VC Investments In Cleantech Fall As Investors Shift Focus To Energy Efficiency

U.S. venture capital (VC) investment in cleantech companies in the fourth quarter of 2009 (Q4 09) decreased 45% to $564 million compared to the prior quarter, while the number of deals increased 21% to 62%, according to an Ernst & Young LLP analysis based on data from Dow Jones VentureSource.

Investment in 2009 reached $2.6 billion in 193 financing rounds – a decline of 50% in terms of dollars and 16% in terms of deals compared to the record investment levels of 2008.

In 2009, the number of financing rounds in the energy efficiency category – encompassing technology areas such as smart grid and residential and commercial energy management solutions – grew in absolute terms by 11%, making it the leading area of cleantech deal activity.

The energy efficiency category share of total financing activity in 2009 rose from 24% to 32%. At the same time, the share of financing rounds directed to the more capital-intensive energy/electricity generation category fell from 30% to 18%.

The energy/electricity generation category garnered $118.5 million with 11 deals in Q4 09, down from the $316.5 million invested in eight deals in the prior quarter; $654 million was invested in this category in 2009. The largest deal in Q4 09 was the $38 million raised by Berkley, Calif.-based Nordic Windpower Holdings Inc.

The U.S. government continues to serve as an influential cleantech investor. Under the Section 48C Advanced Energy Manufacturing Tax Credit of the American Recovery and Reinvestment Act of 2009, $2.3 billion was recently awarded to 183 cleantech manufacturing projects in 43 states.

An Ernst & Young analysis of these awards shows that venture-backed projects received $402 million in awards. President Obama's 2011 budget proposal would provide an additional $5 billion appropriation for the Section 48C program, offering further support for cleantech development.

SOURCE: Ernst & Young LLP

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