Green technologies from rooftop solar to projects that turn waste into electricity are getting a boost from venture capital funds, which raised their investments in clean energy at the fastest pace in nine years in 2016.
VC funds funneled $834 million into the clean-energy industry last year, the third consecutive annual increase and the most since Bloomberg New Energy Finance started collecting data in 2004. For a second year, VC for green projects surpassed private equity, which dropped to its lowest level since at least 2004.
The figures suggest show that some of the most adventurous fund managers are returning to the green industry after getting pushed out by mainstream investors in the past five years. VC and PE firms funneled $3.8 billion into mainly wind and solar projects in 2010 then turned away from the industry when pension and more general funds started bankrolling projects and reducing the potential to profit.
Now, VC firms especially are moving back into green projects, focusing on niche investments with bigger risks and smaller scales than mainstream funds prefer. Here’s what a few of the VC and PE funds are turning to:
Oxford Capital Partners LLP: The venture capital firm has invested 300 million pounds ($374 million) in solar, batteries and anaerobic digestion.
“The future is not carpeting fields with solar panels,” Oliver Hughes, a partner at the Oxford, U.K.-based fund, said in an interview. “It’ll be putting them on very large rooftops.”
The firm installed 3.8 megawatts of panels on Bombardier Inc.’s wing-assembly plant in Belfast, Northern Ireland. It has also built 5 megawatts of anaerobic digestion plants in Cornwall, Wales and Anglesey, turning farm waste into electricity.
Terra Firma Capital Partners Ltd.: The firm founded by outspoken financier Guy Hands has installed 1.7 gigawatts of solar power and wind energy among other deals valued at $2.8 billion.
While solar and wind remain a focus, Terra Firma is searching outside of Europe for higher returns, said Ingmar Wilhelm, senior adviser and chairman of its solar unit in Italy.
“Western Europe, as a chapter, has closed,” Wilhelm said. “Additions in the West are coming down, which is more than compensated by opportunities in Africa, Asia, Latin America.”
The company is considering projects in Vietnam, Saudi Arabia, Iran, Ghana and Uganda.
Zouk Capital LLP: The London-based venture capital firm is focusing investments on resource efficiency, from energy to water.
Zouk is considering waste-to-energy projects, batteries, biogas and electric-vehicle charging stations, according to investing partner Massimo Resta.
“We cannot look at waste in the same way we have in the past where you just dig a hole in the ground,” Resta said. “We need to recover the valuable materials and also use it to produce electricity.”
It’s not planning to work in solar and wind, as “conventional renewable energy is now about sourcing cheap capital and deploying economies of scale — that’s not our type of play,” Resta said.
Octopus Investments Ltd.: The U.K. solar and wind investor has deployed 2 billion pounds in the industry.
While the company is still active in wind and solar, Octopus is also working with pension funds to match liabilities with projects, turning the steady cash flows from clean power sales into stable returns, according to Matt Setchell, head of renewables at the firm.
Octopus is also considering batteries and “spent a lot of time looking at the enhanced frequency response tender” held by the National Grid in the U.K., he said.