Cleantech Funding on the Rise

Despite some recent improvements in the economy, times still remain tough for many. This fact was illustrated earlier this month when the House of Representatives passed an emergency $26 billion spending bill to save jobs for 300,000 teachers, police and other civil servants. To fulfill this need, the House moved $1.5 billion that had been marked as part of the renewable-energy and loan-guarantee program, used to support solar, wind and other alternative energy companies. The program now stands at about $25 billion, not even half of what was originally planned.

While that decrease is unfortunate, there is a brighter note to be mentioned. An August 3rd announcement from Ernst & Young reported that in Q2 2010 investments in cleantech companies hit the $1.5 billion mark in 68 financing rounds, representing a 63.8 percent increase in capital as compared to the same time frame a year ago. This was the highest level of venture funding the cleantech industry saw since Q3 2008.

While several cleantech sectors have benefitted from this surge, the solar segment has done exceptionally well, receiving $438.8 million in funding, an increase of 182 percent compared to the year prior. This success is largely attributed to the demand for energy efficiency solutions that deliver a quick return on investment. Action amid uncertainty: the business response to climate change, a recent study by Ernst & Young, predicted that 82 percent of execs the world over plan to invest in such initiatives throughout the remainder of the year and into 2011.

Another sector that has seen significant funding recently is transport. Better Place, a provider of electric vehicle networks and services, received a $350 million second round investment, the largest automotive deal of the quarter. Other electric transport companies, such as Fisker Automotive Inc. and Eco Motors, raised significant funding as well. According to electric vehicle (EV) participants in the Ernst & Young’s Cleantech Ignition Session, this surge in funding is the result of the widely held belief that the EV industry is poised to take off in the coming years, a sentiment echoed by President Obama’s July 8 speech at the Smith Electric Vehicles factory in Kansas City, MO. During this speech he proclaimed that the U.S. share of the global market for advanced batteries for electric and hybrid vehicles had the potential to increase by 20 percent by 2015, bumping it to 40 percent of the world’s market.

Solar and transport companies are not the only ones benefiting from recent VC funding. Biofuel companies have also seen an investment uptick. Solazyme, Inc., a renewable oil production and algal biotechnology company, is a great example. The company reported on August 9th that it raised $52 million in its Series D financing round, which was led by Braemar Energy Ventures and Morgan Stanley.

While economic challenges still present themselves, these recent investments are certainly heartening for cleantech companies. Clean energy is an important sector for future economic growth and environmental preservation, and this recent influx in attention and funding speaks to its worth as a viable energy alternative for the (hopefully) not-too-distant future.

Lillian Dunlap

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