Small-Scale Solar, Cleantech Funds Shine Brightly

As we head into February, some exciting new developments are afoot in the UK’s cleantech market. Firstly, the UK government seems to finally be putting its weight behind the development of a domestic, commercial micro-solar power market. A new scheme announced by the government’s Department for Energy and Climate Change (DECC) to support small-scale renewables generation includes feed-in tariffs, which can help stimulate domestic markets as well as renewables manufacturing firms. For example, Nao Nakanishi reports that Sharp, which manufactures solar panels in Wales, only installs around 1 per cent of the 5,000 panels it produces in the UK. The rest are exported to more developed renewables markets, such as Germany.

The announced feed-in tariffs will provide a boost to manufacturers through the creation of a domestic photovoltaic (PV) market: households will be able to sell the excess power they generate through their PV panels back to the grid. IMS Research has estimated that the domestic market for micro-solar at the PV level could reach 250MW of installed capacity in 2011, up from just 5MW in 2009. Indeed, PV installations of up to 5MW would receive £0.413 per kWh, which represents a positive incentive for installation.

One key question remaining, however, is whether the new tariffs will benefit the small-scale generation market and the residential market, but not the commercial building PV market. Indeed, as an executive at the Energy Saving Trust recently told me, ‘The difficulty in stimulating the installation of solar power in the commercial building sphere is due to property tenure: much of the UK’s commercial buildings are rented, so neither the current tenant businesses nor the landlords have a long-term interest in solar installation and the potential returns or savings they can make.’

These news come amid signs that interest in cleantech at the venture level is continuing to increase, albeit more cautiosly than during the ‘hot’ years before the crisis. The landscape for UK cleantech was one of VC uncertainty in 2009, with the largest declines in investment amounts since the tech bubble in 2000: in 2008, £1,001 million was invested in VC in the UK; this had dropped to £622 million by the end of 2009. While the VC funding picture remains largely unclear and uncertain, other types of investors are dipping their toes into the cleantech market in a big way these days.

Some of the good signs to have appeared over the past two weeks include the launch of the £125m Hermes Environmental Fund (HEF). The fund was jointly launched by Hermes Private Equity and the UK government’s UK Innovation Investment Fund (UKIIF), a governmental investment vehicle for high technology firms, technologies and innovation. It represents a welcome tie-up between private equity’s management experience and fund-raising capabilities, and strong government backing. Indeeed, Hermes will manage £75m in the fund of funds, while UKIIF will directly contribute £50m.

The fund will be invested by around 50 fund managers, and a minimum of 50% will be invested in the environmental sector. Around half of the fund is expected to be directly invested in Britain. The fund is allegedly expected to contribute to the creation of around one million new jobs in the low carbon economy: as Simon Havers, chairman of the British Venture Capital Association (BVCA) recently told the Wall Street Journal, ‘Today’s launch of the Environmental Investment Fund represents a positive step forward for clean tech financing in the UK’. Other firms are following suit: on 1 February, private equity firm HgCapital announced that its renewable energy investment arm, HgCapital Renewable Power Partners, had invested £260 million in three wind and solar power projects, including Scout Moor, the UK’s largest onshore wind farm.

Reporting by Federico Caprotti, writing for Skipso from London



Copenhagen: Opportunities and Doubts for the Cleantech Sector

The Copenhagen circus is over. Thousands of gallons of coffee, hundreds of flights, and much flag-waving (not only by protesters!) has resulted in an agreement which has been called anything from a failure, to a ‘positive sign’ for future rounds of negotiations. One thing is for sure: the goal of writing and signing a binding treaty was not reached – far from it.

However, while emissions targets remain elusive, a key question is the effect – if any – that Copenhagen has had on the cleantech sector. After all, any emissions reductions targets will have to pass through the sector: cleantech firms will be charged with developing and commercializing solutions which point towards the policy Nirvana of the so-called ‘low carbon economy’. So what are the main trends affecting cleantech which have come out of Copenhagen so far?

Agreement or no agreement, cleantech markets are here to stay

The Copenhagen conference featured several events aimed at, and run by, green businesses. A clear, binding agreement would have provided a boon for such businesses in terms of vision, clear policy landscapes, and risk management. However, while the conference has largely been declared a failure, there are signals that cleantech businesses are looking past this short time frame, to the low carbon economy which many governments are still trying to promote. While Copenhagen may have stalled as a political process, market reality continues. For example Vestas, the Danish wind turbine manufacturer, announced that, with or without a treaty at Copenhagen, it would increase its R&D workforce by 50%.

Furthermore, in the current economic crisis, it makes sense in the short term to adopt cost-saving – read ‘green’ – technologies and measures. Cleantech products are increasinly seen not as premium offerings, but as competitive technologies and processes which can help contribute to the bottom line. As Jared Diamond has recently argued in the New York Times, cleantech’s cost-saving  potential is, increasingly, its main attraction. Governments see this too: in the UK, Labour’s Low Carbon Transition Plan aims to set up a ‘green collar’ workforce of 1.2 million workers by 2020.

Emerging markets rise to prominence

One of the positive results about the otherwise lacklustre negotiations in Copenhagen has also been the agreement to set up a $100 billion fund to help avert the effects of climate change in developing countries. The fund will be financed by developed economies, and will be channelled through individual governments. The aim will be to invest in technologies and processes – from batteries to more efficient offshore wind turbines – which will help mitigate the effects of a changing climate. In short, the aim will be for $100 billion per year to flow largely into cleantech. This will spur cleantech investment in emerging markets.

The establishment of the fund will also open up new markets to the adoption of technologies such as solar, or waste and water treatment and recycling. This will benefit companies such as University of Wisconsin spin-off AquaMost, which has recently developed a device which uses UV light to destroy pathogens and polluters in water. AquaMost. The company is pitching for investment in order to develop its products for the Chinese and Indian markets. With Copenhagen’s concrete focus on funding technologies and projects to mitigate the effects of climate change in developing countries, investors will have renewed incentives to invest in similar technologies.

Setting up the mitigation fund was not well-received by all observers. In the US, the Republican Study Committee, headed by Tom Price, argued that, ‘Some T-shirt company could make a bundle with shirts that say, “My President Went to Copenhagen and All I Got Was This Huge Spending Obligation.”’ This may be bad news for some, but a committed spending obligation is what cleantech needs if it is to continue to develop as a sector which markets itself as providing solutions to climate crisis.

China: cleantech leader for 2010?

In Copenhagen, most eyes were on China. Its role in the future of cleantech is clear: from the point of view of Chinese renewable energy firms and manufacturers, cleantech is a golden export opportunity. And as Ian Thompson, founder of CleanTechies, a San Francisco-based green careers and environmental business network, recently told me, ‘Clean technology is a no-brainer in China: the Chinese are sick of breathing dirty air’.

Market conditions in China are in favour of rapid cleantech development. The so-called ‘China Price’ – the competitive advantage given by low labour costs, economies of scale, and a large internal market – has helped reduce the cost of renewables globally. As Louisa Lim has recently reported for America’s NPR, in the past 12 months the cost of solar panels has decreased by a third, in large part because over the same period, China has become the largest producer of photovoltaic (PV) technology.

This is not the whole story. Copenhagen has also shown that China’s participation in climate policy debates will increasingly affect flows of capital and innovation in the sector. As the world’s fifth largest economy, China is not only starting to punch its weight in the emissions fight. It is incorporating other developing countries in a nascent global alliance, and concerns over emerging markets’ role in reducing emissions is starting to have serious – and positive – knock-on effects on capital availability for cleantech. So, keep a weather eye on China’s rapidly developing cleantech market, but don’t forget the impact this will have on other, significant markets affected by China, India chief among these.

Doubts over uneven policy landscapes

Copenhagen has given the cleantech finance community the sense – if not the tools, yet – that cleantech investors will be effectively driving the transition towards a low carbon economy and towards achieving emissions reductions targets. After all, mitigation and adaptation strategies such as those discussed in the past two weeks have several things in common: the central role of clean technologies, efficiency measures, and consumer and industry adoption of these technologies and processes. These three concerns are also central to the cleantech market today.

Doubts remain, however. In particular, the nature of global negotiations and policy conferences like Copenhagen has highlighted the disjuncture between the policy decision-making process and the world of cleantech finance. While cleantech investors are expected to jump on board, they haven’t necessarily been central to discussions on technology funding to achieve a greener climate. Kassia Yanosek, a private equity investment professional for renewables-focused Hudson Capital Partners, attended Copenhagen and argued that ‘What I am finding is that we (the finance community) do not really have a role in the COP15 negotiations’. This split between policymakers and banks, private equity, insurers and fund managers is regrettable, especially as the figure being touted as needed to reduce emissions by 50% by 2050 is a not-small $500bn annually.

by Federico Caprotti reporting for Skipso from Copenhagen