U.S. Cleantech Venture Capital Continues To Gain Momentum In Third Quarter

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U.S. venture capital (VC) investment in cleantech companies in the third quarter of this year (Q3) increased 46% compared to the prior quarter to $965 million in 50 financing rounds, according to an Ernst & Young LLP analysis based on data from Dow Jones VentureSource.

This is the second consecutive quarter of growth this year and the fifth-largest quarterly investment total on record. Compared to the first quarter of this year, quarterly investment has increased 182% in terms of capital and doubled in terms of financing rounds.

A variety of investors continue to support the cleantech sector. Of the top 10 venture capital-led deals in Q3 09, four included private equity investors, three included corporate investors and one included a sovereign wealth fund.

‘The diversity in this quarter's investment activity, in terms of the technologies receiving investment and the participating investors, illustrate the potential to create value through the development of a low-carbon economy,’ says Joseph A. Muscat, Americas director for cleantech at Ernst & Young.

The energy/electricity generation category received the largest amount of investment in Q3 09, with $316 million, representing 33% of the quarter's VC investment in cleantech.

The American Recovery and Reinvestment Act (ARRA) started to have an effect on the market, as funds were disbursed and spent in significant amounts over the third and fourth quarters.

At the end of September, New Energy Finance (NEF) tracked $18.2 billion in disbursed ARRA funds to state and local agencies for energy efficiency, renewable energy, grid improvements and carbon capture and sequestration. NEF estimates that $9.5 billion in ARRA funding in these categories has actually been spent in the market. This growing pipeline of stimulus spending, which NEF expects to peak in 2010 or 2011, contributes to cleantech market confidence.

U.S. clean energy asset financing totaled $789 million in Q3 09, down from the $1.7 billion of transactions in the second quarter of this year (Q2 09), according to NEF. A notable deal in this category is the $300 million investment by Wind Capital Group for a 150 MW wind project in Missouri.

Mergers and acquisition transaction values increased in Q3 09, with eight deals valued at $750 million – more than triple the $157 million recorded in Q2 09, according to IHS Herold. Two large deals accounted for the majority of this amount – Terra Firma Capital Partners' acquisition of Everpower Wind Holdings from Good Energies for $200 million and Covanta Energy's $450 million acquisition of Veolia Environmental Services' waste-to-energy unit.

SOURCE: Ernst & Young LLP

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