Green technology still a draw

High energy prices, concerns about global warming, and an influx of venture capital are helping to insulate the state's growing green technology sector from many of the forces battering the financial world, analysts say.

"I think it would be tough to find another sector where you could say that the fundamental market drivers are as strong, if not stronger, than ever," said John Balbach, managing partner at the Cleantech Group, a research and financial services firm with offices in San Francisco and Brighton, Mich.

Despite the economic crisis, Balbach said, demand for products and services that save energy hasn't waned because consumers remain worried about the long-term cost of gasoline and heating their homes. Also, environmentalists are still pushing for alternative and renewable sources of energy and fuel.

Last week, Cleantech reported third-quarter 2008 venture investments in North America, Europe, China, and India totaled $2.6 billion, 37 percent more than the same period last year. So far this year, $6.6 billion has been invested in the sector, up from $6 billion in all of 2007.

The National Venture Capital Association, a trade group, and the accounting firm Ernst & Young, also say venture capital investment in clean technology has grown rapidly in the last several years. According to a recent Ernst & Young report on global venture capital investments, $2.2 billion was invested in the clean-tech sector in the first six months of this year - a pace for 2008 that would exceed the record $3 billion invested last year.

Meanwhile, Greentech Media, a Cambridge-based industry research and analysis company, recently released numbers showing that in the third quarter global venture capital investment in green energy technologies topped $2.8 billion - more than in the first half of 2008.

But the emerging industry is not immune to problems. While venture capital might be available to fund companies' start-up phases, established operations will have a harder time obtaining loans and other funds needed to build facilities such as manufacturing plants or wind farms.

And the sector also is not safe from the current stock market malaise. The closing price on the Wilderhill Clean Energy Index, which tracks the sector, has been dropping relatively steadily for the past several weeks.

"A lot of what is going on in our sector is what is going on in all sectors, which is that our stock prices are all over the place and more down than up," said Ethan Zindler, an analyst for New Energy Finance which provides information and research to investors interested in renewable energy and low-carbon technology. "On the flip side, the interesting thing is that we've seen a really, I would say, a spectacular amount of venture capital investment in the sector this year."

The continued investment in clean- and green-tech companies makes sense to Jon Abe, vice president of business development at Nexamp, a North Andover company that installs clean energy technology such as solar panels. Nexamp is so busy it has a three-month backlog of work, despite having grown from five employees in the summer of 2007 to 25 employees now.

"As long as folks are spending, we see clean energy projects as a very promising and logical investment opportunity," Abe said.

Dave Power, a partner at Fidelity Ventures, which has offices on Federal Street in Boston, said investments in clean- and green-tech firms are going strong because venture capitalists are looking at investment timeframes of five to 10 years when making decisions about whether to back a new company.

"It's about aiming at where the puck is going to be and not where it is today," Power said. "I just think the drivers here are too powerful to slow down this juggernaut."

Still, there are some concerns, especially for older companies looking to move from research and development to manufacturing and sales of products like solar panels or biofuels.

"Getting VCs to do the financing is one thing, but then you have to build the plant," said Eric Wesoff, a senior analyst for Greentech Media, "there may be a slowdown in the buildout of these technologies."

Though optimistic that clean-tech will be better insulated than other industries - especially with the extension last week of two federal renewable-energy tax credits - recent economic problems could reduce demand for environmentally friendly products and services, said David Prend, with RockPort Capital Partners, a venture capital firm with offices in Boston and Menlo Park, Calif.

"There is no question that in a recession, all companies tend to look very hard at their spending, and we can't judge today - it's too early - where in these priorities green spending may fall out," he said. "If this craziness turns into a global depression, I think nobody is going to escape that."

Erin Ailworth can be reached at eailworth@globe.com.