Investment Outlook Mixed for Clean Energy Technologies
October 22, 2008
Divergent trends for clean energy investments suggest that some companies may need to tighten their belts, even as they prepare for significant future growth. As reported in the October 15 edition of the EERE Network News, venture capital investments in clean energy were on the upswing in the third quarter, reaching record levels of $2.8 billion, up from only $1.3 billion in the second quarter. But a new report from New Energy Finance also finds that private equity expansion capital is drying up, falling from $4.5 billion in the second quarter to only $1.6 billion in the third quarter. Also known as growth capital, this type of investment usually finances expansions in relatively mature companies, while venture capital typically supports the development of less mature companies. Meanwhile, investors continue to provide funding for new renewable energy projects, which garnered $18 billion in investments in the third quarter, a modest slip from the second-quarter asset investments of $21.9 billion.
Given the overall losses in the stock markets, it's not surprising that clean energy companies are also struggling to gain investments from the public markets. Compared to the $5.2 billion raised in the second quarter, only $2.9 billion was raised from public markets in the third quarter, and most of that was from established companies issuing convertible bonds, rather than initial public offerings (IPOs) of stock from private companies that are going public. In fact, the largest IPO was by Energy Recovery, a California-based energy efficiency firm that raised only $87 million. Clean energy stocks also lost value, as the WilderHill New Energy Global Innovation Index—a clean energy stock index that New Energy Finance participates in—fell 30.3% for the quarter, landing 40% lower than its peak in November 2007. In comparison, the S&P 500 index dropped only 9% in the third quarter. Despite the recent losses, a new survey of companies that offer clean energy investment vehicles finds that they are experiencing strong demand for such offerings and plan to make several new investment vehicles available by the end of 2009. The survey by the Social Investment Forum (SIF) was based on the responses of 14 of its 500 members. See the SIF press release and the New Energy Finance press releases on the third-quarter investments (PDF 22 KB), the performance of the clean energy stocks (PDF 68 KB), and for comparison, the second-quarter investments (PDF 83 KB). Download Adobe Reader.
One specific example of the effects of the global credit crunch on clean energy companies is provided by Tesla Motors, the nascent manufacturer of electric cars. The company has established a profitable business selling powertrain components to other companies, while it continues to generate revenue from a growing list of backorders for the Tesla Roadster. But the company is holding off on the work needed to launch the production of its Model S, an all-electric luxury sedan that will be manufactured in California. Tesla will still unveil the vehicle early next year, but production will be delayed about six months, to mid-2011. Tesla hopes to earn a DOE loan guarantee to cover most of the cost of its Model S program, because such a guarantee would provide the company with capital at a very low cost relative to the cost of equity financing in today's market. Meanwhile, the company is consolidating its operations at its new headquarters in San Jose, California, and is undergoing a "modest reduction" in its workforce. See the blog entry from Elon Musk, who is Chairman of the Board and who has just assumed the role of Chief Executive Officer, as well as the company's recent press release on the Model S.