Current Levels of Investments in Alternative Energy
A number of factors in their combination are likely to result in huge investments in alternative energy. For instance, rising oil prices, tightened CO2 emission standards in Europe and accelerated CAFE standards in the U.S. will boost rapid implementation of hybrid electric vehicle technology and result in huge revenues for all electric battery manufacturers.
Battery manufacturing involves capital on a large scale. It is also time intensive and takes 3 to 4 years to build and equip a new NiMH or Li-ion battery plant. According to Frost & Sullivan, “global sales of NiMH batteries for automotive powertrain applications were roughly $833 million in 2008. Of that total, $580 million (70%) represented batteries that Panasonic EV Energy, a Toyota subsidiary, made for its parent. Frost & Sullivan has also reported that total global sales of Li-ion batteries were roughly $7 billion in 2008 and substantially all of those batteries were used in non-automotive products. Notwithstanding the flurry of recent press releases about planned battery plant construction in Asia, Europe and North America, those projects cannot be completed before 2011 or 2012 and meeting the incremental automotive powertrain battery production schedule would require manufacturers to build new factories that are equivalent to the world's entire NiMH battery manufacturing capacity every year for the next six years”.
The current slump has deeply impacted even the alternate energy market at least for the last six months. However, the signs of recovery are evident now. Sources that note investments in alternate energy have found substantial declines in the first part of 2009. According to an Ernst and Young report, investments in clean energy fell from $715 in the first quarter of 2008 to $277 in the first quarter of 2008. According to Greentech Media, in the first quarter of 2009, a total of 836 million in venture capital was invested in the entire green sector that was equivalent to 2009 levels. Even the largest energy deal in the first quarter of 2009 was a relatively modest one involving $40 million in Kosmos Energy, an oil exploration firm.
According to Erik Straser, a venture capitalist, the number reflects the deals worked out in the last quarter of 2008. However, Straser is hopeful that the climate is gradually improving. Besides, there were bright spots in the first quarter itself in view of the Ernst and Young report that found more than $100 million invested in energy storage. Since then there have been two notable deals in battery companies – (i) $30 million for Diya energies and (ii) $69 million investment by General Electric. Deeya Energy is developing low-cost, high-capacity batteries with no heavy metals for cellular towers. General Electric has invested in A123, a battery maker based in Watertown, MA. Besides, SunPower, a maker of photovoltaics in San Jose, CA, raised $363 million by selling shares and issuing bonds. Smart grid and infrastrcture also did well. EPS received $30 million from investors. EPS is a company that analyses energy use and implements improvements for companies. Jay Zoellner, EPS CEO acknowledges lower valuation for his company after its first funding round completed in 2007. However, he is now hopeful that the market is going to be turning around.
Travis Bradford, president of the Prometheus Institute for Sustainable Development feels money is now going into markets with good long term potential as evident in the SunPower share sale and the improvement in funding for energy storage and infrastructure.
On the other hand a number of alternative energy companies are unlikely to survive the downturn. For instance, four ethanol producing subsidiaries of Pacific Ethanol filed for bankruptcy very recently. It was a routine ongoing shakeout in the ethanol-production business. Only few weeks earlier, GreenFuel Technologies in Cambridge, MA was shut down by its venture backers. This company was trying to commercialise algae as a source for biofuels.
Not long back, in the month of March 2009, Optisolar, a maker of solar panels that also planned to run solar power plants, began selling off its assets.
Although, there is a federal grant of $60 billion to energy sector as a part of stimulus package, observers are cautious that companies may not get immediate relief from this package as the stimulus bill is a one time opportunity rather than an ongoing programme. Dennis Costello, Managing Director, Braemer Energy Ventures is of the opinion that venture capitalists will need to discount the long term impact of stimulus money. It is also not clear, according to him how the money will be distributed – whether it will go to the best company? The best proposal? The ones with political connections? Therefore, it is quite unpredictable. However, the focus of administration on solving energy problems has helped the energy market from meeting an even worse fate in the downturn. It is true nonetheless that project financing including securing loans to build manufacturing facilities remain a challenging task.
While the market is facing difficult times, venture capitalists still see potential in green technology and energy, as in the long term they remain a strong potential and a huge market. Several venture capitalists are today increasingly focusing on green technology, as for instance, Dave Power, a partner at Fidelity Ventures. This firm is shifting its focus away from information technology investing into clean-tech companies, especially the ones that improve energy efficiency.