Green-tech investment falls 50%, but it’s no time to worry

The first quarter of 2009 saw a sharp decline in all forms of investment in clean-tech and energy both compared with a year ago, as well as the fourth quarter of 2008. Overall, the $13.3 billion invested was down 53% from the previous year and 44% from the last quarter. Investments in new renewable-energy projects led the decline, with venture capital investments also dropping 22% and a near evaporation of all investment in pure-play clean energy companies. However, this raw figure does not tell the entire story for the industry, nor is it necessarily indicative of a trend.


There are many obvious reasons for this decline. The credit crisis, retarding economy and 70% drop in oil prices are among those most commonly blamed. Included in the reasons for decline would be the uncertainty prior to the passing of the American Recovery and Reinvestment Act. As Nathaniel Gronewold explains, this act changed the incentive to banks for clean energy investments from tax credits to a direct rebate. This is critical to maintaining investment as most financial institutions, 25% of which were involved in financing alternatives in 2007, are now posting losses, making tax credits obsolete.

The anticipation of this bill certainly had negative effects on the amount of investment. Gronewold also points out that investors are holding back in favor of additional energy and transportation bills providing a new regulatory framework for the industry. As we experience high amounts of flux in both the economic and political system, we need to be careful about drawing conclusions regarding a possible downswing in “green” technology. Investors tend to avoid uncertainty, and we should hope for swift political action to cause investment to bounce back. Eric Wesoff, Senior Analyst for GTM Research, predicts that “2009 will be a year of consolidation and development while 2010 and 2011 will be the year greentech breaks”. We can only wait and see if this will pan out.

Added to the class of venture capitalists will be Google, who just unveiled a $100 million venture fund that has already invested in improving the efficiency of power grids. While there won’t be a stated focus on green technology, we can be sure that there will be a good amount of involvement in that area. Kate O’Sullivan of CFO magazine feels that cash-rich companies and wealthy individuals could fill the void left by struggling banks and credit markets. Those that are already engaged in such activity include Chevron, Valero and BP, but it’s difficult to draw conclusions from energy companies looking to both diversify and improve their image.

Overall, there are many factors contributing to a positive environment for a rebound in alternative energy and clean-tech. The reversal of the price of oil to more moderate levels as well as steps recently taken to bolster the financial system should also bode well as the private sector looks to capitalize on the shift towards a more sustainable economy.


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