Venture Capital Interest In Cleantech Investments At Record High In 2008

by Philip Morton, Investors Offshore.com

10 February 2009

Figures released recently by Big Four accounting firm, Ernst & Young showed that venture capital investment in cleantech sectors such as alternative energy sources and energy efficiency reached a record high in 2008, with interest over the coming year likely also to be buoyant as a result of 'green' tax measures in President Obama's stimulus plans.

E&Y revealed that:

"Venture capital investments in cleantech reached record levels in 2008 with $4.7 billion raised in 186 financing rounds – a 68% increase in annual capital invested and a 5% increase in annual financing activity, according to an Ernst & Young LLP analysis based on data from Dow Jones Venture Source. Cleantech companies received USD954mn from venture capitalists in Q4 2008, significantly surpassing the USD681mn invested in Q4 2007, but lagging behind the record USD1.7bn invested in Q3 2008."

"In 2008, the top four cleantech segments –- Electricity/Electricity Generation, Alternative Fuels, Energy Efficiency and Energy Storage –- experienced strong growth compared to 2007. Energy/Electricity Generation raised USD2.7bn in 2008, increasing 215%. The Alternative Fuels segment grew 50% to USD703mn. Energy Efficiency raised USD427mn, growing 6%, and Energy Storage raised USD320mn, increasing 9%."

Joseph Muscat, Ernst & Young's Americas Cleantech Director observed that:

“Investments made this past quarter suggest that investors are considering industry drivers that will propel cleantech companies long after the current financial crisis recedes. Investors and corporate executives alike continue to focus on growing operations to respond to opportunities created by growth in global energy consumption, corporate climate change initiatives, and governmental developments.”

The firm went on to suggest that the new Obama Administration’s "robust" climate change agenda and economic stimulus bill are generating optimism in the cleantech community and contributing to the long-term drivers in the sector, explaining that:

"One key policy element is a commitment to invest $15 billion a year over the next decade in renewable energy. If enacted, this proposal is expected to create five million jobs, a majority of which will be in the cleantech market. The renewable energy and energy efficiency industries already represent more than 9 million jobs and $1 trillion in US revenues, according to a report published by the American Solar Energy Society."

It continued:

"The economic stimulus bill currently under consideration by Congress also contains a number of tax provisions designed to spur investments in renewable energy, efficiency and other areas of cleantech."

“The proposed provisions, which will accelerate the ability to utilize production tax credits, extend existing ones, and include an enhanced research and development credit, will be just the beginning of a very active year for climate change legislation,” explained Steve Starbuck, Ernst & Young’s Americas Tax leader for Climate Change and Sustainability Services.

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