Uptick in Q2 2009 US cleantech investment driven by large deals and improved investor confidence

Uptick in Q2 2009 US cleantech investment driven by large deals and improved investor confidence

Cleantech investment rises 73% to $572 million quarter over quarter, led by solar and efficiency deals

San Francisco, 29 July 2009— US venture capital (VC) investment in cleantech companies in Q2 2009 reached $572 million, an increase of 73% in terms of capital, with 48 financing rounds, a 100% increase in number of transactions compared to Q1 2009, according to an Ernst & Young LLP analysis based on data from Dow Jones VentureSource. Compared to Q2 08, the second-highest quarter for cleantech investment on record, the Q2 09 results were 59% and 16% below those record levels in terms of capital and number of transactions respectively.

VC investment in cleantech in Q2 09 was lead by the Energy/Electricity Generation category, which raised $157 million, a quarterly increase of 181% as compared to Q1 09. Within this category, solar deals received the lion’s share of capital, more than trebling to $148 million compared to the prior quarter. Deal activity in the solar segment represented 26% of all quarterly cleantech investment by VC firms. The solar results were driven by deals such as the $25 million, first round investment in Skyline Solar, based in Mountain View, CA, which was led by New Enterprise Associates.

The Energy Efficiency category grew 168% from Q1 09 to $152 million due to power and efficiency management service deals that accounted for the majority of investment. This segment experienced 143% growth during Q2 09, attracting $93 million. A notable deal in this segment was the $30 million investment in the residential smart grid company Tendril headquartered in Boulder, CO. This investment was led by VantagePoint Venture Partners and has since followed with a partnership with GE to enable smart appliances to communicate over metering and broadband networks.

The demand for environmentally-friendly transportation options encouraged investment in the Alternative Fuels category to $53 million in Q2 09, driven by the $40 million later stage round investment in Gevo, a biofuels company based in Englewood, CO. Additionally, the Transportation sector received a $65 million investment in Q2 09. The majority of this funding came from Daimler AG’s $50 million investment in Tesla Motors in San Carlos, CA.

“The quarterly uptick reflects investor confidence in the ability of cleantech companies to capitalize on market opportunities,” says Joseph A. Muscat, Ernst & Young LLP, Americas Director of Cleantech. “While enacted and anticipated government actions have helped bolster confidence and catalyze new capital, we believe that leading cleantech companies will be defined by their ability to execute on business plans and advance their technologies through commercialization and distribution despite the challenging economy.”

The investor mixQuarterly VC investment in cleantech exhibits a shift from companies in the product development stage toward companies in the start-up and shipping product stages. Start-up cleantech companies received 8% of financing rounds in Q2 09 compared to none in Q1 09. Companies at the shipping product stage accounted for 65% of financing rounds compared to 54% in the prior quarter. By contrast, product development stage companies received just 27% of financing rounds compared to 46% last quarter.

Q2 09 results also illustrate the continued mix of investors who are partnering to advance the US cleantech market. Seven of the top 10 cleantech venture deals included participation by private equity, hedge fund or corporate investors. For example, the $54 million investment in Powerspan Corp., a carbon dioxide capture technology company in Portsmouth, NH, was made by a syndicate of investors that included VC firms, private equity firms, corporate investors and a hedge fund.

Cleantech investments in other asset classes also riseThe rebound in VC investment in cleantech was accompanied by a rise in private equity and asset backed financings. New Energy Finance (NEF) tracked $240 million in clean energy private equity investments, a rise of 12%. This figure includes the $69 million round secured by the battery manufacturer A123 in Watertown, MA, and the $50 million investment in Spectrawatt, a solar cell manufacturer in Hillsboro, OR.

Clean energy asset financings grew significantly according to NEF, increasing from $307 million in Q1 09 to $2.9 billion in Q2 09. Wind was the primary driver of asset backed financing activity, with deals such as the $504 million financing secured by First Wind for a 203.5 MW project. Solar projects were also supported. SunPower Corporation obtained an undisclosed amount of project financing for its 1.1MW PV project located in Merced, CA from Wells Fargo.

Additionally, there were 12 US M&A transactions of which three had disclosed values totaling $157 million, according to JS Herold. Six of the deals include alternative fuel companies.

Government support Government support continues to influence the growth of the US cleantech market. For example, the United States Department of Energy (DOE) released more than $47 million from the American Recovery and Reinvestment Act (ARRA) of 2009 to accelerate the completion of eight smart grid demonstration projects in seven states. At the state level, the state of Michigan is providing GE with $74 million in tax incentives in light of the company’s plan to build a $100 million advanced-manufacturing center to develop renewable-energy technologies near Detroit. Prospectively, the Department of Treasury’s guidance released in July for accessing grants in lieu of the investment tax credits for qualified energy property, as authorized by ARRA, was another positive step for the cleantech market, particularly as the DOE begins to review applications in August and makes payments within 60 days after receipt of qualified applications.

Note to editors:

Ernst & Young uses the following definitions to classify the cleantech industry and its sub-sectors:

Clean technology encompasses a diverse range of innovative products and services that optimize the use of natural resources or reduce the negative environmental impact of their use while creating value by lowering costs, improving efficiency, or providing superior performance.

Alternative Fuels - Biofuels; natural gas (LNG)Energy / Electricity Generation - Gasification, tidal/wave, hydrogen, geothermal, solar, wind, hydroEnergy Storage - Batteries, fuel cells, flywheelsEnergy Efficiency - Energy efficiency products, power and efficiency management services, industrial productsWater - Treatment processes, conservation & monitoringEnvironment - Air, recycling, wasteIndustry Focused Products and Services - Agriculture, construction, transportation, materials, consumer products

About Ernst & Young’s Strategic Growth Markets NetworkErnst & Young’s worldwide Strategic Growth Markets Network is dedicated to serving the changing needs of rapid-growth companies. For more than 30 years, we’ve helped many of the world’s most dynamic and ambitious companies grow into market leaders. Whether working with international mid-cap companies or early stage venture-backed businesses, our professionals draw upon their extensive experience, insight and global resources to help your business achieve its potential. It’s how Ernst & Young makes a difference.

About Ernst & YoungErnst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 135,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

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Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity.This news release has been issued by Ernst & Young LLP, a U.S. client-serving member firm of Ernst & Young Global Limited.





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