Rewind to mid 2000s. After the boom, the bust. Suddenly, it seemed alternative energy lacked the thrust. The problems began as investors realised that investments in alternative energy, solar or agrofuels had a rather long ramp-up phase until they proved profitable. After the initial hype, governments scaled down subsidies and tax relief policies with expectations of environmental contributions being high, making it more difficult for ventures to reach break-even point.
It is no wonder then that global venture capital activity in the green tech sector remained flat at $1.6 billion (about Dh5.87 billion) in the second and third quarter of 2012, down from $2.2 billion in the same quarters in 2011, says Sheeraz Haji, CEO, Cleantech Group, a San Franciso-based market intelligence firm focusing on the green tech sector.
“There are fewer deals across the sector, and investors are increasingly looking for capital-light ventures, if at all,” Haji says.
Mergers and acquisitions in the sector dropped significantly, while the IPO window is “effectively shut”, he adds.
However, while the number of deals in the solar and wind sectors went down, green tech investments in transportation, biochemistry and IT-based green technology such as smart grids moved to the top. In these segments, investments in electric vehicles and bikes, car-sharing platforms, fleet-tracking software, biofuels in combination with life science, water and waste water, as well as energy efficiency and storage have risen, while traditional sectors such as solar and wind power have seen a strong pullback from investors and are out of the race.
“Venture capital funding for solar projects has hit rock bottom, while we see rising interest in more sophisticated solutions,” Haji says.
One prominent recent withdrawal from the green technology sector has been that of former US vice-president and self-declared environmentalist Al Gore, who has been heavily promoting green technology and alternative energy since 2007. US magazine National Review revealed last October that Al Gore’s investment firm Generation Investment had completely withdrawn from public investments in wind, solar, biomass and other forms of alternative energy to combat climate change, switching to more common stocks such as Amazon, eBay, Chinese medical equipment makers and even a natural gas pipeline operator.
“If Al Gore has any message for investors today, it might very well be this: ‘Stay the hell away from alternative energy!’”, the magazine’s editor Greg Pollowitz wrote in a sardonic remark.
In practice, entrepreneurs and investors are just getting smarter on how to start and sustain a green technology business. A start-up company in Thailand is looking to capitalise on combined environmental techniques that include solar power, organic agriculture and hydroculture in an attempt to make such ventures more profitable than traditional bio-farming or solar plants.
Green Energy Technology, based in Hua Hin, Thailand, uses a model based on tri-dimensional agriculture, with solar panels powering hydroculture for fertiliser production that, in addition, feeds jatropha trees that produce biofuel.
“We have initiated several such plants in Thailand and have also offered our system to investors from the Middle East,” says company director Derk Jan Bos, adding that he is looking to get in touch with Dubai Holding and Qatar Investment Authority on the matter.
Bos admits that the popularity of solar power is suffering due to the high investment needed in the launch phase of such projects.
“Solar power on a large scale has lost popularity because it is too expensive. Without subsidisation it is impossible to make money with normal concepts alone. But with our concept, we can achieve a return on investment in less than ten years — for this, we have to find environment-friendly partners who understand this model,” Bos says.
“Our system holds heavy initial investments, but it is profitable for the next 50 years, and with very little maintenance. However, people tend to not see it that way. They are looking for a return on investment of, let’s say, 15-20 per cent a year. We are trying to team up with green-minded partners who are willing to take a 7-10 per cent return on investment. Even though investors have to wait longer for profits, this will be balanced by the fact that our projects are not only about profits but also help stimulate the society to think and act green,” he says.
Despite investors feeling cautious about the sector, increasing prices of fossil fuels will certainly help develop an alternative energy and green tech industry. However, the investment will no longer be just for stand-alone solutions, but will instead include smart projects that combine green technology on different levels, as the Thai example shows. There are more examples across the clean tech sector — from waste management and transport to clean power generation and smart grid construction — that will likely see a boost in the future, parallel to emerging countries investing more in oil independency and aiming to use renewable resources on a large scale.
Promising green tech investment sectors
• Smart power grids
• Green chemistry
• Green transportation including
• Electric motors and vehicles
• Fuel cells
• Biopolymer technology
• Green building technology
• Waste and waste water management
• Walter filtration and desalination
• Environmental science
• Biomass gasification
• Biorefinery technologies