The venture capital (VC) funding market for renewable energy is set to triple by 2020, thanks to positive regulatory policies, environmental support for a lower carbon footprint and innovation in renewable energy technologies, finds a new report from Frost & Sullivan.
According to the report, Europe and North America have seen the most deal activity, while bidders are also looking at South Asia and the Asia Pacific as emerging regions for renewable energy development.
‘2011 was a stellar year for renewables deal-making, with the number of deals rising by two-thirds year-on-year, although total deal value went down by one-third,’ notes Frost & Sullivan financial analyst Vinod Cartic. ‘Europe, in particular, followed by the Asia Pacific region, led this trend toward more but smaller deals. This was in contrast to North America, which had fewer deals of larger individual values.’
Currently, more than half of the VCs have ventured into clean energy investments, the report says. Solar technology received the most VC investments between 2006 and 2008 for new technologies and manufacturing capacity expansion.
‘Newer technologies, such as thin-film solar, and advanced biofuels, such as cellulosic biofuels and biofuels from algae, are among the most pursued green energy technologies,’ explains Cartic. ‘Other than green energy generation, investments in sustainable energy have also broadened to include energy storage, energy efficiency and smart grid technologies.’
Some of the key challenges in the market include high capital costs, continuous requirement of investments into technology and the fact that economies of scale have not yet been reached, the report notes.
‘Companies will need to look at different ways to enhance the value chain,’ Cartic advises. ‘Effective asset management will play an important role in value creation. On their part, governments will need to look at safeguarding their interests through transparent tariffs and the use of technology as a differentiator.’