special report 2009

the future of cleantech in europe

forewords

Simon Walker, head of cleantech group, Taylor Wessing

Europe is rightly regarded as the centre of cleantech development.

This has not happened by chance. For many years, several European countries

have had in place incentives and infrastructure to encourage the use of cleantech. This has

created an environment that is the most conducive in the world for its development, and an

acceptance among many consumers of the need to use those technologies. So while cleantech

has achieved prominence only in the past few years, its origins have deep roots in Europe.

Those roots are important because they will help to ensure that what some like to describe

as a fad, with dotcom bubble-like similarities, will in fact go from strength to strength. Indeed,

nine years on from the bursting of the dotcom bubble, the use of technology predicted back

then has in many cases even surpassed those expectations. It is likely that this will also be the

case with cleantech. And, just as the last quarter of the 20th century was dominated by

technological innovation in Silicon Valley, so the first quarter of the 21st century could well be

dominated by cleantech innovation in Europe.

However, while having deep roots and winning hearts and minds is important, they will not be

the catalyst for the success of the cleantech sector. That catalyst is the absolute need to succeed

to combat the consequences of climate change, and finite energy resources and water supplies.

To date, much of the focus has been on revolutionary changes, whether they be sourcing

power from the elements, running vehicles on non-fossil fuels, or storing carbon in redundant

mines and oil wells. However, the current economic turmoil has turned the spotlight on less

capital-intensive projects, and highlighted the fact that there is no silver bullet to combating

climate change. Rather, it will be the combined effect of many initiatives that will reverse the

effects of climate change, and deal with energy and water shortages.

There is a fear that the state of the world economy will result in a significant reduction in

the funding available for cleantech. This has been substantiated by the recent decisions of

certain multinationals to reduce – or even stop – funding the development of renewable

energies. However, governments around the world have stated that the current economic

turmoil will not dim their resolve to combat climate change. Furthermore, many have been

quick to commit to creating “green jobs”, which can only benefit the cleantech sector.

It is this backdrop that makes this report so opportune. It provides an overview of where

cleantech in Europe has got to and where it is going, and places it in the wider context of the

fight against climate change and the consequences of energy and water shortages.

As with the cleantech industry, Taylor Wessing’s involvement in the sector in Europe is

deeply rooted. We have been advising those funding and developing cleantech for many

years. Accordingly, we are delighted to be so involved in this report, which will contribute

greatly to a wider understanding of the cleantech sector.

Editor Amy Carroll Lead author Scott Payton Co-author Peter Kneller Chief sub-editor Dom Tait Creative director Nick Dixon Art editor David Twardawa Head of production Karen Gardner Publishing director Dan Brennan

Founder & editorial director Stuart Rock Founder & communications director Matthew RockCaspian Publishing Limited, 198 Kings Road, London SW3 5XP Tel +44 (0)20 7368 7100 editorial@caspianpublishing.co.uk

The fuTuRe of CLeANTeCh iN euRoPeThe Future of Cleantech in Europe is published by Caspian Publishing Ltd. All rights reserved. The views expressed by contributors and correspondents are their own. Reproduction in whole or in part without written permission is strictly prohibited. Colour transparencies, manuscripts or disks submitted to the magazine are sent at the owner's risk; neither the company nor its agents accept any responsibility for loss or damage. Unsolicited material should be accompanied by a stamped addressed envelope. Printed by Ormside Press Ltd. Repro by Zebra. ISSN 1468-9154.

forewords

Amy Carroll, editor of Real Deals

Throughout the history of humanity, altruism has given way to self-

preservation whenever push comes to shove. Charity all too often flies

out the window when money gets tight – morality gets bent out of shape.

And so, as the world braces itself for a recession of monumental proportions, it might be

reasonable to expect the distant threat of the destruction of the planet to start playing

second fiddle to more pressing economic pressures. Thankfully, this is not the case.

The election of the first “green” president to the White House coincides with a tidal wave of

popular opinion. Europe has long led the way in clean technology, but the conversion of the world’s

biggest gas-guzzler can only provide a boost to cleantech companies everywhere. Furthermore,

government bailout packages have the power to enforce ecological as well as economic change. The

message is clear. Preserving the planet is not only compatible with profit; the two go hand in hand.

Cleantech is also one of the few asset classes that institutions are continuing to support and

where opportunities continue to proliferate. Governed by inexorably long-term drivers, the

explosion of clean technology looks set to continue – knocked by recession, perhaps, but not felled.

Richard Youngman, managing director, Europe, the Cleantech Group

For seven years, the Cleantech Group has tracked the ever-upward rise

of the investment category cleantech, which we played a catalytic role in

creating. With a severe global downturn, capital has become so constrained so fast

that it is clear that 2008 will represent the height of the first peak in cleantech venture

investment. The long-term drivers all remain intact, but we expect 12 to 24 months of

pullback, consolidation and washout, from the position we had reached at the end of 2008.

This report comes at an interesting time, therefore.

We are in uncharted waters geopolitically, facing an unprecedented global recession. The free-

market ethos is under fire, and appetite for government intervention is back in favour. We are not

going back from where we came, but where we are going is unclear. In the cleantech world, we

are all watching Washington DC and Copenhagen in 2009 for new direction and leadership.

Europe has pioneered cleantech. However, the weight of US venture capital, and the apparent

policy change of the Obama presidency, challenge that position. And across Asia, ambitious and

well-funded initiatives show that the race has truly begun for cleantech’s economic prizes.

How Europe weathers the storm ahead politically and economically, be that in unison or in

disjointed and short-term national interests, will define the degree to which its head-start is

capitalised or squandered. Meanwhile, in spite of the significant challenges, the 40 or so

experts interviewed for this report seem united on one thing: there are still opportunities to

make money in this time of disruptive change and creative destruction. The uncertainty and risk

levels are higher, but then so should be the rewards for the brave.

Cleantech lives on.

executive summary5-7

Section 1: The investment story so far Theglobaleconomiccrisisisreducing

overallVCinvestmentinEuropean

cleantech–especiallyincapital-intensive

technologies.Butcleantech’scutof

overallVCinEuropecontinuestorise.

Economicstimuluspackageshave

movedcentrestageassourcesofnew

opportunitiesforcleantechinvestors

andentrepreneurs.

AcrosstheVClandscape,cleantech

fundsremainthemostlikelyvehiclesto

securecommitmentsfrominstitutional

investorsinthenearterm.

Energyefficiencytechnologiesare

settoattractthehighestinvestor

interestwhiletheglobaleconomic

downturncontinues.

8-17

Section 2: Sector trends

Solar Opportunities:Germanyremains

theworld’ssolarleader.Solar

offerseconomicaswellas

environmentalbenefitsinemerging

markets.PVisexpectedtobecome

price-competitivewithfossilfuels,

eveninnorthernEurope,within

aroundfouryears.

Challenges:Larger,capital-intensive

solarprojectsarebeinghitbythe

globaldownturn.Thethin-filmPV

markethasbeenover-heated.

Consolidationisexpected.

Europeanfirmsfacegrowing

competitionfromlow-cost

Chineserivals.

Wind Opportunities:Windsawthree

outofthetoptencleantech

dealsinEuropeduring2008,

includingthelargestdealofthe

year.Small-scalewindcompanies

areexperiencingasurgein

customerinterest.

Challenges:Lackofstorage

technologyandunreliabilityof

windflowsrenderwindan

unpredictablesourceofgrid

power.Planningpermission

disputesaredelayingtherollout

ofonshorewindinmanycountries.

Marine energy

Opportunities:Tidalpowerismore

predictablethananyotherformof

renewableenergy.TheUKandFrench

Atlanticcoastlinesboastsomeofthe

mostpowerfulwaveandtidalstreams

intheworld.

Challenges:Capital-intensiveR&D,

plusthedifficultyofcreatingdevices

capableofwithstandingtheharsh

marineenvironment,arereasonsfor

investorcaution.

Biofuels Opportunities:Second(andthird)

generationbiofuelinnovationsare

overcomingmanyoftheobjections

overfirstgeneration,foodcrop-

basedfuels.

Challenges:Recentfallsinoilprice,

patchypolicysupportandongoing

concernsovertherelationshipbetween

foodpricesandbiofuelsproduction

continuetocauseproblems.

Fuel cells Opportunities:Fuelcellswith

applicationsoutsidethetransportsector

aregainingsignificanttraction.

Challenges:The“hydrogeneconomy”

willtakedecadestocomeabout.

Energy efficiency Opportunities:Energyefficiency

technologiesareparticularlyattractive

inthecurrenteconomicclimate.

Challenges:Thedownturninthebuilding

andconstructionsectorsishavinga

detrimentalshort-termimpacton

“greenbuilding”technologies.

Recycling & waste Opportunities:Therisingglobalneed

foranalternativetolandfillsecures

thelong-termfutureofthissector.

Challenges:Recentfallsinthe

internationalpricesofrecycled

materialhasdestroyedtheshort-

termeconomicbenefitsofmany

recyclinginitiatives.

Energy infrastructure Opportunities:TheObama

administrationrecentlyannounced$11bn

insupportfor“smartgrid”technologies,

presentingnewopportunities.

Challenges:Deployingnewenergy

infrastructuretechnologiestakesyears

ratherthanmonths.

Materials Opportunities:Thevariedpotential

ofnovelmaterialandnanotechisjust

startingtoberealised.

Challenges:Investorinterestinthis

sectorhasbeenlimitedtodate.

18-19

Section 3: Corporate engagement in cleantech

Strategicpartnershipsbetween

cleantechfirmsandcorporateswill

proliferateinthewakeoftherecent

drop-offinprivateequityandVC

firms’appetiteforrisk.

Suchpartnershipsoffercleantech

firmsmanufacturinganddistribution

muscle,whileofferingcorporates

exclusiveaccesstohigh-levelinnovation.

However,thefirstquarterof2009saw

evidenceofascale-backinrenewable

energyinvestmentbytheworld’soil

andgasgiants.

20-21

Section 4: Copenhagen and beyond – policy, government stimuli and the prospects for a green recovery TheObamaadministration’sAmerican

RecoveryandReinvestmentAct

presentsawiderangeofopportunities

forcleantechinnovatorsonbothsides

oftheAtlantic.

However,manyarenowconcernedthat

Europeisatriskofbeingleftbehindas

theUSembracesthecleantechagenda

withrenewedvigour.

AsuccessfuldealattheUNClimate

ChangeConferenceinCopenhagenthis

Decembercouldprovideaparticular

boosttogovernmentfundingofcapital-

intensivecleantechnologies.

22-23

Section 5:The long view Investorsremainlargelyoptimisticabout

thecleantechsector’sabilitytowithstand

theglobaleconomicdownturn.

Specificcleantechsub-sectorswitha

brightlong-termfutureincludethe

smartgrid,waterandcarboncapture.

Theyearsaheadwillseeanincreased

interconnectednessoffood,waterand

energyinnovations.

Cleantechisalong-termsector.The

migrationtoalowcarboneconomywill

dominatetheinnovationenvironment

forthenexttwodecades–andbeyond.

May 2009 REALDEALS 5

The fi nancial disasters witnessed during

2008, and their aftershocks, have had

a profound impact on private equity.

The debt markets have been brought

to their knees, and many LPs, starved

of distributions, have been unable to re-

allocate to already weakened private equity

fi rms. Venture fundraising too has suffered.

But the picture is not all bleak. Though

the problems in the wider market are a

major cause for concern, the relatively

recent emergence of various venture

cleantech investment vehicles in Europe, and

evidence of some continued appetite from

institutional investors for access to those

and other funds, has meant that there is still

a growing pool of venture money available

for investment in the cleantech sector.

Debut, pure-play cleantech funds that

closed in 2008 include the London-based

£110m Environmental Technologies Fund,

which closed in March, and Brussels-

based Capricorn Venture Partners, which

marked a successful change from a multi-

sectoral investment strategy with the

¤100m fi nal close of its fi rst dedicated

cleantech fund in May.

Other fi rms which raised funds in 2008,

include Sustainable Technologies Fund, the

Nordic cleantech specialist launched in 2007,

which raised ¤58m in September; UK-based

WHEB Ventures’ £150m second fund, which

had a fi rst close at £58m in September and a

second close at £74m in December; and the

Carbon Trust, which, alongside the Qatar

Investment Authority, is in the process of

establishing a £250m Qatar-UK Clean

Technology Investment Fund to invest

predominantly in UK start-ups.

Going forward, cleantech is providing

a near solitary ray of hope in a fundraising

wasteland. “If you’re an LP surveying the

devastation around you, it doesn’t take a

big leap of faith to believe that growth

will come from the cleantech sector,” says

Environmental Technology Fund partner

Patrick Sheehan. “It’s rare to have

presidents and prime ministers lobbying

on behalf of a sector, and promising to

put money in, but that’s clearly what’s

happening now.”

The Foresight Group is just one fi rm

looking to raise a UK-focused institutional

fund this year, while Middle Eastern group

Masdar is rumoured to be planning a

¤500m vehicle to invest in European

cleantech businesses.

Generalist venture houses, some of

which had until recently expressed

reservations about the hype being shown

in the sector, have also been increasing

their focus on cleantech. While Wellington

Partners has continued to add to its

cleantech team, bringing on board Apax’s

Christian Reitberger as venture partner last

year, others, such as Index, have begun to

mention the sector more vociferously as

an investment focus.

Parts of the sector will now be hit hard –

including areas that require signifi cant

infrastructure spending in the short term –

but looking forward, the focus on cleantech

is certain only to intensify, and renewed

enthusiasm from governments will play a

part in this.

“Policy has always been important; but

governments and their stimulus packages

have now moved centre-stage,” says

Richard Youngman, European managing

director for the Cleantech Group. “It is not

overly dramatic to say that the choices

governments make in the coming 12 to 18

months in trying to both nurture and

stimulate their economies back to health,

and to secure a post-Kyoto global deal to

combat climate change, could either

dramatically

accelerate the

low carbon economy or

prolong the status quo – and the life

of companies and industries that have

contributed to the mess we fi nd ourselves in.”

The factsLast year was a record one for cleantech

investing in Europe and Israel, with 202

deals done and a total disclosed amount

invested – covering 161 deals – of $1.8bn,

according to the Cleantech Group. This

represents an increase of 48 per cent on

the amount invested in 2007, and a 25

per cent rise in the number of deals done.

While Dow Jones VentureSource data

showed that venture capital investment

across all companies in Europe fell from

$7.6bn in 2007 to $6.5bn in 2008, the

increase in cleantech venture capital

investment goes against this trend. Based

on the same fi gures, cleantech’s cut of

overall venture capital in Europe rose from

19 per cent to 24 per cent over the same

period. Many cleantech investors expect

this trend to continue.

“If in four to fi ve years’ time the world

economy is thriving again, it may well

be that people are willing to spend a lot

more money on drug development, and

information technology, and therefore the

cleantech proportion may fall, relatively.

But for the time being it’s set to rise,”

THE INVESTMENT STORY SO FAR

section 1

dramatically

accelerate the

low carbon economy or

Source: Cleantech Group

Cleantech investment by sector in Europe and Israel

Transportation

Agriculture

Energy infrastructure

Materials

Air & environment

Water & wastewater

Energy storage

Manufacturing/Industrial

Recycling & waste

Energy efficiency

Energy generation

2000

1800

1600

1400

1200

1000

800

600

400

200

0

2004 2005 2006 2007 2008

Data in $m

p04-07 Section 1 RD Cleantech 095 5 24/4/09 10:25:08

saysWHEBVentures’managingpartner

JamesMcNaught-Davies.

Thefinancialcrisishasnowstartedto

haveaneffect,however,withQ42008

investmentinEuropeandIsrael–$317m

across34discloseddeals–dropping

significantlyfromQ3levels,according

totheCleantechGroup.Andthe

CleantechGroupreports$281min31

disclosedroundsforQ12009,down11per

centfromQ42008,andasizeable31per

centonQ12008.

Despitetheoverallreductioninthe

amountinvested,Europe(andIsrael)

increaseditsshareofoverallglobal

investmentto28percent,upfrom19per

centinQ42008and21percentinQ1

2008.“Nothingcouldbeasurersignof

theshifttolesscapital-intensiveplays,”

saysYoungman,“thantheincreasein

Europeanproportionoftheoverallfigure.

TheUSventurenumbersinQ1have

droppedoffdramaticallyincomparison.”

Themediandealsizeofthepasttwo

years–at$4.3m–issignificantlyhigher

thanthatof2006andearlier,showinga

trendtowardslargerdeals.Todate,thishas

beenexplainedbytheriseoflargesolar

deals–andaGoodEnergies-led$72.33m

fundingroundinNorwegiansiliconwafer

manufacturerNorsuninMarch2009

suggestscapitalisstillavailableforsuch

investments–however,adrop-offinround

sizesisalreadyevidentintheQ1numbers.

Onereasontobelievethenumbers

couldholdupmorestronglythanone

mightexpectcanbefoundinthewidely

reporteddropinvaluationsforlater-stage

companies,withventurecapitalistslikelyto

shunearly-stageriskandtakeadvantage

oftheseopportunities.Furthermore,firms

thathadtendedtoveertowardearly-stage

dealsin2007-2008,notleastdueto

overheatedpricesatalaterstage,now

haveachancetobalanceouttheir

portfolioswithmorematurecompanies

withsolidrevenues.

“Opportunityaboundsforthosewitha

cleanslateandsomefirepowertopickup

later-stageriskatearly-stagepricing,”

saysYoungman.

Thoughanewrecordquarterduring

2009or2010isnowunlikely,manyVCs

areneverthelessviewingthecurrent

economicclimateasanopportunity,with

morecompaniesseekingequityfunding

becauseofalackofdebtoptions,

accordingtoAndrewThomson,senior

analystattheCleantechGroup.

Thereisthereforearealdangerthat

manypromisingearly-stagecleantech

companieswillfallbythewayside.“We’re

movingintoanareaofcapitalscarcity,

inEuropeanventurecapitalatleast,so

Idon’tthinkitwillbejustbadcompanies

thatwillfail,”saysSheehan.

section 1: the investment story so far

Until recently, cleantech investing was largely the preserve of

venture capital firms. Clean technology, by definition, is often

about promising early-stage companies with new technology,

which may or may not become established.

however, there has been growing private equity

involvement in more mature cleantech sectors over the past

15 months. German offshore wind project Meerwind notably

received a ¤1bn investment led by Blackstone last year, and

more established player hgCapital’s ¤300m renewable

energy fund, with a strong focus on wind energy, invested in

three solar projects in Spain in March 2009.

Development finance houses with a pan-European focus

include Platina Finance and the Foresight Group, which invest

in both wind and solar projects. Good Energies is the most

stage-agnostic investor of all, with a solar, wind and green

building focus, branching out from venture capital through

to established businesses, and large-scale solar and wind

development internationally.

The number of investors in the space is also growing.

Waterland Private Equity, widely regarded as a generalist,

completed a cleantech double last month, following up a

¤50m capital increase in Belgian renewable energy developer

Enfinity Management with a ¤36m investment in Dutch

renewable fuel company BioMCn.

axa Private Equity, allianz and the Dutch infrastructure

Fund all actively invest in renewable energy, clean

technologies and the carbon market, and large US firms

now with offices in London include hudson Clean Energy

and arclight Capital Partners, which has a renewable focus

in addition to more traditional forms of energy.

“Most of the funds are relatively new, and there are a lot

of people getting interested in it,” says head of hgCapital’s

renewable energy fund Tom Murley. “We’re also seeing a

lot of large infrastructure funds now realigning their

interests, and saying, ‘we will also do renewables’.”

not only do private equity funds provide much needed

additional capital to the nascent industry, but their interest

could also provide an exit route for venture capital firms.

“once these companies are proven, and mainstream,

which is what we hope and expect, i can’t see any reason

why mainstream private equity wouldn’t want to invest in

companies that are going to continue to have long-term

attractive growth prospects,” says Climate Change Capital

partner alex Betts. This view is endorsed by Mark Davis,

head of private equity at Taylor Wessing, whose firm has

seen a significant rise in interest among private equity

houses for investing in cleantech opportunities.

While arguing that there have always been companies

that have gone from venture capital through to private equity

without an intervening owner, Murley believes this may be

on the rise. “i would be willing to bet there will be more of

that over the next few years, because public markets may

end up being a less attractive option.”

in addition to wind and solar, other areas potentially

ripe for private equity investing include recycling and

waste management, biogas and biomass, and increased

energy efficiency.

With access to project financing and debt obviously a

constraint, there will no doubt be a slowdown in larger,

infrastructure type deals in the short term, but governmental

and EU incentives and ongoing climate change targets, will

serve to fuel further investment in the space in the mid-term.

Private equity gets interested

� RealDeals May 2009

Thereisstillhopeforearly-stage

companies,however,notleastbecausea

largepercentageofcleantechactivityis

stilloccurringattheinnovative,early-stage

sectionofthemarket.

“Cleantechisallaboutinnovation,so

itwouldnotbeagooddecisiontoonly

investinlater-stagedeals,”saysRobeco

partnerAndrewMusters,whosefirmboth

co-investsdirectlyincleantechcompanies

andmakesallocationstospecialistvehicles

throughitsfundoffunds.

Capricorn’smanagingpartnerJos

Peetersalsosoundsanoteofcautionover

VCs’shifttolater-stagedeals:“Therecould

beatendencytosafety,butmyworryis

thatthiscouldaffectmultiples.”

The exit environmentAsinotherareasofventurecapital,the

globaldownturnhasmassivelyaffectedthe

exitenvironmentforcleantechcompanies.

However,moreattractivecompany

valuationsmeanutilitiesmaybemore

willingtosplashthecashthanpreviously,

thoughthethirsttoacquirewillobviously

bedependentonhowaffectedpotential

acquirershavebeenbyevents.

“Smartcorporateswouldbuynow,atlow

valuations–butmostofthemhavetrouble

oftheirown,”saysSETVenturePartners

managingdirectorWouterJonk.“Butif

you’reasmartshareholder,you’renotgoing

tolookforanexitatthemoment.”

Regardlessofshareholderdesiretowait

forbettertimes,corporatesandutilitiesare

alsomorecommittedtothesustainability

causethanbefore.“Ifyoulookoverthe

pastdecade,therewerealotoflarge

corporatespayinglipserviceto

sustainability,andthathaschanged

dramatically,”saysEmeraldTechnology

VenturesmanagingpartnerGinaDomanig.

“Todayyouhaveaverylargenumberthat

actuallyhavestrategiesabouthowthey’re

goingtogetintocleantech.Acquisitions

willbeoneway,providedtheyhavethe

moneytodeploy.”

“Iwonderwhattheyarewaitingfor,”

addsGoodEnergieschieftechnology

officerSvenHansen.“IfIwasautilityandI

seethatmypowergenerationintoEastern

Europehastogointorenewables–there

isn’tanyotherwaytodoit–thenI

wouldn’twaitanylonger;Iwouldbuynow,

beforesomeoneelsebuysanicecompany.”

Somearepredictingthatthecleantech

sectormayevenleadthewayoncetheexit

environmentatlargestartstoimprove.

“I’mnotsuretherewillbemuchofan

exitmarketforanysectoroverthenext

yearortwo,butIthinkcleantechcouldwell

beoneoftheearliersectorstocomeout,

withsomeexitsthataresurprisinglygood,”

saysSheehan,whoaddsthatalotofM&A

activityintheshorttermmaywellbe

relativelydefensiveonthepartofinvestors.

“TheM&Amarketislikelytocomeback

wellbeforetheIPOmarket–indeedthe

frenziedIPOmarketof2005to2006on

AIMmaynevercomeback–butthenthose

IPOswerenevertrueexits,”saysSimon

Walker,headofthecleantechgroupat

TaylorWessing.

The futureDespitereservationsfromsomequarters

aboutapotentialover-relianceon

governmentsubsidies,therenewable

energysectorisstillpredictedtocontinue

toattractthegreatestpercentageof

ventureinvestmentinthemonthsahead.

“Cleanenergywillcontinuetohogthe

limelight,”saysMcNaught-Davies.“Ithink

somepeopleget

dazzledbythe

technologyandthe

promiseofstate-

supportedfeed-intariffs

andsoon,andmaybe

willingtooverpay.That’s

whywe’vebeenalittle

cautiousaboutclean

energy,thoughwe

remaininterestedinit.”

Thecost-saving

benefitsofenergy

efficiencycompanies

andtherelatively

economicalnatureof

thebusinesses

themselvesarealso

particularlyattractiveatthisstageinthe

economiccycle.Thistrendalsoplaysinto

asubtlediversificationawayfromapurely

renewableenergyfocus.

“Thefirstwaveofinvestmententhusiasm

forcleantechwasforthingsthatlooked

obviouslygreen–andthey’reactually

relativelydifficult,intermsofcapital

requiredandtherealityoftheenergythey

produceversustheenergyconsumedin

makingtheproduct,”saysSheehan.

“Iliketothinkthatnowwehavea

secondphaseofcleantech,wherethere’s

morethoughtabouttherealitiesof

environmentalimpact.”

Whilethefundraisingenvironment

remainsbleak,cleantechfundsarestillthe

mostlikelyvehiclestosecurecommitments

frominstitutionalinvestors.This,combined

withincreasinginvolvementfromgeneralist

VCsinthesector,wouldindicatethat

investmentfiguresoverthemid-termlook

settogrow,though2009itselfisnot

expectedtosetanyrecords.

Thelong-termdriversfortheindustry

arealsointact,withconcernsoverclimate

changeandnaturalresourcesencouraging

governmentstobecomemoreactively

involved.Fearsthatgreenissueswould

playsecondfiddletoeconomicstimulus

packageshaveprovedtobeunfoundedthus

far,withtheelectionofeco-awarePresident

BarackObamafurthercementingcleantech

asakeyindustrysectorinthefuture.

“Thekeyareasofspeculationnoware

notcentredonwhetherhugedollarswill

getspent,buthow,andhowsmartly,when,

andhowrapidly,andwhogetstheirhands

onthecash,andwhy,”saysYoungman.

“Thecleantechcommunitycannotaffordto

bedormantinthisprocess;itisindustry-

anddecade-defining.”

Source: Cleantech Group*Chart is based on total amount of investment received so does not include deals of undisclosed value

2008 investment distribution by country and sector in Europe and Israel*

Water & wastewater

Transportation

Recycling & waste

Materials

Manufacturing/industrial

Energy storage

Energy infrastructure

Energy efficiency

Air & environment

Agriculture

Energy generation

Ge

rman

y

UK

Isra

el

Fin

lan

d

Fra

nce

Sw

ed

en

Ne

the

rlan

ds

No

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ark

Sw

itze

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d

Sp

ain

100%

80

60

40

20

0

May 2009 RealDeals �

Ph

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y:Alamy

SolarInvestment trendsSolar investments comprised around 40 per

cent of cleantech deals globally in 2008,

and took up five of the top ten deals in

Europe, according to the Cleantech Group.

These included a mammoth ¤85m funding

round for German thin-film photovoltaic

(PV) manufacturer Sulfurcell – led by Intel

Capital – and a ¤40m funding round –

involving Doughty Hanson Technology

Ventures and AGF Private Equity, among

others – for Odersun, another German thin-

film solar company.

As a result of the heightened interest,

many deals and company valuations,

particularly in the US, were seen as

overheated. “The Nanosolars of the

world went out with a valuation of

$1.8bn in the US – that’s just silly,” says

one cleantech investor. “I think this will

hit the wall.”

The Cleantech Group believes that the

thin-film solar industry got particularly

overheated during the first three quarters of

2008 in the US. Meanwhile, although thin-

film solar firms such as Sulfurcell accounted

for 53 per cent of total investment in the

European and Israeli solar sector during

2008, no thin-film solar deals took place

during the fourth quarter of that year.

Cleantech investors are now predicting

a shake-out of European solar companies,

with consolidation a word on many lips.

“It’s a classic industry evolution,” says

Climate Change Capital managing partner

Alex Betts. “When it grows substantially,

there has been a surplus of demand over

capacity – then lots of people jump in.

When that system contracts, weaker

players will either go to the wall or merge.”

There is potential for picking up assets

and consolidating them, adds Good

Energies chief operating officer Sven

Hansen. “We see opportunities, though

consolidation was going to come anyhow.”

Owing to the capital-intensive nature of

thin-film solar companies, capital is now

expected to be much harder to come by for

early-stage solar businesses. “We want to

see revenues and companies that can

produce 24/7,” says Zouk Ventures partner

Felix von Schubert. “In thin-film there are a

lot of greenfield projects – it takes a long

time for these things to develop.”

Good Energies thinks it “not very smart”

to build new companies in the solar space

at the moment, adds Hansen. “You have

perhaps ten amorphous players already,

and some of them are three years ahead;

they have better technology and

agreements with suppliers. Why would you

want to build a new company if you didn’t

have at least that, if not more?”

This situation provides those with funding

the runway and the opportunity to get

ahead, says Richard Youngman, European

MD of the Cleantech Group. “Crises provide

unfair advantage to some. These are the

times investors make the decisions that

dictate their returns medium- to long-term,

and that

entrepreneurs

found

tomorrow’s hits.”

However, the cost of

all aspects of the solar

industry needs to be driven

down to reach grid parity, and this process

will still require innovation and technology

development. Norwegian silicon recycler

MetallKraft is one cost-saving company to

receive funding in recent months, taking on

¤22m in financing from investors including

Capricorn and Black River in October 2008.

Pricing readjustments to solar

companies may also start to coax hype-

wary investors back into solar deals, if

significantly differentiated new technology

can be found. “We’re starting to look at

solar deals again for the first time since

2004-05,” says James McNaught-Davies,

a managing partner at WHEB Ventures.

OpportunitiesDespite short-term concerns about recent

over-valuations in this sector, Ash Patel,

managing director EMEA for Intel Capital, is

positive about the longer-term prospects.

“We continue to be bullish about solar-

related intellectual property generation in

Europe. The region has a significant

knowledge bank, which will continue to

pump out innovative ideas. Moreover, we

believe Europe has accepted clean energy

as a social requirement. So even though

energy prices have dropped, there is a

fundamental driver for solar and other

renewable energy development.”

Regardless of the tougher investment

climate, “the right ideas, with strong

entrepreneurial talent behind them, will

continue to get funded”, Patel says. “It’s the

big, overpriced ventures that can’t deliver

ROI that will see the pain.”

He adds that solar and other forms of

alternative power generation also remain

attractive to Intel Capital because they

make economic as well as environmental

sense in emerging markets. “For example,

they can provide power in areas where

there is no existing energy infrastructure.

A huge part of the global population is

energy-deprived, and will continue to

require energy regardless of the global

economic climate,” Patel says.

Solar technology offers the great merits

� RealDeals May 2009

Sector trendS

section 2

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May 2009 RealDeals �

of being low-capital

and fast to bring to

market, adds Claude

Fussler, programme

director for Caring for

Climate, the United Nations

Global Compact’s climate

change initiative. “I believe that

solar will develop much faster than the

International Energy Agency predicts.”

Eric Emmons, investment partner at

Siemens Venture Capital, agrees that solar

holds substantial long-term potential.

“Although we will see moderate price drops

and consolidation, I think we will see this

industry reach its tipping point,” he says.

The tipping point will come when solar

energy generation is price-competitive in

northern Europe, and other areas that

receive only moderate solar radiation,

without the need for public support, says

Nikolaus Meyer, CEO of Sulfurcell. This is

likely to happen “in the range of four

years”, he believes.

Following its financing round in Q3

2008, Sulfurcell’s priority is to start mass

production of CIS/CIGS-based thin-film

solar modules, he says. “Parallel to that,

we are investing further in research and

development to increase the efficiency of

solar modules from eight per cent to 14 per

cent, based on a detailed five-year plan.”

Meyer claims European solar firms enjoy

a tangible lead over their US competitors. “I

have just returned from a trip to California,

and I did not get the impression that PV

manufacturers had made as much progress

as many German firms,” he says.

Germany is Europe’s, and arguably the

world’s, leader in solar technology. During

2008, Cleantech Group data shows that

German companies received 44.7 per cent

of total European funding into solar.

However, Meyer says Germany’s – and

Europe’s – lead in solar is something that

policy-makers, investors and executives will

need to fight to retain. “Many US firms have

strong management and good access to

capital,” he says. “There is a risk that they

could become superior. To keep our lead,

we need strong support.”

Looking ahead, Asia will also challenge

Europe’s solar supremacy, says Meyer.

“We [in Europe] need to retain

technological leadership. Manufacturing

has never been Europe’s first strength.

We need to invest in our science and

engineering research bases.”

Germany, and Europe generally, may need

support to help them maintain their position,

says Carsten Bartholl, Taylor Wessing’s head

of cleantech in Germany. “Germany is often

looked at as the country that has given solar

PV technology the chance to prove the

concept. This may continue for the following

years in light of the country’s feed-in tariffs

for solar PV generated electricity, its green

building concepts and so on. But it will be

necessary to focus on how to further develop

the technology and thus help existing

German – and European – producers of

modules, and researchers, maintain or

strengthen their market position. The same

may apply to project developers that have

assembled experience in projects worldwide.”

Meanwhile, some in the European

cleantech sector see the emergence of low-

cost Asian solar firms as an opportunity.

Indeed, Chris Wright, co-founder of Moixa

Energy, the UK-based renewable energy

and portable power technology developer,

says his firm is already working with a

Chinese company that is “tooling up to

undercut” the PV market. “They started in

1995 with 20 people and now have 130,000

employees,” he says.

Moixa sees a substantial opportunity in

taking cheap solar cells and applying them

to “any DC device – mobile phone chargers,

burglar alarms, baby monitors and so on,”

says Wright. “These are all ripe for being

taken off the grid.”

ChallengesWhile investors worry about over-valuations

in this sector, solar companies themselves

are most concerned about reducing the

cost of solar energy generation.

“The challenge for the solar sector is to

reach competitive levels of costs and prices

so that this market can develop without

public incentives,” says Meyer at Sulfurcell.

Achieving price-competitive solar power

is an especial challenge in northern Europe

and other moderate climatic zones, where

harvestable sunlight is scarcer than in

southern Spain or North Africa, for

example. “Overcoming this challenge will

enable us to grow and contribute to energy

generation,” says Meyer.

Innovation can help to overcome this

hurdle, he says. “We still need technical

innovation in the PV industry. Therefore,

investors should look for companies with a

strong technology base; with an innovative

approach; and with managers who are

experienced in manufacturing and

transferring new techniques into industrial

applications. There is still much to do.”

A specific short-term challenge for

Europe’s solar firms has been the Spanish

government’s decision to cap its public

incentive programme for solar at 500

megawatts. “Last year, 3,000 megawatts of

solar was installed in Spain,” says Meyer. “A

huge part of the global manufacturing

capacity cannot be carried to Spain any

more – and other markets are smaller. The

only one of a similar size is Germany.”

The global economic crisis has affected

the sector. “We do have a strong price drop

in the solar industry right now,” admits

Meyer. However, he adds, “the solar business

is always weak in winter, so it is hard to say

if the current problem is caused by the

global crisis or seasonal events.”

The downturn is certainly leading to a

near-term slowdown in the adoption of

large project-based solar and wind

technologies, says Emmons at Siemens

Venture Capital. However, his long-term

predictions for the solar sector are bullish.

“The underlying economics of these

businesses suggest this will be a more of a

short-term disruption than a long-term

challenge,” he says. “It’s hard to argue with

a free energy input such as solar or wind.”

WindInvestment trendsVenture investments in the relatively

mature wind energy sectors are largely

centred on innovative businesses that seek

to improve on current turbine technology,

such as Northzone, Statoil and Hafslund

Ventures portfolio company Chapdrive.

The latter, which is developing technology

that will enable lower-weight and more

cost-efficient wind turbines by reducing

weight in the nacelle, received NKr52m

(¤5.86m) of extra funding from existing

investors in February.

Chart-topping wind deals in 2008

included a $176.5m (¤132.7m) investment

from the Masdar Cleantech Fund in

Finnish turbine developer WinWinD

and a $48m funding round for Dutch

turbine and wind farm developer

Emergya Wind Technologies.

OpportunitiesDenmark is the world leader in wind energy.

The statistics are impressive: wind already

provides around 20 per cent of the

country’s power, while turbines produced Ph

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by Danish manufacturers generate around

half of the world’s installed wind energy.

“Growth expectations for the wind

industry are greater than those for the

Chinese economy,” claims the Danish

Wind Industry Association. “In 2008,

Danish cleantech exports amounted to

about DKr60bn, which is almost ten per

cent of total Danish exports,” adds Finn

Mortensen, executive director of Climate

Consortium Denmark.

Cleantech Group data shows that wind

saw three out of the top ten cleantech

deals in Europe during 2008, including

the largest deal of the year. “As the wind

sector has matured, the financing of wind

farms has increasingly become the

preserve of project finance, with venture

and growth capital investment now

focused on advancements to turbine

technology,” says Andrew Thomson, senior

analyst at the Cleantech Group.

Despite the downturn, the small-scale

wind industry is performing particularly

well, according to Steve Mahon, chief

investment officer at Low Carbon

Accelerator. “We’ve got a small wind

turbine company in Scotland called Proven

Energy. Its order book is larger than it’s

ever been,” he says. “The weakness of

the pound, alongside new state-level

renewable-energy regulation in the US, are

beneficial for the company. We suspect it

will grow by at least 50 per cent this year.”

On 1 April, all UK renewable energy

generators under 50 kilowatts became

eligible for two renewable energy

certificates (ROCs) per megawatt-hour.

This is good news for small-scale wind

companies such as Proven Energy and

Quiet Revolution, another UK-based

operator. “It makes small-scale wind an

attractive proposition,” says Mahon.

Meanwhile, Proven Energy’s small-scale

wind technologies have also aroused interest

among Indian mobile phone networks, which

are keen to use turbines to power their

masts, Mahon adds. Ash Patel, managing

director EMEA for Intel Capital, sees similarly

significant opportunities in India and other

emerging markets for the solar sector (see

page 8 for more on this topic).

Quiet Revolution is also expanding, and

secured a £7m (¤7.85m) investment round

from RWE Innogy and several private

investors in September 2008.

Martin Billhardt, chief executive of

Germany-based large-scale wind farm

developer Plambeck Neue Energien, sees

opportunities for his business in France,

which carries relatively low development

risks since it is in the eurozone. “There

are around 2,500 megawatts of wind

developed in France. By 2017, this is

targeted to grow to 20,000 megawatts,”

he says. “Countries outside the eurozone

need to be looked at carefully, as there

may be currency and other risks

associated with wind farm development.”

Romania, however, has “one of the best

tariff systems in Europe” for wind power –

so the advantages of development in the

country may well outweigh the risks,

Billhardt adds. “This should be a focus for

the next 18 to 24 months – and there is

already a lot of activity there.”

Norway, meanwhile, boasts excellent

winds but a poor tariff system for wind-

farm development. Yet Billhardt is

monitoring the regulatory environment,

and will move quickly if incentives improve.

Emmons at Siemens Venture Capital

believes offshore wind has a particularly

bright future. “It enjoys better wind flow

and doesn’t have as many siting issues

when you move into deeper water,” he

says, referring to the planning permission

disputes that can blight onshore wind

projects (see Challenges, below).

Challenges Local government red tape and onshore

planning permission disputes present

problems for the deployment of wind

power, argues Tony Lodge, energy

research fellow at the Centre for Policy

Studies, the UK-based think tank. “For

example, we’ve got around 11 gigawatts of

wind development stuck in the planning

system in the UK.”

Lodge points out how small the wind

power base is in countries such as the UK.

“During the cold snap in early 2009, wind

provided between 0.3 and 0.4 per cent of

the UK’s electricity, compared with 50 per

cent coal, 36 per cent gas and 15 to 16 per

cent nuclear. The potential for the installed

wind energy base is six per cent. But it is

delivering less than half a per cent,” he says.

Because of this, Lodge sees tidal stream

as important for the UK. “In light of the

regulatory issues surrounding wind, I think

there must be wider support for tidal

stream energy, as it doesn’t affect the ‘Not

in my back yard’ brigade,” he adds (see

page 11 for more on tidal stream energy).

The absence of viable grid-scale energy

storage technologies means that wind

power cannot supply base-load power in

any country, says Dieter Helm, professor of

energy policy at the University of Oxford.

“Wind is intermittent, so it doesn’t solve

the capacity problem,” he says.

Marine energyInvestment trendsCompanies operating in the fields of current,

tidal and wave power received a substantial

portion of capital in 2008. Notable events

included a $24m investment round for UK-

based Orecon involving Wellington, Advent,

Venrock and Northzone in March, and the

launch of three Pelamis Wave Power wave

turbines off the coast of Portugal.

However, cleantech investors generally

remain wary about investing in marine

energy, not least owing to the capital-

intensive and very early-stage nature of

companies in the space. “We are cautious

section 2: sector trends

Source: Cleantech Group

Wind sector investment in Europe and Israel

Components technology

Farms450

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300

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10 RealDeals May 2009

about investing in wave energy,” says

one investor. “It needs ten to 15 years,

and strong government support, to

flourish in the UK.”

The sea current corner of the sector

may be safer, suggests SET Venture

Partners managing director Wouter

Jonk. “If you look at marine technologies,

perhaps sea current technologies are less

risky. If you put a device in the waves, it’s

asking for problems.”

Others, such as the venture syndicate

that is backing Orecon, are bullish about

the technology in which they’ve invested.

“There is little question that wave energy

is going to be there, though it’s not going

to be there this year,” says Wellington

partner Bart Markus.

“There’s a couple of people with metal in

the water, such as Pelamis* and OPT. We’ve

chosen a different approach with Orecon,

to take our time to engineer a solution so

that once you put it in the water, and prove

that it works, you can produce energy at a

competitive rate.”

*On March 22 2009, Pelamis admitted

that “some work is being undertaken” to

resolve a technical problem relating to the

location of its wave machines’ bearings in

their housings at the firm’s Aguçadoura

wave farm off the coast of Portugal.

However, “this solution has now been fully

tested and is ready for deployment with all

material having now been ordered”, the

company added.

OpportunitiesCleantech Group data shows that an

impressive 72 per cent of worldwide

investment in the marine energy sector

during 2008 was channelled to European

companies.

This sector presents a particularly strong

opportunity for the UK, which is “leading

the world in the development of marine

energy”, according to Tom Delay, chief

executive of the Carbon Trust, a UK

government-backed organisation that

works with companies to reduce carbon

emissions and develop commercial low-

carbon technologies.

The UK’s 11,072-mile coastline boasts

some of the most powerful waves and tidal

streams on the planet. Harnessing this

power through wave and tidal devices

could generate up to 20 per cent of the

UK’s electricity needs, according to Dr

Stephen Wyatt, marine energy accelerator

manager at the Carbon Trust. “This is a

tremendous market opportunity for the

companies that get this right,” he adds.

The UK and Ireland’s Atlantic coastline

could produce around 50 gigawatts of

electricity if it could be captured, says

Professor Francis Farley, a former Cern

physicist and co-inventor of the Anaconda

wave power technology (www.bulgewave.

com). “The Atlantic coast of France also

holds enormous power,” he adds.

Wyatt says another key differentiator is

the UK’s “world-class” academic marine

energy research groups. “The UK has the

expertise to fabricate and build wave and

tidal energy devices, because we have a

strong oil, gas and ship-building heritage.”

The UK accounts for around 50 per cent

of global wave and tidal power activity,

says Wyatt. Canada, the US, New Zealand,

Australia, Taiwan, Korea and several

Scandinavian countries are also active in

the area. “Wave power is starting to

become significant in Denmark,” adds

Mortensen of Climate Consortium Denmark.

Despite the challenge of developing

devices strong enough to withstand the

ravages of the ocean (see Challenges,

right), several projects are already making

headway. UK-based marine energy

technology developer Pelamis has installed

wave power devices off the coast of

Portugal, deployed in partnership with

Portuguese energy company Enersis. This

represents the world’s first multi-unit wave

farm and the first commercial order for

wave energy converters (though there have

been recent reports of short-term technical

problems – see left, this page). In addition,

UK-based Marine Current Turbines installed

the 1.2-megawatt SeaGen tidal energy

convertor in Northern Ireland’s Strangford

Lough in April 2008.

Although investment activity in this area

has been dominated by corporates rather

than venture capitalists (see section three

of this report), Oxford Capital Partners

sees tidal power as an exciting emerging

investment opportunity. “It’s an area we’re

keen to see deals in,” says David Mott,

investment director at the firm. “You can

predict tidal power in 25 years’ time: you

know how many centimetres the tide will

rise. This is not the case for wave power.”

Lodge at the UK’s Centre for Policy

Studies agrees that the predictability of

tidal movements means tidal power should

have a bright future. “The closest you come

to a base-load renewable is tidal stream,”

he says. “The grid knows when it can rely

on it, right down to the minute. You don’t

get that with any other renewable.”

ChallengesThe nascent wave and tidal power sectors

face formidable challenges. The first is the

location of marine energy sources far away

from areas of high population density.

“For example, in the UK, tidal power is tied

up in the Pentland Firth in Scotland, while

wave resource is strongest off the coast of

Cornwall, Devon and the Western Isles of

Scotland,” says Wyatt at the Carbon Trust.

“These are all away from the UK’s most highly

populated areas. So grid connection and

energy transport are the first barriers for

marine energy to overcome.”

Resolving these challenges will require

“a hefty investment in grid reinforcement,

in areas of Scotland in particular”, he says.

The second challenge is a technical

one. “Harnessing wave and tidal energy

isn’t easy,” says Wyatt. “Building anything

that goes out to sea and survives is

tricky – particularly when you are up

against a budget.”

Developing wave energy devices strong

enough to withstand the harsh environment

of the open ocean is proving a hurdle.

“Wave machines up to now have been

rather fragile,” says Farley. “The challenge is

to make a device that will survive and

produce power at a reasonable cost. We

haven’t crossed that threshold yet.”

Indeed, producing wave energy at a

competitive price is the biggest challenge

of all, says Wyatt. “At the moment, the

Carbon Trust estimates that wave energy

costs something like 25 pence per kilowatt-

hour. Offshore wind is something like 11 or

12 pence per kilowatt-hour, while coal and

gas costs around five pence per kilowatt-

hour. So you can see the magnitude of the

challenge that wave energy faces.”

The relatively high costs associated with

early marine power development are

putting off venture capital investors, Wyatt

admits. Yet he says the UK government is

stepping in to help marine power firms

through the crucial, yet expensive, pilot

stages. “Initiatives such as the European

Marine Energy Centre (EMEC) in Scotland

are set up just for this purpose,” he says

(EMEC provides marine energy firms with

berths for their prototype devices, plus

cable connections to the mainland).

Farley is critical of the UK government’s

lack of support for marine power. “The

government’s policy of supporting

innovation is chaotic and contradictory,”

he claims. “It could do much more to

support promising ideas with money.”

Martin Wright, managing director of

May 2009 RealDeals 11

Marine Current Turbines, is equally

disdainful of government policy towards

marine energy. “You get an attitude in

Whitehall: ‘why are we developing this?

Why don’t we let someone else do it and

we’ll buy it later’,” he says.

Lodge at the Centre for Policy Studies

agrees that more UK government support

is needed – adding that because such

support is lacking, the country’s marine

energy innovators are looking to Asia to

get their technologies off the ground. “For

example, Hull-based tidal power firm Lunar

Energy plans to install a 300 tidal-stream

turbine field, generating 300 megawatts,

in Korea in partnership with Korean

Midland Power,” he says.

However, further UK government

support for marine energy may be in

the pipeline. The Scottish Assembly is

proposing to grant five ROCs for wave

energy and three ROCs for tidal energy,

says Wyatt. “That level of support will give

the market confidence – and all indications

suggest that this will go through,” he adds.

BiofuelsInvestment trendsBiofuels had a tough year globally in 2008,

with a growing awareness of the negative

impact of biofuel cultivation on food prices,

particularly for the developing world.

“People in the US have been throwing

money at first-generation, corn-based

biofuel production,” says WHEB Ventures’

McNaught-Davies. “It’s cannibalised what

would otherwise have been edible food.”

(See Challenges for more on the biofuels

sector’s problems.)

As a result, first-generation biofuels –

predominantly a US VC preserve anyway –

are even less likely to receive investments,

though there is still appetite for second-

generation fuels that do not affect the

food chain.

Biofuel deals in 2008 included

Capricorn’s investment in Netherlands-

based Avantium, which is building a

consortium to accelerate the application of

high-throughput R&D in next-generation

biofuels and biomass-based industrial

chemicals; and an ETF-led $20m

investment in Chemrec, a Swedish

developer of energy and chemical recovery

systems based on gasification of the

papermaking by-product black liquor.

The sector has also already seen a large

deal in 2009, with Waterland Private Equity

making a ¤36m investment in Netherlands-

based BioMCN, which last month began

production of biomethanol, a second-

generation biofuel, for use in petrol.

“Because it’s a green version, you can

use it in reaching the targets that are set by

the EU directives to get to ten per cent

biofuel use in transport by 2020,” says

Waterland principal Lex Douze. “It’s an

important driver for growth – not only for

this company but for all green biofuels.”

OpportunitiesDespite recent setbacks for the biofuels

sector, Sean Sutcliffe, chief executive of

Green Biologics, the UK-based bio-butanol

business, says it is still early days. “The

biofuels sector is still in the ideas formation

stage. Each developer has its own angle on

the winning technology,” he says.

Green Biologics uses fermentation

technologies to convert biomass into fuel.

During 2008, Cleantech Group data shows

that 64 per cent of total investment into

European biofuels went into biomass-

related businesses.

The most significant emerging

opportunities for Green Biologics lie in

China, where the government has made a

strong commitment to biofuels. “If you

take bio-butanol, in Europe we are talking

about it. In China they have supported

investment in 300,000 tonnes of bio-

butanol capacity, with a target of

achieving one million tonnes by 2010. Our

main market is China, because that’s where

the investment is going in and where the

technical support is,” says Sutcliffe.

Green Biologics completed a funding

round in February 2009, proving that investor

appetite for biofuels has not dried up. “This

provides us with funding for 2009. We have

achieved this without a dip in valuation. Our

existing investors – the Carbon Trust and

Oxford Capital Partners – have continued

to support us, and we’ve brought onboard

Morningside Ventures,” says Sutcliffe.

“We wanted someone such as

Morningside to support our position in

China, as opposed to a more traditional

European VC,” he adds.

A broader long-term goal for the

biofuels sector is finding lower-cost

feedstocks. For Green Biologics, this

means investing in sugars in Brazil and

India. “That’s where the market is growing,”

says Sutcliffe.

Mott at Oxford Capital Partners, an

investor in Green Biologics, says that many

of the future opportunities in biofuels will

lie in niche, non-food feedstocks. “We’ve

been looking at businesses that grow

elephant grass, for example.” Another non-

food feedstock creating interest is jatropha,

though it can take years before the crop

reaches its first harvest.

Much of the future success of biofuels

will come from processing specific types

of waste streams, Mott adds. This is one of

the key attractions of Green Biologics,

since its technology takes a waste stream

derived from sugar production and turns it

into biofuel.

Challenges“The biofuels market has been hit hard,”

says one European cleantech investor.

“We always thought that a lot of the

economics around biofuels production

did not make sense.”

Concerns over the potential link

section 2: sector trends

Biofuels investment in Europe and Israel

0

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60

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2004 2005 2006 2007 2008

Algae biodiesel

Biodiesel

Biogas

Biomass

Cellulosic & grain ethanol

Data in $m Source: Cleantech Group

12 RealDeals May 2009

between rising food prices

and biofuels production,

along with a falling oil

price, have caused

particular problems for

the sector, with many

European governments

reviewing and reducing

targets for first-generation,

food crop-based biofuels.

Meanwhile, ethanol producers,

particularly in the US, have been hurt by the

recent rise in the cost of capital. “People

have also underestimated the volatility of

cost of the raw biofuels material, such as

corn and wheat,” adds one investor.

Moreover, a regulatory loophole has

enabled US biodiesel firms to drastically

undercut their European rivals. “Large

sections of the European biodiesel industry

have been destroyed by unfair US imports,”

says Sutcliffe. “US biodiesels receive EU

renewable energy subsidies, plus

production subsidies.” The hope is that the

EU will soon act to rectify the situation.

Fuel cellsInvestment trendsThough fuel cell technology has made

some investors substantial returns during

the past few years, VCs generally remain

sceptical about developments in the sector.

“The hydrogen economy is not

happening,” says Robeco investment

director Andrew Musters. “It may happen in

ten to 20 years’ time, but those are not the

opportunities that people are looking at

now. They want concrete technologies that

do not require a lot of capital to scale.”

(See Challenges, right, for more on the

hydrogen economy).

“We would be cautious about fuel cells,”

adds Jonk at SET Venture Partners. “We’ve

seen interesting companies, but it would

have to be a convincing story.”

Nevertheless, businesses continue to

catch the eyes of investors. The UK’s

Carbon Trust has made the sub-sector a

speciality, most recently leading a £3.3m

first round of funding for Runcorn-based

Acal Energy in January.

Although fuel cells can be used in

several ways – including remote and

distributed power, residential cogeneration

and mobile applications – one reason

given for a drop-off in

enthusiasm has been an

inability to efficiently

harness the technology

for automotive

applications.

As a result, companies

with stationary applications,

such as Acal’s, which is initially

focused on providing support for

telecommunications base stations, are most

likely to receive funding in the near future.

OpportunitiesEurope represents 57 per cent of total

global investment in fuel cells, according

to the Cleantech Group. This puts the

region in a strong position to lead future

growth in the sector.

Although investors remain sceptical

about the short-term potential of fuel cells

as vehicle power sources, many experts,

including analysts at the Cleantech Group,

believe the prospects are brighter for fuel

cells designed for other applications.

These range from levelling the load of

power grids, via firming up capacity for

renewable energy generation, to providing

decentralised heat and power generation to

homes and businesses.

UK-based Ceres Power is an example of

a “stationary” fuel cell company that is

already gaining significant traction. “We are

transitioning from pilot scale to mass

production, and as of the last two deals

we’ve cut – with British Gas and Calor Gas

– we’ve flipped from product development

to serious commercial engagement,” says

chief executive Peter Bance. British Gas

has invested £20m in Ceres Power, and

placed a forward order of the company’s

combined heat and power fuel cells worth

around £100m, he adds.

Bance says that the high costs and

long timeframes involved in fuel cell

development mean that the key to success

is understanding the requirements of the

customer from the outset. “You have to

make sure that the product is tailored to

the market need, so you know it will sell.”

Crucially, Bance believes that fuel cells

can play a vital role in the decentralised

energy infrastructure model, which is

gaining increasing support in both Europe

and the US (see section five). “Power

stations have historically been a one-off

project business. Distributed generation is

the opposite – massive house-by-house

deployment and maintenance,” he says.

Although Bance concedes that the

global economic turmoil is making it

tougher for many cleantech firms to raise

capital, he also believes that the crisis

presents opportunities for companies on a

“growth trajectory” such as Ceres Power.

“The assets that you need for growth –

whether it’s recruiting people, buying

machinery or leasing factory space – are

cheaper than they once were,” he says.

ChallengesThe much-vaunted hydrogen economy – in

which a network of hydrogen filling stations

deliver power to fuel-cell-based vehicles – is

falling out of favour with many investors and

analysts. Cleantech Group figures indicate

that investment in fuel cells in Europe

dropped from $75.8m in 2004 to $29.2m in

2007, with a slight increase to $31.0m in

2008. The number of deals followed a

similar trend, falling from 15 in 2004 to seven

in 2007, with an increase to nine in 2008.

One European cleantech investor says

VC firms’ problem with fuel cells in vehicles

is the timeframe involved. “The scientific

consensus is that we need a significant

impact on reducing carbon emissions

within ten years. When I look at a ten-year

horizon, I can’t see a hydrogen economy

making a major impact. So our fund has not

invested in the hydrogen economy because

the timeframes are too long.”

Bance at Ceres Power agrees that the

fuel cells industry is a long game. “The

journey of getting a new product launched

is both extensive and expensive. It’s a

capital-intensive industry with long

development cycles. So you need to get

it right first time; rework is costly.”

Energy efficiencyInvestment trendsFirms based on greater energy efficiency, and

offerings that can provide customers with a

rapid payback on their initial outlay, are

predicted to receive a significant proportion

of available capital in the near future.

Indeed, Cleantech Group data shows

that energy efficiency was the second

largest cleantech sector after generation in

Europe in 2008, by both deal number and

amount invested during the year. The

sector has seen a year-on-year increase

from 2006 to 2008, in both the number of

deals – from eight to 31 – and proportion of

May 2009 RealDeals 13

deal number in Europe – from seven per

cent to 15 per cent.

“Energy efficiency is a big sector,” says

Emerald Technology Ventures managing

partner Gina Domanig. “If you can sell

somebody something with short payback,

that’s very attractive.”

Such offerings include those that

provide greater awareness of energy

consumption at home and at work, and

anything that falls under the banner of

smart grid technology. Recent deals include

Climate Change Capital’s ¤10m investment

in Power Plus Communications, a German

provider of broadband powerline

communication systems, in November.

Power Plus’s technology enables the

quick and efficient transfer of current

consumption in real time from the

electronic meters to the energy provider.

The uptake of smart grid technologies

will certainly be helped by President

Obama’s drive for them in the US (see

section four of this report), but anticipated

energy shortages in Europe are also likely

to push energy efficiency up the scale of

importance on this side of the Atlantic.

“We won’t build enough power stations

in time to meet the growth in demand

that is forecast, so we have to persuade

businesses and consumers to reduce

their demand,” says WHEB Ventures’

McNaught-Davies.

As well as smart grid and smart

metering technology, ways to make

industrial processes more efficient will

also be increasingly in demand.

Green building technology, too, is an

area of energy efficiency that attracts

investment interest, though the sector

has been affected by the worldwide

construction slump.

“Though there are interesting green

building technology companies, I think in

the short term they’ll have a difficult time,”

says Domanig (see Challenges, below, for

more on this topic).

OpportunitiesInvestors, entrepreneurs and corporates

operating in the cleantech arena agree that

energy-efficiency technologies will flourish

in the current global economic environment.

There are two main reasons:

Energy-efficiency technologies can

reduce costs as well as carbon

emissions.

These technologies tend to be

significantly less capital-intensive than

energy generation and other areas of

cleantech, and can be brought to market

more rapidly.

“Large wind, solar and power plants are

capital-intensive,” says Steve Mahon, a

board member at Rltec, which develops

“dynamic demand” technology enabling

electricity grid operators to balance

demand from domestic and industrial

consumers with supply from power

generators. “In the next 12 to 24 months,

capital for these areas will be less widely

available, and will come at a higher price. In

contrast, energy-efficiency technologies

tend to be retro-fittable, with low capital

intensity and shorter payback times. This, if

anything, is more attractive in this climate.”

Emmons at Siemens Venture Capital

agrees. “With energy-efficiency

technologies, you are not building a power

plant; you are putting into place distributed

solutions that tend to be lower-cost, even in

aggregate. What makes this area exciting

for us as investors is that there is a hard

ROI that you can realise in less than 12

months – sometimes less than six months.”

Mahon gives Rltec as an example. “What

this firm produces is effectively software.

You don’t need to build big factories to

produce this. And with a relatively small

investment, you can grow a big business

quickly,” he says.

And Emmons cites one of Siemens VC’s

portfolio companies – chilled water cool-

storage technology firm Beijing PowerU

Technology. “It allows you to store water

chilled at night, so that you don’t have to

spend as much on air-conditioning during

the day. You can realise fast ROIs with the

right customers.”

Germany-based EnOcean – another

Siemens VC portfolio company – is a

further example of an energy-efficiency

business with low capital intensity and fast

potential returns, Emmons adds (see below

and facing page for more on EnOcean).

“Anything that improves energy

efficiency is seen as beneficial today –

because the driver is not environmental,

it’s economic,” adds Bance at Ceres Power.

Another advantage of energy-efficiency

technologies is that they don’t require a

behavioural change, says one European

investor. The consumer will simply find that

their laptop uses less energy, for example.

The area of “green IT” – making

computer processors, server farms and

other IT systems less energy-intensive –

holds particularly substantial future

promise, the investor adds.

Challenges (and more opportunities)Despite the attractiveness of energy-

efficiency technologies in the current

economic climate, technologies focused on

improving the energy efficiency of buildings

have been hurt by the recent downturn in the

property and construction sectors.

One European cleantech investor says:

“We don’t know when the property markets

will come back, so we have redeployed

capital to areas likely to see a stronger

performance over the next two years.”

But not everyone in the green buildings

space is gloomy. Germany-based EnOcean

produces battery-less, wireless radio

sensors designed to automate heating,

lighting and other systems in buildings.

“We supply suppliers to the construction

industry,” says Markus Brehler, founder and

chief executive of the company.

Although he admits that falling energy

prices may move building efficiency “a little

down the agenda”, he says that he has not

section 2: sector trends

Source: Cleantech Group

Energy efficiency investment in Europe and Israel

Deal number (left)

Investment (right)

2004 2005 2006 2007 2008

Data in $m

40

35

30

25

20

15

10

5

0

160

140

120

100

80

60

40

20

0

14 RealDeals May 2009

yet seen a fall-off in demand from

EnOcean’s customers.

Recent research by Taylor Wessing into

sustainability issues relevant to construction

and development found that “75 per cent

of respondents [representing investors,

developers, contractors, architects,

commercial agents and many others]

believe that a renewable/sustainable

energy source is likely to be an element

of property development that they would

be involved in”.

The report concluded that “the

sustainability challenge will not go away,

which means that the economic downturn

cannot be allowed to obstruct the solution –

indeed, it could and should focus our

response with ever greater intensity.

Sustainability should be embraced as one of

the big growth sectors of the future, as the

recent rise in ‘green collar’ jobs suggests.”

Indeed, Brehler sees opportunities in the

downturn. “A crisis is always a time for

innovation. For example, our customers in

the UK tell us that their standard line of

business is going down, but their EnOcean-

based business is going up.” He adds that

the Obama administration’s initiative to

promote the development of green

buildings presents further opportunities for

his firm (see section four of this report for

more on the Obama stimulus package).

However, Brehler says that the “invisible”

nature of buildings efficiency technologies

means they get less political support than

technologies such as solar panels or wind

turbines. “It’s more attractive for politicians

to support solar cells or wind farms,

because there is something tangible to

show the public,” he says.

He also believes that green buildings

development may progress faster in the

US than in Europe, because building

energy efficiency in the US is “so bad,

that now they have an awareness of the

need to do something, they will leap

from the beginning of the twentieth

century to the beginning of the

twenty-first century.”

It is crucial, therefore, for

European firms in the green

buildings sector to make

inroads into the US market.

In May 2008, EnOcean

entered into a partnership

with US giant Masco

Corporation, which

manufactures brand-name

consumer products for the

home improvement and new

home construction market. In December of

that year, it also partnered with Leviton, the

US wiring accessories firm. “In the US, they

are more ready to try new things, which

gives us a chance as a new company,”

Brehler says.

However, regulations covering building

efficiency are “tightening fast” in Europe,

according to Claude Fussler, programme

director for Caring for Climate, the UN

Global Compact’s climate change initiative.

“That will create a lot of new market

prospects for energy-efficiency

technologies,” he says.

Brehler adds that the “sweet spot” for

EnOcean’s green-building technology is

“a combination of high energy costs, the

political will to bring down carbon dioxide

emissions, a high level of industrialisation

and high labour costs.” (High labour costs

make EnOcean’s wireless technology

attractive because it is less labour-

intensive to install). As a result, Japan and

the Middle East, as well as Europe and the

US, are “very interesting” to EnOcean.

Recycling & wasteInvestment trendsIn the face of tough market conditions, a

spate of waste and recycling deals have

been made over the first quarter of 2009.

While UK waste management business

New Earth Solutions received £4m of

expansion capital from the Impax Group

in February, as well as securing a £50m

Nord LB facility to roll out its plants

throughout the UK, WHEB made its own

growth capital investment in Limerick-

based AMCS, a supplier of waste-

management and recycling technology

to the public and private sector.

One main driver for companies in

the sector is EU legislation on

reducing waste-to-landfill.

Many such businesses are

also generating revenues,

attracting venture

capitalists into the space.

In March, the Foresight

Group invested ¤5.6m

in Vertal, which has

developed technology that

converts food waste into

fertiliser. Mirroring the tactics

of other venture investors in

waste-management businesses, Vertal’s

equity investment will largely fund the

construction of the company’s first plant,

with the firm hoping to refinance at

favourable terms at a later date.

The lack of project financing available

from the banks is therefore providing a

string of such opportunities for venture

funds willing to pursue this strategy. “In a

way it’s a necessity, but it means we can

guide projects more profitably,” says

Foresight partner Matt Taylor.

OpportunitiesThe waste-treatment and waste-to-energy

sectors hold substantial potential, says

Mott at Oxford Capital Partners. “The

sector has been hurt hard by the collapse

of the economics of the recycling sector

[see Challenges, below]. But we’re running

out of landfill sites, so other solutions need

to be found.”

Mott sees particularly strong

opportunities in niche waste-to-energy

applications. “For example, we have an

investment in Inetec, which turns food and

packaging waste into a stable biofuel. Lots

of companies deal with food waste, but

most cannot deal with food and packaging

combined. So Inetec is interesting.”

Another of Oxford Capital Partners’

portfolio firms, Microbial, turns

metalworking fluids into grey water.

ChallengesInternational prices for recycled materials

such as metals, paper and plastic have

recently collapsed. Prices for aluminium

cans, for example, fell from £770 per tonne

in 2004 to £425 per tonne in 2008. Prices

for plastic bottles more than halved during

this period. This means that local

authorities and their waste-management

partners, which once made a profit from

recycled materials, face making a loss.

Many experts are concerned that if

prices for recycled material remain low,

the market for recycling services and

technologies may deteriorate.

Advanced batteries and other energy storage technologies Opportunities“The opportunities in this area are vast,”

says Andrew Loyns, chief technology

May 2009 RealDeals 15

officer at Atraverda, a UK-based company

that uses a conductive ceramic to make

lead acid batteries smaller, lighter and less

harmful to the environment (Atraverda

raised £10.4m in a series B financing round

in October 2007).

Emmons at Siemens Venture Capital

agrees. He says his firm “spends a lot of

time looking at companies in the energy-

storage space”, because storage

technologies are crucial for managing the

future supply of wind, solar and other

forms of renewable energy that are

currently non-storable.

Energy-storage technologies that

Siemens has evaluated include flow

batteries (such as those provided by

Israel-based Enstorage), and hydro/

compressed air energy storage. “The key

to investing in these areas is understanding

where we will see utility participation, and

where the economics will work out – and

this may be assisted by regulatory policies,

for example.”

Although he has yet to see a proven

energy storage solution for grid-sized

applications (see Challenges, below),

Emmons says that residential-level energy

storage technologies are already making

headway. “We are watching this area with

some interest,” he says.

Meanwhile, Wright at Moxia Energy

believes that the entrance of Chinese

companies into the advanced batteries

market will contribute to the drop in prices

necessary to get new energy storage

technologies into the mass market. “For

example, we are working with a Chinese

company that is creating a heavier but

much cheaper form of lithium battery for

electric vehicles. Battery packs for electric

cars can cost $30,000. So step changes

in price are important,” he says.

SET Venture Partners’ business Epyol

represents another breakthrough for

electric vehicle industry. The company, in

which SET invested an undisclosed amount

in mid-2008, has developed technology

that can recharge electrical car batteries in

a fraction of the time it normally takes.

Challenges“The issue for any new battery is getting

adoption by the customer base. When the

economic climate is difficult, pressures on

timescales and so on are greater,” says Loyns.

The US boasts an overwhelming lead

over Europe in the advanced batteries

sector. Indeed, Europe accounted for only

five per cent of total global investment in

this area during 2008,

with North America

accounting for 89 per

cent, according to

Cleantech Group data.

This may be because

the US has focused more

on energy storage,

suggests Loyns. “The

emphasis on energy storage

perhaps hasn’t been as strong in

Europe. Within the lead acid battery sector,

a lot of Europe’s manufacturing has gone

to Asia. The US has tended to keep its lead

acid battery industry – although most

lithium manufacturers are now in Asia.”

The energy-storage industry in the US

is set to receive a further boost from the

recent Obama stimulus package, which has

earmarked $2bn for the advanced batteries

sector, Loyns adds. “There doesn’t seem to

be any such activity in Europe, and we

probably don’t have the manufacturing

infrastructure to deal with it in the short

term anyway.” (For more on the Obama

package, see section four).

Meanwhile, the biggest challenge for

those working on large-scale energy storage

systems is making the technology viable in

the first place. “Many energy storage

technologies have not yet demonstrated

that they economically scale to ten to 50

megawatt-hour or larger systems, which is

what a grid-sized energy storage solution

would require,” says Emmons.

“The prices for energy storage are just

too high for the benefits they bring,” adds

Alan Gooding, managing director of smart

grid technology firm Smarter Grid Solutions.

Energy infrastructureOpportunitiesIn February 2009, the Obama administration

earmarked $11bn to support the

development of smart grid-related

technologies (see section four of this report

for more on the Obama stimulus package).

This, combined with the fact that investment

in smart grid firms grew considerably in

2008, points to a bright future for this

energy infrastructure sub-sector.

The smart grid model encompasses a

range of new technologies that manage

electricity supply and demand more

intelligently and efficiently. Bance at Ceres

Power believes that

a smarter grid is

synonymous with a

decentralised energy

infrastructure.

“Centralised generation

models waste over two

thirds of total energy, either

up the power station chimney

or down the wire. Distributed

generation uses 90 per cent of the

energy resource, so it is three times more

efficient than the centralised model,” he says.

Bance says that such a big efficiency

gain will prove impossible for political

leaders to resist. “Because the distributed

power model is so much more efficient, it is

probable that governments will eventually

deem it uneconomical and unethical to

continue with a centralised power

infrastructure as it is done today,” he

says. “So over the next five to ten years,

distributed power units could credibly

become the standard fit in every home.”

In Europe, the opportunities for smart

grid and smart metering companies will

increase over the next few years as the

region faces a “gap” between energy

generation and demand, adds Joel Hagan,

chief executive of UK-based energy

display technology firm Onzo. However,

he adds that improving the energy

infrastructure is higher up the agenda in

the US. “They have a much greater

imperative because if they don’t do

something now, they will have brownouts

and blackouts. It will be several years

before European countries are in a similar

‘must-do’ situation.”

Meanwhile, the downturn is presenting

new opportunities. Hagan adds: “What

previously for the consumer market

was a disposition towards ‘green’ has

become a mainstream desire to save

money. The recession is an opportunity

for us to turn our service from a niche

to a mainstream offering.”

ChallengesThe complete smart grid concept,

characterised by a truly decentralised

energy generation and storage

infrastructure, will take decades to become

a reality, admits Hagan.

“Electric hybrid vehicles – which could

form part of the energy storage system of

the home – could take 20 years to achieve

substantial penetration in the market,

especially now that car companies are

having such a tough time.”

section 2: sector trends

16 RealDeals May 2009

Gooding at Smarter Grid Solutions

agrees that the smart grid will not appear

overnight. “You’ll never go out and buy

a smart grid. A series of new technologies

will make the grid smarter. At some point in

the future, we will achieve a smart grid, but

no one knows where that boundary is.”

Even elements of the smart grid

model, such as smart meters, will take

around a decade to become ubiquitous,

Hagan says, because even mandatory

rollouts take time to be completed.

Meanwhile, a volatile regulatory

environment is hurting parts of the smart

metering sector. Hagan adds: “Two years

ago, the UK government announced that

it was thinking of mandating the provision

of a couple of million energy displays.

Several companies popped up to serve

that need. The government then reneged

on that initiative, and those companies

will probably struggle to survive the

current period.”

MaterialsOpportunities“Novel materials and nanotechnology

is a sector that has taken a long time

coming, but the number of potential

applications are growing all the time –

from self-cleaning glass, via fuel catalysts,

to plastics that last longer,” says Mott at

Oxford Capital Partners.

Emmons at Siemens Venture Capital

agrees, adding that the current global

economic woes are unlikely to hamper

activity in this area. “I don’t think that

we are going to see a drop-off in the rate

of new material innovation as a result of

the downturn – whether it is in new

catalysts, new membrane technologies

or different methods of pre-treating or

post-treating fuels,” he says.

Indeed, as many large-scale construction

projects are postponed owing to the

current climate, many firms will take the

opportunity to focus even more on R&D in

several cleantech sub-sectors, he adds.

ChallengesThis is a diverse sector, with each specific

technology characterised by specific

strengths and weaknesses. In general,

however, European investment in the new

materials sector remains lower than in

most other areas of cleantech, including

energy efficiency, recycling and waste,

manufacturing and industrial, energy

storage, and air and environment.

“It surprises me that there haven’t been

more investments in new materials, though

I think that’s in part because it’s outside

people’s comfort zones. I think you’ll see

that area start to grow,” says Environmental

Technologies Fund partner Patrick Sheehan.

Manufacturing/industrial In 2008, $51.4m was invested across six deals in european

manufacturing/industrial companies, with $26m across

three deals in smart production; $17.5m across two deals

in monitoring & control companies; and one deal worth

$7.9m in advanced packaging.

this represented a 42 per cent decrease in investment

from the 2007 value of $88.2m, and a drop from 11 deals

to six. However, 2007 itself saw a large increase from

2006 and 2005 figures, so the 2008 investment figure

remains 91 per cent more than the 2006 investment total.

Water and wastewaterInvestment opportunities based on the theme of water –

including storage, transportation and desalination – are

expected to see more investment, though so far such deals

have proved hard to come by for venture firms. “distribution

seems to be a huge challenge for most companies we’ve been

looking at there,” adds Wellington partner Bart Markus.

the most prominent recent deal in this space involved a

Zouk Ventures-led ¤10.4m growth capital investment for

Hamburg-based triton-Format, a provider of water solutions

for the maritime, industrial and small municipal sectors. the

company designs, assembles and installs water treatment

modules ranging from low-energy desalination to water

management and waste water systems.

during 2008, the water and wastewater sector recorded

its highest ever level of investment in europe, with 16

deals and $43.1m invested in europe during 2008, up

from 11 and $33.8m in 2007. two thirds of these deals

(ten) were focused on water-treatment companies, as was

$29.7m of the investment. Five deals and $12.4m went

into wastewater treatment, with the rest going into water

conservation.

on a global level, europe accounted for around 55 per

cent of the deals (by number) made into the water and

wastewater sector.

(See section five of this report for more on the future

potential of the water sector)

Air and environment In 2008, $41.2m was invested in 12 deals across european

air and environment companies, with $31.4m across seven

deals in clean-up/safety; $2.4m in one deal in emissions

control; $3.5m across two deals in monitoring/compliance;

and $4.9m across two deals in carbon trading and offsets.

Investment in the sector increased by 54 per cent from

2007 and from seven deals to 12.

Agriculture In 2008, $26.7m was invested in european agriculture

companies, with $11.6m across three deals in land

management, and $15.1m across two deals in natural

pesticides.

Transport In 2008, $19m was invested in european transport

companies across five deals, with one deal of $8m in

fuels; $3m across two deals in logistics; and $8m across

two deals in vehicles.

Other Sectors

May 2009 RealDeals 17

combined heat and power units (CPUs)

over four years.

Under the agreement, British Gas has

the exclusive right to supply Ceres Power’s

CHP units to the residential UK market,

while Ceres retains the right to supply them

anywhere else in the world, as well as the

right to exploit its fuel-cell technology in

other applications globally.

For Sam Laidlaw, CEO of British Gas’s

parent company Centrica, the deal makes

clear strategic sense. “Fuel-cell technology

has the potential to transform the domestic

central heating market, enabling our

customers to generate cheap, reliable and

low-carbon electricity in their own homes,”

he said when announcing the 2008 deal.

A fundamental future trend across

cleantech, adds Bance, will be “a proliferation

of corporate marriages between small

innovators bringing solutions to the market

and large incumbent companies that have

either the manufacturing horsepower or the

sales, marketing and distribution muscle to

provide scale”.

Mutual benefitsA corporate brings a huge amount of

credibility and management experience to

a cleantech proposition, agrees David Mott,

18 RealDeals May 2009

corporate engagement in cleantech

section 3

Plugging the investment gapPeter Bance, chief executive of UK-based

fuel cells developer Ceres Power, believes

that strategic partnerships between

cleantech firms and large corporates will

proliferate in the wake of the recent drop-

off in private equity and venture capital

firms’ appetite for risk.

“Strategic investors, such as energy

companies, are plugging the gap by

providing companies such as ours with the

financial fuel for growth,” he says. Ceres

Power, for example, moved from first- and

second-round VC funding, via an AIM

listing, to a growth capital deal with British

Gas. “We’re going to see more activity

from corporate strategic investors that

have an interest beyond the financial

returns in this sector, because late-stage

equity investment doesn’t really exist in

the UK for cleantech industries,” he says.

British Gas originally partnered with Ceres

Power in 2005, to develop domestic boilers

that produce electricity as well as heat. In

January 2008, British Gas entered a new

agreement to pay Ceres £5m (¤5.6m) in

installments to fund field trials and other

development activities, and placed a

forward order to purchase at least 37,500

While utilities, chemicals groups and large corporates in other

sectors are deepening their involvement in cleantech, the first

quarter of 2009 saw evidence of a scale-back in renewable

energy investment by the world’s oil and gas giants.

For example, Bp recently cut its 2009 investments in

renewable energy and other non-core business divisions

by almost 30 per cent. meanwhile, linda cook, head of

gas and power at Shell, said at the company’s annual

strategy presentation in march: “Wind and solar are

interesting [but] we may continue to struggle with other

investment opportunities in the portfolio, even with big

subsidies in many markets. We do not expect material

investment [in wind and solar] going forward.”

Biofuels, rather than wind or solar energy, were the closest

fit with Shell’s current strategy, cook added.

Why are the energy majors retrenching their positions in

the cleantech arena? many believe that the primary reason

is the recent fall in oil prices and its detrimental impact on

oil companies’ cash flows. as cook admitted: “We are

businessmen and women. if there were renewables [that

were profitable] we would put money into it.”

in other words, wind and solar technologies simply cannot

deliver the short-term returns that Shell and Bp’s shareholders

are looking for in the current climate.

The energy majors: a cleantech retrenchment?

investment director at Oxford Capital

Partners. “In the tidal space, we’ve seen

Rolls Royce stepping into a tidal energy

project. It wouldn’t surprise me if an

increasing number of others got stuck in.”

Existing partnerships between utilities

and capital-intensive marine energy

technology developers highlight the benefits

of corporate involvement in nascent clean

technologies, says Dr Stephen Wyatt, marine

energy accelerator manager at the Carbon

Trust. “Most of the leading marine power

developers have received a reasonable

amount of VC money. But we’re seeing

utility companies investing at an earlier

stage than they traditionally would for other

technologies. This reflects the levels of

investment needed for marine energy test

programmes. It gives stability to marine

energy companies’ business plans. They still

raise VC money, but if they’re backed by a

major utility, it gives quite a bit of comfort to

potential investors. After all, the utility is an

ultimate route to market.”

A growing number of large

corporations view clean technologies as

not only an important component of their

future strategies, but core to it. Siemens

is a case in point.

“Over the next 20 to 30 years, the global

community is going to be remaking the way

it uses energy,” says Eric Emmons,

investment partner at Siemens Venture

Capital. “I think Siemens AG is going to have

a large role there. If you look across our

industry sectors – energy, industry and

healthcare – about 25 per cent of what we

do, about ¤17bn in the past fiscal year,

would roughly be categorised as cleantech.”

Siemens is interested in several areas of

cleantech. Water desalination, wastewater

May 2009 RealDeals 19

treatment and industrial water

technologies are one area (see section

five of this report for more on the water

sector). Energy transmission, energy

efficiency and power generation are

others, says Emmons.

“Our agenda to build our solutions and

product portfolios in these spaces is pretty

aggressive – and you should expect to see

a significant increase in what Siemens as a

corporate entity is doing in this area in the

future,” he adds. “It fits our vision of helping

the world to cope with increasing

urbanisation, demographic trends and the

growing environmental challenges we face.”

Meanwhile, the partnership between

energy-monitoring display technology

developer Onzo and power company

Scottish & Southern Energy illustrates the

benefits that both start-up and large

corporates can reap from such a marriage.

“We get a first contract with a large

number of unit orders, making us one of

the biggest energy-display manufacturers

in the world,” says Joel Hagan, chief

executive of Onzo. “And we get the

opportunity to work closely with the utility

to make sure the solutions we are

developing map to their business needs. In

turn, Scottish & Southern Energy gets

exclusivity to that solution in the UK and

Ireland, though we remain free to retail

that solution direct to consumers.”

David Gardner, head of ventures at

Scottish & Southern (SSE), said when

announcing the deal last year, “Energy

customers have a growing expectation

that their supplier will provide new ways

to help them reduce their energy

consumption, and in the future this

could become an important service

differentiator. This partnership with Onzo

will give Scottish & Southern access to

leading-edge technologies that will help

us provide a new level of support to

customers who want to reduce their

energy consumption.”

The deal “demonstrates that SSE

is prepared to invest in any strong

proposition that directly supports our

strategic aim of ensuring that Scottish &

Southern plays a major part in the long-

term transformation of the production and

consumption of energy,” Gardner added.

Recent investments illustrate the kinds

of clean technologies that are of growing

interest to corporates (see Partnership

hotspots, right).

recent investments by large

companies in clean technologies:

Siemens (through Siemens Venture Capital) Beijing powerU technology

limited cooperation (efficient

water cool-storage technology)

enocean (self-powered wireless

sensor technology for building

efficiency systems)

inge water technologies

(ultrafiltration technology for

water treatment)

maxxtec (renewable energy-

related heat-transfer

technology)

SmartSynch (smart metering)

Zolo technologies (sensor

and monitoring technology to

improve the efficiency of large

combustion sources)

BASF (through BASF Venture Capital) heliatek (organic solar cells)

luca technologies (energy

creation and production through

farming natural gas generated

by microbial activity in organic-

rich hydrocarbon deposits)

Ultracell (high power density

fuel-cell system for portable

electronic applications)

RWE

(via RWE Innogy) Quiet revolution (small-scale

wind)

topell (manufacturer of

torrefied pellets, used in the

production of biocoal)

reVolt (rechargeable zinc-air

batteries)

Voith hydro (hydro power)

Scottish & Southern Energy Smarter grid Solutions (smart

grid technology)

onzo (smart metering display

technology)

Partnership hotspots

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20 RealDeals May 2009

copenhagen and beyondPolicy, government stimuli and the prospects for a green recovery.

section 4

“The world is definitely a tougher place,

but if you look hard enough, there are

going to be areas of cleantech that present

great investment and growth opportunities

– and a lot of that will be driven by

government regulation,” says one European

investor. “We continue to see governments

around the world harnessing the economic

opportunities around cleantech: that is just

what the Obama administration has done.”

The Obama effectThe Obama administration’s American

Recovery and Reinvestment Act,

implemented in February 2009, presents

opportunities for cleantech investors and

entrepreneurs on both sides of

the Atlantic. This broad

stimulus package earmarks

$43bn (¤32bn) for

cleantech support and

investment. Specific

objectives include

doubling the current

level of alternative-

energy generation to

50 megawatts by 2012,

and retrofitting public

buildings with energy-

efficiency technologies.

Steve Mahon, chief investment officer

at Low Carbon Accelerator, sees particular

opportunities for European companies

developing smart grid-related

technologies, such as Rltec, in which his

fund invests. “The US is talking about

spending $11bn on this area,” he says.

Markus Brehler, founder and chief

executive of German firm EnOcean, which

provides battery-less, wireless sensors for

use in “green buildings” systems, also sees

opportunities springing from the Obama

stimulus package. “Everybody knows that

energy is a scarce resource and that costs

will rise in the future. But while it seems

important, it is not viewed as urgent. I

believe there is a need for stimuli and

regulation to accelerate the process of

increasing energy efficiency,” he adds.

Joel Hagan, chief executive of UK-

based energy monitoring display

technology developer Onzo, sees

opportunities too. “It’s good for us; I

certainly see us participating in trials and

pilots in the US, some of which will receive

funding from the Obama package.”

Although he agrees that the Obama

stimulus package is “good news for the

entire cleantech industry”, Eric Emmons,

investment partner at Siemens Venture

Capital, adds that the specific implications

of the package are yet to become clear.

“We will be waiting to see what it means in

practice – whether it means tax incentives

or subsidies for installing energy-efficiency

technologies, for example. It will be a

question of how it is implemented – though

all indicators suggest that the areas of

investment are in line with what we hoped.”

George Polk, executive committee

chairman of the European Climate

Foundation, also highlights the current lack

of detail in the Obama stimulus package. “A

lot of money is promised, but it is not clear

how that money will be spent,” he says.

“The lesson for Europe is that people

need visibility over the longer term about

what the financial incentives are going

to look like,” he adds. “They also need

regulations to be carefully thought

through in advance – ideally in

consultation with industry.”

The European landscapeAre European governments following the

Obama administration’s lead, or will they?

Polk says that even if EU policymakers

were willing to do so, they cannot commit

to cleantech spending on the scale

recently seen in the US: “The Americans

are spending money without regard to

whether they have it or not – and the US

economy is structured in a way that makes

that possible. The EU cannot print money

in the same way,” he says.

Many in Europe, including Onzo’s Hagan,

are now concerned that the region is at risk

of being left behind as the US embraces

the cleantech agenda with renewed vigour.

“This is similar to the current situation with

stem cell research. If I was a European

scientist who has been making headway in

this area, I would be concerned about the

unleashing of American research and

development in that sector,” says Hagan.

However, Peter Bance, chief executive of

UK-based fuel cell developer Ceres Power,

believes that Europe still has one significant

advantage over the US and the rest of the

world. “As a continent, both governments

and consumers are more environmentally

aware than anywhere else in the world. This

is a key differentiator, and provides a local

market for cleantech products. Having a

local market on your doorstep is hugely

helpful to any growing cleantech business.

It gives you an excellent platform from

which to grow across the world.”

Yet European cleantech firms do not

have as large a local market as their US

Is the scope of UK cleantech policy too narrow?david Mott, investment director at

oxford capital partners and chair

of a british Shadow cabinet

working group on supporting

cleantech enterprise, believes that

current UK government support for

cleantech innovation, primarily

delivered through the carbon

Trust, is too narrowly defined.

“The carbon Trust is very

focused on carbon reduction. That

ignores a very large part of the

broader sustainability environment.

Recycling, water-related

technologies, novel materials, air

purification technologies and

others are not covered by the

carbon reduction agenda,” he says.

Widening the scope of clean

technologies eligible for

government support “has the

potential to have significant and

dramatic results in increasing the

UK’s competitiveness in the

cleantech sector”, Mott wrote in

a december 2008 report.

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May 2009 RealDeals 21

counterparts enjoy, says Brehler at EnOcean.

“In Europe, we do not have one harmonised

market, especially in building technologies,

wiring accessories and so on. So the US has

the advantage of having one large, more or

less consistent marketplace.”

A global frameworkThe UN Climate Change Conference in

Copenhagen this December will shape the

long-term framework for future cleantech

policy across the world.

The Obama administration’s active

support of the cleantech sector “makes

a tremendous difference” to the prospects

for success at this conference, says

Claude Fussler, programme director for

Caring for Climate, the UN Global

Compact’s climate change initiative:

“Obama has surrounded himself with a

staff who are vocal about what needs to be

done to address environmental issues. I

think we will get something good out of

Copenhagen: not in detail but in the

principles and cornerstones. Then there

will be a lot of hard work during the two

following years, and there may be some

backpedalling. But in December, heads of

state will have to come out and say they

want something done. They won’t be able

to hide behind the economic crisis. They

will want to support a green recovery.”

Yet Dr Nikolaus Meyer, chief executive of

Germany-based solar developer Sulfurcell,

is concerned that the political fallout of the

global financial crisis will scupper attempts to

reach a meaningful deal. “There is a risk that

politicians will put priority on employment

rates and the economy, and delay policies to

develop cleaner technologies,” he says.

Yvo de Boer, executive secretary of the

UN Framework Convention on Climate

Change (UNFCCC), has admitted that

every detail of a new international

agreement on climate change is unlikely to

be agreed in Copenhagen. But he hopes

that a clear consensus can be reached in

the following areas:

The extent to which industrialised

countries are prepared to reduce

greenhouse gases.

The steps that India, China and other

emerging markets are willing to take to

reduce their emissions.

A framework for financing assistance to

emerging economies in their efforts to

reduce emissions.

A strategy for managing this financing

process.

“If Copenhagen can deliver on those

four points I’d be happy,” de Boer said in

March 2008.

Success in Copenhagen could provide a

particular boost to government funding of

nascent, highly capital-intensive clean

technologies such as carbon capture and

storage, says Fussler (see section five for

more on carbon capture).

“Policy innovation is so much more

important for the future of cleantech than

technological innovation,” he adds. “We’ll

get the technology if the political will is

there to get carbon out of the economy.”

Navigating the mazeHow can investors factor the uncertainties

surrounding future regulatory

developments into their strategies? “What

we do is focus on technologies with global

reach: we are never looking at just one

jurisdiction,” says one European investor.

“But more importantly, we always ask the

question: ‘on a five- to seven-year horizon,

can we get cost-competitive with fossil

fuels?’ If this is achievable, then to some

extent government regulations are there

only to accelerate that process. We would

never make an investment solely based on

a piece of government legislation.”

Bance agrees that any cleantech

business must ultimately stand on its own

commercial feet, but adds that government

support is still crucial in the short term.

“Early government intervention is essential

to get across the ‘valley of death’ through

to true scale,” he says.

Meanwhile, Polk argues that the

cleantech sector would be much more

effective at influencing future policy

decisions if it lobbied in a more coherent

fashion. “The sector needs to express

itself clearly to government about which

regulatory models work and which do not.

At the moment, the wind guys are saying

one thing; the solar guys are saying

another; and the geothermal guys are

saying something else. This is confusing

for government.”

on 9 March, danuta hübner, european

commissioner for regional policy,

announced that ¤105bn will be invested

in the “green economy” through the

eU cohesion policy. The commission

says that the funding, which represents

more than 30 per cent of the regional

policy budget for 2007-13, “offers a

solid platform for job creation and a

significant boost for regions and cities

in their quest to maintain europe’s

global leadership in the field of

green technologies”.

Specific funds will be allocated to

the following areas:

¤6bn for clean urban transport

¤23bn for railway development

¤4.8bn for renewable energies

¤4.2bn for energy efficiency

¤28bn for improvement of water and

waste management

¤3bn for SMe development of green

products and services

elsewhere, recently announced

government support for cleantech

includes the following:

China Total: $221bn

Focus: rail ($99bn); grid ($70bn);

water and waste ($51bn)

Spending timeframe: 2009 to 2010

US Total: $112bn

Focus: renewable energy ($33bn);

building efficiency ($31bn); water

and waste ($16bn)

Spending timeframe: 2009 to 2019

South Korea Total: $31bn

Focus: water and waste ($14bn);

rail ($7bn); building efficiency

($6bn)

Spending timeframe: 2009 to 2012

Germany Total: $14bn

Focus: building efficiency ($10bn)

Spending timeframe: 2009 to 2010

France Total: $7bn

Focus: grid ($4bn)

Spending timeframe: 2009 to 2010

A new EU boost for cleantech

Source: European Union, HSBC, Reuters

22 RealDeals May 2009

the Long view

section 5

investors and entrepreneurs? “The energy

system is going from dumb to smart,” says

Bance. “This means that there will be an

enormous amount of data flying around the

energy world, because instead of dozens of

generating assets we will have millions of

generating assets. Monitoring, measuring

and billing for these assets will become a

much more data-rich environment.” All this

means that data, software, communications

and metering firms enjoy enormous

opportunities. Indeed, companies such as

UK-based Onzo are already making

significant inroads (see page 19).

“We believe that energy efficiency is

strongly linked to smart systems,” says

Markus Brehler, founder and chief executive

of Germany-based EnOcean, which sells

such devices. “All those systems will need

smart, wireless sensors.” He adds, however,

that before the grid is made smarter, the

most sensible step is to increase efficiency

to reduce usage, with savings of 30 or 40

per cent easily possible through buildings –

the largest consumers of energy.

The transition to the smarter grid will

lead to a transformation of energy firms’

business models, says Bance. “Today, energy

companies make more money by selling

more energy. This is misaligned with what

society wants. Instead of a utility selling

the homeowner the commodity of gas or

electricity, they will own the distributed

generating assets, where suddenly gas or

electricity turns from a revenue item to a

cost item. In essence, utilities will shift from

selling commodities, such as electricity or

gas, to services, such as heat or lighting.”

Water technologiesAccording to Goldman Sachs, global

demand for water is doubling every 20

years. By 2025, one-third of the world’s

population will not have access to adequate

drinking water. Goldman has dubbed water

“the petroleum for the next century”. This

means that companies coming up with more

efficient ways to purify, distribute and use

water face a bright future.

Echoing Bance’s predictions for the

energy sector, Hans Enggrob, head of

innovation at Danish water, environment and

health consultancy DHI Group, says that as

with telecoms before it, the water industry is

ripe for decentralisation. “There used to be a

Survival of the fittestSteve Mahon, chief investment officer of

Low Carbon Accelerator, believes that the

recession will have a Darwinian effect on the

cleantech sector. “Just as in the Asian crisis

in 1997 and the tech boom of a decade ago,

the cleantech businesses that do survive the

current global downturn are likely to be the

strongest of their kind. They will enjoy rapid

growth when the global economy recovers.”

Moreover, says Simon Walker, head of

Taylor Wessing’s cleantech group, “many

of today’s leading cleantech investors were

active during the technology boom at the

beginning of this decade and, chastened

by that experience, have been more

circumspect about their investment

activity this time around.”

“There is a lot of optimism about the

ability of cleantech to withstand the crisis,”

adds Finn Mortensen, executive director of

Climate Consortium Denmark.

Evolution of the cleantech landscapeMany clean technologies proving successful

today have a long and bright future: after all,

most are in the early stages of development,

and their full potential remains largely

untapped. But which technologies are set to

dominate the cleantech sector in the longer

term – and which new technologies are

starting to appear on the horizon?

The smarter, decentralised grid“A massive long-term trend will be energy

moving from the exclusive realm of the large

to the realm of the small,” says Peter Bance,

chief executive of UK-based fuel cells

developer Ceres Power. “Historically, the

energy sector was characterised by massive

power stations, massive capital budgets,

massive government plans and massive

networks. What we will see in the future is

small energy companies with small products

in their millions, distributed everywhere.”

Bance says that this trend has already

occurred in other sectors: “We used to

have mainframe computers; now we have

personal computers. In healthcare,

centralised labs have been replaced by

point-of-care devices by the bedside.”

What long-term opportunities does this

trend in the energy sector present to

centralised telephone switchboard. Now

there is a diverse range of mobile and fixed-

line services. The same will occur with

water,” he says. Water innovation will

encompass biotech, nanotech, ICT and

other disciplines, he adds.

Finding lower cost and less energy-

intensive ways of desalinating water is a

particularly hot area, says Enggrob. Some of

the most advanced research in this area is

taking place in Singapore and parts of the

Middle East. Energy use and water use are

tightly linked, Enggrob adds. “Last autumn in

California, for example, up to 25 per cent of

total electrical power was used just to pump

and treat water. Water and energy are not

mutually exclusive issues.”

Liberalised water markets, which are

crucial for establishing a true economic

price for water, are key to further investment

into the area, argue investors specialising

the water sector.

Eric Emmons, investment partner at

Siemens Venture Capital, says that water

technologies are of great interest to his

parent company, which has long been

heavily involved in desalination, waste-water

treatment and industrial-water processes.

“We see opportunities in all three of those

spaces. Water is the world’s next pending

shortage, and it is inextricably connected to

oil and gas production, as well as food and

most of our infrastructure,” he says. “This is

a challenge that is not going away.”

Andrew Thomson, senior analyst at the

Cleantech Group, agrees. “The global water

crisis is more acute than investment levels to

date suggest, and we expect that investors

will begin to respond to this as the situation

becomes more dire. Europe and, particularly,

Israel have developed strong capabilities in

water and water-related technologies.”

Carbon capture and storage“Anyone interested in solving the problem

of climate change must be deadly serious

about carbon capture and storage,” says

Dieter Helm, professor of energy policy at

the University of Oxford. “China plans to

build 1,000 gigawatts of new coal power by

2030. Without a solution to coal, we look to

a path towards a 50 per cent increase in

carbon dioxide emissions by 2030.”

Yet Mahon believes that the current

thinking around carbon capture technology

is misguided. “We need to find ways not just

to capture carbon in the atmosphere, but

also to make it useful,” he says. “So I think

it’s all about ‘carbon capture and use’, not Ph

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May 2009 RealDeals 23

‘carbon capture and storage’.”

New types of carbonate-based cement

are one potential application, Mahon adds.

“Once you can put an economic value on

captured carbon, you will see solutions start

to develop more rapidly.”

Artificial photosynthesis“Plants use sunlight to split water and

produce hydrogen. This application could be

harnessed to produce hydrogen fuel,” says

Francis Farley, a former physicist at Cern

and co-investor of the Anaconda Wave

Power technology. The foundations of

artificial photosynthesis technology are

already falling into place. In 2008, Daniel

Nocera, professor of chemistry at MIT,

created a catalyst that can produce oxygen

from a cup of water by splitting water

molecules. The process frees hydrogen

ions to make hydrogen gas.

Wind to hydrogenIt is now possible to link wind turbines to

electrolysers, which pass wind-generated

electricity through water to split it into

hydrogen and oxygen. The hydrogen can

then be stored and used later to generate

electricity from an internal combustion

engine or fuel cell. Such a project is already

under way at the National Wind Technology

Center in Colorado. “This would go a long

way to silencing the critics of wind power,”

says Tony Lodge, energy research fellow at

the Centre for Policy Studies.

The hydrogen economyAlthough most investors and analysts are

sceptical about its ability to make an

impact in the short term, many agree that

over the next 30 to 40 years, hydrogen is

likely to become a major source of power.

This will present opportunities for

companies developing the components

for a workable hydrogen infrastructure,

from storage and distribution systems to

fuel cell-powered vehicles.

Despite the nascent state of the

hydrogen economy model, Honda is

already leasing a few fuel cell-based FCX

Clarity cars in the US and Japan.

The intersection of food, water and energyThe Cleantech Group points to an increased

awareness of the interconnectedness of

energy, water and food as an important

long-term trend. The cleantech sector will

increasingly see companies and solutions

addressing all three of these resources,

rather than one at the expense of the others.

The forerunners of this trend can be seen

in second- and third-generation biofuel

companies, and in companies such as

UK-based Aquamarine Power, which is

developing near-shore, bottom-mounted

wave energy converters and desalination

modules. Meanwhile, in Oregon, General

Electric has developed a system at a dried

food processing plant that extracts methane

gas from waste water and turns it into

energy, purifying the water at the same time.

Geo-engineering and other big ideasThere are many other embryonic concepts

for addressing the world’s environmental

challenges, which, though seemingly

outlandish today, may gain traction over

the coming decades. For example, several

scientists are looking at ways of tackling

climate change by engineering alterations

to the planet itself, says Jamais Cascio,

research affiliate at the Institute for the

Future. “One example is pumping sulphur

dioxide into the stratosphere to block out

one per cent of incoming sunlight,” he says.

Another recent geo-engineering

proposal, from Gaia theory pioneer James

Lovelock and head of the British Science

Museum Chris Rapley, is to install millions of

pipes in the ocean to pump cold water from

near the sea floor to the surface, thereby

increasing the carbon absorbed by algae.

Another big idea, from atmospheric

physicist John Latham and professor of

engineering Stephen Salter, is to use remote-

controlled yachts to spray seawater into

the air to increase cloud cover. Even more

unusual is a proposal to launch mirrors into

space to deflect a portion of the sun’s rays.

“These kind of ideas are risky, because if

you screw it up, you screw it up a lot,” says

Cascio. “At the same time, they are attractive

to people who think we have already passed

the point of no return on climate change.”

Cleantech: here to staySociety’s efforts to remove carbon from the

global economy have only just begun. Much

of the potential for new, environmentally

friendly manufacturing and construction

processes, distributions systems and

business models is largely untapped.

At the same time, the evidence

surrounding climate change continues

to build, while the early effects of the

phenomenon are being increasingly felt.

Whatever the future holds, the cleantech

sector will loom large in it, says Bance, who

believes that the energy sector alone holds

vast unexploited potential. “Energy is the

world’s biggest industry. The cleantech

energy boom will make the IT boom and

the biotech boom look tiny in comparison.”

Alan Gooding, managing director of

smart grid technology provider Smarter

Grid Solutions, sums up the challenge, and

the opportunity, for the cleantech sector:

“Smart grids, solar, wind and other energy

deployments will work when they are the

cheapest option for the consumer. That

day has got to come.”

The shorter view:Cleantech Group’s predictions for 2009 (made in 2008)

1the energy-efficiency

infrastructure boom will continue

to gain momentum owing to its

combination of economic and

environmental benefits.

2global climate talks risk getting

bogged down, with no serious

deal until 2011/12, owing to the

distractions of the global financial

crisis and the intrinsic complexity of

the climate change agenda.

3wind stocks will come back;

thin film photovoltaics will

experience a shakeout.

4Cleantech venture is likely to

stabilise at $7bn globally;

private equity will become more

active in the sector.

5the failure rate of cleantech

start-ups is likely to double, as

investors focus on their most

promising companies and allow the

weaker or cash-constrained ones to

merge, be acquired or fail.

6the it industry will seize

energy as a significant revenue

opportunity.

7R&D will stagnate; corporates

will continue to acquire green

growth assets.

Cleanthinking,clear results.

For further information contact:

Simon WalkerEmail s.walker@taylorwessing.comTel +44 (0)20 7300 4745

Berlin Brussels Cambridge Dubai DüsseldorfFrankfurt Hamburg London Munich ParisRepresentative offices: Beijing Shanghai

www.taylorwessing.com

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