Yesterday, Bloomberg Energy News, reported the close for West Texas Intermediate crude oil at $45.59 a barrel while its cousin, Brent North Sea crude closed slightly higher at $48.79, almost half their price per barrel less than six months ago. U.S. natural gas, per Bloomberg, remains at recent lows of $2.99 per MMBtu down from its 2008 high of more than $12.00 per MMBtu. Conventional wisdom often states when fossil fuel prices are low, investments of any kind in renewable energy do not pencil out. Perhaps true in the past, increasingly ongoing venture capital investments in renewable energy continue forward with VC investments in 2014 setting several new records.
This week the New York City based venture capital tracking company, CBInsights, released its, ” 2014 Venture Capital Financing and Exit Report” . Per Anand Sanwal, CEO/Co-founder of the company, ” After deal activity fell 22% in 2013 compared to 2012, 2014 saw a smaller 2% drop in year over year deals. Total funding increased 17% year over year which was a good sign for green tech”. Per the CBInsight report, more than $2 billion of venture capital funding was invested in clean energy technologies in a reported 158 deals. More than $800 million of investments were made in the third quarter of 2014 concentrated in an estimated 51 deals.
California and Massachusetts accounted for more than 50% of funding deals with California accounting for 42% of total green energy investments while Massachusetts accounted for 12% of total funding. Interestingly, Texas, now the U.S. leader in installed wind energy, placed 3rd in 2014 clean energy investments at 7% of the total. Texas continues to become home for new clean energy technologies despite the popular misconception the state is all oil and gas all the time. With these three states accounting for 70% of green energy investments, Pennsylvania and Illinois each accounted for 6% each for a total of 12% of total funding. New York State by comparison accounted for only 2% of green energy VC deal flow despite the strong efforts of the state to attract additional renewable development on its congested electric utility grid through the efforts of state’s New York State Energy Research Authority (NYSERDA).
CBInsights 2014 Venture Capital and Exit Report, highlights that renewables, defined as solar, wind and geothermal along with bio-mass accounted for 33% of total deal flow while energy storage, battery storage in particular, accounted for 12% of total deal flow with energy efficiency hardware and software technologies accounting for 9%.
The type of deals VCs invested in is changing as well with significant venture capital investments in green energy companies operating at the far executable end of the solar value chain. California based SunRun closed a $150 million Series E funding round in the second quarter of 2014. Sungevity, with a similar business model to SunRun and SolarCity, closed a $70 million growth equity financing round. These three companies are now the leading national PV solar installation firms who have greatly expanded the number of U.S. solar installations at the residential level by offering financing programs which can include a unique “No Money Down or Owned” financing approach.
Today, investors find declining prices for solar equipment, increased efficiency in installation methods combined with federal tax credits and a handful of states solar incentives, provide excellent ROIs and allow homeowners to simply agree to have a system installed but owned by investors while the homeowner captures the monthly electricity savings. The types of investment in such entities as SunRun and Sungevity are well into the solar value chain and well beyond typical VC investments in technologies still at the lab level.
Electric vehicle systems manufacturer, Atieva, based in Redwood City, California closed a $100 million Series C financing round also in the second quarter of 2014. LanzaTech was another big winner in 2014 green energy VC funding. According to their company website, “LanzaTech is revolutionizing the way the world thinks about waste carbon by treating it as an opportunity instead of a liability. LanzaTech’s novel gas-to-liquid technology has opened up vast new sources for making low-carbon chemicals and fuels that displace petroleum without the environmental concerns associated with crop- and land-based bioproducts.” The company closed a $60 million Series D funding round in 2014.
For the past two years, venture capital investments in green energy have totaled more than $3.7 billion with significant additional funding investments from non-venture capital funding sources. Non-VC funding in green energy appears to be off to a fast start for 2015 when this month California based Stem, a demand response battery storage provider, closed a $27 million equity financing round from Exelon Constellation Energy Group and French oil and gas based giant Total.
