+ 01.07.2009 + Initial findings from a study to identify new financing solutions for commercialising low carbon technologies suggests that the commercialisation “valley of death” has been squeezed by the credit crisis.

The study, being undertaken by the Clean Energy Group and New Energy Finance, has examined venture capital investment trends in low carbon technologies since 2004, and surveyed 40 leading clean energy investors. The investment data suggests that although the average size of funding rounds associated with commercialisation has steadily increased (up from $21m in 2007 to $35m in 2008), the number of such funding rounds has fallen. Many companies are therefore unable to commercialise their technologies.

This is backed by the qualitative evidence gathered from leading investors in the sector. Investors say that the commercialisation funding gap is definitely present in the clean technology sector and requires measures to address it in order to see the large scale roll out of clean energy technologies. The gap exists due to the size of the equity funding involved and has been exacerbated by the current global financial crisis.

Current data from New Energy Finance suggests that venture capital and private equity investment is being hit hard by the financial crisis, with approximately $3 billion of new investment expected in clean energy companies during the first half of 2009, a decline of 56% compared to the same period last year.

Technologies get stuck in the “valley of death”, where later stage low carbon investments are often considered too capital intensive for a venture capitalist (who finance development), but the technological or execution risk is too high for private equity and project finance investors (who finance diffusion).

The study, which is sponsored by the Annenberg Foundation and is due to complete in August 2009, aims to investigate and recommend solutions for public and private investors to the low carbon technology commercialization gap, including financing tools and policies. Full recommendations from the participants will be included in the final report.

Ken Locklin, Director - Finance & Investment, Clean Energy Group, said: “The transition to a low carbon future requires new, cutting-edge technologies and they must be moved quickly from the lab to mainstream markets. It requires billions of dollars of new public and private funding. It also needs supporting governmental policies to facilitate the innovation, deployment and diffusion of both existing and new technologies. This study will help identify the most appropriate strategies and solutions that the public and private sector can adopt in the near term. We are encouraged to see the steps that public organisations are taking, such as the US Department of Energy’s Advanced Research Projects Agency – Energy (ARPA-E), which has been created specifically to foster research and development (R&D) of transformational energy-related technologies.”

Michael Liebreich, Chairman and CEO of New Energy Finance, said: “Energy is not like software or biotech. Getting new technologies from the lab to pilot to commercial scale can require hundreds of millions of dollars. At that scale there are not many investors who are prepared to take any risk. If we don’t successfully address this important financing challenge and successfully bridge this “valley of death”, we cannot expect to move forward with clean energy deployment at the pace that the climate challenge demands. Liebreich continued “This report highlights the importance of policies in addressing this vital issue. In particular, the US Department of Energy's loan guarantee program is poised to play a critical role. The clean energy sector eagerly anticipates further details on that program's implementation in coming days."

New Energy Finance 2009