Cleantech investing changing with market



Speakers at last week’s Cleantech and Renewable Energy Public Policy Forum highlighted the changing nature of the market and financing in the budding industry, with some discussion about its development in San Diego.

Andrew McAllister, program director of the California Center for Sustainable Energy, said that “there are more solar sites and projects in San Diego than in any other U.S. city.” He went on to note that “solar still only represents 1 percent of SDG&E power generation” and noted that “fuel cells are also big in San Diego.”

The conference, attended by about 85 people, was held at the AMN Healthcare auditorium and was sponsored by CONNECT and K & L Gates, an international law firm specializing in cleantech matters.

Duane Roth, CONNECT’s CEO, said, “The base market for clean technology will be China and that smart companies will build for the China market (products and services) which can also be used here.”

K & L Gates partners Dirk Michaels, Greg Brucia, Fred Greguras and Nick Leibham made the following observations:

  • Tax-equity based financing for cleantech companies has disappeared versus the cash grants. Banks no longer offer 12- to 15-year financings and want seven-year deals. Project sponsors will have to invest more of the tax equity funding in the deals they manage, they said.
  • Cleantech Group LLC reports that for the first quarter of 2010 worldwide venture capital investment in cleantech companies was $2.1 billion across 189 deals, which is the highest first quarter total ever recorded by the organization. In Q1 2010, solar companies raised $416 million in 29 rounds of financing. That amount is well off the historical highs set in 2008, but still ranks solar among the top cleantech sectors.
  • Venture capitalists now have to invest increased amounts in their portfolio companies as exit transactions take longer to happen. The result is that many VCs are much less interested in new opportunities since they are not able to recycle their funds as previously had been the case. There’s still some VC interest in companies in the smart grid and energy efficiency areas.
  • Energy storage companies are of interest to VC’s, with wind and solar the major focus of cleantech investors. The government grant and loan programs are heavily focused on job creation.
  • An increasing level of VC financing is going to support existing portfolio companies at the expense of new, early-stage investments. Drivers include a lack of exit opportunities and tight project equity financing, which require VCs to fund existing portfolio companies for longer periods of time.

The speakers also noted that interesting technologies are being “starved” by a lack of funding from private sources. The Department of Defense has by far the largest budget for cleantech but is focused on “force protection” rather than on environmental considerations. Storage capability is the “Holy grail” of projects of interest to the DOD.