Summary
Clean energy technology venture capital levels plunged 63 percent in the first quarter of this year, indicating that the global recession has tightened its grip on this industry as well, according to a recent report by market research firm Ernst & Young LLP.
Analysis
U.S. venture capital investments in clean energy technology plummeted 63 percent in the first quarter of this year, indicating that the global recession has intensified its grip on this industry as well, according to a recent report by market research firm Ernst & Young LLP. In the first quarter, U.S. clean tech companies raised 277 million U.S. dollars in 24 deals, representing declines of 63 percent in terms of capital and 48 percent in deals compared to the same period last year.
However, the green energy bust is not fully due to the plethora of new entrants, as expected, but rather the credit squeeze, plunging fossil fuel prices, decreased consumer spending for new and existing residential solar installations, and expensive hybrid vehicles. Furthermore, even established clean energy companies are administering layoffs; however, it took approximately six months longer for the recession to impact this less consumer-oriented sector of the US economy.
Moreover, the report found that venture capitalists increased their investments in energy storage, which is critical for less stable power generated from energy sources such as: solar, geothermal and wind power plants. The energy storage sector raised 114 million dollars in the first three months of 2009, which is more than double the first quarter of 2008.
President Obama’s economic stimulus funding for renewable energy has slowly begun to reach the private sector. For example, U.S. Department of Energy recently rewarded a grant to Solyndra, a cylindrical photovoltaic systems manufacturer based in California. In general, the timing of the receipt of government funding is still unclear for most companies in the field. It is predicted by most analysts that loan guarantees and other government financing programs, as well as corporate rather than consumer adoption rates of clean technologies, will be key indicators of a recovery in this sector.
The current economic conditions and financing short-falls for start-up companies will continue to reduce new entrants into the market and potentially lead to continued mergers and acquisitions for entrepreneurial companies seeking venture capital. It will be interesting to see if this issue will deter the construction of the largest commercial solar installation east of Arizona, located next to a Waste Management landfill in Bucks County, PA. It is a reasonable idea from the perspective of the unsightliness of solar farms requiring vast, open land in remote areas, especially in densely populated east coast states.
The potential 3.7 MW solar power plant contracted by Conergy of Denver, CO, which builds and operates power distribution facilities, has developed individual installations, for companies such as Exelon, that can generate power across as many as 15 states- from the east coast to the Midwest. Conergy's business model is to find a suitable plant site, construct a deal, design, build and operate the facility over the life of the project, and find an investor to provide funding. They will likely have to rely on an established company with sufficient capital for the solar farm considered by the PA landfill site, amidst the current crunch for venture capital. In most cases, a Conergy customer purchases the power and renewable energy credits (RECs) through a long-term (25 year) power purchase agreement (PPA), and then sells the power to a grid operator.
Amidst, the immense amount of open dessert in the state of Arizona, it is not likely that we will have a solar power plant in visible sight of populated areas- let alone at land fill sites.
