Companies once approached the cleantech sector – as buyers or sellers – because it was a good thing to do, a socially responsible corporate action,” says Randy Free, member of the global Cleantech group and tax partner in the United States. “But today, around the world, cleantech means reducing costs and increasing profits.”
Capturing opportunity, the Grant Thornton International Business Report (IBR) [1.80MB]cleantech sector focus, reveals that privately held businesses (PHBs) in the cleantech sector are among the most confident enterprises in the world when it comes to future prosperity, far outpacing the optimism found in most global industries – and with good reason.
In some countries, government policies have caused sudden and dramatic cleantech market changes. Traditional energy markets and players immediately faced declining futures, while cleantech and renewable energy companies saw demand where there was little to none.
Furthering high demand for cleantech, customer companies are seeing the cost reduction benefits of cleantech to their organisations. One point of caution for the sector is that with heightened demand comes increased competition, competition that is willing to cross the globe to be involved with or support large, lucrative projects such as wind farms and solar fields.
The global market for solar photovoltaics, for example, has expanded from US$2.5bn in 2000 to US$71.2bn in 2010, representing a compound annual growth rate (CAGR) of 39.8%, according to Clean Edge. During that period, the global market for wind power expanded from US$4.5bn in 2000 to more than US$60.5bn, a CAGR of 29.7%.
Other cleantech sectors – eg. hybrid electric vehicles, green buildings and smart grids – have seen similar growth rates. The sector is forecast to double in size from US$188.1bn in 2010 to US$349.2bn in 2020.1
A booming cleantech sector also means booming subsectors, as merger and acquisition opportunities and IPOs grow exponentially, driving demand for cleantech financial and consulting services. For example, investment in the capital-intensive cleantech sector is being driven to record levels by government policies, stimulus funding and recovering financial markets and investor attitudes.
The Jefferies CleanTech Survey, conducted at the 11th Global Clean Technology Conference in 2011, found that:
- approximately two-thirds of investors surveyed believe that a full recovery of the IPO market for cleantech companies is likely to occur by the first half of 2012
- more than three-quarters of investors surveyed believe that large company conglomerates are expected to begin consolidating the cleantech sector during or after 2012
- stable government subsidies and regulation are seen as being the most important growth driver for the cleantech sector.
Identifying international and subsector opportunities
Grant Thornton experts around the globe see cleantech sectors in their countries attracting foreign competition as well as their own country’s cleantech organisations expanding their reach into other regions. They also note that cleantech presents a diverse range of business subsectors around the world.
Europe is seen to be the location with the greatest demand/potential for cleantech products and services (cited by 51% of cleantech businesses responding to the IBR survey), followed by the United States and Canada (39%). The most prominent subsectors within the cleantech industry are research and development (42% in 2011, up from 31% in 2010), information technology (29% in 2011, up from 22% in 2010), and energy- related consulting (24%). More than one-third of cleantech companies are involved in manufacturing: manufacture of energy-efficient products (19%) and manufacture of products for use in energy generation (17%).
In India, most Grant Thornton cleantech clients are in energy – wind, hydro and solar – “and right now, it’s too early to say where these people will branch out to – some clients want to go away from power generation and to power equipment because that is where everybody sees the big money, as in the suppliers to all the small power generators,” says Vivek. Other cleantech subsectors are relatively slow because they have not been affected as much by government policies, and some, such as service providers and consultants, have been in place for some time and do not exhibit the high growth they previously had recorded.
In Ireland, McArdle says that the wind subsector is attracting the most attention and that some Irish companies have secured rights to develop solar farms in the Middle East and Africa.
Hydro, wind and waste are the top cleantech sectors in Quebec, says Lefebvre, as those energy-generation subsectors are core to Hydro-Quebec, the province’s government-owned and profitable public utility. He sees emerging but limited potential in biofuels, solar and waste, the latter especially in large industrial companies such as pulp and paper, aluminium and agrifood.
In Germany, manufacturing and energy generation constitute a solid client base for Grant Thornton, says Bartels. He also anticipates a rise on the service side – especially R&D and cleantech financing – as well as a one- to two-year trend of more activity in biofuel and energy generation from wastes.
In the North America, equipment manufacturing – for either sale or long term licensing – as well as R&D, energy generation and storage are growing markets. But in recognition of cleantech’s evolutionary trend, Randy Soifer, partner, advisory services, Grant Thornton Canada, notes, “You don’t do research and development just for the sake of it. You do research and development for the sake of developing a product or a service.”
Ultimately, the United States will develop a “huge manufacturing sector,” especially for large equipment such as solar panels and wind turbines that are challenging to ship efficiently, adds Free. For example, logistics costs for transport from China of a solar panel outweigh the cheaper production costs found in China. Storage products are a growing market. “We know how to generate enormous amounts of energy from the sun, wind and other sources, but we can’t hang on to it. We can’t store it for when we need it. So what we currently do is feed it into the grid, and that makes the current power- generating mechanism inefficient… It doesn’t take too long to figure out that that’s not a real winning business proposition.”
Bartov sees substantial business in Israel in solar, hydro and water, but also recognises changes in the market as many firms expand their current operations to include wind and waste projects. There also are product companies looking to expand into energy generation, which can help them move from startup to established company. Many companies in these sectors are currently at an R&D stage with plans to manufacture, but, Bartov adds, they may look to produce goods outside of the country. “Maybe they’ll try to manufacture in China, the US or other countries to grow a more global company.”
“There is a mix of cleantech subsectors growing in the UK, with a focus on energy generation, particularly wind and to a lesser extent solar, hydro and waste,” says Grant Thornton’s Goode. “On the services side, we’re seeing a lot of activity around green-building construction. Going forward, water is a big issue for the UK, both clean water and sewage management. It might sound strange, but some parts of the UK have less average rainfall than the Sahara Desert. That’s going to be a big issue going forward.”
Similar to trends in the United States, Goode also cites the rising issue of energy storage. “But I’m not seeing a lot of activity around that sector; we are seeing a lot of interest in smart metering – the efficient use of the energy once it’s actually in the grid and passing round.”
South Africa’s Brice says that country’s attention has thus far been on energy generation – primarily solar, wind and waste – and that “almost all our equipment is going to be imported until we get similar regulations like they have in India, but I don’t see that happening for the next couple of years.” He also sees momentum in green buildings and the water subsector (water efficiency, water treatment) due to drought restrictions. South Africa’s tendering process also will drive consulting and financing subsectors. “This is the first of several tendering waves that’ll come over the next couple of years. As the market becomes more refined, companies are going to need more advice to stay ahead of the pack.”