Green technology investors seek safer havens in 2011

As federal stimulus funding for cleantech development runs out, market activity is shifting to safer technologies with quicker and more predictable returns, according to a mid-year update from Peachtree Capital Advisors, an investment bank that offers advice on mergers and acquisitions.

The “2011 Mid-Year Greentech M&A (merger-and-acquisition) Review” notes that, while the dollar value of green technology investments in the US for the first half of this year ($8.8 billion) compares favorably to last year’s ($8.2 billion), the total number of M&A transactions has declined. Furthermore, continued investment along the lines of that fueled by the American Recovery and Reinvestment Act (ARRA) of 2009 has become “politically unsustainable,” the report states.

“In the US, venture capital firms have responded to impending cuts and uncertain policy by either pulling out of greentech altogether or investing in safer technologies with more predictable returns and shorter time horizons, such as energy efficiency,” the report states. “While many existing portfolio companies continue to raise capital, as witnessed by strong late-stage funding for solar in the first half of 2011, early-stage funding has been nearly invisible.”

As a result of such dried-up funding, US greentech market innovation has been “alarmingly sluggish,” according to the report.

Several green technology sectors saw especially dramatic declines in M&A activity:

• Hydro and marine energy transaction values dropped off a cliff, from $84 million in deals during the first half of 2010 to $0 in the first half of 2011;
• Smart distribution (smart grid) transaction values declined by 91 percent, from just over $1 billion to $99 million;
• Wind energy transaction values declined by 48 percent, from $2 billion to $1 billion.

M&A activity in geothermal energy, on the other hand, shot up 547 percent, from $213 million in the first half of 2010 to $1.4 billion in the first six months of this year. Also seeing significant increases were the air-and-environment sector (up 294 percent), solar energy (up 64 percent) and energy storage (up 30 percent).

Several corporate investors stood out in the first half of 2011, in particular, Google, which has laid out nearly $1 billion for wind and solar projects so far this year. Other big names still spending on energy efficiency and smart grid include ABB, GE, Cisco and IBM.

(While the report doesn’t note this, Cisco’s level of investment activity could change considerably in the second half of this year, as the company recently announced a $1 billion spending-cut program that includes a workforce reduction of 6,500 employees worldwide.)