Unpredictable Investment Climate Fails to Deter Cleantech Investors
In 2010, venture capital and private equity funds are still struggling to raise capital, but judging by the way climate change industry investment is holding up, it's a sector that will be around for the long haul and not a bubble as many had feared. It may still be in recovery, but the long-term investment trajectory is up-as is market penetration. According to the SEFI report, renewable energy accounted for 36% of new global power capacity added in 2009, up steadily from 15% of new power in 2006, 21% in 2007 and 31% in 2008. Renewable power accounted for 7% of total global capacity at the end of 2009, up from 4% at the beginning of 2005. Renewable energy is only one segment, however, and it is instructive to review the trajectory of venture bets by segment. According to compiled data from Cleantech Group, renewable energy generation accounted for 53% of cleantech venture investment funds in 2007, wind and solar 46% in 2008 and just 22% in 2009, with transportation, energy efficiency, biofuels and smartgrid increasing in share.
Sovereign Wealth Funds Taken an Interest in Cleantech
Sovereign wealth funds created to manage a nation's foreign exchange reserves and commodity wealth are potentially powerful investors in the climate change space. Some 37 major sovereign wealth funds are worth a total of $3 trillion, estimated State Street Global Advisors, with around 70% of that money derived from oil and gas interests. Sovereign wealth funds may be well suited to invest in the climate change industry because they don't have pension liabilities and tend to have a very long-term investment horizon that offers the scope for riskier alternative investments. Cleantech could also be a vehicle for SWFs to diversify out of fossil fuel dependency and soften their association with greenhouse gas industries. But the reality is, as with pension funds, only a few have opted in either as direct investors or by instituting environmental or climate change screens.
LED Leads Lighting Efficiency
In the green building sector, DFJ has made several investments in advanced lighting since 2003, including in the LED sector, which has been making inroads into the $75 billion lighting market. Lighting accounts for 20-25% of the nation's electricity consumption ($389 billion at $0.10 per kilowatt hour), with buildings responsible for nearly 40% of that amount. "When you think about the incandescent light bulb and the limitations of fluorescents with their lack of capacity for control and disposal issues, it's an area ripe for change," said Fonstad. The firm's lighting plays include three LED firms, Luminus Devices, Intematix and D.Light International of India. (DFJ has offices in India and China.) D.Light makes solar powered LED lanterns to replace kerosene lamps used in villages. The company is reportedly targeting revenues of $25 million this year.
Tax Equity Investors Return, But With More Stringent Requirements
With the recovery, tax equity players have been trickling back into the market, albeit with heightened risk sensitivity. Prior to 2008 approximately 20 U.S. tax equity investors were active, including AIG, Wachovia, and Lehman Brothers. By early 2009, the count was down to five, according to a July 2009 report by DOE's National Renewable Energy Laboratory. Active players today include JP Morgan, Union Bank of California, Wells Fargo, New York Life, Bank of America, US Bank, Citibank, and GE EFS. John Marciano, an associate at Chadbourne and Parke, said investors have been returning piecemeal over the last 18 months. "As they get less afraid of doing anything, one of the first places they're going is renewables," he said. However, "There is absolutely no willingness by the tax equity investors to take construction risk."
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