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Why Greentech Money Is Sliding From Supply to Demand

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With 2010 finally behind us, and a full year of data to play with, it appears that green technology investments are firmly shifting from the supply side of the equation to the demand side. In other words, solar and wind power were on the outs last year, and energy efficiency was the up-and-comer.

That’s the conclusion I draw in my weekly update at GigaOm Pro (subscription required), and while it may not come as a surprise to industry watchers, it’s nice to have some numbers to back it up. Although solar startups continued to draw the most money in venture capital investment last year, energy efficiency startups garnered the largest number of deals. At the same time, many of the biggest solar investments were tied to late-stage companies that may struggle to compete against entrenched competitors — Solyndra being one prime example.

As for IPOs, the fourth quarter posted an impressive $8.28 billion in greentech public offerings, pushing 2010’s total to a record-setting $16.33 billion. But the biggest IPOs of the year came not from venture-backed startups like Tesla Motors, but from entrenched companies, such as the $3.6 billion IPO for the renewable energy spinout of giant Italian utility ENEL, the $917 million raised by Xinjiang Goldwind and the $643 million raised by China’s Datang Wind Power.

But one of the most conclusive data points showing the rise of energy efficiency over renewable power generation lies in the performance of publicly traded greentech companies over the course of last year. On this measure, clean and renewable energy had a terrible year. The WilderHill New Energy Global Innovation Index (s NEX) fell 14.6 percent in 2010, compared to a 12.8 percent gain for the S&P 500 and a 16.9 percent rise for the Nasdaq composite index — and huge declines in wind power (down 37 percent) and solar power (down 26 percent) were to blame.

According to Bloomberg New Energy Finance, some of 2010’s biggest individual losers included German solar manufacturer Q-Cells, which fell 75 percent over the course of the year; US wind power component maker Broadwind Energy, down 71 percent; US battery maker A123 Systems, down 58 percent; and US thin-film silicon producer Energy Conversion Devices, down 57 percent.

Energy efficiency companies in the NEX, on the other hand, gained an average of 19.5 percent. Some companies that saw their share prices more than double over the year included U.S. organic LED maker Universal Display, Chinese LED supplier Zhejiang Yankon Group, U.S. inverter maker Power-One and U.S. electric motor maker Baldor Electric.

While past performance is no guarantee of future results, it is an indicator of where the wisdom of the market is leading investors — and on that measure, energy efficiency writ large is seen as the lowest-cost, highest-return green investment around. That’s not to say that venture-backed startups are out of the running in the solar space, of course — standouts like BrightSource Energy seem to be on track to master the big money game of generating megawatts of renewable power. Still, the days of raising hundreds of millions to compete with brand-new solar technologies certainly seem to be over.

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Image courtesy of Nathan Laurell via Creative Commons license.