Cleantech on the rise - report 2011
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This white paper focuses on four key areas for cleantech companies to succeed: the impact of global government policies, global opportunities for operations and funding, managing talent and corporate structure, and the need to stay focused. It provides perspectives from Grant Thornton specialists around the world on these topics. While governments express commitment to supporting cleantech, the gap between policies and practical applications is vast with many unknowns. Ultimately, cleantech company leaders must develop solutions with an awareness of policies but not an undue reliance on government support or funding to achieve success in this dynamic global industry.
![Cleantech on the rise: Generational opportunities for 21st-century businesses
Viewpoint from the UK
Nathan Goode
Partner, Head of Energy, Environment and Sustainability
Grant Thornton UK
nathan.goode@uk.gt.com
In mid-2011, Secretary of State for Energy and Climate Change Nevertheless, the government’s white paper tries to perform
Chris Huhne, MP, significantly clarified governmental policy a juggling act between low-carbon energy, security of supply
on the UK’s future electricity market. The Minister’s release of and low-cost energy that may turn out to be fundamentally
the white paper, Electricity market reform, promises great things irreconcilable.
for cleantech in the UK, such as being “at the forefront of low- The government is committing to replacing a tried and
carbon technological development, [r]eady to lead the world in tested renewable energy support mechanism with something
the next energy revolution.” entirely new that is highly interventionist in its approach. This is
Key to the proposed electricity market reform is a gamble during a critical time in the transition to a low-carbon
collaboration with and attention to commercial partners economy, but one that may ultimately pay off.
in energy development – with clear incentives for cleantech. Overall, while the direction of travel may be the right one,
For example, the road map by which market reform will occur the obscurity that characterizes this document does no one
identifies eight technologies that hold the greatest potential for any favors. Corporations looking to develop or invest in the
the UK, all of them alternative sources of energy, with specific UK must do so with a careful, critical understanding of the
focus on wind, biomass and heat pumps. government’s direction and the many knowns and unknowns
buried within the paper. Expertise in British public policy and
the emerging regulatory frameworks is a must-have.
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Cleantech on the rise - report 2011
- 1. Cleantech on the rise: Generational opportunities for 21st-century businesses 2011
- 2. Serving your cleantech business Contents The member firms of Grant Thornton International Ltd serve clean technology and clean energy companies around the globe. Through independently owned 1 Introduction and managed accounting and advisory firms in over 100 countries, Grant Thornton International member firms provide assurance, tax and advisory 3 What are governments doing? services to privately held businesses, publicly held companies and public sector entities in this dynamic and growing sector of the global economy. 5 Viewpoint from Israel In addition to providing traditional financial statement audits, tax planning 9 Viewpoint from India and compliance assistance, and business advisory services, Grant Thornton International member firms offer cleantech companies a full range of services 10 Think globally about operational related to: and funding opportunities • accounting; • internal audit; 12 Viewpoint from the UK • M&A structuring and due diligence; • governance, risk and compliance; 5 Structure and restructure to 1 • Sarbanes-Oxley readiness; • IT and business process reviews; maintain agility and retain talent • compensation and benefits consulting; • valuation; 17 Viewpoint from China • corporate finance; and • economic advisory services. 18 Stay focused Professionals in Grant Thornton member firms around the world have a deep 19 Final words understanding of the business and financial needs of the cleantech industry. We know how to help cleantech clients access the capital markets through IPOs and follow-on offerings of stock and debt. For more information about how Grant Thornton LLP (the U.S. member firm of Grant Thornton International) can help your cleantech organization grow and maximize its success, please email us at [email protected] or call 877.488.4783. Acknowledgements Grant Thornton LLP gratefully acknowledges the efforts of the following individuals who were instrumental in the development of this document. Shlomi Bartov Jim Burton Nathan Goode Cal Hackeman Stephen McGee Tony Parke Vivek Singh Yu Tao
- 3. Cleantech on the rise: Generational opportunities for 21st-century businesses Introduction The world is grappling with environmental realities in a new This white paper concentrates years of our firm’s professional way. Reports differ wildly as to how long our global reliance on experience on four areas we believe cleantech companies must fossil fuels will be sustainable. Consensus is emerging that the excel at if they are to succeed in the sector: next 10 to 30 years offer a window of opportunity that comes • the ramifications of global governmental policies; along not quarterly or annually, but periodically, generationally • global operational and funding opportunities; – perhaps only a few times in a century. • corporate management and talent; and In terms of the cleantech industry, we see generational • the need to stay focused. opportunities – comparable to those we saw just a few years ago in the high-tech and life sciences sectors – comparable to You will find global insight based on the experience of the development of telecommunications, air transportation, Grant Thornton cleantech specialists. We have drawn railways, even electricity. Many corporate thinkers would perspectives from partners at Grant Thornton International argue that the time is right for the right cleantech solutions, Ltd (Grant Thornton International) member firms in India, despite challenges and bumps along the way, as is evident Israel, the UK, China, Canada and the United States. from the highly publicized business failures of US solar panel Our goal is to help you accelerate your success by integrating manufacturers. Recent successful IPOs have demonstrated that local and global market experience with Grant Thornton’s the global investment community believes the time is right for perspective on operating in the international arena, including investments that will pave the way toward greater sustainability all its promise, uncertainty and complexity. of both international commerce and the environment. If you are For the benefit of the ambitious cleantech executive, this leading a cleantech business today, you may well be in the right white paper explores three general themes: place at the right time. • Governments worldwide express commitment to cleantech The opportunities ahead for cleantech are global. They as a critical — though only partial — solution for meeting belong to leaders of companies who can bring the right long-term needs for sustainable energy. vision, talent and intellectual capital together with the right • The gap between governmental policy statements and understanding of global cleantech markets, regulatory practical, commercial applications of those policies is vast environments and international operating efficiencies. and fraught with unknowns. This is no small order. “Cleantech” is still a young industry. • Success in cleantech is in the hands of corporate leaders The term “cleantech” is still imprecisely defined. In our who can develop and commercialize solutions with keen experience, it is not unusual for cleantech market entrants to awareness of government policy but without undue reliance invest significant upfront time defining who they are — and on public sources of funding or other forms of governmental who they are not — as they seek investors, talent and business support. alliances. 1
- 4. The information and insights discussed in this paper will help As you read, please keep an eye out for MUST-DOs, arm cleantech leaders, visionaries, intellectual property (IP) MUST-KNOWs and TAKE-AWAYs that will help you holders, boards and other stakeholders for the challenges they in your decision-making. face. One point we make repeatedly is that, at this stage in We invite you to contact any of the contributors to this the development of the cleantech industry, knowing the right publication. Our goal is for you to benefit from our insight questions to ask can be as important as having the right from experiences similar to yours. The professionals at Grant answers — if, in fact, those answers exist. Thornton are poised to help you solve your problems, achieve Equally important is understanding that no one person your goals and reduce your business risk in this dynamic, or small group of leaders can bring an organization to success global, generational market. without sharp, knowledgeable, and proficient external counsel well-versed in laws, regulations, finance, marketing, recruitment and other business-related matters. 2
- 5. Cleantech on the rise: Generational opportunities for 21st-century businesses What are governments doing? Generational opportunities are within the reach of cleantech This question is complicated on the one hand by global companies today, but only to the extent that these companies are economic conditions and on the other by the ramifications adroitly managed, technologically proficient and attuned to a of events such as the Gulf of Mexico oil spill and the nuclear broad array of market considerations domestically and globally. disasters at Fukushima. Uncertainty is the hallmark of all When we think about the market for cleantech, we have a emerging business sectors, but as history tells us, uncertainty lot to consider: breeds innovation — and innovation breeds opportunity. • Who are the current and future purchasers of cleantech Therefore, the three MUST-KNOWs regarding outputs? Governments? Corporations? Individuals? governmental policies and commercial success are as follows: Utilities? Aggregators of transactions on a smart grid yet • Governmental policies can shape cleantech markets. to be developed? • Governmental policies can deform or curtail cleantech • What are the outputs of the cleantech sector? Products? markets. Services? Efficiency? Licensing agreements concerning IP? • Corporate and capital interests favor cleantech. • What kind of company would your stakeholders — investors, customers or business partners — call you? Governmental policies can shape cleantech markets • Where are governmental policies most favorable for your As a presidential candidate and early in his administration, business? President Barack Obama sounded the clarion call for America • What kind of corporate structure and talent will maximize to assert global, commercial leadership in cleantech. Politics, your success? along with continual shifts in global governmental policy, have resulted in an America that may be an incubator for cleantech The Grant Thornton view is that opportunities for cleantech ideas but may not have strong governmental support for ventures are here and now — and are strongest for leaders and cleantech market development. investors with long-term goals. We are at a time when status The United States “enjoys” a leaner, more capitalistic quo supply and consumption patterns are clearly unsustainable. environment for cleantech innovation than some EU, BRIC The only question is how quickly the global market adjusts to and other countries. During 2009–2010, U.S. IPOs in the environmental pressures and adopts cleantech solutions. cleantech industry generated $1.1 billion. This strong but not world-leading investment opportunity reflects a policy toward cleantech that is not as supportive as cleantech policies elsewhere around the globe. The Grant Thornton view is that opportunities for cleantech ventures are here and now — and are strongest for leaders and investors with long-term goals. We are at a time when status quo supply and consumption patterns are clearly unsustainable. The only question is how quickly the global market adjusts to environmental pressures and adopts cleantech solutions. 3
- 6. Politics, along with continual shifts in global governmental policy, have resulted in an America that may be an incubator for cleantech ideas but may not have strong governmental support for cleantech market development. The conventional-energy-rich province of Alberta, Canada, has Facing comparable demands for new energy sources, China has implemented the first operational cap-and-trade system in North integrated its growing commitment to conservation and both America. This system is supported by the Climate Change and traditional and alternative energy development into its Five Year Emissions Management Corp., a nonprofit funding organization Plans since 2001. With its ability to enact (and have its citizens whose mandate is to expand climate change knowledge, adhere to) long-term social, economic and governmental policy, develop new clean technologies and explore practical ways there is little doubt that China is setting a brisk pace for cleantech of implementing them.1 business development. In India, we have seen considerable, ambitious governmental Even in places like Israel — a country that is not often commitments to cleantech. As the Indian government faces mentioned in the same breath as India or China — cleantech unprecedented demand for energy, it seeks to place the country innovation plays an increasingly important role in governmental, on a path to global cleantech leadership, particularly in solar industrial, commercial, investment and even security decision- power. In 2001, the Energy Conservation Act created the Bureau making. Key focus areas are oil-reduction technologies, water of Energy Efficiency to coordinate, oversee and secure funding management and solar power. Israel boasts more than 300 for an array of power-related issues. Within the authority of companies specializing in cleantech. Since 2009, cleantech the Act, eight energy-related missions have emerged, including investment in Israel has topped $300 million, and no fewer than the National Mission for Enhanced Energy Efficiency, which is 15 Israeli cleantech investment bodies have emerged. In parallel, developing plans and financial structures for a range of energy the Israeli government has introduced initiatives to reduce the projects.2 In the solar context, the Jawaharlal Nehru National global use of oil in transportation. The government’s goal — to Solar Mission, launched in 2008, seeks to establish grid parity become a global knowledge center for alternatives to oil — is between solar and fossil-fuel power by 2022 and cost parity backed by an allocation of NIS 400 million and an annual prize between the two by 2032. In the mission’s vision, “the sun from the prime minister of NIS 1.5 million for world innovation occupies centre-stage” in terms of Indian energy advancement.3 in fuels other than oil. Through this program, more than 100 startup companies and research projects are slated to launch by 2012 with the involvement of 20 Israel-based companies that operate globally.4 THE TAKE-AWAY Globally, governments perceive cleantech as an opportunity for leadership and as a critical factor for solving the world’s energy, environmental and climate challenges. These governments are introducing programs and policies to support cleantech in its various forms, from renewable fuel R&D to “smart” infrastructure development — from carbon-reduction technologies to manufacturing and generation efficiencies. Cleantech leaders must continually evaluate governmental policies around the globe and identify the opportunities that are most valuable to their business. 1 Climate Change and Emissions Management Corp.; http://www.ccemc.ca 2 Government of India, http://www.india.gov.in/allimpfrms/alldocs/15659.pdf 3 Jawaharlal Nehru National Solar Mission, http://india.gov.in/allimpfrms/alldocs/15657.pdf 4 Grant Thornton internal research 4
- 7. Cleantech on the rise: Generational opportunities for 21st-century businesses Viewpoint from Israel Shlomi Bartov Partner, Advisory Services Grant Thornton Israel [email protected] Israel already leads the world in “wet” cleantech – advanced As evidence of the country’s governmental and commercial technologies that enable water reuse, recycling, monitoring, commitment, Israel is establishing a Renewable Energy reclamation and security, with everything from nanotech to Technology Center, with a second center for development nuclear. The country boasts more than 250 companies in the of water technologies to be created within a few years. To field, many with game-changing innovations. Israel reuses a launch the Renewable Energy Technology Center, the state staggering 75 percent of its waste water, far ahead of the next- has committed to injecting NIS 57 million over five years, with best water-saver at 12 percent. matching funds coming from its franchisee from the project, Given its limited domestic energy resources and warm the Eilat-Eilot Renewable Energy Initiative. Eilat-Eilot is and sunny climate, Israel has also become a world leader in a consortium that includes some of Israel’s most important the development of solar energy technology. Solar power companies in R&D (Ormat, Elbit Systems, and Rafael Advanced meets approximately 3 percent of Israel’s primary energy needs Defense Systems), leading research bodies in renewable energy and 20 percent of residential energy needs; however, this is (Ben-Gurion University of the Negev and the Arava Institute for almost exclusively through the use of solar panels for water Environmental Studies) and the venture capital firm ProSeed. heating rather than for electricity generation. Construction of Israel has also announced collaborative efforts with Canada solar facilities is accelerating, and experts forecast significant to expand the R&D relations between the two countries. growth and investment in solar power and other forms of Water technologies and alternative energy are key focuses alternative energy. of the initiative. The Israeli government has begun to solicit applications from private companies, university researchers and other public-sector institutions regarding their interest in participating in the collaborative. As with all ambitious governmental policy, the devil is in the details; politics will intervene and opportunities will be subject to on-the-ground realities as policy proposals take on real-world constraints. Local counsel — expert in the regulatory, political and business climate in Israel — is a critically important component for all serious cleantech players in Israel. 5
- 8. Governmental policies can deform or curtail For example, with some €14.5 million in subsidies from the cleantech markets German government, one cleantech company was able to Recent course reversals in numerous countries demonstrate build a €21.8 million manufacturing facility in Germany. that governmental commitments and policy may not always Now, however, the plant sits idle as a result of downscaled be reliable. This includes “wobbling” of all sorts. Countries financial support from the German government. One wonders like Spain, France, the Czech Republic, Canada, the United if governmental support wanes, how will cleantech corporations States and many — perhaps most — others have changed their stay on track for success? positions regarding cleantech. Concurrent shifts in German nuclear policy have accelerated Through country-specific viewpoints within this white in response to the 2011 Fukushima disaster, which heightened paper, we look at the ramifications of governmental policy for worldwide safety concerns. Around the world, nuclear projects cleantech in the United Kingdom, Israel, India and China. The have stalled or been mothballed while governments reassess conduct of the German and Japanese governments also opens an the nuclear option. Within months of the Fukushima incident, illuminating window onto the dampening effects of uncertainties Germany announced the permanent closure of its nuclear in governmental policy. facilities by 2020. Likewise, Japan has reduced the number of Consider Germany. The country has played the role of nuclear reactors online from 54 to 19 (including those directly global catalyst for the development of alternative energy and affected by the Fukushima earthquake and tsunami). The UK, on other innovations that address global environmental, economic the other hand, has reaffirmed its commitment to nuclear power and climate challenges. For example, German subsidies aimed in the energy mix it envisions by 2032. In the face of factors such at creating parity pricing between alternative and conventional as these, no one can reliably predict how robust nuclear power fuels (petroleum, nuclear and coal) have enabled a range of will be in the future, but it’s inarguable that alternative energy multimillion-dollar commercial cleantech ventures in that sits at a sweet spot in terms of addressing next-generation needs country. Support from the government has helped create some for power and sustainability. of the world’s leading cleantech corporations, technologies and clusters of innovation. But recent shifts in German financial support for cleantech have caused ripples of concern. THE TAKE-AWAY Successful businesses will have to navigate cleantech markets without undue, long-term reliance on government support, particularly financial support. Facing a range of economic challenges and their own domestic affairs, governments are not necessarily in a position to deliver on their promises. Cleantech corporations must be both mindful and wary, and they must enlist informed advice from professionals who understand the implications of governmental policy globally, nationally and/or regionally. 6
- 9. Given their own commercial, strategic, operating and humanitarian reasons, corporations are investing in cleantech, even at today’s still relatively high purchase costs for cleantech products. Corporate and capital interests favor cleantech • Inspired in part by the Israeli government’s goal of oil Despite uncertain governmental leadership and a raft of energy independence by 2020, Better Place is an Israeli company unknowns, corporate and capital interests are aligning behind that is driving global governmental, corporate and consumer cleantech. adoption of electric cars. In Israel and Denmark, Better Place Thousands of corporations outside the cleantech sector has worked with the private and public sectors to deploy are actively pursuing green strategies, either introducing or commercial EV battery switching and charging stations; integrating commercially viable cleantech products to advance near-term expansion targets include Australia, Canada and these strategies. Many are adopting these innovations in order the United States.8 Better Place has secured agreements from to improve their efficiency, minimize their operating expenses, 92 companies, including Computer Associates and Motorola, strengthen their bottom lines and signal their intent to be on the to convert part of their motor vehicle fleets to EVs beginning right side of the environmental issue. Here are some examples: in 2011.9 • As a direct result of its work with Greenpeace, Coca-Cola • Vestas, a Danish wind turbine manufacturer, is an early has announced its intention to remove hydrofluorocarbons mover that has seized the opportunity in cleantech. Over (HFCs) from all its new vending machines by 2015, reducing a 25-year period, the company has grown into a major carbon emissions by 52.5 million metric tons. In partnership cleantech player with sharp increases in revenue, sales and with Unilever and McDonald’s, Coca-Cola launched the turbine development beginning in 2000.5 Vestas anticipates global nonprofit Refrigerants, Naturally! in 2004 to combat sales of 7,000 to 8,000MW in 2011 and announced a 31 climate change and ozone depletion by replacing HFCs percent increase in revenues for the first half of 2011.6 with natural refrigerants. The nonprofit has been recognized • In its 2010-2011 Strategy & Sustainable Development Report, by the United Nations as a “Partner in Sustainable Schneider Electric includes eight key indicators of progress in Development.”10 its commitment to global sustainability, including two-thirds of product revenue deriving from Green Premium products; 60 percent of purchases coming from suppliers who support the UN Global Compact; 110,156 tons of reduction in CO2 emissions; and the enabling of 1 million people to achieve access to electricity.7 5 Vestas, http://www.vestas.com/en/about-vestas/history.aspx 6 Vestas, “Shareholder Information,” http://www.vestas.com/Files/Filer/EN/Investor/Shareholder/2011_02_Shareholder_information_UK.pdf, February 2011 7 Schneider Electric, “Strategy & Sustainable Development Report 2010-2011,” http://www2.schneider-electric.com/documents/interactive-publications/2011-strategy-and-sustainable- development-report-en/index.htm 8 Better Place, http://www.betterplace.com/global-progress 9 Ibid. 10 The Coca-Cola Co., http://www.thecoca-colacompany.com/citizenship/refrigeration_equipment.html 7
- 10. • Dow Chemical announced the launch of its Given their own commercial, strategic, operating and POWERHOUSE integrated photovoltaic (PV) solar shingles humanitarian reasons, corporations are investing in cleantech, in 2009. The product is a cornerstone of the company’s goal even at today’s still relatively high purchase costs for cleantech to dramatically reduce the cost of building integrated solar products. What this says is that, despite uncertain governmental products. Time magazine named the shingles one of the 50 policy, corporations are active customers of cleantech best inventions of 2009. In 2011, Dow Solar received a $12.8 companies. Capital is moving. Innovation is robust. And as price million grant from the U.S. Department of Energy.11 Reuters differentials tighten between cleantech and fossil fuel outputs, reported expected revenue from the product to reach $1 cleantech will become further entrenched in national and global billion by 2015.12 infrastructures. • In 2010, Siemens generated €27.6M in revenue from its environmental portfolio, representing more than one-third of its total revenue from sales and up from €26.8M in 2009. The company’s technologies reduced global CO2 emissions by 267 million tons from 2002 to 2010.13 MUST-DOs FOR CLEANTECH SUCCESS • Ensure that you have a distinctive, value-added offering. • Engage market researchers and other advisers to test global proof-of-concept. • Enlist talent (board members, senior management, external consultants, etc.) to enable the commercialization of the offering. • Hire global talent to finance and operationalize your product or service. • Secure global expertise — internally or externally — to stay abreast of international cleantech policy. • Join international, regional and national associations that specialize in cleantech. • Attend international, regional and national conferences on cleantech. 11 Dow Chemical Co., http://www.businesswire.com/news/dow/20110902005285/en 12 Reuters, http://www.reuters.com/article/2010/11/04/us-dow-solar-analysis-idUSTRE6A35WX20101104 13 Siemens, Annual Report 2010, http://www.siemens.com/annual/10/download_center_en.html?p=siemens_at_a_glance#siemens_at_a_glance 8
- 11. Cleantech on the rise: Generational opportunities for 21st-century businesses Viewpoint from India Vivek Singh Associate Director, Strategic Services Group Grant Thornton India [email protected] India’s rapid economic growth, which the government hopes To strengthen the competitive opportunities for cleantech, to maintain at 7.5 to 8 percent, is spurring exponential demand the report proposes numerous steps. Among these: for energy. For every 1 percent of GDP growth, India’s need • Reform the power sector to improve efficiency and energy for base power generation increases by 1.5 percent. In practical intensity ratios. terms, this translates into an additional 20-25 GW of capacity • Establish tax and regulatory structures to create a level annually, now and into the future. playing field for all parts of the energy sector. India’s need to develop capacity is urgent. In 2011, India • Establish transparent and targeted subsidies. ranks fifth in the world in terms of primary energy consumption, • Remove entry barriers for new players and imports. accounting for about 3.5 percent of global commercial energy demand. The Indian government faces a dilemma it must soon The question is whether political will in India will rise to the address: How can it meet exponential demand for energy when, challenge – and how corporations can successfully navigate at a global level, demand and competition for energy are also shifting and uncharted waters. Local expert counsel is a must- growing? have in instances such as this. Coal dominates India’s energy supply, with 70 percent of power generation coming from coal-fired power plants. All indications are that coal will remain India’s primary energy source though 2032. On the other hand, the report of the Planning Committee indicates substantial governmental support in many areas of cleantech, including the development of energy efficient technologies, renewable energy technologies and solutions that address India’s dual population challenge: 1) increased consumer affluence that drives energy demand; and 2) a distributed rural population in the hundreds of millions with limited or no access to base power. 9
- 12. Cleantech on the rise: Generational opportunities for 21st-century businesses Think globally about operational and funding opportunities Perhaps like no sector before it, cleantech is emerging in a truly To a large extent, the question of cleantech is a question global manner — one that requires global scope, reach and of global management. Where is the R&D opportunity richest? business strategy. In terms of the high-tech and life sciences Where is the investment potential richest? Where is the talent? sectors, the United States has arguably been the incubator and Relative to buyers, where are manufacturing facilities best developer of innovation, product/service commercialization and located? market adoption for some time. True, customer and consumer A Spain-based client of Grant Thornton UK LLP adoption has occurred globally, but the high-tech and life is tackling these kinds of questions. sciences sectors have been driven largely by U.S. entrepreneurs, The corporation is a relatively late entrant into the offshore idea guys, corporations and their investors. wind sector, a position that may hold interesting benefits. Cleantech is not developing according to a U.S.-centric Most EU offshore wind development activity takes place in paradigm. The United States is a player but not a leader — at the UK, which is seeking to create employment and economic least not across the board. No cleantech company can afford to development opportunities through wind farms, particularly be isolated from developments on the world stage. If only in the in the North Sea. Without a turbine of its own in commercial area of high-tech talent recruitment, North American cleantech production, this company is facing a number of key questions, cannot develop successfully over the next 10 years without such as: looking abroad. • Where is the optimal location to situate R&D at this point in the company’s development? The relevance of globalized cleantech operations • Is the UK an ideal location for future capital investment Every company needs to consider its position relative to its and manufacturing operations? markets — and specifically to its customers. To achieve success, • Is the UK a good location for other critical business cleantech companies must adopt the now-classic approach operations? of thinking globally and acting locally. Commercial and • Does focusing on UK operations provide a long-term governmental demands for cleantech are growing. But that is advantage over key competitors, particularly those that not to say that there is an international pattern for HOW these are heavily invested in operations elsewhere in the EU? demands are growing. Differing aspects of cleantech are growing at different speeds around the world. Solar, wind and alternative-fuel production are growing more quickly in some countries than in others — India, the UK and Germany, for example. Israel hopes to teach the world how to reduce individual (i.e., personal) dependence on oil. In different ways, nearly every country on Earth is engaged or interested in cleantech to some degree. Perhaps like no sector before it, cleantech is emerging in a truly global manner — one that requires global scope, reach and business strategy. 10
- 13. Cleantech is not developing according to a U.S.-centric paradigm. Each of these questions — along with many others — holds For cleantech companies to capitalize on emerging, myriad implications for business development, financing, generational opportunities, they must be managed by facilities development and other critical aspects of running a teams that are sophisticated about marketing and able to business. Answers to such questions lead in turn to questions articulate the nature of their business, given the shifting sands of international tax liability, tariff structures, operating expenses, of today’s economic climate. They must be globally attuned regulatory compliance and workforce development. To a large and technologically proficient. extent, decisions of this magnitude fall to management, boards and their external advisers. For cleantech companies to capitalize on emerging, generational opportunities, they must be managed by teams that are sophisticated about marketing and able to articulate the nature of their business, given the shifting sands of today’s economic climate. They must be globally attuned and technologically proficient. WHAT’S A CLEANTECH COMPANY TO DO? To position themselves for success, cleantech businesses should consider how to: • clearly articulate their position in the value chain and structure their operations accordingly; • locate manufacturing facilities in countries with lower production costs and within close proximity to end users; • prioritize markets with high levels of governmental support (such as business development incentives or end-user subsidies); • establish firm, international protections for IP; • secure external counsel for critical global business development; and • develop and manage R&D activities from a global perspective. JIM BURTON Denver Office Managing Partner [email protected] One of the cleantech success stories we’ve been involved with centers on a solar inverter company in the western U.S. The company was incorporated in the mid 1990s as an energy management company serving the semiconductor industry with reliable, high-quality electricity for manufacturing. In the mid 2000s, the CEO challenged the company to translate its AC-to-DC conversion technologies into DC-to-AC capabilities to meet the needs of the solar industry. Within four years, the company had commercialized DC-to-AC technology, realized sustainable revenues and completed the acquisition of a $22 million company with related technology. 11
- 14. Cleantech on the rise: Generational opportunities for 21st-century businesses Viewpoint from the UK Nathan Goode Partner, Head of Energy, Environment and Sustainability Grant Thornton UK [email protected] In mid-2011, Secretary of State for Energy and Climate Change Nevertheless, the government’s white paper tries to perform Chris Huhne, MP, significantly clarified governmental policy a juggling act between low-carbon energy, security of supply on the UK’s future electricity market. The Minister’s release of and low-cost energy that may turn out to be fundamentally the white paper, Electricity market reform, promises great things irreconcilable. for cleantech in the UK, such as being “at the forefront of low- The government is committing to replacing a tried and carbon technological development, [r]eady to lead the world in tested renewable energy support mechanism with something the next energy revolution.” entirely new that is highly interventionist in its approach. This is Key to the proposed electricity market reform is a gamble during a critical time in the transition to a low-carbon collaboration with and attention to commercial partners economy, but one that may ultimately pay off. in energy development – with clear incentives for cleantech. Overall, while the direction of travel may be the right one, For example, the road map by which market reform will occur the obscurity that characterizes this document does no one identifies eight technologies that hold the greatest potential for any favors. Corporations looking to develop or invest in the the UK, all of them alternative sources of energy, with specific UK must do so with a careful, critical understanding of the focus on wind, biomass and heat pumps. government’s direction and the many knowns and unknowns buried within the paper. Expertise in British public policy and the emerging regulatory frameworks is a must-have. 12
- 15. Capital for cleantech is global, global, global In comparison, the cleantech industry — much like the life Capital is available internationally for cleantech investment. sciences industry in its earliest days — has demonstrated In fact, one of the positives of the current global economic crisis the ability to generate traction, as the following data points is that capital has been pent up on the sidelines. International demonstrate: investors are hungry for opportunities and have been funding • The ChiNext Stock Exchange has emerged as a dominant cleantech companies. In the years 2009–2010 alone, an estimated market specializing in cleantech. Since its inception in 2008, $13.4 billion was invested globally in cleantech IPOs. ChiNext has accounted for 37 percent of the capital raised Investors who come to the table with significant funding in cleantech IPOs around the globe.14 typically understand the uncertainties that surround cleantech. • In May 2011, the UK government restated its commitment In our view, cleantech excites them because they see the to reducing its carbon output to 80 percent of 1990 levels correlation between generational opportunity, generational risk by the year 2050.15 This goal is much more ambitious than and — perhaps in the end — generational returns on investment. goals governing overall EU carbon output. UK Member of But uncertainty in cleantech also makes them cautious. Parliament and Secretary of State for Energy and Climate With long lead times in terms of product development and Change Chris Huhne notes that the UK intends to achieve capital returns, cleantech reminds us of the life sciences sector. its goals while signaling that it is open for business.16 Huhne’s Generally speaking, both are capital-intensive. Both have a raft hope is that by minimizing the impact of government policy of governmental policy issues to negotiate (although these are on the cost of electricity, UK businesses will continue to play more time-consuming in life sciences than in cleantech). a role in delivering the green industrial transformation.17 Leaders of both sectors have entered the commercial arena • In 2007, applications for research projects in cleantech were without guarantees that their products or services have firm, received in Israel’s Chief Scientist’s Office worth a total of sustainable markets. NIS 150 million. By 2010, the amount had jumped to NIS 380 million, representing a rise of more than 250 percent in three years. The amount of grants and the number of applications approved have grown by similar rates.18 International investors are hungry for opportunities and have been funding cleantech companies. 14 Marcus, Stephen. “Heard of ChiNext? Most active stock exchange in cleantech,” http://blog.cleantech.com/cleantech-investments/ipo-watch/heard-of-chinext-it-is-the-most-active-stock-exchange- in-cleantech 15 Huhne, Chris. “Fourth Carbon Budget: Oral Ministerial Statement,” http://www.decc.gov.uk/en/content/cms/news/cb_oms/cb_oms.aspx, May 17, 2011 16 Ibid. 17 Ibid. 18 Grant Thornton LLP internal research 13
- 16. • To help meet India’s national emissions reduction targets, All of this information suggests that cleantech has traction. Few the Indian government has introduced: (1) a “clean energy people argue with the need for a “cleantech revolution.” Most tax” on coal that will create a national fund to support agree that markets are formalizing. Most agree that customer renewable energy projects and (2) a “tax break” for imports adoption and reliable sources of revenue are necessary. And most on renewable energy equipment. The clean energy tax is agree that governmental support is a double-edged sword. expected to raise government revenues by $650 million Many committed cleantech stakeholders believe that annually — revenues that will be earmarked for cleantech significant positive outcomes are attainable in the medium to promotion. long term, although timelines will vary among technologies. At • U.S. IPO activity for 2009–2010 totaled $1.1 billion with the the same time, the consensus is that consolidation must and will main areas of investment being wind ($350 million), biofuel take place in cleantech — among existing players and those that ($262 million) and automotive ($260 million). emerge over the next half-decade or more. Therefore, even well- • According to The 2010 SDTC Cleantech Growth & run organizations that enter the market successfully should do Go-To-Market Report by Sustainable Development so with an eye toward an exit strategy. Technology Canada, the Canadian cleantech industry will shift from being for the most part a domestic market in 2007 to largely an export market by 2012.19 A CLEANTECH TO-DO LIST To succeed in current and near-term global capital markets, cleantech leaders must: • ensure that their companies are capitalized by investors who know the cleantech industry and have long-term investment staying power; • focus relentlessly on commercialization; • understand and investigate the competitive landscape, securing global, external advisers as needed; • understand the potential for disruptive technologies and regulatory changes to alter the landscape fundamentally and unpredictably; • be willing to partner; • secure international counsel to facilitate partnerships and other ventures; • address the key question of how their technology meets tomorrow’s energy challenges regarding the supply, security and reliability of energy; and • seek professional advice to develop a global exit strategy. TONY PARKE Pacific Northwest Technology Practice Leader [email protected] In our view, cleantech investors are visionaries who see unique opportunities and who understand that ROI is at least a 10-year prospect. Given that understanding, they are excited by companies that promise significant yields within that term. They understand the uncertainty of cleantech. At the same time, with capital available, they are willing to bet that global environmental and business interests favor cleantech as an investment strategy. Corporate leadership must make the case that they offer solutions for moving the industry forward. Sustainable Development Technology Canada and Russell Mitchell Group, “The 2010 SDTC Cleantech Growth & Go-To-Market Report,” www.sdtc.ca/index.php?page=Other-Reports&hl=en_CA 19 14
- 17. Cleantech on the rise: Generational opportunities for 21st-century businesses Structure and restructure to maintain agility and retain talent Seizing generational opportunity requires managing generational Our experience not only with cleantech companies, but also with talent. Think of the magnates of oil, steel, transportation and high-tech and life sciences companies, suggests that cleantech other industries of the 19th and early 20th centuries. While leadership must develop companies with the following in mind: enterprise has come a long way since then, particularly in terms • protection of IP in international markets; of social responsibility, we still have lessons to learn. If we are • development and maintenance of leading-edge, global indeed exploring uncharted territory — as they did — what technological acumen; can we take away from their experiences? Similarly, what can • establishment of business operations to capitalize on talent we learn from the experiences of high-tech mavericks and life pools, manufacturing efficiencies, customer and value-chain sciences inventors? relationships, raw material availability, and distribution Above all, the lesson is that expansive vision is merely the channels; first ingredient for success. For enterprises at the inflection point, • effective acquisition and management of capital to include: steady leadership, adroit talent and capital management, and bold securing venture capital or other investment funds, planning execution are the other keys to success. for tax ramifications, and managing cash flow in a sector Cleantech is a 21st century venture equal in magnitude to where significant ROI is not a reasonable near-term many others: oil, rail transportation, automotive and air travel, expectation; telecommunications, high-tech, and life sciences, to name a • recruiting key talent and providing effective retention few. However, cleantech has unique pressures and challenges incentives — again, in a sector where significant ROI that make neat analogies to any other sector imperfect. (in the form of stock options, for example) is a mid- to Those of us in the global business community are only now long-term prospect; and coming to understand what “global business” actually means. • establishing senior management teams, advisory teams Cleantech offers perhaps the first truly global, ground-floor-up and boards of directors that can add value to businesses opportunity for innovation, collaboration, success and impact. as they develop; necessarily, this process will involve shifts in leadership as a cleantech company resolves its key challenges, identifies its target markets and establishes itself within the sector. 15
- 18. At the executive, managerial and senior technical levels, cleantech as an industry is so new that there is simply not enough tested executive talent to go around. Routinely, clients of Grant Thornton International member firms address this issue by recruiting top people from comparable industries — specifically high-tech and life sciences. Many senior executives from these fields have been in the trenches. They’ve made sure that their product development moves forward in global markets even as they’ve kept regulatory and operational issues in mind. They’ve commercialized IP on shifting sands. They — and their advisers — have demonstrated their success in leading-edge, international environments. If you’re already a cleantech executive, these characteristics may well describe you. LOCATION OF IT TALENT In June 2009, the Pew Charitable Trusts published a report indicating that clean energy accounted for 770,000 jobs in the United States, compared with 220,000 U.S. jobs in biotech; 989,000 U.S. jobs in telecommunications; and 1.3 million U.S. jobs in traditional energy. Collectively, this represents a workforce of 2.5 million people in the United States — most of whom are technically trained and hold college and advanced degrees in engineering and specialty sciences.20 For the past decade, China has outpaced the United States in terms of the number of engineers each country graduates: The gap is in the hundreds of thousands annually. In 2003, India also surpassed the U.S.21 All decisions regarding recruitment, facilities location, and technology R&D and services need to be filtered through the realities of talent availability. To some extent, the notion of offshore or outsourced labor is a 20th century paradigm with no relevance to cleantech. In a global market, global enterprises behave globally. In other words, global companies employ global talent, and they do so by operating where talent is available. There are no shores in today’s world, so the notion of offshore operations is moot. 20 Pew Charitable Trusts. “The clean energy economy: Repowering jobs, businesses and investments across America,” http://www.pewcenteronthestates.org/uploadedFiles/Clean_Economy_ Report_Web.pdf 21 Gereffi, Garry et. al. “Getting the Numbers Right, International Engineering Education in the United States, China, and India,” http://www.cggc.duke.edu/pdfs/Gereffi_JEE_Gettingthenumbersright- USChina&India_Jan2008.pdf 16
- 19. Cleantech on the rise: Generational opportunities for 21st-century businesses Viewpoint from China Yu Tao Partner, Grant Thornton Jingdu Tianhua [email protected] China’s assertive commitment to the development and China’s 12th Five Year Plan (2011-2015) establishes the production of power, both traditional and alternative, has been country’s most ambitious commitment to environmental spurred by huge increases in the demand for energy, which has resource conservation and management. By 2015, the grown exponentially as the country has pursued economic and government plans for non-fossil fuels to reach 11.4 percent market reform. More importantly, for investors with long-term of its energy portfolio, for CO2 emissions to decrease by 17 horizons, energy demand will escalate as the country develops percent per unit of GDP and for an 8 to 10 percent reduction its industrial capacity, consumer base and environmental of major pollutants. commitment. In parallel with these policy commitments, we have seen China’s emergence as a cleantech market leader is unique cleantech investment in China skyrocket. among other dominant players because it is guided by Despite these clear reasons for optimism, international centralized governmental authority. The Chinese government investors must approach opportunities in China with a note began formal commitment to environmental initiatives with of caution. China’s rapid and ongoing transition creates a range its 10th Five Year Plan (2001-2005), which established a goal of uncertainties in terms of business transactions, regulatory to increase the country’s forestation and urban green rates. compliance and cultural expectations. Perhaps more than with The 11th Five Year Plan (2006-2010) significantly expanded any other advanced country, investors and corporate leaders environmental goals to include a 20 percent reduction in energy must engage on-the-ground advisors to develop and implement consumption per unit of GDP, a 30 percent reduction of water successful business plans. consumption per unit of industrial value added, and a 10 percent reduction of major pollutant discharge. China’s ability to execute against goal is a distinguishing quality among both developed and emerging economies. The country’s ability to set and achieve economic, market, environmental and other policy goals has encouraged rapid international investment in the past decade. Within the cleantech sector, this track record has secured China’s global leadership position for investment. 17
- 20. Cleantech on the rise: Generational opportunities for 21st-century businesses Stay focused When Grant Thornton looks at two decades of experience with In other ways, cleantech resembles life sciences. Both are clients in high-tech and the life sciences, one common risk rises newer enterprises than high-tech. In both, proof of concept and above all others: the risk of losing focus on the core technology adoption — and therefore yields on investments — require long- one is bringing to the market. term effort. Compared with life sciences, cleantech may have a This is not surprising. At any given point, an executive team somewhat easier row to hoe, particularly in terms of bringing in cleantech, high-tech or life sciences is likely to be juggling balls products to market. While cleantech companies face a raft of of various sizes and shapes, literally around the world. Think of international environmental and regulatory requirements, they this scenario as the 24/7 challenge in 3-D. do not have the time challenges of clinical trials or international In some ways, cleantech resembles high-tech. Both are health approvals. On the other hand, not a single wave-energy innovation-driven. Both are directly linked to the market value device has survived a winter off the coast of Scotland, despite of IP. Both require extremely broad perspective. On the other millions of dollars in investment. Proof of concept is not a given hand, cleantech may be far more capital-intensive and far more in cleantech. subject to national and international regulation. And there is an Cleantech executives, their senior management teams and additional key factor influencing the demand for clean energy – their boards need to develop corporate structures that enable the rise or fall of oil prices – something that no entrepreneur can technological work to advance without impediment — while control or even influence. also tending to the myriad marketing, operational, financial and global dynamics discussed in this white paper. Ultimately, capitalizing on a generational opportunity requires the balanced, keenly focused eye of a seasoned executive. Environmental technology has been around for decades, but cleantech as a 21st century enterprise is untested. The greatest experience many cleantech leaders can bring to the table is having been there, done that — that is, having managed or operated in environments with global pressures, global challenges, global perspectives, global opportunities and perhaps more than a few global failures along the way. THE TAKE-AWAY On top of all other considerations, players in the cleantech sector must continually assess, reassess, refine and recommit to their focus on core products and services. 18
- 21. Cleantech on the rise: Generational opportunities for 21st-century businesses Final words For cleantech stakeholders — IP holders, technologists, For executives who can assemble the right teams, balance business and government leaders, and venture capitalists — competing demands for time and resources, and maintain an opportunities in this sector are generational. They are also unbroken focus on developing and commercializing their core global in a way the world has not seen before. technologies, the opportunities for success are significant and To succeed in cleantech, executives must balance an growing. Despite uncertainties in terms of governmental support enormous and complex range of issues, challenges and — and despite the long lead times for generating ROI in the opportunities in the context of 21st century globalization. cleantech sector — the first decades of this century are likely to Cleantech leaders will need to assemble astute senior see historic shifts in how the global community thinks about, management teams, managers, boards and advisers — people produces and uses energy. The window of opportunity is open who are proficient in their specialty areas, flexible enough to for serious, committed cleantech players to become generational capitalize on shifting opportunities and committed for the long leaders in one of the most important fields of our time. term. In addition, all of these teams and professionals must Each of the Grant Thornton professionals quoted in this bring international experience and global reach to the table. In white paper is available to provide further information, discuss the cleantech industry, decisions regarding investment capital, industry- or country-specific experience, and to assist you in facilities location, talent recruitment, R&D operations and your journey toward success. customer access frequently require international strategy and We look forward to helping you solve your business activity. Ultimately, operating globally means working with challenges, achieve your goals and reduce the risks associated teams or people who have deep, thorough knowledge of local with operating in a global environment. markets — whether in India, China, the EU, North or South America, the Middle East or elsewhere. 19
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