Cleaning Up On Clean Technologies

It’s getting to be prime time for clean technologies.

After years incubating in laboratories, then nurtured as start-ups by green-leaning venture capitalists, the clean-tech sector is finally getting serious attention from deep-pocketed investors who are seeing clearer exit strategies through an increasing number of successful public listings.

In 2005 clean-tech firms raised $592 million in IPOs, a figure that jumped to $1.35 billion last year, which has already been eclipsed by $2.4 billion raised this year in three major U.S. markets alone. “You can expect to see quite a few going public in the next 12-24 months,” says Jeff Lipton, Managing Director of CleanTech Investment Banking at Jefferies Group, especially in the solar sector, where there has been a string of successful launches.

The clean-tech sector is not strictly defined because it continues to broaden as a wider array of environment-friendly technologies approach commercialization, but four broad categories are central: renewable fuels and electricity generation, energy storage and conversion, energy intelligence technologies and advanced materials.

Peter Dejong / AP Wind turbines are seen in Dronten, the Netherlands, July 27, 2006. The Dutch have used windmills for centuries to pump water out of their low-lying country, and old-fashioned wooden mills are closely linked with their international image. But in the face of a large and growing lobby against the windmill's modern electricity-generating counterpart, the wind turbine, the country has now started moving them offshore and out of sight. (AP Photo/ Peter Dejong)

New companies on the horizon are generating electricity through solar thermal (huge parabolic mirrors focusing sun rays to boil water or oil), geothermal, tidal wave farms, developing aviation fuel from algae, or turning out biodegradable plastics and ‘green cement’ to cut down on the 7 percent of our carbon emissions generated by the conventional kind.

Green And Global

A convergence of global drivers is fueling this investment surge, including concerns about global warming, energy security and prices, as well as consumer demand, now reflected in supportive government policies, for products that make better use of limited natural resources. “There has been a fundamental shift, there is no going back,” says Joseph Muscat, Americas director of Ernst & Young’s cleantech advisory services.

“These are the defining issues but they are also the defining opportunities of our generation,” says Nicholas Parker, cofounder of Cleantech Group. ”You can make a lot of money in this space while at the same time making a large contribution, and that jazzes a lot of people now.”

That buzz is most palpable among venture capitalists, who provide the critical seedbed for start-ups, and evident in soaring commitments. VC clean-tech investment spiked to $1.1 billion in the first half of 2007, a 35% increase from 2006, according to a Deloitte survey. Between 2004 and 2005 VC investment nearly tripled, from $493 million to $1.4 billion, according to the National Venture Capital Association.

As fast as it’s growing clean-tech investment is still a relatively small percentage of total VC investment – between 5-10% by most reckoning – but it’s enough to supply a strong pipeline of new start-ups. New Energy Finance has identified 866 development stage ‘pure-play’ clean energy companies. Later the bigger money comes in, from more mainstream VC firms, investment banks and hedge funds, as well as the strategic investment arms of major corporations, who are among the big winners so far in the clean-tech boomlet.

Al Grillo / AP

More than $16 billion poured in to this sector last year from private equity investment, representing a 67% increase over 2005, and New Energy Finance says it expects investment to increase at a compound annual rate of about 17% through 2013.

The bulk of this investment is energy-related - the core of cleantech - with 86% of investment going to wind ($8.4 billion), biofuels ($4.7 billion) and solar ($2.3 billion), including build-outs of mature technologies, such as on-shore wind and first-generation, corn-based ethanol.

“What cleantech is about today is scaling up – that’s where we are, and it’s got be cost-competitive and therefore price competitive, that’s critical,” says Ron Pernick, co-founder of  Clean Edge, a research and publishing firm, who says even a modest price premium will deter all but 5 percent of potential customers.

CONTINUED : Photovoltaics, IPOs And P&Ls

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