NEW YORK — Venture capitalists reined in spending on renewable energy to begin the year, with funding for research and startup projects falling 63 percent through March, according to an industry report released Monday.
It is the latest indicator of just how badly the global economic downturn has dampened the rush toward alternatives to fossil fuels. Oil and gas companies have also been hurt as overall demand for energy has fallen in the recession.
From January to March, venture capitalists spent $277 million on clean-energy projects, compared with $715.3 million in the same period last year, according to an Ernst & Young analysis based on data from Dow Jones Venture Source.
"Investors took a deep breath and paused," said Ernst & Young's Joseph Muscat. "The weak economy has caused demand for energy in general to go down."
There were already signs that traditional stock market investors had pulled back on clean energy spending. The report Monday showed how wealthy and institutional investors, some of the most ardent backers of alternative energy, have been forced to tamp down spending as well.
There were a few surprises, however, with some comparatively big money going toward the critical technology of storing energy. New investments more than doubled to $114 million, making energy storage the biggest lure among venture capitalists in early 2009.
The fuel cell sector attracted $45 million in the first quarter, compared with none a year earlier, according to the analysis released Monday.
BASF, the world's largest chemical company, recently spent more than $10 million to build and open a fuel cell plant in Somerset, N.J. The Germany-based company has spent more than $100 million on fuel cell research in recent years.
"Fuel cell technology is one of the most important on the quest toward sustainability," said Horst-Tore Land, head of BASF's fuel cell division.
Battery storage companies raised $69 million in the first quarter, up 37 percent from a year earlier, according to the investment report.
A123 Systems, which makes lithium ion batteries for electric cars, signed a deal with General Electric this year.
While oil and gas companies have cut back spending as well, alternative energy startups can be more vulnerable because many rely heavily on venture capital.
It is not known if the first quarter represented the bottom for new investments in clean technology, though industry observers say conditions appear to have improved marginally.
The recently approved government stimulus package contains billions for research into renewable resources, funds that should help boost investment, said Muscat.
Large chunks of funding have been set aside for such measures as upgrading the nation's electrical-distribution system, tax cuts to promote alternatives to oil, and to make federal buildings and private homes more efficient.
"The long-term trends are still there for clean energy," said Ethan Zindler, head of North American research at New Energy Finance. "This is a period of doldrums, where we're stuck between the last massive wave of investment and waiting for some of the major support from stimulus packages around the world to kick in."