Cleantech Was a Market Leader in Q4

1Executive Summary

With the fourth quarter of 2009 now behind us, it appears clear that the field of green technology — renewable energy and energy storage systems, energy efficiency technology, smart grid infrastructure and the underlying information technology to make it all work — is likely to end 2009 with the biggest venture capital haul of any industry sector.

How much would that be? About $4.85 billion, according to figures from Greentech Media — or about 64 percent of the record-setting $7.6 billion raised in 2008.  So goes a stellar year in a terrible economy. At long last, though, cleantech appears to be getting its fair share of attention as the best and brightest hope of patching up the teetering structure of a fossil fuel-fired global economy. Global investment in cleantech totaled $145 billion in 2009, down just 6 percent from 2008’s peak of $155 billion, according to Bloomberg New Energy Finance — not bad for a year that saw most other industries take nosedives. Still, orders of magnitude more investment are needed to achieve even the modest energy-production and carbon-reduction goals that governments around the world have set.

Amidst a general collapse of private debt and equity financing, government support has played a guiding role in 2009’s cleantech successes. About $436 billion in government spending was directed toward renewable energy, energy efficiency and smart grid technologies last year, or some 16 percent of overall stimulus spending, according to HSBC. In the United States, the Department of Energy has directed some $60 billion in stimulus grants and incentives toward these areas this year, including fourth-quarter jolts of $4 billion for smart grid projects at both commercial and demonstration stage and $151 million for its new open-sky research fund, ARPA-E. Elsewhere, funding entities such as the European Investment Bank and BNDES of Brazil have also taken up the slack, and China is spending hundreds of billions of dollars to boost renewable energy and smart grid development.

But DOE’s stimulus funds will run out eventually, leaving open the question of what funding sources will take its place. And the end of 2009 also saw several high-profile policy disappointments, including Congress’s decision to put off work on climate and energy legislation and the failure to deliver binding rules on cutting greenhouse gas emissions at the United Nations’ summit in Copenhagen. The industry and investors had wanted clear and enforceable regulation to guide their decisions, both in the United States and around the world, and didn’t get them.

Perhaps these setbacks dampened investors’ animal spirits over the holiday season. Cleantech venture capital investment totaled $817 million, down from $1.9 billion in the third quarter of the year, according to Greentech Media (Cleantech Group put third-quarter investment at $1.4 billion). Investors also pulled back on their bets a bit, with only one $100-million-plus round — that of smart-grid darling Silver Spring Networks — and less money spread across more deals.

While clean energy production continued to garner the largest share of venture capital investment, saving energy has emerged as a focus for investors as well. Solar power kept its No. 1 slot for VC investment in 2009, though its share of the overall pie shrank from about 40 percent in 2008 to about 21 percent, or $1.2 billion, according to Cleantech Group and Deloitte. But transportation and batteries, energy efficiency, biofuels, smart grid, energy storage and water management also saw respectable showings.

In the public markets, companies with a focus on saving energy — whether through making its use more efficient or storing it — picked up steam. The WilderHill New Energy Global Innovation Index of 86 clean technology stocks showed energy efficiency stocks rising 8.6 percent and power storage shares rising a whopping 25.4 percent in the fourth quarter, while solar stocks fell 8.1 percent and wind stocks dropped 4.4 percent in the same time period.

Of course, the cleantech sector also produced the hottest IPOs of 2009: the $380 million debut of lithium-ion battery maker A123 Systems in the United States, and that of China Longyuan Electric Power Group, a China-based wind power producer, which raised $2.2 billion in its fourth-quarter public offering. Those, in turn, have opened hopes for more to come. Solar module encapsulant maker STR Holdings raised $123 million in a late fourth-quarter public offering, and thin-film solar module maker Solyndra and biocatalyst developer Codexis filed much-anticipated IPO papers in December, setting the stage for a revival of the moribund public markets as a funder of green companies.

At the same time, corporate giants are acquiring their way into the cleantech revolution, and the deals are getting larger. The $418 million acquisition of solar thermal power company Solel by German giant Siemens in the fourth quarter set a good example, as did the $200 million bid for solar project developer-financer SunEdison by China’s MEMC. Of course, the biggest corporate acquisition will be the $4.6-billion takeover of Sanyo by fellow Japanese giant Panasonic, combining the two companies’ strengths in batteries, solar cells and a host of consumer electronics and appliances.

Another big acquisition was the $539 million purchase of solar panel manufacturing line maker Apollo Precision by RBI Holdings, a Hong Kong toy company — a move underscoring China’s growing might in clean technologies. Last year’s cleantech investment figures would have been a lot worse without Asia’s big push into renewable energy, particularly wind energy in China, according to the Cleantech Group and Deloitte. Another report from Bloomberg New Energy Finance reported that Asian cleantech investment, at $37.3 billion, outstripped the $32 billion invested in North and South America for the first time in 2009, although Europe, Africa and the Middle East led the pack with $42 billion invested.

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