Private equity investment in clean energy hits new record but public market malaise limits funding options
The amount of expansion capital going into clean energy firms surged in the second quarter of 2008, pushing overall venture capital and private equity transactions in the sector to a record and providing a bright spot for investors at a troubled juncture for the world economy.
Preliminary figures for venture capital, private equity, public market, asset finance and mergers and acquisition activity in Q2, compiled by leading analysis company New Energy Finance, show the clean energy sector in resilient mood, helped by the background of high fossil-fuel prices.
VC and PE investment in clean energy companies hit a record $5.8bn in the second quarter of 2008, up from $2.6bn in the first quarter. The increase was driven by a massive $2.5bn inflow of funds in the form of private equity expansion capital, and also by a strong showing from private equity buy-outs. The message was that investors are keen to put to work the money they raised last year, while other investors are looking for exits. One particularly active investor was private equity firm First Reserve Corporation, which put money into four deals during the quarter. It bought Gamesa Solar, the Spanish-based PV plant builder and developer, for €261m ($407m), and the Italian PV project developer and engineering company Ener3, as well as investing $300m in Osage Bioenergy, a US-based ethanol-from-barley plant developer and injecting a sizable investment into Kenersys, an India-based wind turbine manufacturer.
Another big investment in the wind sector came from UK fund Doughty Hanson, which bought Svendborg Brakes, a Denmark-based manufacturer of braking systems for the wind industry, for €460m ($724m), while Dutch project developer Econcern raised €300m.
One of the hottest sectors in the three months to the end of June was solar thermal electricity generation (STEG), where companies are looking to provide utility scale solar energy and two deals in particular caught the eye. BrightSource, the US-based STEG developer, raised $115m, while its compatriot eSolar raised $120m. Further up the value chain, STEG technology developer Sopogy raised $9.1m from investors including Ohana, the fund of eBay founder Pierre Omidyar.
While public sentiment on the biofuel sector remains negative, a number of companies in addition to Osage were able to raise significant sums, particularly those involved in second-generation technologies. Range Fuels, the US-based producer, attracted $158m for its cellulosic ethanol plant while Sapphire Energy, which is looking to produce biofuels from algae, raised $50m.
Asset financing also looked relatively healthy, with total investment of $21.9bn, against last year’s $24.4bn. Indeed, the total investment in new projects – at $17.2bn, exceeded the year-ago total of $16.4bn. However, current figures suggest a drop-off in acquisition activity to $4.3bn, while the amount of refinancing has dropped dramatically, from $2.5bn in Q2 2007, to $400m, reflecting the wider market situation.
Stock market turmoil meant that public markets remained difficult for clean energy companies to access for raising equity finance; nevertheless they managed to raise $5.2bn in the second quarter, significantly more than Q1’s $1bn and the same as the $5.2bn raised in Q2 2007. Nearly half the new money raised went to EDP, the Portuguese utility, which raised €1.57bn ($2.4bn) in an IPO of its renewable energy division, EDP Renovaveis. While this was a considerable sum, it was at a discount to Iberenova’s benchmark deal last December.
Otherwise, it was mainly solar companies that investors were prepared to back. SMA Technologie, German PV inverter maker, raised €126.9m ($198m) in an IPO on the Frankfurt Stock Exchange, while compatriot Roth & Rau, Germany-based PV manufacturing equipment firm, raised €101m ($160m). Meanwhile, LDK Solar, Chinese-based supplier of solar wafers raised $400m in senior convertible notes due 2013 and JA Solar, the Nasdaq-listed Chinese Solar cell manufacturer, raised the same amount in a combination of convertible notes offering and American Depositary Shares borrowing.
A number of companies that were planning IPOs cancelled them because of the market conditions, including Sinosol, the solar module maker that had planned to debut on the Frankfurt Stock Exchange and waste-to-energy group Aretae, which cancelled plans to list on the Singapore Stock Exchange through a $410m reverse takeover of eyecare company Oculus.
The market turmoil also took its toll on M&A activity, with just $3.7bn of deals, well down on the first quarter’s $7.7bn. The largest disclosed deal was Suzlon Energy’s acquisition of Areva’s 29.9% stake in REpower Systems, the German-based manufacturer of wind turbines, for €460m ($720m).
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