Wind-power companies lose luster with investors

Source: Ari Levy • Bloomberg • Posted: Tuesday, March 6, 2012

Ken James / Bloomberg. A glut of turbine production is expected to push purchases of the generators down 14 percent.

 U.S. investments in turbine farms and wind-energy businesses tumbled 38 percent last year to $9.7 billion, according to data from Bloomberg New Energy Finance. Venture capitalists have practically left the sector altogether. They invested only $177.6 million in wind startups last year, down 71 percent from the year before.

Wind power is bucking a broader trend for clean energy, which is seeing a surge of investment. Venture backers pumped $4.29 billion into the sector in 2011, up 13 percent from the previous year, according to the National Venture Capital Association. With wind, it’s harder for early investors to afford the large outlay of cash needed to get a business off the ground, said Jason Matlof, a partner at Battery Ventures in Menlo Park.

“We can’t compete as venture investors in capitalizing energy companies,” Matlof said.

There’s also a glut of turbine production – fueled by investments over the last half decade in the United States, Europe and Asia – and not enough demand. Global purchases of turbines will fall 14 percent this year from 2010 and won’t surpass 2011 levels for two years, Bloomberg New Energy Finance estimates.

That’s hurting the biggest makers of turbines, the giant fanlike devices that turn kinetic energy from gusts of wind into mechanical energy. Vestas Wind Systems in the Netherlands and India’s Suzlon Energy reported wider-than-anticipated losses last month, and China’s Sinovel Wind Group estimates that its 2011 profit fell by more than half from 2010. The companies have seen their stocks plunge in the past year.

With a market that’s battering publicly traded companies, there’s little room for startups to find opportunities, said Matlof, whose firm has invested in one early-stage wind company, Modular Wind Energy.

“Historically, there’s been a handful of wind turbine companies that own all the development, all the technology and all the integration,” he said

Wind companies in the United States also face the expiration of a tax credit at the end of this year, adding to their risk. The industry is seeking a four-year extension to the credit, which helps lower the cost of wind power to make it more competitive with traditional sources of energy.

Venture capitalists for the most part are steering their investments toward technologies that make existing energy sources more efficient and alternative-energy sources easier to deploy, Matlof said.

As far as investing in production itself, “that is not a winning formula going forward,” he said.