By Jennifer Kho

Investments in clean technology made up 14 percent of total venture capital investments last year, leading one VC to call it the “coming of age” year for cleantech.

That percentage is up dramatically from 1 percent in 2000, according to Ira Ehrenpreis, a general partner at the venture capital firm Technology Partners who chaired the Clean-Tech Investment Summit in Palm Springs, California this week.

Palm Springs, California

“We’ve come a long way in a short amount of time,” he said. “During the course of the last year, cleantech has permeated the hearts and minds of the public.”

The sentiment echoes two studies released earlier this month and highlights the rapid growth in funding for cleantech.

The trend is both exciting and risky because, while investment spurs startups and innovation, too much could lead to hype and overvaluation. More investment also means more competition for VCs (see Too Late to Get Into Cleantech?). But that didn’t deaden deals last year.

Too Late to Get Into Cleantech?

According to the research firm New Energy Finance, VC and private equity investments grew a stunning 167 percent in 2006, reaching $7.1 billion from $2.7 billion in 2005.

The Cleantech Venture Network, another industry monitor, says North American VC investments in cleantech grew to $2.9 billion in 2006, up 78 percent from $1.6 billion invested in 2005. Growth occurred despite a weak fourth quarter sure to worry startups seeking a first round (see Cleantech VC Investment Falls 34% in 4Q).

Cleantech VC Investment Falls 34% in 4Q

But the Cleantech Venture Network expects more growth next year, and—with Democrats in control of the United States Congress, new California legislation aimed at reducing carbon emissions, and even U.S. President George W. Bush calling climate change a “serious challenge”—many at the Clean-Tech Investor Summit had similar hopes (see Cleantech Rises on Dem House, Will Oil Money Boost Clean Energy?, Carbon Cut For California Fuels, and Eliminating ‘Dirty’ Energy).

U.S. President George W. Bush calling climate change a “serious challenge”Will Oil Money Boost Clean Energy?Eliminating ‘Dirty’ Energy

Groundswell Builds

“I sense a groundswell of policy important to cleantech,” said Danny Zouber, a vice president at Piper Jaffray. He added that cleantech companies want policies that would grow the industry without heavy subsidies.

Bill Richardson, the New Mexico governor and a Democratic presidential candidate, is making energy security a key part of his platform (see Richardson Speaks Clean). In a speech at the Clean-Tech Investor Summit, he called for a project to reduce the country’s dependence on foreign oil from 65 percent to 10 percent in 10 years.

Richardson Speaks Clean

“We are foreign-policy-wise vulnerable because of our energy situation,” he said. “Technology is the way this country can deal with its most pressing problems, certainly in energy.”

The fact that the cleantech industry can now count California Governor Arnold Schwarzenegger and other Republicans among its friends is another mark of maturity, Mr. Ehrenpreis said.

“This is the year that united Republicans and Democrats alike in recognizing the importance of alternative energy,” Mr. Ehrenpreis said. “We’ve come a long way from a historically divided country on issues of energy and the environment.”

Solar Prices Still Too High

Of course, some disagree that cleantech really has come of age. After all, prices for some technologies, such as solar power, are still more expensive than conventional competitors and renewable energy makes up a small fraction of the world energy market.

But Mr. Ehrenpreis said concerns that growth could be reaching its limit are unfounded.

Take solar, for instance. Solar still makes up only 0.018 percent of electricity generation, even though the market was estimated to grow 58 percent last year, according to Photon Consulting. But even if the market grows at 30 percent every year, it will still make up less than 3 percent of electricity generation in 2025, he said.

“The opportunity is clearly still ahead of us,” said Mr. Ehrenpreis. “We’re only at the beginning of the cleantech chapter … Yes, sustainable investing is sustainable.”