Cleantech Group Predicts the "End Is Near" in 2010
...The end of the beginning, that is. Each year, the analyst firm issues predictions for the year ahead. Denis Du Bois interviews Cleantech Group Managing Director and Cleantech Insights Executive Editor Dallas Kachan about this year's predictions, released today. (podcast) (transcript)
November 30, 2009
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Music: Chris Keister
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Program NotesThese are interesting times for the clean-technology industry. The political about-face in the U.S., the economic stimulus, unbridled ambitions in China, history-making talks in Copenhagen, all indicate with complete certainty that 2010 will be... basically, unpredictable.
But that doesn't stop industry observers from making bold forecasts. It's become an annual tradition to look into the crystal ball, as well as look back at the previous year's prognostications.
One of those perennial fortune-tellers is the Cleantech Group. They track virtually every cleantech investment globally. They advise green investors and entrepreneurs who are members of the firm's Cleantech Network.
Today they'll release their ten predictions for 2010.
- Private capital growth recovers, record fund year
- Clean economies become the new space race
- Electric cars take the back seat to smart mobility
- Resource constraints beyond carbon rise to the fore
- Commodity tradeoff debates intensify
- Energy efficiency, driven by ICT, eclipses solar
- Marketing suddenly matters
- Buffett leads the super rich into cleantech
- Acquisitions and consolidations accelerate
- The rise of waste-to-energy, geothermal and aquaculture
Denis: The Cleantech Group's Managing Director, Dallas Kachan, is here to explain the predictions.
In times like these, trying to foretell the next 12 months for the cleantech industry seems akin to painting a target on your chest, but you must be doing something right. You have a pretty good track record, as these things go.
Dallas: Well, for three years now, we have been doing our best to bring the perspective of our worldwide operations -- with people in the Middle East, China, India, and in Europe -- synthesizing what we hear from the market, from the smartest investors, and entrepreneurs in cleantech to try to help chart a vision for where the new year might go. We have been doing this for a few years now. We have managed to get a lot of things right, not everything, but a lot of things have, in fact, come to pass. So, I think that out of all the organizations out there, we are pretty well-positioned to be able to share some trends as we see it from some very smart people worldwide that we talk to.
Technologies to watch in 2010Denis: You foretell a transformative year that carries cleantech into the mainstream. Let's talk about some of the technology predictions first. Energy efficiency -- you predict that investment in it will eclipse solar.
Dallas: We think that there is a very good chance that investment -- particularly private investment, venture capital, and private equity -- could very well eclipse that going into solar in 2010, and here's why. We have seen in 2008 a cresting of investment in solar. Investment in solar is down somewhat in 2009, whereas investment in energy efficiency has reached record levels in 2009. We think that the policy drivers and other benefits of energy efficiency are standing to really propel this sector in 2010. We think that many governments worldwide, for instance, have started to recognize the so-called "quadruple bottom-line benefits" of energy efficiency over things like solar. Those four benefits include the fact that it is faster, less expensive, it is net negative in terms of carbon emission, and it has virtually no land or water impact -- unlike solar or biofuel industries. So 2010 we believe, will be, potentially, a very big year for energy efficiency, not only in the U.S. but in markets worldwide.
Denis: Now this is the third year that you have predicted a good year for energy efficiency, but companies in that space seem to still struggle for investment against the more "sexy" technologies -- like solar. How is 2010 different?
"2010, we believe, will be potentially a very big year for energy efficiency, not only in the U.S. but in markets worldwide."
--Dallas Kachan, Managing Director, Cleantech Group
Dallas: Energy efficiency, like I have mentioned, has attracted record levels of investment in recent quarters in the later part of 2009. Given the fact that solar is in somewhat of a downward trend, from the macro levels of the last five years, we believe that the two lines could, in fact, cross in 2010.
Denis: Moving on to waste-to-energy and geothermal, your crystal ball says they will have a good year in 2010.
Dallas: Correct. Geothermal is a category that has been "bubbling away," I guess one could say, for some time. We believe that 2010 could be a breakout year as more and more policy makers realize that geothermal is a viable "base-load", so to speak, technology. Which means, of course, that energy generated from geothermal energy could be available 24 hours a day, unlike solar or wind power, which have taken a certain amount of investment dollars and certainly captured public imagination and attention over the last few years. Geothermal stands poised to make good inroads in 2010. We also recognize the burgeoning opportunities in waste energy given the benefit of waste reduction and, of course, additional energy production.
Denis: And electric cars take a backseat to smart mobility. Explain what you mean by "smart mobility."
Dallas: Sure. A lot of attention this past year or two has been on electric vehicles. You have the Nissan LEAF, you've got the Chevy Volt, you have BYD, and any number of companies like Fisker and Tesla all jockeying to bring vehicles to market. Tesla, of course, is the only automaker to have electric vehicles you can buy today. But nevertheless, there is more attention that has been paid in the last 12 months to this sector than ever before. This is particularly significant given that, even a year ago, there was still a fair amount of uncertainty about whether the future of transportation would be fuel cell-based, or whether it would be all electric. Well the jury returned in 2009 and found that it appears that more companies are betting that the future transportation will be all electric than ever before.
We believe that 2010 will show an increased awareness of the fact that, given electric cars in the mix, that means we need to rethink a lot of things. We need to rethink how we engineer our cities. It means we potentially need to rethink how we design not just the charging of the structure for electric vehicles, but the design and the way that we interface with transportation altogether. So, we think that in 2010, the discussion will move to that of so called "smart mobility" and integrating "smart mobility" into the new energy paradigm of renewables, etc. and how they influence the design of urban systems.
Marketing suddenly mattersDenis: You made another very interesting prediction that caught my attention, being someone who comes from that discipline in cleantech: Marketing suddenly matters.
Dallas: Well, in the recent years, up until about a year ago, most clean technology sectors were able to sell virtually [solely] on the basis of the product category they were in. Take solar, for instance.
Up until about a year ago, solar companies worldwide couldn't make product fast enough to keep up with consumer demand. No solar company could product on its shelves. Fast-forward a year later, and all solar companies are finding themselves sitting on product. They are sitting on inventories that are growing larger and larger every day. Given the economic downturns, given the lack of subsidies now in Spain and other factors, solar makers have product today.
They never had that problem before. They have also never had their market commoditized before. There are more and more products now seeking to differentiate themselves among an increased number of competitors.
Solar companies have found almost overnight that marketing, all of the sudden, matters. Being in a position to describe what their product does versus everybody else is now important to solar companies. It is now important to biofuels companies. This was a pretty harsh realization that came almost overnight. So we believe 2010 will see the year in which many clean technology companies are going to steal a few pages from the marketing text books and learn how to, in fact, differentiate themselves and build a brand that matters in the mind of the prospect.
"Clean technology companies now need to worry about building a brand, and coming up with some sort of shorthand to communicate their propositions..."
Denis: What's your advice to the heads of marketing in those companies? What should be their primary objectives?
Dallas: Clean technology companies now need to worry about building a brand, and coming up with some sort of shorthand to communicate their propositions and differentiation versus other vendors. Particularly in crowded markets that have now been commoditized. That means returning to the fundamentals of marketing. Getting a clarity on who your target customer is, getting clarity on what your propositions are, what your differentiations versus your competitors are, and building a brand.
Resource constraintsDenis: You make two predictions about environmental concerns -- resource constraints that affect water, metals, food, and, of course, oil. How do you see those shortages, or trade-offs, affecting sustainable businesses?
Dallas: Well, today there is a lot of awareness -- and particularly going into the Copenhagen discussions in the next few weeks beginning in early December of 2009, the UN/MCC discussions aimed at carbon trading -- there is an increased awareness of the role of carbon in the atmosphere as a factor in climate change.
We believe that 2010 will be the year in which there is increased awareness of shortages in other commodities. Not necessarily climate change focused, but resource scarcity when it comes to the materials that we use to build our cell phones. Scarcity issues, of course, around oil, but also scarcity issues around water. With growing scarcity of petroleum and increased prices of petroleum, the concern that has in terms of phosphorous based fertilizers that we use to grow our food.
We think that in 2010 there will be an increased awareness of the relationship between food and petroleum, the relationship between energy and water, and several triangles, so to speak, that are formed in these complex relationships. We believe that more and more entrepreneurs will see market opportunities in the convergence of these shortages and come up with clever ways to address these while making commercial sense and returns for shareholders.
Financing predictionsDenis: And now for the predictions that everyone will be talking about: the money. You predict a recovery in cleantech investing -- and if everyone who calls themselves a cleantech investor actually invests, I think they will exceed your forecast. What are some of the drivers that will make 2010 a good year from a capital standpoint?
Dallas: One of our predictions for the year ahead is that the reasonable amounts of private investment that we have seen in Cleantech in 2009 will, in fact, grow in 2010. Remember that 2009 was the year in which we saw governments worldwide allocate, or at least earmark, funds toward clean technologies on a record level. You have seen, depending on how you cut it, some $100 Billion from the U.S. Government earmarked for this sector. Not all of this has been allocated yet, but at least earmarked for it. You have seen about double that amount from China aimed at fostering its own clean technology industries, with a dramatic amount more spent there already today than the U.S. has. But, you have also seen other countries worldwide totaling some $500 Billion U.S. dollar equivalent in 2009 committed to clean technologies.
Well, we believe as that money is spent increasingly in 2010 that it will continue to unlock record levels of private capital, to also be added to the mix.
We saw in 2008 a height of $8 Billion U.S. dollars, worldwide, spent on clean technology. We believe that in 2010 we may not see $8 Billion again, given the downturn of the economy, but we may see something close to that as far as the record levels of private capital that are being unlocked by this trend of governments worldwide to be spending stimulus dollars.
We also think that valuations being relatively lower are going to help VC and private equity investors invest further in growth stage companies and funds. We think that there are going to be more -- above and beyond the policy signals of what these stimulus investments mean -- we think there are going to be more clear price signals from the market that are also going to help fuel the demand and encourage investors to part with their so called "dry powder" and invest in cleantech.
Denis: And you say Warren Buffett will lead the rich into cleantech, and you point to some of Buffett's recent investments.
Dallas: At the height of the economic crisis in the U.S., Warren Buffett invested in Goldman Sachs. But he also invested in GE, which is of course the company that's arguably done the best in terms of an environmental portfolio with its ecomagination initiative. GE does not just "talk the talk," but has, in fact, reengineered its company as a provider of clean technologies and has seen dramatic commercial benefits for doing so.
Buffett has also invested in 2009 in BYD, or Build Your Dreams, the Chinese car company that is bringing out a whole variety of low-priced electric vehicles in the coming year. His recent acquisition of a railroad, the Burlington Northern Santa Fe, was at least partly informed by clean technology concerns, and concerns about the price of transportation going forward. Given resources in a strained world where petroleum is expensive, it becomes dramatically less expensive to haul freight over rail.
A lot of smart investments being made by Warren Buffett over the last few years, all of which point towards opportunities in cleantech. So, we believe that 2010 will also continue to be a year in which we see more of the super-wealthy lining up behind Warren Buffett to not just do the right things for the planet, but to do the right things for their pocketbooks.
Denis: How are you sure those investments indicate Buffett's mind is on the kind of green we're talking about? I understand Goldman's [GS] SUSTAIN investment vehicle and GE's ecomagination very well. Both companies, and the railroad for that matter, are deeply invested in, shall we say, not-so-clean industries? Coal, for example?
Dallas: And absolutely Wal-Mart, for instance, can be criticized for spending an awful lot of money on petroleum-based fuel to move products around the world. Yet, at the same time, Wal-Mart has single handedly helped reinvent the supply chain and recognize economies of scale, savings, and environmental progress more so than any other similar company.
Certainly, as much as legacy corporations could and should be held to the fire for, perhaps, the less than sustainable things that they do, they should also, perhaps, be rewarded for the right steps in the right directions and encouraged to make more steps in those directions and the net balance, or the net equation, being watched carefully in order to continue to hold people responsible for the actions of their companies.
Over-arching cleantech themes for 2010Denis: So what is your outlook for the economy overall? You say clean economy has become the new "space race."
Dallas: In 2010, we think that more and more jurisdictions around the world are going to wake up to the opportunities around clean technology. Not just as the right thing to do, but because of the economic returns. The opportunity for clean technology to drive the next wave of wealth generation and that's not gone unnoticed by politicians worldwide, ranging from mayors of cities, to governors of states, to premiers of provinces, to federal leaders worldwide. It seems that every jurisdiction is interested in trying to capture its share of clean or green jobs and is positioning itself as an economic cluster and forging incentives to help businesses locate.
So in 2010, that "space race" is going to heat up. You are going to see more and more governments, whether they be local, regional or federal, wanting to get a piece of the clean technology pie and spending and accelerating, as best as they can, that transition to the clean economies.
Denis: Thomas Friedman has beat this drum for a couple of years, that cleantech is going to make some countries rich and he would like his country to be one of those. Are you picking any winners yet?
Dallas: Most roundups of leading clean technology companies, whether published by us or others, always include the U.S. as a potential winner here.
Given the fact that if you look at the amount of capital that is being spent worldwide, as we do, it is one of the things that we focus carefully on at the Cleantech Group, you'll see that, of course, some 60%-70% of all worldwide investment is being made in U.S. companies. Of those U.S. companies, some 40%-50% of all that investment tends to go to West Coast U.S. companies aimed, primarily, at Silicon Valley in Northern California.
So we believe that the strong innovation in this country, the proximity to talent, the national labs and universities of the major two coasts, and the huge amount of capital in this country -- all of which are ingredients for success. We believe that the U.S. has every reason to be able to think that it will continue to command a share of the clean technology market.
But that said, a very important conclusion to us -- a very important takeaway to share -- is that the U.S. is not the only country that is doing remarkable things in clean technology. There is very important innovation and very important commercialization going on in places like China and in Europe. Certain countries are much farther along than the U.S. is, but the U.S. has the benefit of being very well capitalized and very aggressive when it chooses to be.
Denis: You're visibly steering clear of policy predictions this year, even though your past predictions have had a pretty good hit rate. You predicted "green" would become a campaign plank. As for Copenhagen, everyone now seems to be saying what you said a year ago.
Dallas: In the process of coming up with these 10 predictions for 2010, we took the smart public-facing people in the company and those of us who speak at conferences worldwide and those of us who are spending face time with customers and we put all of the collective smarts around the table and kicked ideas around. I think it was on the virtue of the fact that there were so many interesting things to talk about, and to weigh in on, that we did not, in fact, find many policy predictions floating up to the top.
The macro-situation worldwide is that we have seen in the past year what we've been asking for for eight years, which was for policy leaders worldwide to wake up to the opportunities around clean technology and start putting capital to work to foster growth in the sector. Well, that happened in 2009.
Denis: So how would you sum up these predictions in a sentence or two. What's the Cleantech crystal ball elevator statement for 2010?
Dallas: Well, if we had to talk about the overarching theme here for 2010, we are really expecting this is going to be a transformative year. This is the year that the clean economy is going to go mainstream from pretty well every angle including innovation, policy, capital, and markets. 2010 is really the year that we are going to see the needle "picked up and set down into a new groove." There is an opportunity for organizations and countries to adapt, innovate, and change. Those who don't, may in fact, be left behind.
Denis: Dallas Kachan, Managing Director of the Cleantech Group and Executive Editor of the Inside Cleantech Newsletter, thank you for walking us through your 10 predictions for 2010.
Dallas: My pleasure. I'm glad to have the chance to chat. Thanks very much.
* Background reading: TEEB The Economics of Ecosystems and Biodiversity Interim Report points to the growing pressures on biodiversity and ecosystem services across the world and the need for improved valuation metrics for pricing natural resources. The main pressures come from population growth, changing diets, urbanization, climate change and invasive alien species.