Cleantech investment hits record

By Maggie Shiels Technology reporter, BBC News, Silicon Valley

Start ups tackling the energy crisis are attracting investors

Global venture funding for clean technology has hit a record high with $2bn invested in the last quarter.

The Cleantech Group, which promotes environmentally friendly investments, said the industry is defying downward trends in the overall sector.

"This is still early in the game for cleantech and venture capital firms see real potential for a return" said senior research director Brian Fan.

The report tracked 96 start-up investments worldwide.

With rising fuel costs, the most favoured fields for venture capital money were solar thermal and second generation biofuels.

"This breakout quarter for solar thermal and algae companies indicates a growing appetite for clean technologies that can replace coal for electricity generation and oil for transportation fuels and help solve worldwide issues," explained Mr Fan.

"The scale of these problems are enormous. For example in 2008 the world's daily consumption of oil is 87 million barrels a day but production of bio fuels is just 1.35 million.

"When you look at electricity from renewable sources it is just 2% of the total power generation and the majority of power generation comes from coal."

Massive influx

Foundation Capital, which is based in Silicon Valley, came joint second in the ranking of VC firms ploughing money into cleantech.

Steve Vassallo, principal investor at the company told the BBC they had recently closed a $750m funding round of which $250m was earmarked for cleantech investment.

"In the last 12-18 months there has been a massive influx from investors. This sector promises to be a very large market with investment set to grow to between $6-$20 trillion in the next 20 years."

Harnessing the suns rays also helps attract venture capital money

But he warned that with that rush to invest comes risk.

"We see a lot of carnage both in the bio fuels area and solar photovoltaics. There is too much money going into these sectors and too few good companies."

As a result Mr Vassallo told the BBC his firm is focusing on businesses that use technology to make present day resources work more efficiently.

One example of this, he said, is a Seattle company called Naverus. It utilises global positioning systems on the ground to navigate planes into airports more efficiently in a bid to reduce fuel consumption and costs.

"This technology uses existing software to save the aviation industry 15% in fuel usage and so far has saved Southwest airlines more than 100 million gallons in a year," boasted Mr Vassallo.

Battle-hardened veterans

The Cleantech Group report showed that nearly three quarters of the investments made were in America with the Bay Area attracting 40% of that.

Cleantech investment has grown nearly 60% on the year

Mr Fan said; "In the Bay Area there are battle hardened veterans who know how to build companies and bring new technologies to market successfully."

European companies, especially those in the UK accounted for 13% of investments followed by Chinese companies at 12%.

"The UK has been consistent in being a leader as far as Europe is concerned in this field with London as a financial centre and a relative maturity of investors," said Mr Fan,

"China meanwhile is interesting because of its massive scale and is set to emerge as a world power. They are keen to develop their own solutions to world problems and import from the West."

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