Cleantech Market Overview, Q1 2010

1. Summary

In the midst of an uncertain emergence from the worst global recession since the 1930s, clean technology was stronger than ever in the first quarter of 2010. Venture investment in the clean technology sector racked up its strongest first quarter of all time, according to preliminary reports from the Cleantech Group and Deloitte, with $1.9 billion invested, up 29 percent from the previous quarter and a whopping 83 percent improvement from the doldrums of first quarter 2009.

Other figures reported by Bloomberg New Energy Finance put the first quarter’s VC and private equity total at $2.9 billion, up from $1.7 billion in the fourth quarter of 2009 and $1.6 billion in the first quarter of last year. At the same time, the Cleantech Group and Deloitte reported that corporate direct investment in green energy and clean technology saw a 140-percent jump from the last quarter of 2009, and utility investment into renewable power and smart grid continued to increase, driven by billions of dollars in stimulus grants, loan guarantees and other government support.

All told, total clean energy investment reached $27.3 billion in the first quarter, Bloomberg New Energy Finance reported. While that was down form the $31.6 billion recorded in the fourth quarter of 2009, it still exceeded the slump of $20.8 billion during the height of the recession in the first quarter of last year. In other words, for anyone concerned that coming out of the economic turmoil of the past two years would unseat clean technology as the preeminent growth sector, 2010 offered some very hopeful signs.

Still, these positive trends mask some very significant shifts for clean technology companies seeking to raise the money they need to grow. With the financial sector in turmoil, traditional capital remains very difficult to find and more expensive to obtain when it is available, whether that pertains to obtaining early funding or project financing. Debt financing for large-scale projects is limited to only the most time-tested and conventional projects, leaving startups more dependent on more expensive equity financing. In the United States, the key vehicle of tax equity financing has been heavily curtailed by the fact that the big Wall Street banks most involved in it have been reporting massive losses, and thus have no need to offset taxable income. The stimulus bill does allow for some of those tax credits to be claimed as grants instead, but the application process is cumbersome and hasn’t moved as quickly as many had hoped.

And then there’s the question of exits. Among the host of positive trends reported by Cleantech Group and Deloitte, the only statistic to see setbacks in the first quarter was that of initial public offerings. The first quarter saw only $1.5 billion in 13 clean technology IPOs, down from $2.9 billion in 18 IPOs in the fourth quarter. With a series of green technology IPOs expected in 2010 (Tesla, Silver Spring Networks, Solyndra, Codexis), investors are concerned that any weak showing out of the gates could sour the public markets on the rest of the clean technology crowd. Notably, only three of those IPOs were in North America, while China saw eight. China has also taken the lead over the United States in terms of total clean technology financing, as well as the critical metric of government backing for cleantech.

As for the vaunted role of government backing, the U.S. stimulus package has directed between $50 billion and $110 billion to green industries, depending on how “green” is defined. But that money’s going fast. Of the $36 billion in U.S. stimulus funds for clean power and energy efficiency projects, some $31 billion has already been earmarked for recipients, DOE Senior Advisor Matt Rogers said in January. But only about $24 billion in checks have been handed out so far, and only $2 billion had actually been spent at that time, meaning the economic impact of the green stimulus will continue to be felt throughout the rest of the year.