It seems like climate change is the issue of the moment. Soaring oil prices have put global warming on everyone’s lips and rare is the day when I pick up a newspaper and do not see a climate change story.

From politicians to social activists and commerce, everyone seems to want a piece of the action and investors are no exception. As interest in climate change grows, so does interest in clean technology and the proliferation of companies and investments in the CleanTech sector has surged from Silicon Valley to the Thames Valley.

The growth in the sector is illustrated by the potential that the investment community sees in CleanTech. In total, more than €400m of venture capital money was invested in 95 deals in 2006 across Europe alone, a massive increase that brought the total capital deployed to over €1bn.

Currently, 217 CleanTech innovation companies in Europe are venture-backed. The UK is a particularly important region, with just over 40% of the VC-backed CleanTech companies.

CASE FOR INVESTMENT 

The massive increase in venture investments in energy technologies in Europe (predominantly in the UK) during 2006 can be explained in three ways: first, the potential for return; second, a new level of commitment by government; and finally, significant corporate investments in clean-energy acquisitions and expansion initiatives. One thing is clear, venture- backed CleanTech start-ups are on an upward trajectory. It is one of the big venture trends right now, one which will continue and continue very aggressively for the next few years.

The clear upward trend in CleanTech is likely to grow as we continue to face environmental and energy issues and regulators turn an increasingly attentive eye to the challenges they pose. Sectors that are particularly hot include those for alternative energy solutions, such as solar panels; material innovation; and other technologies for reducing carbon emissions, a field which holds huge opportunities.

The market presents a clear opportunity for scalability and commercialisation. At the moment, the CleanTech market looks like the IT industry 20 years ago. There are a multitude of component solutions, but no simple commercial packages that can easily be consumed. In the next stage, we will see the emergence of solution providers and packaged offerings that are easy for consumers to buy and understand.

In addition, we need to see innovation companies scale up and commercialise their offerings – not easy in the face of the innate conservatism of project-finance lenders, who are reluctant to provide funds for projects whose advantage is their innovation. This could mean that we see the rise of some big players in the next 12-18 months.

I believe CleanTech has a real future. There is a lot of talk that the massive growth in venture capital committed to CleanTech companies is another investor bubble. But this seems unlikely as the challenge of climate change is unlikely to disappear and fossil fuel reserves are certain to run out. And asking western economies to constrain their industrial consumption to such a degree that it makes a difference to climate change and causes material harm to their economies is not a serious alternative.

Instead, we have to learn how to integrate. The long-term success of the sector will rely on our ability to incorporate its myriad innovations in a way that delivers real environmental and economic benefits. And aboveall,intheprocessofinte-above all, in the process of integration, we have to remain committed to the overall goal of positively impacting on climate change and ensure we don’t just simply convert one problem to another. For example, if a petrol-run car pollutes and a plant generating electricity pollutes as well, will an electric car really solve the bigger problem?