January 15, 2010

Mapping the cleantech investment space

‘Cleantech’ is not an industry sector, it is an outcome. The label covers a range of technologies that bring environmental benefits, including a reduction in energy use or carbon emissions, cleaning up pollution, or better management of resources. Cleantech outcomes may be delivered within a variety of industry sectors including energy, construction, automotive, IT software or hardware, semiconductors, chemical engineering or biotechnology.

I attempt below to build a map of the cleantech space.  Subsequent posts will cover each of the investment areas in more detail, looking at interesting companies and transactions.

investmentmap.jpg

July 8, 2009

The Low Energy High Happiness Society ?

 

My brother pointed me to a TED talk recently in which Bill Clinton identifies Wal Mart as a beacon of hope for the low carbon economy. This was a bit of a shock to me. Wal Mart ? A Beacon of Hope ?  

Yes, Wal Mart is making its business energy efficient, switching to renewables and generally doing things we might expect a good retailer to do. But surely ANY company that produces, distributes or sells physical goods has one fundamental raison d’etre – it wants more people to buy more things more often.

There is no supermarket in the world asking us to buy less food, no auto maker encouraging us to keep our existing cars, no fashion brand helping us to hand down clothes from older children to younger. It is not just companies – the global economy judges prosperity by GDP, a measure of the volume of trade. Our prosperity and well-being seems to depend on making, distributing and selling more things !

This raises an interesting question. Is it possible to build a society in which we do not need to buy more things in order to be happy and prosperous ?

Supermarket

Imagine two villages:

1) In BuyerVille, people want the latest thing and typically discard their items after a year to buy new ones. These are not evil folk – they try to make things using less energy and they recycle all that waste !

2) In SharerVille, the elders of the family make clothes for younger members using natural resources that they do not need to buy. People keep their goods for as long as possible, replacing only when necessary. The closely knit community of SharerVille means that you might give away things you no longer need to others, and might borrow things instead of buying them for yourself.

Now, the people of SharerVille appear to be perfectly happy, perhaps more so because of the sense of community and the lack of desire to always have the latest thing. SharerVille consumes less energy, uses fewer resources, and has a high quality of life.

However, in the real world, the concept of SharerVille is loaded with problems:     

 

  • SharerVille has very little trading and so has a low GDP. It is classified as a poor country.
  • SharerVille has fewer jobs. In BuyerVille, by contrast, you can get a job as a factory worker, a retailer, a recycler, or an old goods collector. With all those salaries, people in BuyerVille have money to spend on a wider choice of food and better healthcare.
  • Countries that look like SharerVille in the real world typically come with a host of other challenges, such as high levels of infant mortality, government corruption, and poverty. These countries also seem to be on an inevitable path towards becoming more like BuyerVille !
  • Previous attempts to build an alternative to the consumer society (namely, Communism) failed because they ignored the tendencies of human nature.

In other words, we see few real world examples of a successful SharerVille.

Yet, if you look more closely you CAN see elements of SharerVille that work. Arguably, the citizens of Minnesota in middle America might consume less and be more happy than the hard driving high earning citizens of New York. The joint families of the deep South might be prosperous enough and less stressed than the fashion conscious movie types of Los Angeles. The citizens of Bhutan (famous for their ‘Gross National Happiness’) might have all they want, whereas I in London still do not have the iPhone 3G(S) !

The fundamental question: Is it possible to build an economic structure for SharerVille that can be rolled out globally? Can we build a world in which success does not depend on buying more things? Can the new model keep people busy with fulfilling things to do, drive innovation, work with human nature instead of against it, allow people the freedom to do what they want?

Today, we have not found this new system, and until we find the answer we must remain happy with Wal-Mart using less energy to make more things !

_____

LINKS:

TED Talks: Riveting talks by remarkable people, free to the world.

Bhutan and Gross national happiness

January 16, 2009

Disappearing forests: the world’s biggest emitter

Do you think that driving your kids to school in a 4×4 is bad for the environment? Well, you should take a look at what’s happening in Indonesia ! That’s right, Indonesia is the world’s third largest emitter of greenhouse gases, after the US and China, and closely followed by Brazil.World’s biggest carbon emitters (including deforestation)

(1) UNITED STATES: 6 billion tonnes CO2 per year

(2) CHINA: 5 billion tonnes

(3) INDONESIA: 2.6 billion tonnes

(4) BRAZIL

What makes Indonesia and Brazil such big emitters? People are cutting down tropical forests in order to profit better from their land. Trees absorb carbon dioxide from the atmosphere throughout their growing life. When trees are logged and burned or left to decay, they release this carbon back into the atmosphere. Some trees also go up in smoke in annual forest fires.Deforestation causes more emissions than all forms of transport combined, in fact it now accounts for about 25% of global man made emissions.Deforestation occurs largely because it is not economical to keep the land forested – you can make more money by cutting down the trees and doing something else with the land. Usually, this means producing palm oil for biofuels, or some other form of farming.

forest.jpg

Conserving a rain forest isn’t just catchy and cool, it its the most efficient way to slow global warming, at $20 per tonne of carbon saved. In 2005 the UN launched an initiative called RED (reducing emissions from deforestation), acknowledged by conservation biologists as one of the most effective programmes for carbon reduction.The main ways to slow deforestation are:

                        Prevent forest fires

                        Stop mass clearing forests where land is unsuitable for agriculture.

                        Harvest the trees and turn them into long-lived products (such as furniture) so that they don’t decay or burn, with new trees being planted in their place.

                        Provide forest owners with carbon emission offsets for not logging their land.

 

The last of these is controversial. If I pay a landowner or farmer to do nothing with his land, is he taking the mickey or saving the world? Which projects are ‘additional’ ? If I had not paid the money, would the landowner have been pushed to chop down the trees, or were they going to stay there anyway?And what can we do sitting here in our comfortable homes?

                        Buy wood products made from sustainable forests. OK, ’sustainable’ is a buzzword. What it should mean is that the trees are replanted.

                        Support carbon neutral companies, provided that the carbon credits are certified by a highly respected firm. Yes, there are high quality as well as dodgy carbon credits.

                        Go do some voluntary work in the Amazon, or in Indonesia. Figure out for yourself how logging can really be prevented. For this one, I would recommend VSO.

                        Support forest protection programmes in small way and directly, through charitable sites such as http://www.globalgiving.co.uk/

    September 29, 2008

    Greenwash on the daily commute

    Just around the time that carbon emissions and global warming became a major public issue, last year, we started seeing a massive push by London’s free papers the Metro, the London Paper, London Lite and City A.M. to pump out as much newspaper into as many public hands as physically possible.  More staff were hired to push the papers out, esacalators were awash with paper, and every empty seat on the tube was, and still is, laden with a choice of several free papers.  There is something deeply incongruous about this. Even if these papers use 100% recycled paper, their creation requires it to be manufactured, printed, distributed via trucks, pushed out, collected, carted off by energy consuming trucks and reprocessed using more energy.  The paper companies get paid by advertisers for the number of papers that are pushed into the market, whether they are needed or not, so every effort must be made to push them out faster and more widely across our capital.  Energy consumption is an integral and growing component of free papers. 

    LondonLitter

    Imagine the frustration of these companies when they see people leave papers behind on the train so that others can read them. Re-use by multiple readers is one way that energy can be saved, but advertisers don’t buy it, and every time someone picks up a used paper this reduces their chances of pushing out a freshly minted one. A major new effort of free paper firms then, is to prevent people re-reading old papers. The way they’ve gone about this is clever as well as manipulative, and we should be ashamed if we fall for it.  Firstly, they have installed plastic recycling bins with acclaimed green credentials outside stations, so papers can be irretrievably placed inside and recycled, but NOT re-used.  Secondly they have embarked on an advertising campaign to persuade commuters that if they do not take the paper home to recycle it, the the READER is to blame for the melting of the polar ice cap, desertification and other environmental damage.  

     London paper recycling cartoon

    On the surface, these efforts appear green, but they are hypocritical and self-serving, aimed at appearing green while enabling more wasteful production.  There is something gentlemanly, erudite, and polite about leaving papers on the train for others to read, something that has existed in British culture long before free papers.  Imagine if, instead of recycling bins, the companies put re-use racks in stations so people could pick up a used paper.  Imagine if people were encouraged to leave papers on the tube for re-use, and if train companies were offered recycling services by the paper companies, instead of installing new bins on the streets.  It is true that advertisers would take some persuading to account for re-use.  It is easier to count shiny new papers but, if you believed in helping the environment, wouldn’t you lead this change in thinking?One day, free papers will be wirelessly sent to our devices for the daily commute, but until then it is up to each one of us to vigorously hold companies to account and point out that we know more about helping the environment than marketers would like to believe.  I encourage each of you to write or text the London Paper to tell them what you think of their ads. 

    October 29, 2007

    Guilt-free flying?

    These days we are all aware that air travel is bad for the environment, with the media exhorting us to stop flying, holiday locally and reduce business travel.

    Yet, flying around the world is exhilarating, liberating, and enabling. It opens the mind to different cultures and ways of thinking, stimulates business ideas and trade, provides opportunities in developing economies, and builds global understanding. Above all, it is fun. Throughout history, wherever social mores have tried to prevent people from doing something fulfilling and possible, they have usually failed.

    Surely the problem of ‘dirty flying’ is crying out for a technology solution, some way to travel far and fast without damaging the environment. This seminal challenge holds all the promise of a perfect market for breakthrough innovation. An airline industry stuck in well entrenched ways, engine technology that has remained much the same for decades, and a complex system of regulation that makes it tempting to break free from industry bounds. Certainly, it is a market with massive demand: consumers eager to travel but loaded with personal guilt, operators eager to shed the polluter label, and corporations ready to pay a premium for social responsibility.

    There are no ready made answers here, but I have gathered below some of the ideas currently bubbling under.

    Guilt-free flying

    It appears that steady improvements in efficiency are likely to be the answer, rather than step change. Some of the bolder ideas, including hydrogen fuel cells, flapping wings, or solar commercial aircraft, are more than a decade away, but improvements in propulsion and materials are already at hand.

    In addition, improvements in operational efficiency can have a dramatic impact – ideas such as taxiway starting grids, single European traffic control, continuous descent approach, and fixed ground electrical power are held up more by the complexities of international negotiation and politics than by technology.

    The industry has geared up its promises in the wake of criticism. Richard Branson recently committed to invest his profits from travel over the next ten years into biofuels, and is trialling starting grids with airports. IATA Director Giovanni Bisignani said in June that " Air transport must aim to become an industry that does not pollute—zero emissions".

    Perhaps what is needed now is an E-Prize (similar to the X-Prize for space flight). A multi-million Euro E-Prize could trigger a race to build the world’s most efficient and environmentally friendly commercial aircraft. Bon Voyage !

    April 17, 2007

    The Library House Cleantech event

    Library House is putting together some really high quality conferences these days. Here are three interesting speakers from their recent Cleantech event:

    Vinod Khosla (eminent VC and founding partner in Kleiner Perkins)
    – In a recorded keynote, Vinod said that Cleantech is an attribute, not an industry, and should be subject to rigorous scrutiny of fundamentals, just like any investment.
    – He is clear that businesses supported by subsidies, or in markets created by policy, will not be sustainable.
    – He does not believe that wind or solar can provide more than 20% of our energy needs, so alternatives will be needed. Biodiesel and biomass cannot scale sufficiently.
    – Interestingly, he says that any new energy must be cheaper than existing sources. In other words pure economics, not climate change policies, will determine success!

    Neil Rimer, Index Venture (prominent VC. Investor in Skype, FON and others)
    – Expressed some scepticism around cleantech deals. Many are more suited to project finance than to VC, and cannot produce high returns.
    – Neil likes solutions that intersect IT and environmental technology ( e.g. software for more efficient distribution of electricity).
    – Routes to market are the biggest challenge in cleantech due to government intervention and regulation.

    Eckart Wintzen (Radical dutch entrepreneur and founder of a green VC fund)
    – Made a fascinating argument for a Value Extracted Tax (VET) based on carbon emitted in production of goods and services. This would encourage re-use.
    – Rightly challenged the economic mantra of GDP, whereby more consumption means a healthier economy.
    – Argued against biofuels because of the large area of land required to produce them.
    – Interestingly, said we should let people have everything that they want in Second Life (a virtual world) so that they consume less in real life !
    – Came up with an interesting buzzword: to "dematerialise". i.e. to reduce materials used in delivery of products and services.

    There were some great start-ups there, including

    Solar Century founded by Jeremy Leggett, author of "The Carbon War". He believes firmly in a solar future (which is odd given that solar is expected to make up only 0.1% of electricity by 2010). His firm is coating one entire side of the CIS tower in Manchester with photovoltaic cladding.

    Quiet Revolution, producing attractive small scale vertical axis wind turbines that will soon be appearing on the Vauxhall tower and Brighton tower and others.
    BAC2, producing electroconductive plastic for use in fuel cells.

    Loremo, a german firm designing a very cool looking stripped down electric car.
    Enocean, enabling hundreds of tiny automated self-energising sensors (e.g. in buildings) to chatter to one another over radio without needing a power supply. Fascinating idea!

    Some themes:
    – The conference focussed almost entirely on ‘carbon reduction’, which is the crisis of the moment, rather than more broadly on reducing waste and conserving resources.
    – There is a lack of innovative ideas in water distribution, purification etc. There are tremendous opportunities here though it doesn’t fall into the fashionable ‘carbon reduction’ theme.
    – There was healthy scepticism at carbon offsetting as a ‘get out of jail card’ rather than a real answer to the problem.
    – There is a growing public focus on food miles, local production and distribution. Concerns about energy use are getting integrated into notions of corporate social responsibility (CSR)
    – Business and consumers could end up being a more powerful force for change than governments and international bodies.

    For Library House’s own review of the conference, see here.

    April 12, 2007

    Is global warming over-hyped ?

    Global Warming
    A colleague asked me today whether global warming is over-hyped. This is an interesting question, and I had two responses to it.

    Firstly, global warming is a part of something broader – climate change, which is a symptom of a larger issue – that billions of people consuming more and more resources are having a serious impact on our shared environment.

    The current push to reduce carbon dioxide emissions is a very topical concern, but remember it was preceded by at least two previous waves of concern – sulphur dioxide emissions causing acid rain in the 1970s, and CFC emissions thinning the ozone layer in the 1980s. Both were fashionable and powerful and very real concerns in their own time. They were largely addressed through public disquiet, government action, and technology solutions, and they have faded in public consciousness.

    With effective action, the same will happen with CO2, which is a very real problem today. However, the overriding challenge of pressure on resources will remain, and will raise its head in numerous different ways and through new symptoms over time. The search for technology solutions and a new economic paradigm must continue.

    Secondly, the environmental challenge is both hype and reality, in the same way that the growth of the internet and the emergence of China and India are both hype and reality. The sience surrounding the current issue of global warming is clearly sound. But whether the market opportunity is hype or reality depends on what you do with it. For example, if you participate in the environment sector by investing at random in ‘environment stocks’ without understanding what those companies are doing, then you are likely to be a victim of hype. On the other hand, if you work with a firm that delivers a unique solution to a very real and growing problem, then the opportunity of this space is very much reality.