‘Low carbon energy is an investment sector that has come of age.’ Jonathan Bryers, Carbon Trust Investments
Low carbon technologies are attracting more and more investment for a range of reasons. It’s a feel-good alternative to traditional investment sectors — but the low carbon case is also underpinned by fear, given the constant flow of disconcerting news and escalating oil and gas prices. Factor in the occasional grand gesture like Sir Richard Branson’s offer to pump $3 billion into renewable energy over the next decade, and this looks like an investment sector that has come of age. In the hard-nosed world of venture capital, however, companies at the vanguard of low carbon technology have to prove their financial worth just the same as anyone else. Jonathan Bryers of Carbon Trust Investments, the Carbon Trust venture capital arm, points out that it looks at as many as 200 company business plans a year. The fact that in four years it has backed just eight companies gives an indication of the standards it sets.
‘It’s pretty tough,’ he says. ‘We need to demonstrate a good return that will establish us and the low carbon businesses we back as credible players. And I think we’ve done that: we’ve got an internal rate of return on our portfolio of over 30 per cent.’ Though small, the portfolio is diverse, including fuel cell technology, wave energy and solar power as well as companies developing greater energy efficiency in building materials and process engineering. The common factor is that Carbon Trust Investments believes the business plan to be every bit as good as the technology. ‘You can have a great technology that can solve a lot on its own,’ says Mr Bryers, ‘but if we can’t see that the company has the capacity to roll it out, it’s not really going to deliver a lot of carbon savings. You’ve got to have the right management team, the right technology and the right market place.’ To that end, the Carbon Trust runs a research and development programme for fledgling companies whose technology requires more funding and further testing. There is also an incubator programme for companies — some 40 of them so far whose business planning, intellectual property rights or management need more support before going on to the next stage of investment. If they make the grade, there is the prospect of so-called seed investment — typically £100,000 to £250,000 — in a new £2 million fund the Carbon Trust has established with the Shell Foundation, in effect a bridge to the venture capital level at which things start to get serious. The pipeline of companies coming through this process is lengthy, but they can take comfort from the recent flotation on AIM of two of the Carbon Trust’s eight venture capital recipients, Ceres Power and CMR Fuel Cells.
Mr Bryers also believes that the quality of renewable technology companies is better now than a few years ago. He flags up BP’s involvement with AIM-listed wind turbine manufacturer Clipper Wind as an example of blue-chip players being attracted into the sector. ‘Once you’ve got a growing portfolio of companies that have successfully demonstrated that they can deliver returns to investors when they get into the market place, that builds the credibility of the whole sector.’
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