Cleantech continues to attract investment

The cleantech sector will continue to attract high levels of investment and foster innovation in new, unexpected areas in 2011, according to an analysis by the North American consulting company Kachan & Co.

The industry is not on the downside of a bubble: there was near record venture investment worldwide in 2010 and massive funds still being raised by cleantech investors. The expectation is that 2011 will bring an even more tangible appreciation of the drivers of cleantech in the shape of resource scarcity and the need for greater efficiencies, energy independence and climate change.

“We predict these drivers - particularly the real or perceived scarcity around oil, rare earth elements and other commodities - will be felt even more acutely in 2011, especially as the Chinese middle class expands, further cementing the demand for and the market validity of clean technologies,” said Dallas Kachan, Managing Partner at Kachan.

Next year will see more corporate investment in the field, with large companies investing billions in cleantech in 2011, according to Kachan. In recent weeks, GDF Suez has created a fund to invest primarily in waste management, while GE invested $200 million in a handful of cleantech companies. In 2011, corporations will continue to form or expand corporate venturing arms, driven not just by returns, but by associated corporate social responsibility (CSR) benefits, Kachan predicts.

A return to early stage venture investments

At the same time there will be a return to early stage venture capital investing in cleantech in 2011. Data from the last few months of 2010 shows an increase in early stage deals, with investors piggybacking less on US government grants and loan guarantees, which had skewed investment into more mature cleantech companies.

“In 2011, venture investment in cleantech will return to what it does best: seeking out emerging early stage technologies and teams that promise good multiples, and will be less influenced by governments putting large amounts of capital to work,” said Kachan. “Funds are still being raised. And those funds will need to be invested.”

Energy efficiency is the rock star of cleantech

Energy efficiency, including smart grid technologies - where Kachan expects continued massive investment and corporate activity - really only got serious traction in 2010. GE made huge announcements, investments and acquisitions in the third quarter of 2010. Just over a month ago, Russia unveiled massive energy efficiency plans.

“In 2011, look for efficiency to become the clear dominant investment theme, as investors continue to seek less capital intensive efficiency plays,” said Kachan. But there will also be a winnowing of efficiency companies in 2011, partly because of concerns about differentiation, and partly because of the long sales cycles of utilities that are only starting to be understood by star-ups.

Biofuel investment could reach former highs

After several years of relatively inexpensive oil, Kachan predicts an upswing in biofuels investment in 2011, specifically, in drop-in biofuels. But cellulosic ethanol, which disappeared from headlines in 2010, may also disappear from investors’ portfolios in 2011, on the back of expectations that the US Environmental Protection Agency will lower its cellulosic ethanol volume requirements.

Nuclear surprises, but not in U.S.

Expect to hear about more nuclear innovation in 2011, as the industry begins cautiously testing new science after decades of relative inactivity. Examples include thorium fuel initiatives, waste disposal and new micro-reactor designs. However, R&D, trials and ultimate adoption are expected to be in Asia, Europe and Canada, with nuclear development remaining stalled in the US in 2011.

Natural gas emerges to threaten solar and wind for utility renewable power generation

Renewable natural gas from inexpensive feedstock, indistinguishable from petro-based natural gas, could capture the cleantech industry’s imagination in 2011, according to Kachan. Such gas, transported in existing pipelines, could be sold at a premium to industrial customers like power utilities anxious for a cheaper renewable source than solar and wind. If burned in existing natural gas plants, such power could represent baseload renewable energy, unlike solar and wind, the firm notes.

“Look for scientific innovation in renewable natural gas in 2011, increased political support for natural gas in general as a transitional 'cleaner' fuel, a folding-in of natural gas into renewable energy standards and cleantech industry buzz over it being an important new wagon to hitch to.”

China to become most important market for cleantech

“In 2011, the leadership of cleantech vendors and service providers will be determined by the extent of their traction in China,” said Kachan. “It's the largest and the fastest growing market for clean technologies, and to ignore it out of concern about intellectual property or other costs of doing business will be to watch most of one’s addressable worldwide market disappear to competitors."

Links