Venture Capitalist Return to Clean Energy
- Are the Masters of the Universe coming back..?
After months of inactivity, investments are flowing back into the clean energy sector. A report by Ernst & Young released yesterday shows that investments in alternative energies by venture capital firms increased by 73 percent during the second quarter this year, totaling $572 million.
The findings by Ernst & Young confirm an earlier report by London-based market research firm, New Energy Finance, that showed global investment in clean energy in the second quarter of 2009 reaching $24.3 billion, from $13.3 billion in the first quarter. For more on that see, here. Unlike Ernst & Young, the New Energy Finance figures track funding across the board– project finance bank loans, private equity, and venture capital.
What’s convincing VCs to open their purse again? CONFIDENCE, in large part fueled by a solid commitment from the Obama administration to support clean energy investments, a cornerstone of its economic recovery strategy.
As part of that strategy, this week the Treasury Department released regulations guiding its much anticipated $3 billion direct cash grant initiative that clean energy developers will be able to tap into to fund a portion of their project. We wrote about this yesterday, here, where you can also see a copy of the actual guidelines. The direct cash grants were specifically designed to make up for the overall drop in bank financing, which left a number of clean energy projects, such as wind and solar farms, at a standstill.
The steep increase of VC investments on a percentage basis indicates how bad the situation was. VC investments are still way down — about 59 percent compared to the same time a year ago. “Barring any sort of major capital-market event, I do think that we’re going to see a continued drumbeat of activity,” Joseph Muscat, Ernst & Young’s Americas cleantech director, told The Associated Press. “Whether or not we’ll get back to record volumes, we’ll just have to see.”
The pick up in VC investments is an obvious sign of confidence but just a single indicator. Another one to look out for will be activity in the credit markets, specifically project finance bank loans, which clean energy developers depend on to finance construction of large projects, including wind and solar farms. VC money tends to support clean tech companies that are still four to five years from going commercial, think algae-based based biofuel or smart grid developers.
In another positive sign of a lasting pickup in the green energy sector, this week the American Wind Energy Association showed that the industry added 1,210 megawatts of capacity in the second quarter, about the same as a year earlier when we were still a few months away from the credit crunch, but well into the recession, which officially started in December 2007.
