Renewables: A maturing industry?

John Bakie
08 December 2010

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While the prominence of renewable energy may have faded when the financial crisis erupted more than two years ago, private equity and venture capital investors have continued to show high levels of interest in this developing industry. But what kind of green companies are they backing, and why? John Bakie gives an overview

At the height of the most recent economic boom, green issues and the need to harness more renewable energy sources received intense interest from politicians, media and the general public. While much of this died down in the wake of the financial crisis, renewables businesses have continued to develop, and the sector is rapidly becoming a mature industry.

Investors have continued to seek exposure to companies involved in all stages of renewable energy, with an overall increase in the number of companies receiving investment. As the chart below shows, the number of renewable energy businesses receiving private equity or venture capital funding has increased substantially in the past five years. Rising almost 700% from a mere 8 deals in 2005 to 63 in 2008 and seeing continued growth through 2009, despite harsh economic conditions and the banking crisis, the sector weathered the economic storm surprisingly well. Though the number of deals seen in 2010 has fallen back, it still remains higher than in 2007.

Despite lower activity levels in 2010, one trend that has been noted by unquote" is increasing investment in businesses that provide services to renewable energy producers. Evelyn White, associate at Riverside and a specialist in cleantech, says this is a sign the sector is maturing. "As cleantech matures it is going to need more support services and this is an area that will see more consolidation in the coming years," she explains. "We're looking to invest in companies operating in niche areas where they are a business leader."

Recent deals for third-party service providers in the sector include French group SolarQuest, which installs and manages solar installations on buildings, such as airports and offices. It received €1.1m of funding from Naxicap Partners and SCR Provençale et Corse in November. Another company, TAG Energy Solutions, which build parts used in the construction of wind turbines and farms, received £20m from Platina this October.

Solar plants and wind farms continue to attract private equity investment as well and 2010 has seen several transactions in this area. However, service providers can provide access to the market with considerably less upfront investment, as they do not need to build the expensive infrastructure associated with power generating activities.