At 4 a.m. in a little mountain town in Switzerland a couple of weeks ago, I was awoken by a very loud boom.
It was the starting gun (or, I suppose in this case, a cannon) for an ultra endurance trail run through the mountains. 600 runners set off in the pre-dawn darkness up a steep, half-mile altitude climb. In total, these runners were tackling a 62 mile run that would require them to survive not only the distance, but also over four miles of total altitude change along the way. And of course, these are difficult, rocky trails, this was no road race.
As I watched the stream of headlamps bobbing up the mountainside, I was in awe of these hardy athletes and their willingness to take on such a painful challenge. I expect there are very few humans out there (myself very much also included!) who could truly appreciate what it must be like for those runners around mile 50, as they’re trudging up a series of switchbacks toward the foot of a glacier, with the afternoon thunderstorms rolling in, and the pain increasingly hard to ignore.
Few will have that direct appreciation. But U.S.-based clean energy entrepreneurs may well sympathize.
After all, they too have been on a long road through the wilderness. Many with economic ups and downs to parallel the mountain trails. And with political headwinds in the place of thunderstorms. They’ve been running their own ultra endurance event. And the challenges have affected their ability to grow revenues, to raise startup and growth capital, and to eventually sell their businesses.
Which is why a recently-released report by Bloomberg NEF is potentially good news for such clean energy entrepreneurs. Because while it doesn’t show that the industry is radically taking off today in the U.S., it does suggest that the industry is poised for significant growth whenever the market is finally unleashed.
Many out there will have already reviewed the report, which speaks to the overall ups and downs of the industry across multiple geographies: Europe is down, Asia is flat, the Americas are slightly up.
But there are a few other trends that caught my attention as I reviewed their report:
First of all, for the first time in a long time there has been an uptick for two quarters in a row in early stage venture funding (slide 8). Other stages of venture capital remain light, but it’s encouraging to see the early stages start to attract capital again. Is this just a blip? Perhaps. But it comes at a time that several early stage investors in the sector have started having success in their own fundraising efforts. This may be a sign that institutional investors are finally starting to come back to this massive economic opportunity. And that will eventually mean healthy opportunities at the later stages as well.
Secondly, despite the perception that clean energy investments peaked as a result of the post-recession incentives that have since dried up, levels of investment remain at similar levels multiple years later (slide 14). We are living through an era of significant political headwinds, declining incentives, and investor skepticism. And despite all of that the investment levels remain high.
Imagine what would be unleashed if political headwinds going away under future administrations and Congresses.
Thirdly, there has been a big spike even amidst a longer-term growth trend around acquisitions of operating clean energy projects (slide 36). In other words, while the previously-mentioned trends show people are still putting money into new clean energy projects, this data also shows that there’s rapidly-growing hunger among acquirers of already-operating projects. On Wall Street, in London, in Canada, very large institutional investors are facing a low-yield economic environment in general. And so the opportunity to acquire these clean energy projects, with very stable and contracted revenues, and little input pricing risk, looks pretty… pretty… pretty good to such investors.
Right now there’s so much hunger for these assets, Preqin and others are tracking very low investment yields for such large-scale green power projects, as demand for them among investors outstrips supply.
But don’t worry, my firm and others are busy opening up entirely new categories of operating assets for such large institutional investors to eventually acquire.
Finally (and relatedly), investments into smaller-scale assets (solar projects, energy storage, and other types) continue to grow (slide 45). Large-scale projects continue to drive the topline ups and downs of dollars into the market, but the smaller-scale assets are a rapidly-emerging area of interest.
So take heart, hardy clean energy entrepreneurs. There are steep and treacherous trail miles yet to run before the finish line. But at least deep in this recent data set, I saw several signs pointing to reasons for optimism. Just keep putting one foot in front of the other.