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Planet-Profit Report, reporting on sustainable development in the Western United States.

The rollercoaster ride of alternative energy investment

Energy efficiency is still king

Investment in alternative energy companies is a rollercoaster ride definitely not for the faint of heart. Cleantech Group released its Q2 2011 numbers in early July and the market can only be described as volatile. Investment dollars plummeted 33 percent over Q1 to $1.83 billion. These investments represent 161 deals around the globe with the largest share going to energy efficiency opportunities.

The total number of deals was also down from Q1 to 161, representing an 8 percent slide over the previous quarter. Generally speaking, clean technology investments are increasingly leaning toward established firms with 66 percent of the investment deals (106) being made in Series B or later rounds and 87 percent of the dollars ($1.59 billion) going this way.

On the upside, IPOs were solid with 11 in the quarter. Biofuels and biomaterials had two strong IPOs with Solazyme and KiOR. Six other IPOs were out of China.

Mergers and acquisitions were also solid in Q2 2011 with energy super major Total SA acquiring a 60 percent stake in SunPower, and high technology powerhouse Toshiba acquiring meter company Ladis+Gyr. These two deals represent $3.67 billion in investment.

Geography

On a geographical basis, North America represents 77 percent of the total venture investments at $1.42 billion. These dollars are down significantly, 37 percent, from Q1. However, the total number of investment rounds was up slightly to 113 over 110 the previous quarter.

Europe and Israel were a distant second in terms of funds raised at $312 million, but were up 58 percent over the previous quarter for the region.

Asia and Pacific Region brought up the rear in investment funds raised in Q2 at $103 million.

Technology

Energy efficiency continues to lead the alternative energy investment market, especially in the lighting sector. Energy efficiency had 38 deals totaling $428 million. Twelve companies raised over $173 million in the quarter representing 40 percent of the energy efficiency sector. Nine of these firms were in the lighting sector.

Of particular interest is the $80 million raised by California-based, Bridgelux, a LED lighting system company. As the U.S. gets increasingly closer to implementing its policy to eliminate incandescent bulbs, firms in the LED market will grow market share and opportunity.

Solar investments had 27 deals totaling $363 million in the second quarter. The top deals included Suniva, a Georgia-based developer of monocrystalline silicon cells ($94.4 million); Enecsys, a UK-based developer of micro-inverters ($41.3 million); and Royal Tech Solar, a China-based manufacturer of concentration and tracking devices ($35.7 million).

As the solar market matures, we are beginning to witness investment in other areas of opportunity with the market such as micro-inverters and software based tracking and monitoring capabilities. The prolonged sluggish economy has also driven some creative financing models including solar gardens by the utility companies and leasing options for home owners. This would point to smart meters, smart metering software and management as being an up-and-coming major push for investments.

Biofuels and biomaterials had 12 deals in Q2 representing $237 million. Two of the top three deals were US based: KiOR in Texas ($55 million) and BioAmber in Minnesota ($45 million).

Biofuels have the opportunity to make a significant difference in fossil fuel consumption. Unlike ethanol with stringent ratios for performance, fourth generation synthetic biofuels can be mixed with gas in unregulated ratios. Fourth generation biofuels behave exactly like gas, enabling firms to use existing infrastructure. Utilizing an established infrastructure significantly reduces the total cost to implementation and therefore reducing investment risk.

Transportation continues to have a strong role in alternative energy investments. There were 9 deals totaling $176 million in Q2. Electric vehicles continue to draw investment with Fisker Automotive in California raising $100 million in Q2.

Market Investment Opportunity

Clean technology investments have slid in Q2, but over the past year have managed to outperform both the S&P 500 and NASDAQ indices. There are several IPO filings worth watching, two in solar and one in energy efficiency. Based on the consistent quarter over quarter upward trend of energy efficiency investments, keep your eye on Aspen Aerogels.

All of the numbers in this report have been generously provided by CleanTech Group. Spend a few minutes on its site to explore the depth and breadth of research and analysis the firm provides its customers.