Money can come from the strangest places.
With Google’s investment of $280 million in rooftop solar panels on Tuesday, bringing its total investments in renewable power to $680 million, experts are beginning to see the internet search-engine giant as the newest green tech finance firm.
Google’s $280 million will create a fund that supports the technology and business model of SolarCity, and is intended to help homeowners in a number of different regions finance leased solar installations on their rooftops.
The fund may also provide an outstanding return on investment for Google, which emphasized for Breaking Energy the business logic of the deal.
“We have a lot of cash to invest,” Google’s spokesperson for Clean Energy, Parag Chokshi, told Breaking Energy.
Investing in SolarCity was only one of many recent Google investments in clean energy.
“We think these projects made financial sense and are a great way of diversifying our cash while investing in something we think is important,” Chokshi said. “We were comfortable with the returns given the risks.”
Google is not alone in recognizing that alternaive energy could become one of the most profitable investment trends of the decade.
“IEEE has been investing in solar energy for many years,” James Prendergast, IEEE senior member and executive director told Breaking Energy. “If you are looking at some sort of period of exponential growth its been happening, but it will start to show in the next few years.”
He notes that return on investment in particularly high with solar photo-voltaic installations because the only cost is the initial installation.
In fact, finance groups that specialize in green tech investments are cropping up all over the country.
Hudson Clean Energy Partners, a private equity firm formed in 2007 by a former Golman Sachs partner Neil Auerbach, is already managing and making millions in assets invested solely in clean energy.
A Market Opportunity
“Most US banks are not very active in that space,” Auerbach told Breaking Energy, despite seeing the opportunities when it comes to public markets and initial public offerings (IPOs). While activity levels are high for project finance lenders, few of them, he said, are American. Of the investments that are American in origin, few are made in private, smaller companies.
“The IPO market has been the biggest failure,” Auerbach said.
This hesitation to take investment risks in alternative energy is a sign of the slowed American economic growth in recent years, he said. These general hesitations have been exacerbated by unclear signals from federal regulators about energy policy. That hesitancy has played to the strengths of the smaller investors, Auerbach said.
“We need robust finance in equity markets and they have been very choppy,” Auerbach said. “I think we [at Hudson Energy] have performed very well in those choppy markets.”
Particularly problematic in the clean energy sector, which in a large part is being developed by small start-ups, are premature IPOs that fail to hit projections, said Auerbach. This, he said, tends to diminish the appetite for investment in the long run.
Very recently, however, he said he has been seeing more willingness to take risk, a sign that the market is becoming healthier.
“It all suggests that there is a willingness on the part of institutional investors to take risks and that is generally a good sign for the market,” he said.
More Green To Come
“I absolutely believe there is a future for renewables,” he said. “I certainly expect the future to be bright.”
Prendergast agreed. He said that tremendous changes in energy are likely to take place in the coming years.
“The technology is already here, its ready to use,” Prendergast said. “We need some financing schemes – and with some achievable reductions in costs we are going to be in a very healthy place.”
Chokshi echoed the idea that renewables growth is severely limited by a lack of capital investments. With the Google investment, Chockshi said he hopes that SolarCity can grow exponentially, underpinning profit growth.
Auerbach explained that with growing populations, expanded access to electricity, and increasing concerns about climate change, the growth potential for the global clean energy market is only increasing.
“We’ve been doing this for a long time and we think that this is the highest growth segment of the energy sector,” Auerbach said. “And energy is one of the dominant investment themes around the world.”
Three Places To Put Your Money
Auerbach told Breaking Energy that clean technology investment can be extremely profitable.
“Ultimately, we like everyone else, we are judged by what we deliver to our investors. We have the ability to navigate markets that are by no means easy but are growing quickly around the world and therefore present a lot of opportunity,” he said.
Investments in these three areas, he said, will likely be particularly successful: Renewable generation around the world, electric vehicles and smart grid technology
Picture: Traders work on the floor of the New York Stock Exchange before the close on June 14, 2011 in New York City.