The New Gold Rush: Green Technologies
Money and talent continue to flow into green technologies. Concerns over climate change, rising oil prices and government support have triggered a huge wave of investment in renewable energy and energy efficient industries. Venture capital and private equity investors injected $2.3 billion into biofuels, $1.4 billion into solar technology and $1.3 billion in wind generation last year, according to the United Nations Environment Program (UNEP). A recent UNEP report also indicates that investment capital flowing into renewable energy climbed from $80 billion in 2005 to a record $100 billion in 2006. UNEP suggests that although growth in the renewable energy sector remains volatile, it is “showing no sign of abating.” One industry veteran and management consultant working with executive search firm, A.E. Feldman, said, “Very few people understand this business yet but the wealth of individuals and institutional investors getting involved is enormously high. There is a big rush of people and money into this area. It’s still very early, but interest in alternative energy is absolutely growing and attention to the sector will only increase.”
It’s the world’s newest gold rush. Investors poured $71 billion into renewable energy companies and new sector opportunities in 2006, according to UNEP. That’s a 43% jump from the year before. (Over the past two years, investment in “green” energy is up 158%.) An additional, $30 billion entered the sector in 2006 via M&A, leveraged buyouts and asset refinancing. According to UNEP, the buy-out activity, which rewards the sector’s pioneers, reflects “deeper, more liquid markets and is helping the sector shed its niche image.”
The trend continues in 2007. Experts predict investments will hit $85 billion this year. UNEP reports that renewable sources today produce about 2% of the world’s energy, but now account for about 18% of world investment in renewable energy, led by wind generation. (Biofuels are a close second.) The group also says that renewable energy and efficiency markets are becoming more global and enjoying easier access to capital markets. Investors are also more closely aligned with industry proponents in their views of expected growth.
“The finance community has been investing at levels that imply expected disruptive change is now inevitable in the energy sector,” says Eric Usher, Head of the Energy Finance Unit at UNEP’s Paris-based Division of Technology Industry and Economics. It [renewable energy] is now a mainstream commercial interest to investors and bankers alike.”
In the meantime, there is a tremendous amount of technological advancement still underway and the alternative energy field may undergo a significant amount of consolidation along the way. Right now, A.E. Feldman says the burgeoning industry is looking for super-brokers who can funnel money into their businesses. A.E. Feldman’s management consultant adds, “Many private equity firms see tech opportunities slowing for the next five to ten years, while alternative fuel markets are going to be booming.”
