MAC/20: Mines and Communities

Europe Lags, China Catches Up in Clean Energy Race

Published by MAC on 2007-05-16

Europe Lags, China Catches Up in Clean Energy Race

PlanetArk GERMANY

16th May 2007

FRANKFURT - European private sector backing for clean energy technologies is slipping further behind the United States, while China is catching up, new figures show.

Innovation funding, or venture capital, gives clean energy entrepreneurs a leg-up to develop blueprints to curb pollutants, improve energy efficiency or develop new renewable energy sources.

While European Union politicians are big on climate change targets -- they recently announced ambitious greenhouse gas emissions goals to 2020 -- clean energy start-up companies risk starving for cash.

"Europe is getting kicked," said Nicholas Parker, chairman of the US-based data provider Cleantech Group, which hosted a clean energy conference in Frankfurt on Tuesday.

"Europe has technological and political leadership and public interest but a lack of capital. In the United States we have a vacuum at the federal level and then Silicon Valley," he said, referring to the Californian innovation centre.

"(California Governor Arnold) Schwarzenegger is on trade missions globally selling California as the cleantech state."

Venture capital backing of clean technologies is directly creating around 140,000 jobs annually, he estimated.

Venture capital is the first phase of funding for start-up companies which do not yet make a profit, followed later by private equity and debt finance.

European clean energy venture capital investment fell by a fifth last year to US$499 million, while in North America it nearly trebled to US$2.1 billion, according to Cleantech.

London-based analysts New Energy Finance estimate European clean energy VC backing dropped a third in 2006, versus a 44 percent rise in North America.

New Energy Finance estimates Asia last year nearly halved its gap with Europe to US$480 million for all private equity clean energy funding.

OVERHEATING

China has long been a market for western companies selling environmental technologies, as its breakneck economic growth spawns pollution problems.

But investors are also now looking at backing the local competition, said Vivek Tandon, founder of Aloe Private Equity, which helps western companies expand in Asia.

"These are not just markets to sell products into."

"Tsinghua University has 4,500 PhD students, versus 700 or 800 in a London university. These guys will have the technology to beat us hands down."

Project development is 10 times cheaper at Chinese versus British universities, he estimated.

The European funding problem may be cultural, with both investors and companies seen more cautious than US peers.

"It's risk aversion," said Parker. "Europe needs to encourage a culture of failure, allow people to fail."

Europe is much more successful at later stages of investment, for example when companies go public -- with London's Alternative Investment Market (AIM) dominating.

And ironically a growing number of funds chasing listed and more mature clean technology companies is risking a bubble, some analysts say.

Citigroup Inc., the largest US bank, last week said it planned to commit US$50 billion to environmental projects over the next decade, the biggest commitment yet from Wall Street to address climate change.

Story by Gerard Wynn

REUTERS NEWS SERVICE

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