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Europe falls behind North America on clean energy investment

Europe has fallen drastically behind North America on investment levels into the clean energy sector since 2003, the UK Carbon Trust says in its report Investment Trends in European and North American Clean Energy 2003 to 2008 – The Rise and Fall of Clean Energy Investment, carried out by analyst New Energy Finance.

Furthermore, European investment in clean energy is focused on early stage businesses rather than providing a continuous flow of capital across a company’s development.

Global clean energy investment in 2008 reached €148.2 billion, of which €109.3bn was new money. Renewable energy made up €79.4bn of this.

Investment in clean energy companies in 2008 reached €28bn of which venture capital and private equity investment made up €8.8bn and public market investment €7bn (significantly down from the €20.6bn achieved in 2007).

Venture capital

“Overall, clean energy venture capital investment from North America and Europe showed strong growth from 2003 to 2007, increasing by 207% over the period. However, investment in 2008 did not maintain this growth rate and in 2008 venture capital investment figures were comparable to 2007,” the report states.

The number of deals in 2008 fell by 45% to 199 from 2007. Credit markets froze and the global economy gradually declined during 2008, and many venture capital investors withdrew from making investments in new clean energy companies.

North American venture capital growth was 31% year on year in the period 2003-2007, whereas investment in 2008 only grew 3%, compared to 2007, to €2bn. European venture capital growth for clean energy grew only sporadically between 2003 and 2007 with a high of €524m in 2007, before falling 55% to €233m in 2008.

Clean energy venture equity

Venture equity funding of clean energy reached $2.5bn in Europe, whereas North America saw $6.8bn venture equity funding in clean energy over the period.

The venture equity investment in Europe fell in 2008, whereas the North American levels remained similar to 2007. “Early evidence for 2009 indicates that the fall in levels of venture capital investment in both Europe and North America is continuing as the global downturn continues to stifle early stage investment,” the report says.

Investment rounds

The average size of investment rounds for an average company rose 103% to €65 million per company in North American, whereas clean energy companies in Europe saw investment rounds fall 4% to €27m per company.

“North American investors ramp-up funding to see portfolio companies through the crucial stages of growth, whereas European investors do not, instead favouring ‘drip feeding’ their portfolio companies. This European investment approach may have negative effects on the progress of clean energy companies and technologies in Europe,” the Carbon Trust report says.

North American investment growth in clean energy has largely been drive by public sector pension funds, which again have catalysed other private and public funds to enter the clean energy market. Europe, on the other hand, does not have the same scale of public sector pension funds.

“In order to accelerate the clean energy sector in Europe, we need to focus on developing an investment capability from early stage through to commercialisation – otherwise Europe stands to lose out on the shift to a low carbon economy,” according to the Carbon Trust report.

UK investment in clean tech

The UK stood for 40% of all European investment over the period, but investment levels in clean energy fell sharply in 2008. The report comments: “If the UK wants to build a low carbon economy, steps must be taken now to revive the development of clean energy technologies. Failure to act quickly may result in a ‘lost generation’ of new, innovative clean energy companies in the UK.”

In the UK, early stage investment rounds averaged €1.9m per round for clean energy. In Europe, the average was €2.6m and North America had an average of €41.2m.

UK venture capital investment in clean energy rose 105% over the period 2003-2007, but fell 37% in 2008 over 2003 levels to €83m.

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