WASHINGTON - Divergent trends for clean energy investments suggest that some companies may need to tighten their belts even as they prepare for significant future growth, reports the U.S. Department of Energy (DOE). Venture capital investments in clean energy were on the upswing in the third quarter, reaching record levels of $2.8 billion, up from only $1.3 billion in the second quarter. But a new report from New Energy Finance also finds that private equity expansion capital is drying up, falling from $4.5 billion in the second quarter to only $1.6 billion in the third quarter. Also known as growth capital, this type of investment usually finances expansions in relatively mature companies, while venture capital typically supports the development of less mature companies. Meanwhile, investors continued to provide funding for new renewable energy projects, which garnered $18 billion in investments in the third quarter, a modest slip from the second-quarter asset investments of $21.9 billion.

Given the overall losses in the stock markets, it’s not surprising that clean energy companies are also struggling to gain investments from the public markets. Compared to the $5.2 billion raised in the second quarter, only $2.9 billion was raised from public markets in the third quarter, and most of that was from established companies issuing convertible bonds, rather than initial public offerings (IPOs) of stock from private companies that are going public. In fact, the largest IPO was by Energy Recovery, a California-based energy efficiency firm that raised only $87 million. Clean energy stocks also lost value, as the WilderHill New Energy Global Innovation Index - a clean energy stock index that New Energy Finance participates in - fell 30.3 percent for the quarter, landing 40 percent lower than its peak in November 2007. In comparison, the S&P 500 index dropped only 9 percent in the third quarter. Despite the recent losses, a survey of companies that offer clean energy investment vehicles finds that they are experiencing strong demand for such offerings and plan to make several new investment vehicles available by the end of 2009.

Publication date:11/10/2008