CleanTech Investment Up 41%, Report Says

Venture capital investments in U.S. cleantech companies grew by 41 percent ($961.7 million in the second quarter, up from $683.5 million in the first), according to an Ernst & Young report based on data from Dow Jones VentureOne.

This is the highest total cleantech investment on record and comes amidst a quarter in which overall venture capital investment was down by nearly 8 percent. Year-on-year cleantech investment follows this upward trend, increasing 83 percent from the second quarter of 2007.

Clean technology encompasses a diverse range of innovative products and services that optimize the use of natural resources or reduce the negative environmental impact of their use while creating value by lowering costs, improving efficiency, or providing superior performance.

Energy/electricity generation companies attracted the most investment of any sector this quarter with $494.9 million -- 52 percent of the total. The top three deals of the quarter were solar-related companies. The deals included SunEdison in Beltsville, Md., which raised $131 million; eSolar in Pasadena, Calif., which raised $130 million; and BrightSource in Oakland, Calif., which raised $115 million. Corporate investors were involved in all of these deals.

Energy efficiency companies made up 20 percent of total investment dollars and continue to be a top cleantech investment despite a slight 4 percent decline to $188.3 million in the second quarter. The third largest segment this quarter was alternative fuels, which comprised 13 percent of the market. The segment, made up entirely of biofuels transactions, attracted $129 million of investment, down 44 percent from the previous quarter.

"Efficiency-related investments, such as smart meters and LED technologies, have seen relatively steady levels of deals and investment over the past few quarters because they can be ready for an exit more quickly than other renewable energy technologies," said Joseph A. Muscat, Americas director of Cleantech and Venture Capital, Ernst & Young LLP. "Investment in increased efficiency can have a shorter payback period since many of these technologies are relatively capital efficient compared to the capital intensity of a manufacturing-heavy segment like biofuels."

Ernst & Young uses the following definitions to classify cleantech industry segments:

•alternative fuels -- biofuels; liquefied natural gas; •energy /electricity generation -- gasification, tidal/wave, hydrogen, geothermal, solar, wind, and hydro; •energy storage -- batteries, fuel cells, flywheels; •energy efficiency -- energy efficiency products, power and efficiency management services, industrial products.