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Cleantech's Investment Cycle: Don't Worry, Think Bigger

Several reports this week agree that cleantech investments fell in 2013, but that's not a bad thing. And the big question is what happens next: how much more is needed?

Three new reports out this past week -- Bloomberg New Energy Finance (BNEF), Cleantech Group, and Clean Energy Pipeline -- all indicate that cleantech investments were down for a second straight decline in 2013, though their numbers differ slightly. Bloomberg New Energy Finance pegs total 2013 investments in renewable energy and "energy smart" technologies at $254 billion, down 12 percent from 2012. The Cleantech Group said worldwide venture capital investments dropped 15 percent in 2013 to $6.8 billion. And Clean Energy Pipeline pegs a 20 percent dropoff in 2013 new cleantech investments (to $212 billion).

Comparing those summaries reveals some patterns and trends:

  • The two biggest cleantech-investing countries, China and the U.S., both reigned in their cleantech investments, according to BNEF -- -4 percent for China to $61 billion, its first reduction in a decade, and -8 percent for the U.S. to $48 billion -- while cleantech investment in Europe "crashed" 41 percent to $58 billion, largely attributed to subsidy restrictions. Japan's appetite for cleantech investing, though, boomed +55 percent to $35 billion.
  • Project financing overall rose 22 percent globally, mostly because of large European offshore wind deals, according to Clean Energy Pipeline. Venture capital (VC) and private equity (PE) were their weakest since 2005, falling by a third in 2013 to $4.3 billion. Asset financing, the biggest area of investment, slid 13 percent to $149 billion. And small-scale distributed energy investments (basically rooftop solar) fell for the first time since 2006 (-25 percent to $60 billion) mostly because of falling prices, BNEF pointed out. M&A transactions for VC/PE-backed cleantech companies in clean technology sectors totaled 83 transactions in 2013 (up 15 percent), though only a small percentage of those were disclosed, totaling $604 billion (down 37 percent). "Investors continue to shift away from capital intensive deals and move towards distributed generation, resource sharing, agriculture, and the digital oilfield theme," indicated Cleantech Group CEO Sheeraz Haji.
  • By technology, energy efficiency was the big winner with $1.3 billion invested across 188 deals, a dollar total 23 percent higher than 2012, notes the Cleantech Group. BNEF tracked solar investments falling about 20 percent to almost $115 billion, wind investments declining only slightly to $80 billion, biomass/waste-to-energy sinking 42 percent to $8 billion, and biofuels dropping about 26 percent to $4.9 billion, less than a fifth of their peak in 2006-2007.

But cleantech investing isn't dying off, despite some would have us believe. Investments compounded quarterly were up nearly 15 percent following five quarters of decline, the Cleantech Group says. Investment dollars, particularly in Europe, were down not because of flagging interest but because of reduced subsidies and the overall falling cost of solar installations, suggested BNEF CEO Michael Liebreich. (The flip side of that coin: cheaper solar energy means more bang for the investment buck.)

After two years of decline, this is just more evidence and confirmation that clean energy is a maturing market. "We've seen this movie before," explained Dallas Kachan, managing partner at Kachan & Co., and former managing director of the Cleantech Group. In various tech booms, waves of innovation and periods of "frothiness" have had a plateau and correction period -- including a dropoff in venture capital activity -- but then new sources of capital came in and drove an upswing in the sector lifecycle. This is "more recognition that this class of technology is here to stay," he said. If you want to worry about what's happening in cleantech, worry about how the entrenched energy industries are lobbying to undermine pricing for renewables, and not where sources of capital will come from, he suggested.

And that broader participation will be sorely needed. Another report this week from nonprofit sustainability group Ceres suggests annual cleantech investments should be doubled to $500 billion annually to 2020, and boosted to a trillion dollars by 2030, to meet all the goals of limiting global warming (to 2°C) and avoiding the most severe effects of climate change, reducing electricity demand while increasing use of renewables, and improving energy efficiency. (The BNEF and Ceres projections came out of a climate/investment conference this week, hosted by Ceres at the United Nations.) And BNEF's Liebreich suggested maybe that's too conservative -- it might have to be more like $2 billion annually.

Overall annual clean energy investment 2010-2050, in U.S. $B, for a 2°C global warming scenario. Credit: IEA, Ceres

Institutional investors manage nearly $76 trillion of total assets, but just a fraction of a percent has gone toward clean energy infrastructure projects, points out Ceres. The group's recommendations: raise that commitment to five percent portfolio-wide for clean energy investments, broaden access to capital markets with bonds and asset-backed securities (we're already seeing this happen and more is likely coming in 2014); and support policies for pricing carbon pollution while scrutinizing fossil fuel companies' risk exposures.

The floodgates are only now starting to open to access capital, from deep-pocketed corporations putting their balance sheets to work to buy their way into the world of cleantech, to tapping into throngs of individual and institutional investors. "There's big money still on the sidelines looking for a way to participate," Kachan urged.

Lead image: Magnetic get more money, via Shutterstock

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