Venture capital investments in green energy are shifting toward advanced technologies as well as less capital-extensive technologies, according to analysis by Frost & Sullivan.
The green energy sector was a recipient of growing investments from the VC community until the economic downturn, following which the investments shrank in 2009.
Government policies and funding have played an important role in mitigating the intensity of such trends.
"Government policies and funding are two of the main driving forces for developments and investments in renewable and alternative energy technologies," says technical insights research analyst Elaine Chan. "Stronger government focus worldwide has been spurred by the need to address climate change as well as energy independence and security issues."
Support from major governments worldwide, including countries such as the US and China, are already having a positive impact on investments in the clean energy sector. Significant amounts of the US stimulus funds allocated for smart grids and energy efficiency technologies are boosting developments and investments in these sectors.
However, the current economic situation is affecting some of the main clean energy investment trends, resulting in a fall in VC investments in this sector. Capital from limited partners for new venture funds has been difficult to come by, and the economic slump has negatively affected VC-backed liquidity through the initial public offering or mergers and acquisitions.
"Earlier investments show that VCs have moved into clean energy investments with amounts that are growing year after year, although there was a significant fall in investments in the first quarter of 2009," says Chan. "Green energy start-ups will find it difficult to attract financing rounds of over USD100m. This is due to the smaller pool of investors and restricted access to capital, triggering a shift to less capital intensive energy technologies such as energy storage and energy efficiency."
Although investments in solar energy technologies continue to dominate, VC investments have moved toward smart grid and energy efficiency-enabling technologies such as green buildings applications and energy storage technologies for electric transportation and grid storage. Funding opportunities in these sectors have significant potential in the current economic climate.
"Technologies that are capital efficient and scalable present the best opportunity in the current economic scenario," adds Chan. "Distributed energy generation, energy storage and energy efficiency on the supply and demand side including technologies along the supply chain of green energy industries will be increasingly sought after by VCs in the future."
