• 3Q10 global venture capital and private equity investment in Clean Energy companies declined by 20% this quarter to $4.6 billion
• China has now surpassed the US in terms of total investment flow with c.$12.1 billion invested this quarter
• Project finance activity remains robust worldwide totalling $37.1 billion during 3Q10
• “3Q10 represented something of a reality check in the sector and in particular signalled the ongoing importance of government support and incentive schemes.”
Global venture capital and private equity investment
Global investment in Clean Energy companies by venture capital and private equity funds declined 20% to $4.6 billion in 3Q10, from $5.7 billion in 2Q10. This reflects sentiment in the sector, which has been undermined by a series of reviews of government subsidies in various key countries worldwide. In parallel exits look a little harder - M&A activity slowed in 3Q10 and the IPO market remains tricky.
Overall global venture capital investment (early stage and late stage) declined almost 30% to $1.7 billion this quarter. The majority of this decline can be attributed to late-stage venture capital, which almost halved quarter on quarter from $1.1 billion to $0.6 billion.
The attractive IRRs of the energy efficiency sector (energy efficiency companies offer more reliable cash flows based on their ability to generate immediate energy savings) caught investors’ attention in 3Q10 and resulted in the sector recording its largest share of VC funding ever ($480MM of VC early stage and late stage investment). Notable deals included two California-based manufacturers of hardware and software for the smart grid - Trilliant ($109MM) and Nexant (c.$75MM) in two separate fundraisings. On the flip side, the solar sector registered a significant decline both in total VC investment ($203MM) and number of companies which received funding (16) this quarter. Investment in green transportation also fell by almost a third to $227 million in 3Q10. Two large investments supported the sector – the $70 million fundraising by Chinese car sharing company eHi Car Rental Co, and the $60 million financing by CT&T United, a Korean electric vehicle manufacturer. The largest deal ($110 MM) completed this quarter was by KiOR inc, a biomass company based in California.
Private equity investment also decreased in 3Q10 albeit by a more moderate 10% from $3.1 billion in 2Q10 to $2.8 billion. A series of large buyout deals (>$200MM) helped maintain activity close to historical levels. These included: Blackstone’s $300MM mega buyout of the Moser Baer Projects, which plans to build 5GW of thermal 500MW of solar and 500MW of hydro capacity by 2016; New Mountain Capital’s $280 buyout of Mallinckroft Baker, a diversified group increasingly involved in solar manufacturing; and Triton Partners, a German private equity firm, $245MM buyout of Tyco’s water and sewage subsidiary. Interestingly buyouts of solar and wind farms are being driven by traditional players like HG Capital and new entrants including pension fund PensionDanmark A/S and the IKEA Group. In one of the more eye-catching transactions this quarter a Californian hedge fund invested $110 million (single investor) in waste-to-energy company, Plasco Energy.
On a brighter note, corporate VC activity surged this quarter with corporates, utilities and industrial groups including Beacon Power and Robert Bosch GmbH investing in 43 companies through their venture capital divisions. For most companies this represented their first investment in Clean Energy ever (20 of the 40 investors). This represented an almost doubling of activity compared to the 23 completed corporate VC deals during 2Q10.
Douglas Lloyd, CEO of VB/Research commented: “3Q10 represented something of a reality check in the sector and in particular signalled the ongoing importance of government support and incentive schemes.” Lloyd added: “corporates and investors will increasingly congregate around countries where governments have adopted long term policies and support mechanisms”
M&A activity dropped markedly in 3Q10, totalling $7.8 billion in 139 completed transactions, compared to $15.4 billion (152 transactions) in 2Q10. No mega deals ($1 billion+) were completed this quarter with the largest transaction being the $414 million acquisition of Africana Energia SL, a solar power plant developer based in Spain by Spanish construction company, Ortiz Construcciones y Proyectos SA. Among the seven other transactions above the $100 million mark this quarter, most involved energy producing assets (solar PV projects, biomass and biofuel plants). In terms of activity by sector, wind remained the clear leader accounting for 25% of completed transactions in 3Q10. Energy efficiency and solar were joint second each accounting for 19% of transaction value.
Wind farms are currently being acquired at an average of $1.7 million per MW, a small decline on 2Q10’s trading multiple of $1.8 million per MW. A total of twenty two wind farms changed hands in 3Q10. The majority were acquired by utilities or large industrial groups including Edison Spa, Sharp Corp. and IKEA Group. In contrast solar plants are being sold at a discount compared to last year with a recorded average of $2.5 million per MW versus $3.1 million in 2009. This is largely due to overcapacity in Spain and Germany combined with regulatory uncertainties.
Douglas Lloyd added “vertical consolidation in the wind sector is now taking place with large industrial groups buying turbine manufacturers, wind sensor technologies and other components.”
New financial investment in renewable energy projects worldwide totalled $37.1 billion during 3Q10, a marked increase on the $29.6 billion invested in 2Q10 and $20.4 billion invested in 1Q10. China accounted for a significant proportion of overall activity during the period.
Collectively wind (39%) and solar (21%) accounted for 60% of total activity in the sector in 3Q10. The largest project was the $1.2 billion financing of the Alta Projects II-IV, a 720MW wind project located near Los Angeles, California, which received project financing from a syndicate including Citigroup, Barclays Capital and Credit Suisse. Four wind projects and one solar thermal project each raised over $500 million this quarter. China remained the top recipient for project finance ($10.0 billion) followed by North America ($9.8 billion) and Europe ($6.7 billion).
During 3Q10 most Clean Energy indices recovered modestly from their June 2010 levels although they continue to underperform the FTSE 100 and the NASDAQ. The First Trust ISE Global Wind Energy Index essentially remained stable amid concerns of oversupply in the wind market, which were somewhat mitigated by strong growth in emerging markets, especially China. Every other index tracked this quarter (Wilderhill NEX Index, HSBC Climate Change Index, Ardour Solar Energy Index, MSCI China Broad and the NASDAQ Clean Edge Green Index) gained between 11.5% and 27% during the quarter.
VB/Research tracked 13 IPOs in 3Q10 totalling $2.1 billion almost twice the amount recorded in 2Q10. The largest IPO was recorded by Molycorp Minerals LLC, which raised $394MM on the NYSE. However, only a limited portion of Molycorp’s revenue is attributable to clean energy activities – the company produces rare earth metals used in various clean technologies. China provided three of the top five public market transactions and a total of 6 IPOs in 3Q10 (versus 12 in 2Q10) worth $1.2 billion, with equity capital markets continuing to demonstrate strength in the region. As an example, Trony Solar raised $224 million on the HKSE after cancelling plans for a US listing last year. Trony Solar is one of the largest exporters of solar panels in the world.
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