According to a new report by Ernst & Young, U.S. venture capital (VC) investments in cleantech rose by 73 percent, to $1.1 billion, in the third quarter of 2011, in spite of a global slowdown in investment in most other business venues — with the notable exception of Internet ventures and health care.
Ernst & Young is a business consultancy group focused on delivering accurate and timely information, advice, and business development services globally. The report was prepared using data from Dow Jones VentureSource, an investor resource which bills itself as providing the most accurate, timely and comprehensive research on the VC industry.
This record investment was led by the energy storage segment, which focuses on devices or physical media which capture and regulate electrical energy generated by a myriad of methods.
A prime example of companies in this vertical would be the recently-bankrupt but still operant Beacon Power Corp. (NCM:BCON), which has a patented method of flywheel energy storage for utility-scale energy delivery facilities. Other energy storage devices would include long-life batteries (e.g., lithium-ion), fuel cells, and ultracapacitors, as well as solid-state electronics that convert and control the flow of electrical energy.
The increased investment in this sector alone, representing almost 2,000 percent over Q3 2010, or $421 million ($225.5 million of that into fuel cells), is proof positive, according to some, that energy storage has survived its infancy and is entering the mainstream, where it is expected to alter the landscape of the power generation industry forever.
Many of these companies were in the commercialization phase, which also indicates approaching industry maturity. Of the three venues – Energy Storage, Energy/Electricity Generation and Energy Efficiency – the second (comprised of cleantech firms deploying solar, wind and geothermal, for example) raised the second largest amount of VC capital, garnering $255.1 million, which was still 2 percent less than 2010. In this sub-segment, solar energy performed best, getting 77 percent of the investments, or $195.8 million.
The Energy Efficiency segment came in third, attracting $245.1 million in VC funding, or almost a quarter more than during the same period in 2010. In spite of taking third place in overall funding, however, Energy Efficiency dominated the number of deals with 21, or a 31 percent increase from the 16 negotiated in Q3 2010.
Last came investment in Industry Products and Services, with biofuels leading – a sector that still lost 22 percent of its value in investor’s eyes compared to the same period in 2010.
Overall, revenue-generating cleantech companies held center stage, getting both more deals and more investment in 2011 than startups (that is, those companies “spun off” from universities or non-profit laboratories and the like, and still engaged in R&D).
It will come as no surprise to most that California led cleantech investment, closely followed by Massachusetts. These are also the two states (though in reverse order) which currently top the list of ACEEE (American Council for an Energy-Efficient Economy) states most heavily vested in energy efficiency.
California ran away with 52 percent of all the VC dollars invested (a total of $583 million). Massachusetts came in second, with $170.4 million – a disparity that reflects not only environmental commitment but the fact that California is 15 times larger than Massachusetts in size with almost six times its population.
The impetus behind this record cleantech investment reportedly comes from corporations, which need to manage their energy supplies to protect the environment and optimize profits, given energy’s increasingly expensive profile.
Conspicuously absent from the cleantech sector this quarter were IPOs. The sector did, however, see 11 mergers and acquisitions, many of them in the solar energy industry, notably JA Solar’s acquisition of Solar Silicon Valley for $180 million and MEMC’s purchase of Fotowatio for $131 million. The biggest VC capture in the solar sector was by HelioVolt, which raised $85 million.