Clean technologies attract venture capital
Clean tech companies have got $10 billion investment from venture capitalists (VCs) since 2000. The investment approached $4 billion in 2008 alone. 70% of the money is in the United States, less than 10% of that in China.
US VCs will invest in clean tech most within 5 years. The majority of venture capital dollars have been captured by sustainable power generation such as solar, wind and biofuels.
Where are the profits?
The key point is whether the investors will see the benefits of both products coming to market and financial return.
Clean tech includes a wide range from environmental clean up—water, industrial waste, recycling — power generation and management—clean coal, biofuels, solar power, wind power, geothermal, wave power, smart grid management—and energy storage—batteries and fuel cells.
To some extent, clean tech has improved energy efficiency and the environment as well.
Recently, the investment community for clean tech companies has gone rewarded. In solar energy, investors have seen significant gains from companies such as First Solar, Suntech, Sunpower, Trina Solar and LDK, among others.
Ten Chinese companies with a total market capitalization of over $7 billion are publicly listed. The Chinese companies export the solar panels they have fabricated and assembled to Germany, Spain and the US.
With over 40 percent of the VC clean tech money and over 80 percent of the clean tech investment in china going into this sector, the early returns in the solar industry spawned a surge of capital throughout the solar energy value chain.
Wind power also has attracted a great deal of venture capital. Investments are primarily in wind generation equipment.
The two Chinese public wind power companies—Goldwind, Chinese High Speed Transmission, have not been realized by investors because they only realize the returns on capital invested that the solar industry has generated.
The other major area that attracts venture capital investment in power generation is biofuels, especially biodiesel and ethanol. Biofuels use renewable raw materials such as gains and grasses to create alternative transportation fuels.
The US has pursued poorly considered policies around corn-based ethanol driven by politics and farm subsidies rather than sound economic reasoning.
The US production capacity in corn-based ethanol has increased 4 times in less than 8 years, meanwhile, the prices of corn raw material doubled and many new technologies have proven difficult to commercialize and scale.
In the US alone, several billion US dollars of venture capital are at risk because the debt finance market collapse and the halving of oil prices sound the death knell for the first wave of biofuel companies.
Where to go?
As long as government support the installation of current technologies and provide the motivation for future investment, solar energy will get success.
Because of demanding for least subsidy to be beneficial for investors and providers, wind owns the best prospects for return on investment.
We must rethought biofuels with more emphasis on non-food feedstock. And biofuels will not be capital efficient for several years.
Clean tech will continue getting investment of venture capitalists with that moving more attention to energy storage, improving existing generation facility efficiency and improved conservation.
Nowadays, discussion among investors is focusing on energy efficiency. Doing energy efficiency investments can provide both best short term environmental and climate change benefits and the best financial returns.
There is no “silver bullet” for climate change and energy efficiency. The energy industry is being reconstructed from the beginning with new ways of generation, distributing, managing, storing, and using power. It will cost decades and trillions of dollars on this reconstruction.
However, today’s technologies in lighting, building materials, coal power plant efficiency and emission reductions, and smart grid management, are starting to modernize the energy industry.
The success of the US using market mechanisms to reduce sulfur dioxide emissions in the 1970s has inspired many of the carbon tax and carbon trading schemes underway today.
Many examples prove years of environmental neglect can be undone with government attention and policy.
Where’s China?
China is facing twofold challenges. The first one is to improve the economic growth. The second one is to provide both foreign and domestic technologies with the right intellectual property protection and financial incentives.
China will be one of the world’s centres of clean tech innovation, but this depends on sound government policies. Recent changes in the IP laws, shutting down environmentally noncompliant factories and large scale wind power deployments reflect Chinese awareness of both the need and opportunity.
For example, over 15% of China’s electric power capacity tends to be producing cement. Over 80% of this electricity is generated by coal-fired power plants. Large and immediate returns will be brought by more efficient and “cleaner” industries.
The reconstruction of the global energy infrastructure will require local, national and global action. Cooperation between China and America in this area is not only vital, but a representative of the greatest investment opportunity of the 21st century. No time can be wasted now.
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