Wind power has also become a victim of its own success. China in 2010 took the lead globally in installed wind power capacity, growth that strained the country’s grid infrastructure. A significant number of wind turbines could not be plugged in to the grid.

 “We wouldn’t consider investing in solar or wind”, says Terence Tan, managing partner of IPV Capital, a China-based venture capital firm that spun out of China’s Ministry of Industry. “When a market takes off in China - whether wind or solar - it tends to get overdone”.

 Beijing-based Tsing Capital invested in two solar companies LDK Solar and China Sunergy in 2006. Both went public within one year and LDK brought a 5x return, according to Ian Zhu, partner at Tsing. The firm is now invested in several sectors, including energy efficiency and sustainable agriculture. But Tsing is also avoiding the overheated solar PV area, Zhu says.

 Solar and wind get attention. But they are a small part of cleantech and the government hopes to ignite other sectors, creating a range of venture opportunities. China’s biggest cash infusion is in small grid technology. The state has a three-stage plan to invest about $500 billion between now and 2020 to upgrade the nation’s power grid to improve energy efficiency and lower carbon emissions. The plan includes the installation on 400 million smart electricity meters over the next five years.

 Battery technology is also an attractive sector, particularly with the proliferation of smart phones. IPV invested in Amprius, a company spun out of Stanford University that developed technology aimed at doubling battery life. The company has a factory in Nanjing and the net step is to bring the R&D into China and eventually manufacture, Tan said.

 Cleanteach is both a public health issue and economic imperative. China’s robust GDP growth has not only made China the world’s worst polluter, but its energy demand is outpacing supply. Moreover, growth is not produced effectively. Per unit of GDP, China uses up to five times more energy than Japan, Tsing has exited six cleantech companies in various sectors. Because cleantech is an ”encouraged industry”, such companies are allowed to jump the long IPO listing queues in China.

 “Empirical evidence has proven that’s the case”, Zhu say.

 State-created industries, though, can set traps for investors. Market timing is controlled by official decisions.

 China’s push into electric vehicles involves a $ 15 billion allotment to bring 5 million electric and plug-in vehicles on the road by 2020. Electric vehicles are now in trials in five cities. But they require an infrastructure that hasn’t been addressed. Moving the take-off date to 2015 or beyond, explains Tan, who is wary about investing too early in a technology tied to state decisions.

 IPV a few years back had to write off a portfolio company that developed 3G chipset because the Chinese government delayed handing out 3G licenses for years. Tan sees a parallel in electric vehicles.”Ian invest today, but will the company run out of cash because the market is still not ready? At the end of the day, you cannot forecast.”