Five Trends to Watch in 2002
The following is an excerpt from Clean-Energy Markets: Five Trends to Watch in 2002. To read the full report, please download the PDF file by clicking on the link to the left.
Amid turbulence and uncertainty across most investment markets, investor interest in clean-energy companies remains strong, from angel investors to venture capital firms to investment banks and strategic investors. The reasons are many and varied, ranging from investors' natural curiosity in "the next big thing" to a vast confluence of political, technological, and social forces that make clean energy a compelling investment strategy.
Perhaps most compelling is the size and scope of the energy marketplace. In the US alone, energy represents an annual US$350 billion market. Clean-energy technologies -- including solar photovoltaics, wind power, microturbines, and fuel cells -- represent a fast-growing segment of the marketplace. Wind power and photovoltaics are two of the highest-growth technology sectors on the planet, growing by more than 30% annually. In many regions, wind power is now the most cost-competitive new energy source, averaging US4.5 cents per kWh -- with construction, operation, and maintenance costs running less than most fossil fuel-powered plants.
Our most recent forecasts see clean-energy markets growing from less than US$7 billion in 2000 to more than US$82 billion by 2010. The market for energy-efficient goods and services -- already US$33 billion in the US -- will grow by more than 8% a year for the next three years and will include a growing percentage of clean-energy goods and services.
Beyond the numbers are a variety of diverse factors that have converged to place clean-energy technologies and companies in the limelight:
- Security issues, which have become central to US and international policy in the aftermath of September 11, make clean and distributed energy sources a critical part of any balanced and secure energy portfolio. Solar PV and fuel cells are excellent distributed energy sources, which allow energy to be developed on-site, without dependence on vulnerable centralized power plants and electricity grids. And cheap and abundant sources like wind power are a safe alternative to oil, natural gas, and nuclear plants that are volatile terrorist targets.
- Energy uncertainty, exemplified by last year's electricity shortages in California, has increased demand for "distributed generation," technologies such as microturbines, fuel cells, and solar photovoltaics, which enable electricity to be generated at or near where it is needed, rather than being shipped hundreds of miles over power lines.
- The need for increased power reliability and quality in many business applications -- spurred by the growth of electronics and "always on" products -- has made some distributed energy technologies an attractive and affordable alternative. The standard of acceptable power quality is rapidly moving from "four nines" (99.99%) reliability -- or roughly 53 minutes a year of power outages -- to "nine nines" (99.9999999%), or about 3 milliseconds of annual outages.
- Technological advances, including continued innovations in microelectronics, biology, chemistry, and physics, have significantly improved the performance of many clean-energy technologies and brought them into price parity with conventional power, or provided value-added benefits that justify premium prices.
- Pressing environmental issues, notably global climate change, have stepped up pressure on countries, companies, and communities to find more environmentally benign ways to meet the world's growing power needs. The growth of clean-energy technologies is at the top of nearly every government's and multilateral organization's list of solutions to addressing climate change.
- The rise of the developing world -- including China, India, Latin America, Africa, and Eastern Europe -- are prompting new business opportunities. In many cases, businesses and governments in these areas are seeking leapfrog energy technologies that avoid the need for costly power grids and that can be developed at the regional or village levels. The US Agency for International Development estimates that the global market for climate-related technologies -- of which clean energy is a significant component -- will be valued at US$4 trillion to US$5 trillion over the next twenty years.
- Strategic Investors. Investors, while cautious, are warming to the clean-energy marketplace. They include not just venture capitalists and investment banks, but also multinational companies, which are committing billions to clean-energy technologies. For example, last year, Royal Dutch/Shell said it would renew its renewable energy investment program with a further US$500 million to US$1 billion spend earmarked for the next five years. General Motors Corp. bought a significant piece of Quantum Technologies, a hydrogen-storage company that the automaker said would speed up the development of hydrogen fuel cells. BP Amoco, which owns BP Solar, one of the world's largest makers of solar panels, has committed US$500 million over five years to clean-tech development. These so-called strategic investors are helping fuel interest in fuel cells, photovoltaics, microturbines, and the many related systems and components that surround these technologies.
- Government Commitments. One of the many factors attracting investors to clean energy are the commitments being made by governments around the world to adopt these technologies. The European Union has committed its member countries to obtain 20% of its electricity needs from renewables by 2010. (Some individual countries have even more ambitious goals.) Japan's government, in a market-development role, has committed significant resources to building out that country's solar photovoltaic industry. Meanwhile, the multinational organizations are working aggressively to bring clean-energy investments to the developing world. For example, the Global Environment Facility, a joint funding program of the United Nations and The World Bank, has earmarked US$400 million in loans and grants for renewable energy, which is expected to leverage US$2 billion to US$4 billion in projects over the next few years.
- Venture Capital. North American equity markets have been fueling much of the growth in the clean-energy sector. For example, venture capital investments in clean-energy technologies have increased more than tenfold over the last five years. While governments and multinational companies are investing heavily in clean-technology R&D, significant capital and market-creation investments are coming from venture capitalists and angel investors, the principal financial engines behind the high-tech revolution of the past two decades.
In the clean-tech field, US investments have grown steadily. In 2000, North American clean-technology companies saw investments totaling more than US$2 billion. Of this total, more than US$1.4 billion came from equity investments in early-stage and follow-on deals, plus more than US$600 million in investments raised via initial public offerings. Clean-energy companies represented the bulk of these investments.
In 2001, investments in clean-energy technologies saw a significant slowdown, reflecting changes in the overall equity markets due to the economic downturn, although there remained much interest in clean energy. Several companies, including H2Gen Innovations, Ocean Power Technologies, PowerLight, RealEnergy, Serveron, and Xantrex, each raised between US$1 million and US$50 million in venture funding from sources as diverse as the California Public Employees' Retirement System (CALPERS), Credit Suisse First Boston, Detroit Edison, the Micro-Generation Fund, and Nth Power.
Clean Edge research shows over the near- to mid-term, clean-energy markets are likely to regain their momentum.