Efficiency “sweet spot” for investors

Feb. 19, 2010
By Elisa Wood February 18, 2010 Energy efficiency appears to have married rich in partnering with smart grid. Yet another report shows that together they have formed what has become today’s most appealing clean tech sector for venture capital. Ernst & Young, using data from Dow Jones VentureSource, recently reported that financing rounds grew 11% […]

By Elisa Wood

February 18, 2010

Energy efficiency appears to have married rich in partnering with smart grid. Yet another report shows that together they have formed what has become today’s most appealing clean tech sector for venture capital.

Ernst & Young, using data from Dow Jones VentureSource, recently reported that financing rounds grew 11% in 2009 for energy efficiency, this as deals for the clean tech sector as a whole dropped by 16%.

The findings echo recent conclusions by Peachtree Green Advisors that found money pouring into the efficiency sector last year, pumping up total deal values by 664.7%. (See Elisa Wood’s January 21 blog, “Investors and public back energy efficiency.”)

What’s attracting investors? Ernst & Young – which incorporates smart grid into the efficiency category — points out that these technologies require little capital and can be commercialized quickly — characteristics of special appeal in an economy still nervous about high risk. While not exactly the stuff of dorm room startups, they are more akin to dotcom inventions than capital-intensive power plants. Smart grid revolves around digitalizing the electric grid to achieve greater efficiency in energy use.

“Energy efficiency is in the sweet spot of many venture capital investors in terms of skill sets and funding parameters, particularly given its basis in information technology.  Consequently, we may see investor participation in clean tech broaden,” said John de Yonge, Ernst & Young, associate director, Americas Cleantech Network.

Energy efficiency’s share of total financing activity in 2009 rose from 24% to 32%, Ernst & Young said. The category raised $593.3 million for 2009; of that $252.8 million came from fourth quarter 2009.

The report cites the $105 million investment in Silver Spring Networks as the largest deal of the fourth quarter. The Redwood City, California company provides smart grid networking and services for Florida Power & Light, Pacific Gas & Electric and Pepco Holdings, among others. Institutional investors led the financing round, including several repeats: Google Ventures, Foundation Capital, Kleiner Perkins Caufield & Byers and Northgate Capital.

Government policy is clearly playing a big role in energy efficiency’s appeal.  The areas of the country with the most clean tech investment have strong clean energy policies: California and New England.

What’s in store for 2010?  The picture, so far, is good for efficiency companies looking for customers.  Ernst & Young found that half of the major global corporations with more than $1 billion in revenue plan to spend $10 million on clean tech products and services in 2010, with 22% spending at least $100 million.

More details here: http://www.ey.com/US/en/Newsroom/News-releases/Venture-capital-2009-investments-in-cleantech-fall-50-percent-to-2-billion-dollars-as-investors-shift-focus-to-energy-efficiency.

Visit Elisa Wood at http://www.realenergywriters.com/ and pick up her free Energy Efficiency Markets podcast and newsletter.

About the Author

Elisa Wood | Editor-in-Chief

Elisa Wood is an award-winning writer and editor who specializes in the energy industry. She is chief editor and co-founder of Microgrid Knowledge and serves as co-host of the publication’s popular conference series. She also co-founded RealEnergyWriters.com, where she continues to lead a team of energy writers who produce content for energy companies and advocacy organizations.

She has been writing about energy for more than two decades and is published widely. Her work can be found in prominent energy business journals as well as mainstream publications. She has been quoted by NPR, the Wall Street Journal and other notable media outlets.

“For an especially readable voice in the industry, the most consistent interpreter across these years has been the energy journalist Elisa Wood, whose Microgrid Knowledge (and conference) has aggregated more stories better than any other feed of its time,” wrote Malcolm McCullough, in the book, Downtime on the Microgrid, published by MIT Press in 2020.

Twitter: @ElisaWood

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