ANALYSIS - Dearth of renewables focused investment funds to push technology forward

After the global wind energy market downturn of 2013 many investment fund managers fell out of love with renewable energy. The end of the love affair was also partly due to a lack of knowledge regarding the function of renewable energy technologies, and their bad bets were heavily punished.

But all that's been changing in the past 15 months as new funds are being established by major renewable energy asset owners and forward-thinking corporations. Some old names in venture capital and private equity are also poised to dip their toes back in the water (offshore wind and tidal puns intended).

The impact is being felt by startups who have recently qualified for Series A and B funding rounds:

-- Invenergy's recently launched Future Fund made its inaugural investment in Aquilon Energy Services, which is developing a cloud-based platform for energy transaction settlements;

-- Phoenix Contact Innovation Ventures and Rusheen-RWE Commercialisation Partners recently completed an investment in Windesco, a developer of Internet of Things (IoT) solutions for the wind industry;

-- ABB Technology Ventures recently announced an investment in Enbala Power Networks, which is developing software for managing power distribution networks comprising distributed energy resources;

And it does not end there, of course. Many governments around the globe have actually funded innovation accelerators which can offer financial assistance to innovative entrepreneurs while ensuring their product launch is a commercial success.

Many future technologies in solar, energy storage, onshore and offshore wind are still at a relatively low maturity level. In onshore wind, for example, most future technologies with an adoption time-frame beyond 2018 are still at a technology readiness level of 4 - 6 (detailed design - prototype). Given the typical multi-year time frame for prototyping, field testing, and certification, a massive amount of investment will be required to meet market demand in 2020.

Moving away from subsidies and towards a tendering process in most markets will necessitate further reductions in CapEx and OpEx cost, enabled by technological innovation.

Most renewable energy original equipment manufacturers (OEMs) are increasing their R&D spend as a percentage of revenue based on a bumper year in 2016. Whereas it has historically been at an industry average of 3.2%, that number is now moving closer to 5.6%. Flush with cash, companies are preparing the next wave of technological innovations which will likely put the nail in coffin for coal, and close the book on the debate about cost competitiveness of un-subsidised renewables.

Private investment is also poised to increase, not only due to the availability of these new funds, but a sense of commercial market competitiveness and viability of renewable energy technology when scaled up to compete with conventional energy. The market has now accepted the reality of cost parity for wind and solar, and they see storage as a necessity for the future grid.

As a result, a number of new startups has emerged and is poised to present a significant opportunity for venture capital (VC) and private equity (PE) to match industry players. We're likely to see enthusiasm beyond what existed about 10 - 12 years ago in the investment landscape, albeit without the irrational exuberance shown at that time thanks to more savvy investors regarding the physics and engineering behind the technology.

The future remains bright for renewable energy technology development, and it is poised to take a giant leap forward.

Choose your newsletter by Renewables Now. Join for free!