Clean technology is no longer a socially responsible corporate action. For businesses, it?s a way of reducing costs and increasing profits
We might be facing serious financial problems worldwide with growth rates plummeting and economy showing no signs of recovery, but the clean technology sector has emerged as viable, thriving and future-oriented. A cleantech sector focused survey undertaken by Grant Thornton reveals that privately held businesses 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.
Whereas once activity in the sector was fuelled by startup companies emerging with marketable ideas, products and services, today a vast array of companies see the enormous opportunity in the sector and want a piece of this rapidly expanding market.
For them, cleantech means reducing costs and increasing profits.
The numbers tell it all. Half of cleantech businesses cite reducing costs (52%) as a factor driving demand for clean technologies, according to the Grant Thornton survey.
Increasing profitability (45%), government mandates (44%) and corporate social responsibility (41%) also were top market factors driving demand for clean technologies. These factors are the epicentre of most cleantech conversations around the globe, especially government programmes.
The global market for solar photovoltaics has expanded from $2.5 billion in 2000 to $71.2 billion in 2010, representing a compound annual growth rate (CAGR) of 39.8%, according to Clean Edge, a clean-tech research and consulting firm. During that period, the global market for wind power expanded from $4.5 billion in 2000 to more than $60.5 billion, a CAGR of 29.7%. Combined global revenue for solar PV, wind power, and biofuels rose 31% over the prior year, growing from $188.1 billion in 2010 to $246.1 billion last year. The bulk of this expansion came from double-digit growth rates for both wind and solar deployment globally. The sector is forecast to double in size from $188.1 billion in 2010 to $349.2 billion in 2020. Other cleantech sectors?hybrid electric vehicles, green buildings and smart grids?have seen similar growth rates.
Cut to the scenario in India. Vivek Vikram Singh, associate director, Grant Thornton India says, ?We had the first phase of solar power projects tendered under the $22 billion National Solar Mission, and they have already been commissioned. The next phase of solar projects will be tendered and awarded in the next six to eight months. And now there may be a stipulation that says that you cannot import equipment for solar; it will have to be produced in India, which represents a lot of opportunity. Regardless of the proposed change, regulations that favour power generation from renewable sources, like duty exemptions, tax breaks and depreciation rate changes, have already been put in place.?
Also dramatically affecting the Indian market is a proposed clean energy cess or coal tax, that would be applied on imported and domestic coal. ?For every tonne of coal that one uses, you will have to pay a dollar to the government. And in a country like India, where 70% of the total energy produced is from coal, that would mean about $600 million every year, which the government plans to reinvest into the cleantech sector through a Clean Technology Fund,? says Vivek. He adds that there also could be a requirement that 5% of all new power generation be mandatorily from renewable energy sources.
After initial stirrings in 2005 and 2006 from research institutions, academia and policy makers, the cleantech sector in India took off in 2010. ?Even during the recession, this was one sector where we saw a lot of optimism, and that is partly because of the government and the policy changes that have come in,? says Vivek. Large industrial firms?Reliance, Tata, Punj Lloyd, Moser Baer, Thermax?are all focusing on entering the Indian cleantech sector, he informs.
?Quite a few merger & acquisitions (M&A) and private equity (PE) deals totalling about $400 million have happened in the cleantech sector, which is very promising given that this is a sunrise sector,? says Vivek. ?The M&A market in India is on the rise, but right now, cleantech is more of a private equity play. M&A will pick up?2011 was far better than 2010 and 2009 in terms of cleantech activity.?
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 Grant Thornton survey), followed by the US 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%).
Earlier this month, the FE-EVI Green Business Survey highlighted that an increasing number of Indian companies are making strategic investments into sustainability and are also reaping significant value from such investments. The survey revealed that that efforts on managing green house gas (GHG) emissions and energy use are starting to show results. Overall GHG intensities have decreased at annual rate of 10%. Almost 42% of the companies are measuring and managing their water use. As a result, per company water use intensities have gone down by 5% annually.
It seems that companies have finally crossed the line from doing good to making money out of cleantech.
