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Diversifying key to investing in clean tech firms

Published at: Jan 22, 2012
source: Reuters
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Investing in a wide range of clean technology companies is a good defense in a sector that faces uncertain policy for low-carbon energy and that had only modest growth last year, said a partner at venture capital firm Scottish Equity Partners (SEP).

 

Earlier this month, SEP beefed up its presence in the clean technology sector by agreeing to manage a new 95 million pound ($147 million) fund it created through a partnership with the venture capital arm of British utility SSE Plc.

The Environmental Energies Fund (EEF) has acquired stakes in nine UK-based clean technology companies from SSE Ventures' portfolio, ranging from energy efficiency services to solar power designs and installation.

Aquamarine Power, Geothermal International, Smarter Grid Solutions and SolarCentury are among the nine, and EEF could take on another five firms from SSE's portfolio at a later date.

"We have broad range of technologies in there," said David Sneddon, a partner at SEP told Reuters in an interview.

"The spread (diversity) is a good thing in terms of having exposure to different risk profiles. We also get the benefit of different government regimes, incentives and fiscal support."

While Britain's plans to reduce subsidies for solar panels could affect SolarCentury, its new subsidy scheme for renewable heating will benefit other businesses in the portfolio, he said.

The proposed solar tariff cut to 21 pence per kilowatt-hour would still allow room for some companies to grow.

"The industry is not dead," he said, adding: "You can still install solar panels in the UK, and that installation will still be economically viable, but the ones that were only viable with the 'super-tariff' have gone away."

Investors are waiting for more details to emerge on the UK energy ministry's plans to encourage low-carbon power generation by offering so-called contracts for difference (CFDs) under its electricity market reform proposals.

The first power plants will be able to make use of CFDs from around 2014.

MODEST GROWTH

Investment in clean energy globally hit a record $260 billion in 2011, up 5 percent from the previous year as the amount going into solar grew by more than a third, despite shrinking profit margins and some bankruptcies, Bloomberg New Energy Finance said.

Last year's investment growth still was well below the 30 percent rise seen in 2010.

Meanwhile, energy produced by wind, solar and other renewable sources will account for a small fraction of total global energy output by 2030, BP data showed last week.

Sneddon is still betting on value growth in the EEF portfolio, despite the setback for some clean energy firms and the potential impact on the economy from the euro debt crisis.

"We are not looking to change the world. These are real, solid companies. We want to be involved with them, because that's the style of investment we have."

SEP has been investing in high-growth companies for some 20 years, focusing on information technology (IT), healthcare and energy sectors across Britain.

It recently secured 200 million pounds for a new growth equity and venture capital fund, SEP IV, which has a five-year investment window and could also include clean-tech companies.

"If we find a lot of good clean tech deals or a lot of good IT deals, then they will go in," Sneddon said.

But finding the right clean technology firm is not easy, he said, pointing out that in a typical year SEP could meet 60 to 100 clean technology companies. Only three clean technology firms were added in SEP's other funds.

"We don't do more because some of them are too early, some of the technology risk is too high, and for some the capital requirement is too high," he said.

($1 = 0.6464 British pounds)

 

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