Large corporations are steadily replacing governments and banks in financing renewable energy transport fuels and technologies, helping a popular sector for venture capital and private equity early stage funding cross the infamous development “valley of death” in search of scale.
The renewable energy transportation sector has reached a pivot point in which the needs and criteria of investors is changing ahead of a new race to scale up transformational technologies, a panel of bankers, lawyers and project developers said at the Renewable Energy Transport Forum in Washington, DC recently. The event was hosted by the American Council on Renewable Energy (and this author spoke on one of the conference panels).
Cleantech has become an established investment type for early-stage investors, many of them using funds and models developed in the information technology world. Those same investors have been foiled in attempts to exit or scale many of those firms with early-stage technology because they are unaccustomed to long development timelines and face difficulties raising sufficient capital to build out needed infrastructure as bank lending suffers from the ongoing financial crisis, investor interest in initial public offerings remains scant, and governments steadily pull back for reasons both budgetary and political.
Lots of Cash on Hand
Large corporations, meanwhile, are sitting on trillions of dollars in hoarded cash and seeking investments in cleantech areas that complement their core businesses; a departure from the first decade of renewable energy and cleantech investing that focused on disruptive technologies remote from core functions and “green” investing for public relations and carbon reduction target reasons.
Finding investment complimentary to existing businesses is a priority for corporates investing in a range of renewable energy technology firms, Ambata Capital Managing Director Nick Sangermano told the ACORE event. “They are moving down the value chain to invest early” via a diverse range of models, including joint ventures, direct investments in limited partnerships and other relationships with early stage growth firms, Sangermano said.
A pathway to market, realistic growth projects and an ability to leverage existing infrastructure are the key elements for corporate investors in the sector, Sangermano stressed.
The potential size of the market is enormous, other panelists stressed. If targets to move the biofuels share of the global transportation sector from four percent to 18% by 2020 are achieved, the investment need is between $500 billion and $1 trillion, Westar Trade Resources CEO Cindy Thyfault said at the ACORE event, citing a report delivered to the World Economic Council.
In the short term, though, the market has a significant hurdle to overcome; continued uncertainty about tax and grant treatment for renewable energy as well as broader uncertainty about government involvement in the market. A wide array of incentives are under scrutiny and headed for expiration, Mintz Levin attorney and ACORE General Counsel Mark Riedy said.