GLOBAL ENERGY REPORTER
Investors are returning to the clean technology sector but with a sharper eye for risk and more demanding appetite for reward.
But as private investors move back into financing for renewable energy, efficiency and pollution-abatement companies, money is running out at the federal government's flagship program for financing startup companies whose technologies offer reductions in greenhouse gas emissions.
Ottawa's Sustainable Development Technology Canada (SDTC) - a linchpin for startups needing development capital - is scheduled to announce a $50-million round of company financings next month, virtually depleting its $350-million climate change/clean air fund.
The sector was hammered by the global economic meltdown as credit dried up and investors became increasingly risk-averse. Financing is now coming back - but with a somewhat chastened approach to the much-hyped technology sector. "There is a renewed interest on the part of financial institutions who had clean tech and carbon finance on their radar prior to the economic downturn," said Douglas Clarke, a partner in the climate-change practice at Gowling Lafleur Henderson LLP.
"What they're looking for is how can they play - effectively lend - without incurring the kind of risk to which we are now even more adverse than we would have been 12 months ago," he said.
Clean-tech entrepreneurs complained that financing remains a major hurdle to growth, even when the companies have commercial products and growing revenues.
Early-stage investing was always scarce in Canada, forcing companies to access capital from the United States and Europe, while banks are often reluctant to extend working capital for clean-tech firms.
SDTC president Vicky Sharpe said the North American venture fund market has rebounded with several successful closings. Driven by U.S. commitments to reduce greenhouse gas emissions, clean tech has become the largest single sector financed by North American venture capitalists, outpacing information technology and biotech.
The federal agency has financed 171 startup companies since it began operating in 2002, allocating $425-million, of which $350-million went to climate change technologies. That SDTC lending has, in effect, levered an additional $900-million from the private sector, 44 per cent of which was raised outside Canada.
But gaps remain. "There is still a need to mobilize capital," Ms. Sharpe said. "There is a dilemma between banks doing their best for their shareholders, and business that can't get enough cash."
As a result, there remains a key role for government to provide funding for commercialization that the market itself will not finance, she said. "If we, as a policy, want to see an acceleration of the green economy then all levels of government - federal, provincial and municipal - need to look at how they can do that in a way that doesn't spend a lot of money."
Natural Resources Minister Lisa Raitt said the Harper government remains committed to supporting the clean-tech sector, but is re-assessing the best way to deliver that money. Ms. Raitt suggested Ottawa will face much tighter spending as it attempts to rein in the deficit.
"We're looking at the best way to do the next round of investment in clean technologies," the Minister told reporters after addressing the SDTC conference.
Several clean-tech investors said government needs to do more than subsidize clean-tech companies and should adopt a range of policies, including broadly available tax incentives and standards that create markets for energy efficiency and renewables.