$18.1 billion was invested in the clean energy sector in 2006, a 67% increase from 2005. The rising trend line continues with $10.6 billion invested for the first half of 2007. There are close to 200 private equity funds focused on the sector. $8.6 billion was invested in companies and $9.5 billion was invested in projects last year, according to the report, Cleaning Up 2007, by New Energy Finance
This rapid growth tells only half the story: during 2006, clean energy VCs invested only 73% of the total money available to them, with $2 billion residing in funds and waiting to be invested. This is a symptom of a market where demand for deals is higher than supply, which is driving up company valuations.
All regions experienced significant growth in 2006. The Americas saw investment of $7.1bn – an increase of 83% on 2005 – as mainstream investors woke up to the opportunities in clean energy, especially in biofuels. There was a 62% increase to $9.2bn in funds invested in Europe, Middle East & Africa, mainly driven by PE investment in companies and projects. Companies and projects in the Asia & Oceania region received $1.8bn in investment, up 26%, driven by pre-IPO PE investments in Chinese solar companies and clean energy activity in countries such as India.
At a sector level wind ($8.4bn), biofuels ($4.7bn) and solar ($2.3bn) attracted 86% of VC/PE investment between them. Mature technologies, such as on-shore wind and first generation/corn-based ethanol, attracted PE money for expansion and roll-out of production capacity. Solar raised a significant amount of money via the public markets, but also attracted the highest level of classic VC investment ($428m) typically into thin film and non crystalline silicon technologies. VC investment in second generation biofuels technologies, including cellulosic ethanol, also increased to $235m.
Of the total VC & PE investment of $18.1bn, 61% ($11.1bn) represented new money into the clean energy sector. The remaining money, $7.0bn, was used to finance company buy-outs, and re-finance and acquire projects. Encouragingly the average VC deal size has increased in the past year at almost each development stage. Average series C/third round investment rose 29% to $14.8m and average series D/fourth round deal size almost doubled to $20.7m indicating investor confidence in companies with technologies closer to commercialisation.
The highest concentration of VC/PE funded development stage companies is in the solar sector, accounting for almost 20% of all development stage VC/PE funded companies, followed by wind, demand-side efficiency, biofuels and biomass & waste. These five sectors together account for almost 65% of all VC/PE funded companies. Of the 67 development stage companies known to be actively fundraising, 17 are within the solar sector, 13 in biofuels and 10 in demand side efficiency.
Contrary to popular belief that Europe leads the way in clean energy investment, the focus for VC/PE-funded clean energy companies is the Americas, with 408 VC/PE funded and pre-institutional companies, 58 more than Europe, Middle East & Africa. The Asia Oceania region still has a long way to go to match the level of VC/PE seen in the Americas and Europe.
Furthermore, looking forward to the second half of 2007, the fundraising focus remains on the Americas, with 47 of the 67 companies currently known to be fundraising based largely in North America. In time, China will provide venture capital opportunities, with the government signalling its support for domestic technological innovation and looking to cultivate home-grown, internationally competitive technologies by implementing preferential policies and channelling investment to promising companies.
New Energy Finance has updated its forecast of VC/PE investment from 2007. We estimate that the total VC and PE invested in clean energy will grow at an annual compound rate of approximately 17% through to 2013, during which time we expect over $262bn worth of VC and PE funded deals to be completed, absorbing over $146bn of equity. The money will go to later stage deals, buy-outs and project financings, although the recent squeeze in the credit markets may slow down growth in some areas.
Michael Liebreich, CEO and Founder of New Energy Finance, commented: a¬S2006 saw a modest amount of technology investment with increasing PE investment in later stage companies and more asset intensive sectors, such as wind and biofuels. Overall it was a good year. Although some company valuations are on the high side, a number of interesting companies are attracting investment. Investors appetite for clean energy continues to grow.
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