Efficiency “sweet spot” for investors

Energy efficiency appears to have married rich in partnering with smart grid. Yet another report shows that together they have formed what has become today’s most appealing clean tech sector for venture capital.

Ernst & Young, using data from Dow Jones VentureSource,  recently reported that financing rounds grew 11% in 2009 for energy efficiency — this as deals for the clean tech sector as a whole dropped by 16%.

The findings echo recent conclusions by Peachtree Green Advisors that found money pouring into the efficiency sector last year, pumping up total deal values by 664.7%. (See Elisa Wood’s January 22 blog, “Investors and public back energy efficiency.”)

What’s attracting investors?

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Ernst & Young points out that that efficiency technologies require little capital and can be commercialized quickly — characteristics of special appeal in an economy still nervous about high risk. Smart grid revolves around digitalizing the electric grid to achieve greater efficiency in energy use. While not exactly the stuff of dorm room startups, these technologies have more in common with dotcom inventions and software development than capital-intensive power plants.

“Energy efficiency is in the sweet spot of many venture capital investors in terms of skill sets and funding parameters, particularly given its basis in information technology.  Consequently, we may see investor participation in clean tech broaden,” said John de Yonge, Ernst & Young, associate director, Americas Cleantech Network.

Energy efficiency’s share of total financing activity in 2009 rose from 24% to 32%, Ernst & Young said. The category raised $593.3 million for 2009; of that $252.8 million came from fourth quarter 2009.

The report cites the $105 million investment in Silver Spring Networks as the largest deal of the fourth quarter. The Redwood City, California company provides smart grid networking and services for Florida Power & Light, Pacific Gas & Electric and Pepco Holdings, among others. Institutional investors led the financing round and included several of the company’s existing investors: Google Ventures, Foundation Capital, Kleiner Perkins Caufield & Byers and Northgate Capital.

Government policy is clearly playing a big role in energy efficiency’s appeal.  The areas of the country with the most clean tech investment have strong clean energy policies: California and New England.

What’s in store for 2010?  The picture, so far, is good for efficiency companies looking for customers.  Ernst & Young found that half of the major global corporations with more than $1 billion in revenue plan to spend $10 million on clean tech products and services in 2010, with 22% planning on at least $100 million.

More details here: http://www.ey.com/US/en/Newsroom/News-releases/Venture-capital-2009-investments-in-cleantech-fall-50-percent-to-2-billion-dollars-as-investors-shift-focus-to-energy-efficiency.

Visit Elisa Wood at  http://www.realenergywriters.com/ and pick up her free Energy Efficiency Markets podcast and newsletter

 

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Elisa Wood is a long-time energy writer whose work appears in many of the industry's top magazines and newsletters, among them Renewable Energy World and Platts. She serves as chief editor of EnergyEfficiencyMarkets.com. Her work has been picked up by the New York Times, Reuters, the Wall Street Journal online, Utne, USA Today and several other sites. She is author of the report "Think Microgrid: A Guide for Policymakers, Regulators and End Users." See more of her work at RealEnergyWriters.com.

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