Venture capital for green start-ups on the rise

Venture capital funding for environmentally friendly start-ups is soaring in China, nearly hitting the level for the whole of 2005 in just the first quarter of this year, says a report released by Cleantech Group.

Venture capital investment in clean technology (cleantech) reached $154 million in the first three months of this year, compared with $170 million and $420 million for the whole of 2005 and 2006 respectively, found the global research and investment institution committed to promoting alternative energy and environmentally friendly technology.

The report anticipates the momentum will continue as Chinese cleantech investment is expected to rise dramatically to reach $580 million this year and surpass $720 million the next.

China's cleantech venture capital market in 2006 and the first quarter of 2007 covered four segments: energy generation, water and wastewater, agriculture, and materials.

Solar energy made up over 70 percent of overall investment in energy generation, a pattern similar to Europe and North America. Thirteen of the 17 deals in energy generation were in solar, for a total of $403 million.

Wind power accounted for two deals totaling $22 million while there were two deals in biomass amounting to $13.2 million.

After energy generation, water and wastewater saw the most activity, with six deals totaling $90 million in 2006 and the first three months of 2007.

Agriculture and materials each had three deals totaling $9.9 million and $2.9 million respectively. Each segment accounted for 9 percent of the number of deals.

The water and wastewater sector, consisting of water resource management, wastewater treatment and recycling, is predicted to show potential as the next booming segment in China.

Cleantech said climate change will inevitably aggravate the scarcity of water resources and China is already facing challenges in water quality, especially in the north.

The Yangtze River Delta area in East China topped the list of regions in the number of deals and amount of investments.

The top eight cleantech investments totaled $330 million in 2006 and in the first quarter of 2007. The biggest recent deal was an $82 million investment by Goldman Sachs in solar panel maker Jiangsu Shunda.

Cleantech was ranked the third-largest category for venture capital investment in China, behind IT and media and communications. It captured 19 percent of total Chinese venture capital investment in 2006, increasing from 8 percent in 2005.

The report held that veteran investors see opportunities similar to IT in cleantech. And more and more venture capital funds that used to focus on segments like IT, telecom and media technology, are switching to cleantech.

In 2006, investors put $420 million on 26 cleantech deals. But the investment is relatively small compared with $2.9 billion in North America and $700 million in Europe.

The percentage of China's cleantech venture capital to its GDP is 0.016. The same for North America is 0.022 and Europe is 0.005.

The market for cleantech products is new and investors see good growth potential as conventional energy supplies dry up.

Policy is regarded as a crucial factor driving investor interest in China's cleantech industries. The enforcement of the Renewable Energy Law attracted a flood of venture capital investment in energy-related fields in 2006. The 11th Five-Year Plan (2006-10) will continue to be a stimulus for cleantech investment, the report said.

(China Daily 08/10/2007 page15)