Despite the recession, the cleantech sector remained strong throughout 2009, especially when compared to other industries. And the cleantech sector is expected to continue expanding and remain dominant through 2010, with a flurry of acquisitions and consolidation transactions.
Cleantech Investment: Recovery and Growth
While the global recession had an impact on investment in cleantech in 2009, Greentech Media reported that venture capital investors’ spending on cleantech was $4.86 billion US in 2009, while the Cleantech Group (cleantech.com) noted that 2009 was the second-highest annual level of venture capital (VC) investment in cleantech.
The sector was the single-largest investment theme in 2Q09 and 3Q09, attracting 25 per cent of all VC investment during 3Q09. Given this momentum, it’s not surprising that the Cleantech Group believes global venture and private equity investment in cleantech in 2010 will exceed that of 2009 by a wide margin.
This will also be a bumper year for general partner fundraising. In the latter half of 2009, two entities launched large cleantech-focused funds: Khosla Ventures created a pair of funds totaling $1 billion US, and Hudson Clean Energy Partners launched its own $1-billion US fund. The Cleantech Group predicts that 2010 will continue this trend, becoming a record-setting year.
Global stock markets also rebounded substantially in 2009, leading investors to increasingly view the cleantech sector as a source of investment opportunity. The WilderHill New Energy Global Innovation Index, or NEX, which tracks a broader array of energyrelated cleantech stocks, regained 39.7 per cent of its value from a year earlier. But that said, investors are expected to remain cautious in 2010, resulting in leading companies likely receiving a disproportionate share of investment funds.
Continued Government Stimulus
Governments worldwide are investing in cleantech in an effort to rebuild economies and resolve climate change and environmental concerns. American governments are also looking to cleantech to enhance their country’s energy security. Globally, governments have committed $3 trillion US to a variety of economic stimulus packages, with $660 billion US of those funds allocated to green projects and initiatives. Almost half of this cleantech funding was committed by the Chinese and American governments alone.
No doubt this massive global influx of government stimuli has sheltered the cleantech sector from the full brunt of the recent recession. Private equity and capital have flowed into the US, encouraged by government loan guarantees and other stimulus initiatives that largely eliminate the risk to private funds. The continued rolling-out of stimulus funds through 2010 will help many cleantech companies deal with the reduced availability of capital as markets rebuild and investors lower their guard. But there is the potential for such stimulus funding to distort the market and eventually make private investors cautious yet again.
This is because large government loans and grants effectively pick the winners in each subsector, making it difficult for investors to predict the success of any given cleantech company. Such “winner-picking” makes the sector increasingly risky for private investors, who may become hesitant to part with funds until stimulus funds are exhausted. Nonetheless, expect subsidies to keep flowing to the cleantech sector, largely because governments enjoy delivering new “green jobs.”
2010: Greater Investment and M&A
Despite the promise for great growth in the cleantech sector, 2010 is likely to bring an acceleration of acquisitions and consolidations. The Cleantech Group predicts that this will be particularly so in sectors and geographies where there has been overinvestment, such as in Germany’s and China’s wind and solar equipment manufacturers. Similar consolidative trends are likely in North America, with a number of companies buckling under high asset costs and debt loads.
The Cleantech Group also expects that 2010 will bring acquisition activity moving beyond cleantech startups and into acquisitions of other corporate assets — much like Panasonic’s acquisition of Sanyo, a leader in solar cells and batteries for electric vehicles. For this reason, it’s predicted that asset acquisitions will be prevalent in 2010 as corporations restructure in an attempt to create modern, integrated cleantech businesses.
Now that the cleantech sector has regained much of its momentum, 2010 may be punctuated by record investment levels. M&A activity will be brisk, and there may be a number of early-stage casualties. Regardless, cleantech continues to outpace other sectors and will likely do so through much of 2010.