Thinking Green: 2009 predictions by Cleantech Group's Nicholas Parker

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 modernising 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.

Also, being more efficient boosts 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.

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.

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 three years.

In the public markets, many clean technology stocks, particularly those in alternative energy, were under siege in late 2008. However, we expect wind stocks in particular to come back in 2009, partly driven by a new legislation 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 (PV). 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 shakeout, even though we believe in the long-term future for thin film as part of the PV mix.

We’ve seen a very robust amount of capital enter the clean technology space. In 2009, however, we see a slight decline globally in venture investment in the cleantech space, down from the eight billion or so we project for 2008, to seven 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.

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.

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 is the IT industry 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.

Everyone is calling for increased clean technology research and 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.

There are three 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 to 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.

(This is an edited version of Nicholas Parker’s clean technology predictions for 2009)