by Dallas Kachan

The amount of venture capital entering cleantech will decline in 2012 for the first time since the global economic downturn in 2008, according to cleantech analysis and consulting company Kachan & Co.

The company, with offices in San Francisco, Toronto and Vancouver, has published a set of predictions for the cleantech sector in 2012.

In brief, the predictions include: 

1.   Cleantech venture investment to decline

Kachan expects cleantech venture in 2012 to show its first decline in 2012 after three successive years of growth from the financial crash of 2008.

Among the factors the company expects will continue to contribute to the health of the cleantech sector are China managing its economic turbulence, a forecasted rise in oil prices, global corporations' even stronger role in cleantech, continued solar innovation and persistence of the fundamental drivers of cleantech.

But these factors are overridden, the company believes, by other factors it feels will undermine the sector.

"Investors' own fundraising is getting harder. There's waning policy support in the developed world. Negative sentiment from the last few quarters hasn't been reflected in deals, which have a long lead time. Cleantech VCs are, on average, still protecting existing investments over making new ones.

And macro-economic turbulence, even collapse, is the elephant in the room," said Dallas Kachan, Managing Partner, Kachan & Co.

"Negative clean and green rhetoric in America, which is still smarting from the Solyndra bankruptcy, could foster a self-fulfilling prophesy in 2012."

2.   Venture dip made up for by rise in corporate involvement -

The world's largest corporations woke up to opportunities in cleantech in 2011, making for record levels of mergers and acquisitions (M&A), corporate venturing and strategic investments. Kachan & Co. predicts even more cash-laden companies to continue to buy their way into clean technology in 2012, supplementing the role of traditional private equity and showing a maturation of the cleantech sector.

3.   Storage investment to retreat

Significant capital has gone into energy storage in recent quarters. In the third quarter of 2011, the last quarter for which numbers are currently available, storage received $514 million in 19 venture deals worldwide, more than any other cleantech category. Kachan does not expect storage to remain a leading cleantech investment theme in 2012, however.

Total 2011 investment is expected to show growth from 2009's figures once the fourth quarter (dashed lines, estimated) is added. However Kachan predicts total venture investment in 2012 to decline from 2011's total. Data: Cleantech Group

An analysis of the numbers shows the 3Q11 storage figure artificially inflated by large investments into stationary fuel cell makers Bloom Energy ($150 million) and ClearEdge Power ($75 million.) Kachan does not expect many similar-sized investments into the 60 or so competing companies in that market.

Grid level renewable power storage, also a popular investment theme, was cited by Kachan as a technology with potentially a limited market window.

"Smoothing the intermittency of renewable solar and wind could be less important if utilities embrace other ways to generate clean baseload power in the future, such as new, safer nuclear options emerging that don't create nuclear waste, power derived from renewable natural gas, geothermal, marine or other methods," said Kachan.

"All of these promise to be less expensive when the cost of storage systems required to make solar and wind dispatchable is factored in."

4.   Marine energy to begin coming of age

2012 will not be the year wave, tidal and ocean thermal energy conversion-based power becomes cost-competitive with coal, or even nearly. But expect to hear more about marine power in 2012, Kachan & Co. predicts, and expect to see increased private and corporate funding.

The firm points to increased numbers of marine power trials around the world and recent strategic investments by large companies like Siemens.

5.   Increased water and agricultural sector activity

Kachan & Co. predicts increased venture investment, M&A and public exits in water and agriculture in 2012. Industrial wastewater is driving growth in today's water investment, with two of the top three VC deals of the last quarter focused on solutions for produced water from the oil and gas industry, and the largest M&A deal also focused on solutions for oil and gas. 

"Expect to hear more about agricultural investment opportunities in 2012 because of growing awareness of the complex interrelationship between water, energy and food, increased awareness of the planet's population growth rate and how it's going to impact our ability to feed the world, and our reliance on inexpensive oil and gas, petroleum-based fertilizers and hybrid seeds for today's crop yields," said Kachan.

Read the firm's predictions for cleantech / greentech in 2012 in their entirety.

A former managing director of the Cleantech Group, Dallas Kachan is now managing partner of Kachan & Co., a cleantech research and advisory firm that does business worldwide from San Francisco, Toronto and Vancouver.