Biofuel, wind and solar investment waves could be over

Posted: 15 April 2008
Send article
Print this article

We've passed the peaks of recent ethanol, European wind and solar thin film investing, according to one group of analysts.

New investment figures from the Cleantech Group have "called peaks" in investment into conventional ethanol, European wind and solar thin film sectors.

The company's latest cleantech investment data says that a wave in US ethanol and European wind energy investment that had built since 2005 actually peaked in 3Q06 at US$1.52 billion, and has steadily declined since.

Further, driven by investments in US and European companies, a thin-film solar investment wave in 2007 peaked in 3Q07 at US$1.83 billion invested, and has since contracted for two consecutive quarters, to US$1.25 billion in 1Q08, the company said.

Thin-film technologies apparently accounted for approximately two-thirds of investments in solar, while crystalline technologies accounted for another third.

The assertions come in the company's latest quarterly investment data tracking investment up to, and including, 1Q2008. The data paints a picture of declining cleantech investment in the last two sequential quarters.

First-generation ethanol largely drove the peak in 3Q06, and thin film solar the peak in 3Q07, says the Cleantech Group. Investment in both sectors is now in decline, according to the company.

“While the long-term investment trend shows continued expansion of the category as a whole, we are seeing contraction in what had been the market-leading sectors of first generation biofuels and second generation solar,” said John Balbach, Managing Partner, Cleantech Group.

The company also pointed to possible seasonality factors contributing to valleys between the peaks, citing the effect particularly in Northern California and Canada .

Yet while down sequentially, the company's first quarter 2008 numbers for cleantech investment in North America, Europe and Israel totalled US$1.25 billion, up 42% from the same period a year ago.

That's caused by what the company called “tempered optimism.” Balbach noted the industry is still only scratching the surface of technology innovation actually required.

“Just like the industrial revolution encompassed successive waves (including agriculture, manufacturing, and transportation) over several decades, the cleantech revolution will see similar waves of innovation over several decades.”

For instance, the peak and subsequent fall-off in conventional ethanol investments did not wholly include, nor strictly apply, to cellulosic ethanol.

“Unlike first generation biofuels, which were based largely on existing science and technology, cellulosic approaches require breakthroughs in key areas that have yet to be achieved,” said Balbach.

“Whether cellulosic will see a similar wave to conventional ethanol depends on whether a critical mass of cellulosic startups reaches a level of maturity and scalability at roughly the same time.”

Significant 1Q08 cellulosic deals included a new US$100 million round for Range Fuels of Colorado, just as the quarter closed.

As to which sectors might represent the next waves of investment, Balbach noted that energy still remains a key investment focus, pointing to next-generation biofuels, wind turbines or new solar technologies.

“There is a pressing need for infrastructure solutions, including transportation, water, agriculture, and the electrical grid.”

“We’re starting to see demand pick up for point solutions to specific sustainability challenges corporations are facing. Whether any of these coalesce into a wave is uncertain, but we don’t see any shortage of cleantech investing opportunities over the next few years.”