Venture capitalists are no strangers to investing in green technologies. Environmentally friendly companies have received a steady flow of venture funds since 2006. But 2016 saw the fastest growth in venture-backed green tech in nine years and 2017 looks like it will surpass last year’s numbers.
In 2016, venture capitalists invested $834 million in the clean-energy industry. This is the third and biggest consecutive annual increase since Bloomberg New Energy Finance began collecting these data in 2004. More significantly, venture capital for green projects surpassed private equity for a second consecutive year. Meanwhile, private equity for the green tech sector dropped to its lowest levels since 2004.
The data suggest that the 2010 push by mainstream investors against venture capitalists has come to an end. Together, venture capital and private equity firms invested $3.8 billion into green energy, primarily wind and solar power, in 2010. However, they were soon pushed out by pension and general funds that started financing green projects, thereby reducing venture capitalists’ profits. But figures from 2016 suggest that the push is over. Adventurous venture firms will keep investing in the green tech industry well into this year.
Just as they did last year, venture firms are expected to focus on niche green tech investments in 2017. Although such investments carry bigger risks are on smaller scales than mainstream venture capitalists usually prefer, they offer excellent opportunities for reward.
One niche that venture is looking into anaerobic digestion and solar power. Anaerobic digestion turns farm waste into electricity. Oxford Capital Partners LLP built 5 megawatts of anaerobic digestion plants across the United Kingdom. The venture capital firm also invested $374 million (300 million pounds) in solar panels, installing 3.8 megawatts of panels on Bombardier Inc.’s wing assembly plant in Belfast, Ireland.
Like Oxford, Terra Firma Capital Partners Ltd. has invested in solar power, but on a much larger scale. Terra Firma has installed 1.7 gigawatts of solar and wind power in Europe as part of a collection of deals worth $2.8 billion. But even though these sources of European energy remain a focus for Terra Firma, the firm will spend 2017 searching for opportunities beyond the continent.
Wanting higher returns, Terra Firma’s senior adviser and chairman of its solar unit, Ingmar Wilhelm, expects increased opportunities in Africa, Asia, and Latin America to compensate for lagging opportunities in Western Europe. The company is evaluating projects in Ghana, Iran, Saudi Arabia, Uganda, and Vietnam.
London-based venture capital firm Zouk Capital LLP is another emerging player in the green energy and resource efficiency field. Like Oxford, Zouk is looking at waste-to-energy projects.
“We cannot look at waste in the same way we have in the past where you just dig a hole in the ground,” observes Massimo Resta, an investing partner. “We need to recover the valuable materials and use it to produce electricity.”
Zouk is also looking into batteries, biogas, and charging stations for electric vehicles, but it is not planning to work on solar and wind power. According to Resta, “Conventional renewable energy is now about sourcing cheap capital and deploying economies of scale,” which is not Zouk’s “type of play.”
Octopus Investment Ltd. is yet another British firm that is a major player in the solar and wind industry, having invested over 2 billion pounds. Like its peers, the company is also considering investing in batteries. In addition, it is working with pension funds to match liabilities with projects, thereby generating stable returns from the steady cash flow from clean power sales.
With so many high-profile green projects on the horizon for a number of venture capital firms, 2017 promises to be another strong year that will surpass 2016’s numbers.