Renewables sector will get boost from venture capital

 

Renewable sources are a key component of the global effort to achieve energy security, and the latest research shows a positive climate for investments into renewable energy. Financial services firm Frost & Sullivan released a recent report titled Venture Capital Funding in Renewable Energy in Europe, estimating that the venture capital (VC) funding market for renewable energy will increase three-fold by 2020. This boost, said the report, would be due to positive government regulations, increasing support for environmental initiatives and advances in technological innovation.

The report noted that VC industry interest, especially in the US, had been shifting to green technology investments in the past four years, with more than half of VCs having ventured into clean energy investments.

Solar technology topped the list between 2006 and 2008, but newer technologies such as thin-film solar (cells which are less expensive and more flexible than traditional solar cells) and advanced biofuels such as cellulosic biofuels and biofuels from algae were the most-pursued green energy technologies.

Said Frost & Sullivan Financial Analyst Vinod Cartic: "Other than green energy generation, investments in sustainable energy have also broadened to include energy storage, energy efficiency and smart-grid technologies."

While North America and Europe were the main destinations for VC funding, investors are also looking at South Asia and Asia-Pacific as interesting opportunities. In addition, the report pointed to an emerging trend of small-value transactions, particularly in the emerging markets, noting that since clean energy technology companies are "typically very young in their development cycle, a high degree of risk accompanies these investments".

Said Mr Cartic: "2011 was a stellar year for renewables deal-making with the number of deals rising by two-thirds year-on-year, although total deal value went down by one-third. Europe, in particular, followed by the Asia-Pacific region, led this trend towards more but smaller deals. This was in contrast to North America, which had fewer deals of larger individual values."

Challenges to increased development of renewables, however, remain even though there is an ongoing drive to reduce dependency on fossil fuels. High capital costs, lack of skilled labour and bottlenecks in the supply chain are among them, noted the report, adding that companies would have to "look at different ways to enhance the value chain" while governments would need to institute transparent tariffs to protect their interests.

In reviewing the scope for synergies of the different renewable energies with existing conventional energy sources, the wind energy market received the highest score with a high forecasted growth in Europe.

The solar energy market and marine/hydro energy market also ranked well, with the report noting that oil and gas companies for instance, could offer research and development support to solar companies, while they could provide subsea technology and expertise to marine and hydro energy firms.

The biofuels market in Europe, said the report, would need better financial incentives so that it would become more attractive to investors.

Frost & Sullivan is a US company that provides customer-dependent market research and analysis, growth strategy consulting, and corporate training services. The above-mentioned report predicts that venture capital funds for renewable energy will triple by 2020.