What is Cleantech Capital?

Geri Terzo

Cleantech capital represents investments or loans used to propel the development of renewable energy technologies. These funds may come from venture capital firms, project finance, the equity markets, or from regional government funding. Segments within clean technology include biofuels, wind power generation, and solar photovoltaics.

Cleantech capital can be used to fund wind turbines and other alternative energy technologies.
Cleantech capital can be used to fund wind turbines and other alternative energy technologies.

The groups within cleantech that historically have garnered the most robust funding include solar, biofuels for transportation, and wind. Within solar, capital may be allocated to different technologies, such as thin-film solar and concentrated solar thermal. Investments in biofuels for transportation may be earmarked for ethanol and biodiesel technologies, in addition to emerging technologies including algae and synthetic biology developments. Investors also provide cleantech capital to small-scale wind turbines to foster growth in residential wind-power generation.

Biodiesel may present an alternative to traditional diesel fuel.
Biodiesel may present an alternative to traditional diesel fuel.

Venture capital investments are one of the leading sources of cleantech capital. This group has invested large sums of money towards the development of clean technology to entire continents and countries around the globe, including North America and Europe, as well as Israel, China, and India. For the period 2001 through 2008, the amount of cleantech capital provided by the venture capital community increased consecutively every year, including in 2008 when the economy was in crisis.

When cleantech companies list shares on a public exchange, they are inviting stockholders to obtain an equity interest in the entity. This creates a portion of cleantech capital. In 2008, five clean technology companies listed shares in the public markets in initial public offerings across global stock exchanges. Solar is among the most expensive technologies to develop. Subsequently, this sector has frequently raised funds in the stock market to finance the development of new technologies and in order to pursue new projects.

Project finance also plays a role in financing the cleantech industry. This form of financing is dependent on loans extended by the investment banking community. Lenders are often skeptical about financing an emerging technology because of the inherent risks. This has slowed the development of some clean technologies and interfered with the development of some commercial-scale projects in the industry.

Unlike venture capital, which is a group that is willing to finance an industry in its early stages, investment banks have a history of providing financing for more proven technologies that boast of decades of success. There are, however, small-niche investment banks devoted to renewable energy that extend loans to the industry. The expectation is that once enough deals are completed, large investment banks will help bring clean technology to the mainstream.

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