According to new analysis released by Frost & Sullivan, the venture capital market for renewables will triple in size by 2020, due to positive regulatory policies, changing environmental attitudes, and technology innovation.
The analysis revealed that while Europe and North America have been at the centre of most of the activity so far, bidders are now also looking at the South Asian and Asia-Pacific regions as emerging markets for the development of renewables.
In addition, the report unveiled a growing trend for a higher volume of small-value transactions, particularly in the emerging markets.
“2011 was a stellar year for renewables deal-making with the number of deals rising by two-thirds year-on-year, although total deal value went down by one-third,” said Frost & Sullivan financial analyst Vinod Cartic. “Europe, in particular, followed by the Asia-Pacific region, led this trend towards more but smaller deals. This was in contrast to North America, which had fewer deals of larger individual values.”
Currently, more than half of the venture capital funds (VCs) have ventured into clean energy investment, with solar technology receiving the most VC investments for new technologies and manufacturing capacity expansion.
“Newer technologies such as thin-film solar and advanced biofuels such as cellulosic biofuels and biofuels from algae are among the most pursued green energy technologies,” said Cartic. “Other than green energy generation, investments in sustainable energy have also broadened to include energy storage, energy efficiency, and smart-grid technologies.”
Some of the key challenges in the market include high capital costs, and the fact that economies of scale have not yet been reached. “Companies will need to look at different ways to enhance the value chain,” Cartic added. “[For] their part, governments will need to look at safeguarding their interests through transparent tariffs.”