For Cleantech VC’s, Peril and Opportunity Ahead

The final numbers are in, and they confirm what everyone already knew: 2012 was a rough year for cleantech investment. Worldwide investment by private equity and venture capitalists in the sector dropped by 11 percent last year, to $269 billion, according to data presented Tuesday by Pike Research. Underneath that sobering number, however, hides many opportunities for growth, Kerry-Ann Adamson, Pike’s research director, said during a webinar presentation.

Overall investment in smart energy will grow from $200 billion in 2012 to at least $325 billion by 2017, by which time renewables will produce $250 billion in annual revenue, according to Adamson’s projections. That slow-and-steady growth will be helped by this year’s rise of government-backed, quasi-independent funds. Between the United Kingdom’s $5-billion Green Investment Bank. The bank started with an investment of 8 million pounds in an anaerobic digestion plant in Teesside using fund manager Greensphere Capital, Bloomberg reported. Another 5 million pounds will go toward improving energy efficiency in Kingspan Group’s buildings by 15 percent. The bank could invest its entire fund by 2015, according to a recent announcement.

Other governments are making similar decisions, using nontraditional, quasi-independent venture capital funds to maintain momentum on cleantech investments and reduce the effects of the larger economic slowdown. India is making $103 billion in clean energy investments, Adamson says, and Australia recently announced a $196-million Renewable Energy Venture Capital Fund.

“What they are doing is providing another avenue for innovators to come forward,” Adamson said.

Another surprise: The continued ripples from “black swan” events. In response to the ruinous tsunami of 2011, for example, Japan’s new effort to build new and more secure power supplies attracted $2 billion in investment in just its first two months.

Much of that effort is focused on developing better energy storage technology. That could have its own ripple effect, since effective storage “is potentially the lynchpin” that makes other renewable energy sources profitable. “Renewables need energy storage to feed onto the grid for stability and vice versa,” Adamson said. “This is what’s needed in the market.”

The focus on electricity will continue around the globe, she said. In Europe, the electrification of the transportation fleet – everything from cars to postal trucks to ferries – presents large investment opportunities. The rise of independent power producers in South Africa together with falling barriers to foreign investment in electricity markets in barriers in Kenya, Namibia and Nigeria means tremendous opportunity to bring renewable projects online.

And in Russia, the flood of investment in smart energy, especially fuel sectors, which began in 2012 “is going to continue this year,” Davidson said.

Even America’s big push into natural gas has a silver lining for renewables, Adamson said, since the resulting energy price drop “could be the blessing to make renewables far more market-focused.”

Moderate growth opportunity also lies in smart city campaigns around the globe. The smart city sector is projected to grow from $6 billion in 2012 to $20 billion in 2020, said Eric Woods, Pike’s research director. Barcelona will continue to lead the way. But now once-reluctant American cities including San Diego, Chicago and Boston are getting into the act, as is Bristol in the United Kingdom, “which has been a laggard,” Woods said.

The good news for investors looking for smaller, capital-efficient opportunities is that smart city projects do not involve large-scale infrastructure projects, but rather cheaper technology tweaks. One example is Kalundborg, a small industrial city in Denmark, which installed energy savers such as remote-controlled energy systems and heat pumps to adjust room temperatures, according to a summary by the Danish smart cities project.

Movement toward a smart grid will likely stall in the U.S. as money from the American Recovery and Reinvestment Act runs out, said Bob Lockhart, a senior research analyst at Pike. The biggest opportunity lies in France, which will request proposals for 33 million smart meters in 2013, and in China, which plans to deploy between 670 million and 770 million smart meters, “which is just huge,” Lockhart said.

Key takeaways from the webinar include:

  • 11% drop in private equity investment in cleantech in 2012, with soft demand projected to continue in some sectors for much of 2013.
  • Government-backed funds picking up some slack.
  • Disruptions from black swan events and American gas exploration causing instability worldwide, creating peril and opportunities for clean energy investors.
  • Electricity. New transportation uses, storage, safety and efficiency for electricity create some of the largest cleantech opportunities in 2013.




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