Global investment in clean energy sector continues to slide

July 09, 2012
Tight-fisted investment in clean energy

Global clean energy investment remained sluggish in the second quarter of 2012, with venture capital & private equity investment and project finance activity both falling quarter-on-quarter.

According to Clean Energy Pipeline project finance totaled USD34.6 billion, its second lowest quarterly level during the last two years, while venture capital and private equity investment (excluding buyouts) reached USD1.9 billion, its lowest quarterly level since the beginning of 2009.

Similarly, IPO activity languished with clean energy companies only securing USD1.1 billion through IPOs globally in the last quarter, in line with the USD1.1 billion figure recorded in 1Q12 but significantly below the 2011 quarterly average of USD2.9 billion. Only one non-Asian clean energy concern completed an IPO in 2Q12.

“The global clean energy sector is right in the middle of a major storm combining policy uncertainty in the US, low natural gas prices across North America, feed-in tariff cuts in Europe, a slowdown in Chinese wind installation levels and an ongoing sovereign debt crisis in the Eurozone,” said Douglas Lloyd, CEO of Clean Energy Pipeline. “All these factors explain the disappointing investment levels recorded this quarter.

Lloyd said, however, that the market was not without its bright spots, with offshore wind sector closing two landmark non-recourse project debt finance deals of over USD500 million apiece, and venture capital investment in biomass and biofuels companies doubling during the quarter.

Global clean energy project finance totaled USD34.6 billion in 2Q12, an 8 percent decrease on the USD37.7 billion recorded in 1Q12 and a 22 percent decrease on the USD44.3 billion raised in 2Q11.

Global clean energy M&A activity totaled USD9.2 billion in 2Q12, under half the USD21.9 billion transacted in 1Q12 and approximately a quarter of the USD39.2 billion recorded in the corresponding period last year. The decrease means that clean energy M&A activity has reached its lowest quarterly level since 3Q10, in terms of both the number and total volume of announced deals.

Only 179 clean energy M&A transactions were announced in 2Q12, 30 percent below the 2011 quarterly average of 256. An absence of large deals also hurt total deal volumes with only three deals worth more than USD500 million being completed compared with nine in the first quarter of this year.

The one sector that proved particularly attractive to buyers in 2Q12 was energy efficiency with M&A in this sector totaling USD3.5 billion in 2Q12, a 52 percent increase on the 2011 average quarterly M&A volume of USD2.3 billion.

Global VC and PE investments in clean energy (excluding buyouts) fell for the third consecutive quarter to USD1.9 billion in 2Q12, a 14 percent decrease on the USD2.2 billion recorded in 1Q12 and 42 percent below the USD3.2 billion recorded in the corresponding period last year.

The substantial year-on-year decrease was caused by a substantial decline in investment in solar and energy efficiency companies, which have historically been the largest recipients of clean energy investment. Just USD355 million of VC nd PE funding went into solar, a year-on-year fall of 61 percent while energy efficiency investment declined 41 percent to USD360 million.

On a more positive note, investment in bioenergy companies (biomass and biofuels) grew to USD422 million in 2Q12, almost double the USD228 million recorded in the corresponding period last year.

Clean energy companies secured USD2.2 billion on the public markets globally in 2Q12, covering IPOs, secondaries and convertible notes. This is a significant increase on the USD1.2 billion secured in 1Q12 but well below the two-year quarterly average of USD4.5 billion.

As in previous quarters, the clean energy IPO market was dominated by Chinese companies – six of the seven IPOs completed in 2Q12, representing 98 percent of all funds raised via IPO, were secured by Chinese clean energy companies.