Falling Behind – Europe’s Clean Energy Venture Capital and Private Equity Deficit

Executive Summary

Europe is being left behind in the race for technological leadership in clean energy as venture capital and private equity investors focus on opportunities in the US and Asia.

Global venture capital and private equity investment in clean energy companies1 soared by 68% to $8.6bn in 2006, from $5.1bn in 2005. The Americas saw the biggest growth, up 138% from $2.2bn to $5.3bn. Asia saw growth of 45% from $930m to $1.3bn. Investment in Europe, however, dropped 2% from $2.0bn to $1.9bn.

The total number of venture capital and private equity investments in the Americas rose from 189 in 2005 to 222 in 2006, and in Asia from 22 in 2005 to 33 in 2006. In Europe the figures dropped from 86 in 2005 to 79 in 2006.

When it comes to earlier stage, technology-driven venture capital-type deals, the difference between Europe and the US becomes even more dramatic. Of a total of $1.5bn of such deals, no less than $1.1bn (78%) was invested in the Americas, mainly in the US. Only $213m (15%) was invested in Europe and $109m (7%) in Asia.

The only area in which Europe saw growth in 2006 was in larger, private equity-type transactions. There, investment in Europe grew by 1% to $1.4bn between 2005 and 2006. The US, meanwhile, saw growth of 139% from $1.2bn to $3.0bn, driven in large part by the boom in investment in biofuels.

The poor European investment volumes are in spite of the fact clean energy venture capital has provided excellent returns. In September 2006 New Energy Finance undertook the landmark European Clean Energy Venture Returns Analysis on behalf of the European Energy Venture Fair, which found that energy technology showed all the characteristics of other mainstream venture capital sectors.

The figures will make depressing reading for European policy-makers, who have set great store by achieving leadership in clean energy, as well as in innovation.

New Energy Finance calls on Europe’s clean energy industry, its investors and policy makers to focus on changes in the following eight areas:
1. Improve general macro-economics for innovation and
2. Identify and break down regulatory barriers to markets for new
clean energy providers
3. Reduce investment risk by improving stability and longevity of
clean energy support mechanisms
4. Use the public sector to create markets through preferential procurement of clean solutions
5. Increase available market sizes by rolling out pan-European standards for clean energy, fuels and technologies
6. Promote the development of supporting services such as testing & certification, training, information provision and insurance
7. Avoid the temptation to pick winners, whether through green funds or any other mechanism
8. Decouple all technology support programmes from social and political goals

Please download the full report for more detailed analysis.

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