactions more than doubled when compared to the first quarter of 2009 to 72 financing rounds.

Wind and solar developers kicked in as federal lawmakers preserved and extended those tax breaks while utilities are building out their smart grids that create efficiencies and save energy. Altogether, the federal government is pouring in $3.4 billion in stimulus funds to kick off intelligent utility investing.

Once proven, momentum will build. Pike Research says that utilities could invest another $21 billion in grid modernization over the next five years. Right now, about 5 percent of the 145 million existing meters are "smart." But power companies are expecting that share to increase by a third over the next several years as 52 million modern meters are rolled out, says a Federal Energy Regulatory Commission report.

Intensified Focus

CenterPoint Energy in Houston and Baltimore Gas & Electric will each get $200 million, which will cover roughly a quarter and half the cost of their respective projects. CenterPoint will install 2.2 million new meters and BG&E will implement software to enable dynamic pricing and to alert grid operators when their network is crammed. Duke Energy and FPL Corp will also get $200 million each.

"Given that the majority of government stimulus funds have yet to be deployed, the intensifying focus on clean tech solutions as a driver of operational efficiency, and the robust clean tech innovation pipeline, we expect increased activity in coming quarters," says Gil Forer, Ernst & Young's Global Cleantech Leader.

In terms of private money, electric car manufacturers CODA Automotive and Fisker Automotive led the charge in the first quarter. Ernst & Young says the two car companies took in $100 million and $115 million, respectively. By comparison, all solar companies combined -- often a leader in venture capital funding -- collected about $193 million during the same time period.

Consider CODA, which received a $294 million bank line of credit in addition to the $100 million in equity capital: That money will enable the venture to support mass manufacture transportation and utility power storage battery systems. The Santa Monica-based company anticipates that it can deliver more than 14,000 vehicles to customers in California by the end of 2011.

"In addition to negatively impacting our security, environment and the economy, dependence on fossil fuels is harmful to our health and our future," says Kevin Czinger, chief executive of CODA. "CODA is committed to addressing this fundamental problem by catalyzing a movement to accelerate the adoption of electric cars."

Meantime, the private equity financing secured by Fisker Automotive has enabled it to access a $528 million loan guarantee from the U.S. Department of Energy. The company says that the money it is receiving is a vote of confidence in its business model. It adds that the financing is coming not just at a time when the economy is beginning to rebound but also during a period when investors are remaining cautious.

The firm will begin manufacturing its high-end plug-in vehicle at a cost of about $88,000. But it says that this is just the first step in what could become a second wave of new offerings beginning in 2012 that includes family-oriented cars.

"Raising $115 million in these times speaks volumes about the value of our business model and the vast potential of plug-in hybrids," says Henrik Fisker, chief executive of the Irvine, Calif.-based company. "We are committed to developing environmentally friendly cars that don't sacrifice style or performance."

Times are better and venture capitalists are saying as much with their dollars. But it is clear that government support is still necessary to get some of the technologies off the ground and into new markets.