Venture capital and private equity firms have been piling into clean energy companies this year, lured by the potential of getting in on the ground floor of a swiftly expanding market.

Clean energy companies have raised more than $360 million this summer alone, according to the statistics from VCDeal.com. The latest deal — a $100 million financing for biodiesel company Renewable Energy Group Inc. — was announced Wednesday, Aug. 16.

'Cleantech investing has been going on under different names for the last five to seven years, now it happens to be a more mainstream thing because of the perceived energy problems and climate change issues that are out there,' says Tom Burton, member and chairman of the energy and cleantech practice group at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC. 'People are focusing on it more, and that has resulted in a large increase in funding.'

Renewable Energy Group was incorporated in June through the combination of West Central Cooperative's biodiesel business and REG's biodiesel plant construction business. The predecessor companies had operated in the biodiesel market for about 10 years.

The Ralston, Iowa-based REG's Series A preferred stock financing was led by NGP Energy Technology Partners LP, an affiliate of Irving, Texas-based NGP Energy Capital Management LLC. Also participating were strategic partners, Bunge North America and ED&F Man Holdings Ltd., West Central Cooperative, as well as other Iowa-based investors.

Viant Group, a San Francisco-based boutique investment bank, advised REG on the transaction.

The company plans to use the funds to 'expand our network of biodiesel plants,' according to Alicia Clancy, communions specialist at REG. 'It will be a total of 15 plants, the majority of which will be in Iowa, but there will be more that will be outside of Iowa.'

Other large deals that have closed this summer include financings for ethanol fuel plant operator Altra Inc. and Nanosolar Inc., which closed deals of $120 million and $100 million, respectively.

Los Angeles-based Altra, which operates an ethanol plant in Goshen, Calif., has secured $250 million in equity and debt funding this year, while solar cell developer Nanosolar has landed $75 million in equity funding, as well as a $25 million government subsidy to support construction of manufacturing facilities.

A recent survey by Cleantech Venture Network said that North American venture capital investment in cleantech has grown for eight consecutive quarters, topping out at $843 million in second-quarter 2006.

'The increase in investment may have triggered about a year ago, but it was a slow increase,' Burton said. 'There had been quite a bit of activity going on for several years, but the real up-tick in [venture capital] dollars invested has been an '06 phenomenon.'

Indeed, 2006 is shaping up to be a banner year for the industry. The Cleantech Network report said investment totaled $1.4 billion in the first-half of 2006, nearly doubling the $704 million invested in the first half of 2005.

Venture firms have ample reason to be bullish on cleantech, as the high prices and geopolitical risks associated with oil, as well as concern about global warming, have been encouraging consumers and businesses to start looking at more environmentally friendly ways of meeting their energy needs.

Late last year, California expanded its solar power initiative, with the California Public Utility Commission allocating another $300 million to a rebate program for homes and businesses that install photovoltaic panels. The agency also rolled out the 'California Solar Initiative,' which will give $2.9 billion to rebate programs that encourage the use of solar power.

Corporate America is also pushing Cleantech. General Electric Co.'s Ecoimagination initiative, for example, plans to generate $20 billion in revenues by 2010 from environmentally-friendly products — such as solar energy panels, water treatment systems and wind turbines. This program could be the tip of the iceberg for startups developing these technologies.

'Corporate demand has significantly increased for resource efficiency and productivity technology innovation,' says Diana Propper de Callejon, a general partner at cleantech-focused venture firm Expansion Partners. 'It's coming from large corporations such as GE, Cargill [Inc.], or Honeywell, and driven by the fact that the industries they are operating in are often very natural resource-based intensive and those industries have become a lot more competitive.'

'[Cleantech] helps them cut costs by becoming more energy efficient, and boost revenues by having technologies that they can sell to their consumers,' she added. 'If it wasn't for the large corporate demand for cleantech, you would not see the growth of markets in water purification, batteries, biofuels, etc., which has taken many of these markets from sub-billion-dollar markets to billion-dollar-plus markets.'

Corporations also represent the primary exit strategy for cleantech investments.

'If you look at the last 15 years of clean technology venture investing, 80%-plus of those deals have exited through a trade sale to corporations,' says Propper de Callejon.

And while buyouts will likely remain the prime exit strategy for venture firms, those companies that have gone the initial public offering route have fared very well too.

Chinese photovoltaic panel maker Suntech Power Holdings Co. Ltd., which was backed by Goldman, Sachs & Co., DragonTech Energy Investment Ltd., Actis China Ltd., Financière Natexis Singapore Ltd., Bestmanage Consultants Ltd. and Prax Capital, went public in December 2005. The stock is up about 108% from its offering price.

And Sunnyvale, Calif.-based SunPower Corp., recently spun out of San Jose, Calif.-based Cypress Semiconductor Corp., as a public company is up 77% from its November 2005 offering price.

Sensing that there is plenty of money to be made, venture firms have been eagerly raising new vehicles dedicated to the industry.

Blue chip venture firm Kleiner Perkins Caulfield & Byers, said that it had set aside $100 million of its recent $600 million fund closing for investment in 'green technologies.'

'Greentech could be the largest economic opportunity of the 21st century,' said Kleiner's John Doerr in the press release. 'American and world leaders are calling for alternatives to $60-a-barrel oil, and entrepreneurs are rising to the challenge.'

Also closing funds this year were Expansion Capital Partners LLC and DFJ Element LP, which have both been investing in cleantech for years.

Menlo Park, Calif.'s DFJ Element locked up $284 million in capital commitments in June, blowing away the fund's original target of $150 million.

Expansion Capital's second fund wrapped up earlier this month with more than $55 million for investment in growth-stage cleantech companies. The four-year-old firm makes investments of $2 million to $5 million in sectors across the cleantech including energy, advanced materials, water and waste water, manufacturing and transportation.

While there are certainly many solid companies to left to be funded, the increased attention is likely driving valuations higher then than they were even a year ago.

'My guess is the sector-focused funds that have been around for years are going to do quite well, because they made their investments three to four ago at good valuations,' said Burton. 'Now those companies are the ones that will be doing public offerings and engaging in M&A transactions in the next few years while this is hot.

'Jumping in now, in my opinion, it may not be too late, but soon it will be,' Burton continued. 'Certainly there's the risk of valuations increasing and therefore making it more difficult to make a venture capital-type return.'