Green IT’s Q4 Winners: Wind Power, Solar Power, Smart Energy

1Executive Summary

In a year that kept industry watchers on edge until the very end, greentech ended up marking its best year ever. But the good news came unevenly across sectors and classes of investment, and for some areas, such as venture capital investment, 2010’s recovery wasn’t strong enough to break records.

Still, what a year for the greentech industry as a whole. Global investment in clean energy surged. While wind power remained the biggest greentech sector, solar power saw the fastest growth. In the meantime, so-called “energy smart” technologies — a category that includes smart grid, electric vehicles, energy management and energy storage — broke a record, with $23.9 billion in 2010, up 27 percent from 2009.

But the last quarter of 2010 didn’t paint as bright a picture for startups. Global greentech venture capital investment fell to $1.61 billion in the fourth quarter of 2010, down from the $1.95 billion raised in the third quarter. Two of the big VC greentech investments of the fourth quarter were Chinese geothermal developer Nobao Renewable Energy and China-based LED developer Lattice Power. That showing indicates Chinese startups are starting to catch up to their North American and European counterparts in venture backing.

In terms of deals, energy efficiency came out on top in the industry, followed by solar power — perhaps an indication that the energy efficiency sector appears to have more room for smaller players to make their mark amidst a rapidly maturing market. Indeed, solar power’s strong performance in 2010 was shot through with caveats, including the troubles faced by well-funded and government-backed thin-film startup Solyndra and the anticipation of tougher competitive pressures to come for solar panel manufacturers in 2011.

In green technology IPOs, the fourth quarter saw 30 companies raise a combined $8.3 billion, marking the most active IPO quarter ever for the greentech space. But that surge was led by massive IPOs by established renewable energy companies — we didn’t see venture-backed firms made a big IPO splash in the fourth quarter to compare with Tesla Motors’ splashy summer IPO. Still, plenty of potential U.S. greentech IPO candidates are waiting in the wings for 2011, among them smart grid networking leader Silver Spring Networks, solar thermal heavy-hitter BrightSource Energy, solar inverter maker Enphase Energy and electric vehicle makers Fisker Automotive and Smith Electric Vehicles.

As for government greentech policy and support, the takeover of the U.S. House of Representatives by the Republican Party in November seemed to spell an end to hopes of more far-reaching climate change or renewable energy legislation passing for the next two years. Even the last-minute extension of stimulus act-created cash grants in lieu of tax credits for renewable energy projects — a step the industry had clamored for — might face a backlash from opponents of so-called “green pork” in the halls of power.

With the federal government likely to be far less friendly to green interests, states are expected to take an increasingly important role. California remains a bright spot for greentech policy support. Most critically, the state’s voters in November rejected a ballot measure that would have gutted the state’s landmark greenhouse gas emissions reduction and cap-and-trade bill, known as AB32. California also started up what could be called the first large-scale, feed-in tariff program in the United States via its Renewable Auction Mechanism (RAM), instituted by the California Energy Commission in December.

While U.S. greentech policy appears set in neutral, some of the European policies that have proven key to green technology’s growth in the region are showing signs of strain. Germany in October announced a new set of lower feed-in tariffs for solar power and has since accelerated its timeline for reducing state supports for the solar industry, setting a trend for gradually decreasing price support for the solar industry likely to be matched by other European nations struggling with an ongoing financial crisis.

In the meanwhile, China’s stance as a growing greentech giant continued to complicate its relationship with the United States in the fourth quarter. China placed increasing limitations on the export of rare earth metals through the fourth quarter, leading to global concern that the elements required for many green technologies might face a shortage in 2011. In the meantime, the U.S. is taking up a federal investigation into a complaint from the United Steelworkers union, which alleges China is breaking World Trade Organization rules in supporting its domestic clean energy industries. These conflicts could set the two countries up for a rough trade relationship in 2011.

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