Nine clean technology predictions for 2009
It’s that time of the year again. And this year is even better than before.
The Cleantech Group has been making predictions each year since 2007 about what to watch for in the clean technology sector, and this year we’re excited about the even wider perspective we offer in our trends to watch for in the coming year.
2008 was a year for collecting more clean technology intelligence than ever worldwide. In recognition that clean technology is a global phenomenon with global opportunities, this year the Cleantech Group:
- Opened an office in downtown San Francisco
- Bolstered its European operations
- Opened an office in New Delhi, India and convened hundreds of industry influencers at an inaugural Cleantech Forum in India
- Began building out founding members for new operations in the Middle East, and
- Expanded our research offerings, our daily news coverage and weekly Inside Cleantech news roundup to uncover and share important global clean technology developments
I’ve had the good fortune to speak with and discuss trends with important clean technology industry and government figures in the last 10 weeks in places like Singapore, Mumbai, Tel Aviv, Dubai, London, Barcelona, San Francisco, Washington D.C. and Johannesburg. I’ve recently participated in SuperReturn, NAVCS, the China Global Leaders Forum and Green Economy Israel. And I’ve been influenced by members of our very own Cleantech Network, the world’s leading investors, service providers, entrepreneurs, economic development agencies and large corporations in clean technology.
Here’s what we’re hearing and seeing first hand and from industry insiders around the globe.
The following list, culled from a set of 26 we debated internally, first debuted exclusively to members of the Cleantech Network in a webinar on November 25th, and then onstage and at a press conference at the Cleantech Group’s Cleantech Forum in Shanghai December 4th. What do you think of these predictions? Add your comments at the end.
1. Energy efficiency infrastructure boom initiated
There will be important opportunities in 2009 in energy efficiency worldwide.
We see a quadruple bottom-line benefit to focusing on energy efficiency. Whether it’s modernizing the grid, or insulating our homes, energy efficiency achieves job creation, greater than any other area related to energy or cleantech—far more so than, for example, building a nuclear power plant, or a wind farm. From a job creation standpoint, organized labor in the form of the Apollo Alliance in the U.S. is now advocating it as a way to create high quality jobs for its members.
Also, being more efficient boost competitiveness, so this plays to secular trends in the economy. More efficient infrastructure and equipment is a good thing, particularly as we get capital stock turn over. Energy efficiency also addresses the need for carbon reduction, and being more energy efficient reduces the demand for imported energy in the form of oil and other commodities.
An added benefit is that we can get going on this relatively quickly. The lead time to get involved in energy efficiency markets is, relatively speaking, short. We think this is going to be a common denominator around investments in generating green jobs and renewed clean infrastructure in 2009 and moving forward.
2. Global climate talks bog down—no serious deal until 2011/12
Serious attention is being paid to global climate talks, and governments have reiterated their commitments to moving the climate change agenda forward. However, reality is soon about to set in.
Governments are going to be distracted, and conversations are going to become more complex than realized. Technology transfer to India and China, for instance, is going to be a major sticking point. As an organization, the Cleantech Group is trying to be of help here, infusing into these discussions an awareness of clean technology ecosystem we serve, but the fact of the matter is that negotiators are becoming hamstrung with a whole range of issues that are going to take longer to unfold if we are going to have a meaningful Kyoto II or an agreement beyond Kyoto II.
A deal will get done, but it will take longer, especially as the new U.S. administration comes up to speed. Unfortunately, we do not see a global deal in 2009, maybe not even in 2010, but are optimistic that a meaningful agreement will be reached in about 3 years.
3. U.S. passes national RPS, but cap & trade bill only in 2010
Late last month, U.S. president-elect Barack Obama reiterated at California Gov. Arnold Schwartzenegger’s Climate Summit in Los Angeles via video link that a carbon cap and trade bill is on the drawing board, however we think it’s going to take the U.S. Congress a little longer to get this done.
2009 appears to be a stretch for a range of reasons. This is very complex stuff, and there will be lots of pushing and shoving. We expect a cap and trade bill deal in early 2010, but the good news is that we think a U.S. national RPS (renewable portfolio standard) will be passed beforehand in 2009. There is very strong business encouragement for the incoming administration to get this done. This is about predictability, job creation and about creating a national standard that will enable people to make investment decisions in clean technology.
4. Wind stocks come back; thin film PV shakeout
In the public markets, many clean technology stocks, particularly those in alternative energy, were under siege in late 2008 as this was written. However, we expect wind stocks in particular to come back in 2009, partly driven by a new national RPS in the U.S., and growing awareness of wind as one of the most cost competitive alternative energy assets.
Unfortunately, we can’t predict the same for thin film photovoltaics. We think there has been over-investment in thin film PV in the private capital markets, and inflated valuations in the public capital market. There will be a need for a shake-out, even though we believe in the long term future for thin film as part of the PV mix.
5. Clean technology VC stabilizes at $7B globally; PE more active
We’ve seen a very robust amount of capital enter the clean technology space over the last 6-8 weeks, if you track and read what we publish at the Cleantech Group (for example, see $4.8B flows in cleantech sector this week, Ag tech, fuel cells thrive in busy week for deals Cleantech funds worth $1.9B lead the week. There have been a number of $500 million-plus funds closing, and we’ve tracked a total of about $6 billion in new funds, M&A, investments and other deals in just in recent weeks.
In 2009, however, we see a slight decline globally in venture investment in the cleantech space, down from the 8 billion or so we project for 2008, to 7 billion in 2009. We also see more private equity players entering venture capital, yet perhaps a bit of a retreat for the hedge funds, which were starting to dabble in cleantech quite actively. A number of the private equity players are going to be attracted by the valuations they are going to find in cleantech a little further upstream, as well as the linkage between innovation capital and infrastructure financing. In other words, they will take the best of current emerging cleantech companies and help scale them into infrastructure markets.
6. Failure rate of cleantech startups doubles
We believe that in clean technology, as in other sectors, investors will be focusing on the most promising companies in their portfolios, and allow the weaker or cash-constrained ones to merge, be acquired or fail. We expect the failure rate of early stage cleantech companies to potentially double this year, up from the typical 20 percent, to about 40 percent.
While this may be bad news on one level, it does present the opportunity to pick up assets, roll assets into new entities to create complete solutions, hone customer propositions and drive more efficiency in the markets. Failures are present in the maturation of any market, not just cleantech, and we expect the next 18 months to be particularly harsh in that respect.
7. IT turns to the energy opportunity
The IT and telecom industries over the last few years have started to get increasingly engaged in clean technology. Companies like IBM, Autodesk, Cisco and Intel are becoming ever more important.
What we’re seeing now, and this was particularly clear in India this year, is that the IT industry is seizing the energy opportunity as a chance to make money in this area. Whether it’s moving towards more integrated energy management systems or platforms, or smartening up the grids, or lowering carbon content in the supply chain, we see the IT industry turning on the taps this year and really rolling out new a range of products and offerings and driving a great deal of innovation in the cleantech space.
2009 will be the year IT turns its eyes to energy opportunities, not just in algorithms and software. For example, Intel is turning its quantum dot people, who’ve been working on next generation processors, to the solar challenge and opportunity, looking to develop new nano-based solar cells. We could well be in 10 years time calling Intel an energy company, in much the same way Applied Materials is becoming better known as a solar company.
8. R&D stagnates; corporates acquire green growth assets
Everyone is calling for increased clean technology research & development (R&D), particularly around energy. Some major corporations like GE have achieved the energy R&D rates they said they would be at several years ago, but on the whole we are not seeing a wholesale increase in R&D spending, and it’s unlikely given the constraints on corporate and public sector balance sheets that this will happen this year.
We are seeing, and expect to see more of in 2009, continued significant acquisitions of green growth assets. For example, a notable deal in late November was Panasonic’s acquisition of Sanyo in Japan, primarily because of its solar and battery divisions. We think there will be more of this, because either the asset prices will make it attractive, or corporations will see that this is now the time to move forward with new business models in new growth market opportunities.
9. Energy-water-food nexus emerges
There are 3 fundamentals associated with sustaining life on this planet: energy, water, and food. Many people learned this past year from investments in, and concerns around, corn based ethanol that there is a relationship between energy and food. We also know there is a relationship between energy and water. Thirty percent of all energy in California is used move water around, and most of that water is moved for agricultural purposes.
What we’re seeing at Cleantech Group is not just a converge of these three basic fundamental needs, but an increasing awareness of the trade-offs and challenges around them as we move into increasing use of hybrids or electric cars, for instance. Evidence suggests that it takes a lot more water to move a more fuel efficient car or a more electric based car than to move an internal combustion engine car. That’s not to say we don’t believe in the future of hybrids, but what we’re starting to see out there in the research community and amongst policy makers is an increasing recognition of the relationship between these three variables.
For entrepreneurs, investors or service providers bringing solutions to the table that address all three of these issues, there’s the potential for “triple whammy” returns if helping to address all three of these problems at once. So we think that this year they’ll be a much greater attention to these three areas and opportunities for solutions that don’t just solve one problem while creating stresses elsewhere, but that address the challenges of all axes simultaneously.
Nicholas Parker is co-founder and executive chairman of the Cleantech Group, which introduced the cleantech concept to the investment and business community in 2002.
By: Nicholas Parker