Investment in transportation surged ahead of the smart grid in terms of overall dollars spent for overall cleantech investment in the third quarter of 2010, according to a new report.
Newly released figures from The Cleantech Group indicated that clean technology venture investments in Q3, totaling $1.53 billion across the globe, were down by 30 percent compared to the previous quarter and 11 percent lower than the same period a year ago.
The reason? A short leash on available funds from financial institutions, according to the group.
“Businesses and investors are grappling a bit with a recovery that hasn’t quite taken off. I think we’re seeing the same in cleantech,” said Cleantech Group president Sheeraz Haji. “[But] we certainly expect it to top 2007. We certainly expect it to be the second best year on record.”
“Asia absolutely defies the drop, and China in particular has really shown some strength,” Haji said. “Capital is not an issue for China. It really is quite striking that the availability of capital in China is so strong.”
Meanwhile, investment in California is down 61 percent, Haji said.
“Transportation is not just about the electric vehicles,” he said. “EVs are coming and huge, but we continue to think the transformation of transportation goes beyond EVs.”
A few points from the group’s conference call:
- Solar investment has “taken a hit,” but it may just be “cyclical.”
- IPO markets “have been shut [to all] except for the big names.
- Power purchase agreements by companies continue to trend upward.
- The U.S. government continues to participate in the cleantech market. One example: the U.S. Navy’s recently announced goal to use renewable fuel for half its fleet by 2020. “That is a massive sea change in one large Department of Defense facility,” Haji said.
- California remains “incredibly strong” in venture dollars, followed by Texas, Ontario and Massachusetts.
- Still, North America “is not as dominant as it has once been.” That’s a good sign that the cleantech industry is global, Haji said.
Despite the mixed signals, Haji said his company believes 2010 will still end with the second highest annual volume for cleantech VC investment ever.
Haji and Deloitte director Brian Goncher briefly summarized each sector within the cleantech industry.
Here’s a quick play-by-play:
Transportation: $208 million in 17 deals
“Efficiency continues to really dominate, but average dollars per deal are smaller,” Haji said. Example: eHi Car Rental, a China-based car sharing company, raised $70 million for a business centered around “resource efficiency.”
“We’ve seen big car rental companies like Hertz experiment with car sharing and big companies like Ford and GM experiment with this model,” Haji said.
Similarly, EcoMotors, a Michigan-based developer of an internal combustion engine with improved efficiency, raised $23.5 million from Khosla Ventures and Bill Gates; China-based Anhui ActBlue, a developer of technology to break down pollutants in the exhaust streams of diesel engines, raised $22 million.
“Don’t forget the internal combustion engine,” Haji said.
Biofuels: $186 million in 9 deals
“Biofuels are critically important,” Haji said. Highlights: Kior, a Texas-based developer of a catalytic cracking technology for turning biomass into bio-crude, raised $110 million from investors that include Khosla Ventures; Solazyme, a California-based developer of technology for making fuel and bio-products from algae, raised $52 million; and SG Biofuels, a California-based developer of jatropha seeds for biodiesel production, raised $9.4 million.
“A little bit of support in the public markets could really make this a good year for biofuels,” Haji said.
Smart Grid: $163 million in 7 deals
Highlights: Trilliant, a California-based provider of wireless equipment and management software for smart grid communication networks, raised $106 million from investors that include VantagePoint Venture Partners, ABB and GE; Nexant, a California-based provider of software and consulting services for the smart grid, raised $43 million; and eMeter, a California-based developer of software for utilities to achieve large-scale smart grid deployments, raised $32 million.
“This is clearly an industry that’s continuing to grow,” Haji said. “We’ve seen some challenges with acceptance in California and regulatory concerns in Baltimore and we haven’t yet seen the heavily rumored IPO from Silver Springs. There are mostly positive forces on the grid but also open questions.”
After being the leading sector in the second quarter of 2010 ($874 million invested in 25 deals), solar investment in the third quarter totaled just $144 million in 18 deals.
- Energy efficiency was the most popular sector measured by number of deals, with 24 funding rounds, ahead of solar (19 deals) and transportation (17 deals).
- “Water [conservation] is an area that’s had a really nice uptake. We think there’s some good pressures and drivers and the price of water continues to outpace inflation,” Haji said.
- Three of the five top cleantech deals are in the U.S.
- “Mixed signals” in the IPO market, with numbers that are “significantly off” from previous quarters. “It’s safe to say that the markets are effectively closed to most players,” Haji said.
- Big companies are active in their venture funds. Examples: GM, GE. “Companies are saying, ‘We are opening up our channels,” Goncher said.
- M&A numbers “aren’t yet off the charts,” despite record low interest rates. “[Cleantech] strikes us as an area that’s ripe for an M&A market,” Goncher said. “[But] caution in the numbers. There’s clear uncertainty.”
- The utility sector is “a bright spot,” Goncher said. “The first two quarters are the biggest ever for utilities.”
- Wind remains the most economic and largest segment, Goncher said.
- Geothermal is”seeing a little bit of a rebirth,” Goncher said. “It won’t be the largest segment after wind and solar, but it will be a larger share.”
The report also broke the cleantech market down by geography. North America accounted for 61 percent of total investment, while Europe and Israel accounted for 25 percent, China for 10 percent, and India 4 percent.
- North America: Companies raised $928 million, down 42 percent from 2Q10 and down 15 percent from the same period a year ago.
- Europe and Israel: Companies raised $382 million, down 22 percent from 2Q10 and down 28 percent from the same period a year ago.
- China: Companies raised $153 million in 11 disclosed rounds, more than any quarter since 2007.
- India: Companies raised $67 million in seven disclosed rounds, up from $59 million in five rounds in 2Q10.
- Japan: Enax, a developer of lithium-ion batteries for the automotive industry, raised $41 million.
- Korea: Electric car company CT&T raised $60 million.
“Feed-in tariffs have driven solar with Germany and Spain leading the way,” Haji said. “With the austerity programs, you’ve seen a lot of economies in Europe tweak those down, and you’ve seen that have a huge impact on investment.”
When assumptions change, people get nervous, Haji said.
“Things are more mature in Europe,” he said. “The presence of a price on carbon has been a huge accelerator. The feed-in tariff has been a huge accelerator. I’m more in shock and awe and impressed by the growth in Asia and China.”
One example: Korea’s $23 billion investment in the grid, led by the nation’s massive tech companies.
“China is embracing innovation. It’s no longer the low-cost manufacturer.” Haji said. “It’s no longer simply licensing tech from Applied Materials for its renewables industry. That’s a pretty significant shift.”
The challenge for all cleantech companies: a second “Valley of Death” — period without investment — that could slow the industry’s progress.
Highlights: Ameresco, a Massachusetts-based provider of energy management and data technology services, raised $87 million; and California’s Amyris, a developer of a synthetic biology platform for the production of fuels and chemicals, raised $85 million.
The rest were in Asia.
Finally, the top global venture capital investors in 3Q10:
- Draper Fisher Jurvetson: SolarCity Corporation, Power Assure, Attero Recycling, Ambiq Micro
- Imperial Innovations: Plaxica, QuantaSol, Nexeon
- Braemar Energy Ventures: Solazyme, Laser Light Engines, LUMEnergi
- VantagePoint Venture Partners: Trilliant, Solazyme, GLO
- Low Carbon Accelerator: LUMEnergi, QuantaSol, Proven Energy