Cleantech Blog

Existing power distribution infrastructure was implemented at the beginning of the 20th century when many of the technologies available today were not around, and the demands placed upon it were less than in today’s data driven digital economy. Now the concept of a Smart grid is slowly seeping into people’s consciousness, and as many lead users would assert, it is more than a concept but an inevitable development for power distribution infrastructure.

In traditional distribution networks power stations need to supply excess capacity in order to account for unpredictable variations in demand, and information flows are solely from the user consumption back to the utilities. The Smart grid allows generators and consuming loads to interact in real time, in both directions, with the aid of modern communications technology, which leads to a number of advantages. One of these includes the ability for homes to supply back into the grid, so excess energy from generators such as solar panels can be used by others.

This Smart infrastructure can act as a feedback mechanism to smooth out variations in peak demand, and provide more sophisticated pricing mechanisms that react instantly, rather than having simple day and night tariffs. It also acts to decentralise power generation which ultimately means that power will still be maintained even if major power supplies are put out of operation.

Role out of the Smart grid is likely to be a modular process with each utility company subject to its own investment decision process. But moves are already underway to make the Smart grid a reality. A Smart grid consortium in the US, established in December 2007 by Xcel Energy, plans to set-up a test bed community of around 100,000. This will involve making all the necessary upgrades to infrastructure and providing the capacity for 1,000 renewable generation sources that can be plugged into the grid.

Given the global scale in which the Smart grid has the potential to proliferate, it’s no surprise that there are a number of emerging players with enabling technologies seeking a piece of the pie. V2Green are a Seattle based company whose technology allows electric vehicles to be plugged into the grid and eliminate demand spikes by automatically adjusting load requirements to the availability of supply. The privately funded company which has collaborations with several US utilities companies announced it was fundraising earlier this month.

Just this week the curiously named Fat Spaniel Technologies closed a second round of funding of USD 18m, which they had announced to Library House they were seeking in November. The company provides what they call an Energy Intelligence Platform, which enables hosted data monitoring, management and control services so that utilities companies can more easily work with date flows from the more sophisticated grid infrastructures.

Perhaps one of the most important aspects of a Smart grid is that the infrastructure easily enables domestic users to sell excess power back to the grid, further incentivising a more widespread adoption of small scale generation technologies.

This broad reaching technology clearly has many stakeholders, suggesting many eyes will be focused on the success of pilot studies and early adopters, which will surely influence where the smart money goes.

Given the dramatic growth of Cleantech in 2007, with Library House figures showing European venture investment more than doubling in this area compared to 2006, many commentators are asking whether this growth is sustainable, or whether the Cleantech sector is destined to go from boom to bust. The schematic below illustrates some of the major forces at play:

Perhaps the most important economic force behind Cleantech investment in recent years is high oil prices. The 1970s oil crisis saw a brief period of increased environmental concern, but when oil prices dropped significantly, environmental issues were again pushed to fringe of global politics. With oil prices hitting $100 a barrel a few weeks ago, adjusting for inflation, we are back at those 1970s levels again.

Prediction for future world oil prices are complex and subject to inevitable uncertainty. Short term no price drop is in sight, however, oil prices at $100+ per barrel make it viable for non-OPEC countries to make profits producing oil – one example being Canada who has vast oil reserves, historically not viable because of the cost of extraction. Deflationary pressure on oil prices from reduced demand in global economic slowdown is another possibility in the years ahead.

Given the economics alone, Cleantech is still clearly vulnerable to drops in oil prices, but this negates the massive and increasing influence of global politics – incomparable to the situation in the 1970’s. The environment and climate change is one of the highest priorities on almost every major political agenda, and the chances are that the next US administration will pay greater attention to this. Sacrifice was a word used by one US presidential candidate, a hint that the world’s biggest power may for once put environmental policy ahead of economics.

Some have questioned whether a renaissance of nuclear energy could threaten investment returns in Cleantech. Some argue that nuclear does actually represent a clean technology itself, but regardless, the reaction to recent UK announcements has shown that the political forces are very much at play, and whilst nuclear will continue to contribute to power supplies, political pressures look set to keep its contribution limited.

This raises an important point associated with future energy provision – energy is expected to come from a more diverse range of sources in the future – the so called ‘energy mix’, and there is a substantial market even if the ultimate contribution of Cleantech is to provide only a third of the worlds energy needs.

The other major force acting in the world today is global security and terrorism. This includes threats to Middle Eastern oil supplies which will exert inflationary pressure on oil prices. One reaction is that countries are looking towards alternative domestic energy supplies in order to assure energy security, which in many cases means weaning energy supply away from oil. Both of these reactions bode well for the Cleantech sector.

There may be sub sectors of Cleantech that are subject to technical difficulties or political resistance, but the sector as a whole is pushing forward on multiple fronts and where one technology fails, another is waiting in the wings to take its share. And as investments in these areas grow, so to will the strength of groups lobbying for their success.

Overall it seems that even if some of the props supporting Cleantech are removed, sufficient support will remain to ensure some momentum in the sector is maintained. So whilst the sector may not be immune from set-backs, the chances of a bust any time soon seems hard to fathom.

In keeping with tradition, this is the time of year for predictions. According to the National Venture Capital Association, who surveyed 170 US venture capitalists, 80% predicted that cleantech venture investment was set to see a rise again in 2008. Perhaps an unsurprising prediction, but less easy to predict is what will shape the direction of investment in the coming year.

Allied with the business view of increasing attention to clean technology, the political climate is certainly upping the anti, with pressure on international governments to take real meaningful action. Whilst recent developments at the Bali conference on climate change did not cement any firm actions, there was unanimous agreement to cut global emissions, as a basis for further negotiations. Whilst this may seem a minor step, given it is agreement made with near global representation, it is as the UK environment secretary Hilary Benn described, a “historic breakthrough”.

Whilst the Goliath of the global community moves slowly, it is likely that 2008 will see much more focused leadership from national governments, and not just in Europe, with policy and legislation being an important force in helping to accelerate market adoption of some clean technologies. Investors would be wise to keep an eye on the moves of governments in assessing the fertility of different regions for different technologies.

A case in point, energy shortfall and dwindling domestic coal reserves has led the Indian government to pursue incentive policies and feed-in tariffs to help drive the use of solar, and other renewables. This combined with new financing models to pay for solar energy adoption is set to fuel greater up-take. Recent indications from the Chinese government has led experts to predict that China too, will begin to represent a significant market for renewables, in particular solar, rather than just a manufacturer. In part this will be stimulated by the 2008 Olympics, where China is expected to go some way to playing down its growing reputation as a major global polluter by installing flagship clean energy projects.

Solar seems an apt area for further predictions in 2008, off the back of news this week that Nanosolar, one of the leaders in solar technology, is now selling what it describes as “the world’s lowest-cost solar panel”. Nanosolar focuses on so called “third wave” solar technology that uses thin film materials, rather than silicon. The bold claims seem timely, given news this week that silicon demand for the solar industry has outstripped demand from the semiconductor industry. Despite this increasing demand silicon costs are expected to fall in 2008 providing greater advantage to the less advanced, but traditional silicon based solar panels.

These competing forces in solar are likely to play out in 2008, with established silicon technologies seeking to gain ground in installations before newer thin film based solar technologies can gain traction in the market. How this trend plays out in the longer term remains to be seen, but with claims of greater efficiency and lower costs being linked to newer thin film technologies, it seems substitution seems inevitable, but this may take years.

As environmental issues associated with global warming become ever more prominent in consumers consciousness, corporates are seizing on this as an opportunity to increase sales of products with green credentials, whilst milking any positive PR generated in the process. But with the vast array of products claiming to have some environmental benefit, consumers have limited means by which they can judge the scale of the benefits, if indeed there are any at all.

Recognising this, the U.S. Federal Trade Commission recently announced plans to review ‘green’ marketing guidelines, in order to curb what is sometimes referred to as ‘greenwash’. This is a positive step, given that many giants of the consumer products world claim sustainability and environmental practices to be a key part of their ethos.

Owing to the relative immaturity of the green product concept in mainstream marketing, there are a number of unanswered questions. What exactly is a green or clean consumer product? How can this be measured and easily communicated? It is likely that industry wide adoption of anything quantifiable is too complex, though sector, or even product specific indices may be feasible.

If better systems emerge for defining what green or clean means, the message to consumers should gain clarity and become more powerful. As yet there is no clear leader amongst major consumer product corporates in this field. But it is a race worth winning, as the efficiencies inherent in most clean products make commercial as well as environmental sense. Knowing the emerging clean technologies today will be key in determining the green corporate winners of tomorrow.

An existing example of a green product supplied by a major player is P&G’s Tide Cold Water. This laundry product claims to be able to deliver the same washing performance as conventional detergents at lower temperatures - a relatively clear and calculable environmental benefit to communicate. In the consumer electrics arena, the Tefal Quick-Cup kettle boils and dispenses water a single cup at a time, therefore only boils exactly what is required. This offers faster boiling, greater convenience and offers a green energy saving message.

The venture capital pipeline offers some interesting propositions which will feed into the green consumer products field. There is an array of companies involved in low power semi-conductor technology, including CamSemi. Their proprietary semiconductor technology enables low power consumption on standby in consumer electrics, with 90% power savings claimed.

Another example, Swedish company Nanofreeze Technologies, last week gained €798,000 first round funding for their thermoelectric coolchip, which claims over 10x efficiency gains over conventional technology. This spin-out from Lund University has applications in a wide range of consumer electrics, like cell phones and computers, and boldly claims that it will be in use in most domestic freezers in 5 years time. These innovations represent just a drop in the ocean of developments relevant to the consumer products arena being monitored in the Library House Cleantech database.

A report this week by the Wall Street Journal highlighted the contribution of cargo ships to global pollution. The tonnage of goods shipped is believed to have trebled since 1970, and shipping is used to transport a staggering 90% of the world’s goods. In fact a study by the International Council on Clean Transportation demonstrated that ships release more sulfur dioxide, the sooty pollutant associated with acid rain, than all of the world's cars, trucks and buses combined. Because of shipping’s global nature, regulation would be difficult to impose, and it is not even clear exactly what legislative tack would be most effective.

Like all supply chain and logistic issues, savings and efficiencies can be made using appropriate supply chain management, thereby minimising the actual number of shipping miles. But there are a range of other issues relating to the actual quantity and nature of the goods being shipped, which in turn relates to global economics and consumer choice.

Economics might dictate that it is cheaper to manufacture certain goods in one geography and ship them to another, but the actual shipping space taken up by each product may be subject to some control. Shipping air is neither economic, nor environmentally friendly, therefore innovative ways in which this can be reduced should be encouraged.

Simply making things smaller can have a significant impact, for instance by minimising packaging, concentrating liquid or chemical freight, or reducing moisture content where possible. However these issues are often out of the control of the actual shipping companies. They are instead influenced by educated consumers and savvy corporates.

So what can shipping companies themselves do to lessen their environmental impact? A handful of companies are currently offering cleantech solutions directly applicable for the shipping industry.

SkySails are a German company offering wind propulsion systems for modern shipping which consists of a fully automated towing kite. This may sound like a rudimentary solution, but given its claim to be able to reduce fuel consumption by up to 50% in ‘optimum conditions’ and with financial backing exceeding €14m, it may just be taken seriously.

The somewhat smaller, but equally ambitious California-based outfit, KiteShip, have cottoned onto a very similar idea, marketing their precisely named Very Large Free Flying Sails (VLFFS), which have applications on a small and large scale.

Startups are putting forth radical ideas as well, such as the entirely new and efficient combustion engine under development by Cyclone Technologies. But it is likely that such innovations will take years to scale and implement into the freight industry. In this respect, solutions that can be easily retrofitted – such as sails - and offer immediate benefits are likely to see the greatest uptake in coming years.