Global rise in clean energy investment

Global investment in clean energy rose to near its 2011 peak last year to $310bn (£200bn). The significance of this being that there had been signs within the investor community the clean energy and in particular clean technology had run its course and that investment would continue to fall, as it had from 2011 to 2013.

Initially investors had invested heavily into different clean technologies (cleantech) such as electric cars, solar panels, and storage solutions over the last ten years looking for high returns as we slowly gave up our reliance on fossil fuels. However the market was oversaturated and as a result share prices fell and investment levels decreased.

The new figures however have given the industry a welcome boost at a time when the cost of cleantech has tumbled and as a result more renewable energy was generated than ever before.

Also, renewable energy generation and subsequently cleantech is spreading rapidly into developing countries. China invested $89.5bn in the sector last year (up 32%), Brazil $7.9bn (up 88%) and India $7.9bn (up 14%).

Angus McCrone, chief editor at Bloomberg New Energy Finance said “We’ve got to the point where in 2014, developing countries almost caught up with developed countries in terms of overall dollar investment. In some places it’s happening without any subsidy support too.”

However the private and public sectors have also increased their support for cleantech via start-up investment and subsidies including tax breaks with Frans Nauta, director at Climate-KIC an EU funded programme that supports cleantech start-ups admitting that “without them the industry would be in a much tougher position.”

Still missing from the mix however is venture capital (VC) investment which remains considerably down from its peak level.

Over the last ten years Silicon Valley Venture VCs invested heavily in cleantech with only modest knowledge of the sector hoping for fast sizable returns. However they found the market slow moving and highly competitive leaving few surprised when billion dollar companies such as Kior, a producer of biofuel and solar company Solyndra went bust.

“In a way it got overhyped and perhaps too many ideas got funded,” says Richard Youngman, managing director, Europe & Asia at the Cleantech Group, “in a world where hype can be a bad thing, a more sober existence was needed.”

Frans Nauta however believes that the lack of VCs is a substantial issue for cleantech investment as they are more likely to invest in higher risk, early stage companies that significantly boosts innovation.

“Take solar, I still see incredible opportunities for disruption, whether it’s improving the efficiency of the panels, their production, their installation or in terms of financing, but while I know many companies making strides in this area, they don’t have enough access to funding,” he said.

James McNaughton, chief executive of Isentropic, a UK based start-up that claims to be developing one of the lowest cost methods of grid scale electricity storage agrees that the lack of VCs is a concern.

“Government funding is very welcome, but it often has strings attached… and the involvement of a corporate investor can reduce the value of the company in the long run as they may want preferential rights. By contrast, financial VCs invest in a wider range of companies and their interests are better aligned with shareholders.”

There are alternatives though, Pavegen, a company which manufacture floor tiles that convert the kinetic energy in footsteps into electricity struggled to attain funding in the past so is now raising cash via a crowdfunding programme. Also CorPower Ocean, a Swedish company whose wave power cleantech generates up to five times more energy than alternative technologies has secured funding from the EU, the Swedish Energy Agency, and from within the industry.

However while the overall global picture is positive with countries such as China making huge commitments, there remains uncertainties at an individual country level due to potentially negative policy reform. Something which concerns Angus McCrone

“In the UK the new government is not really friendly to onshore wind, so we could well see investment hit quite hard in the next few years and in the US there’s a great deal of uncertainty about what’s going to happen to the tax credits for companies incentivising wind and solar.”

CorPower chief executive Patrik Möller believes that the biggest barrier of all is the continued subsidisation of fossil fuels and that until carbon dioxide is priced at a point comparable to the damage it causes, a wholesale shift towards clean technologies is unlikely.

Frans Nauta however remains positive as he believes that the decreasing cost of renewable energy will make it the preferable option for consumers, irrespective of their attitude towards the environment.

“It is not a matter of if these technologies will rule but when: the questions are how fast we’ll get there and who is going to benefit from this new economy. If you’re conservative and you let the lobbyists of the fossil fuel industry dictate your policies, you are going to miss out.”

The ascension of renewable energy over the past 15 years as the fastest growing source of electricity has shown that with the correct mix of private and public funding it is the most viable option for securing our energy future. The increase in levels of investment is encouraging but as an industry we must do more to entice VC investment. The combination of these funds along with the technology and ideas we already have can create a domino effect which will push the boundaries of renewable energy generation, ultimately leading to clean and inexpensive energy for all.