Green innovation

The need to reduce carbon emissions and find an alternative to fossil fuels grows in urgency with each passing year. Marc Barber speaks to winners of the Rosenblatt New Energy Awards to see how they’re treading that fine line between innovation and surviving as viable concerns 

‘The US understands that the consequence of its addiction to foreign oil is body bags,’ says Hamish Curran, chief executive of biofuels concern TMO Renewables.

Finding alternative sources of energy is a serious business. Whether operating in solar, biofuels, wind, or general fuel economy and emissions reduction, a company will face four intense challenges: developing the technology, political and regulatory hurdles, resistance from traditional energy players, and trying to find a lucrative route to market.

The rewards will be enormous for the few companies which make it. Funding for the world’s sustainable energy rose by 60 per cent to more than $148 billion (£121 million) in 2007, according to figures from the UN Environment Programme’s Global Trends in Sustainable Energy Investment 2008 report. Investment between now and 2012 is expected to reach $450 billion a year, rising to $600 billion in 2020.

At TMO, which has pioneered a process to produce ethanol from organic waste, the building blocks are being put in place to capitalise on a market that is set to grow. ‘The ethanol industry in the US alone is currently $30 billion per annum and rising,’ observes Curran. ‘By 2020, the Energy Security Act requires it to be something like $200 billion per annum.’

The company has taken some significant steps in 2008 to secure a piece of that market. ‘We got planning permission in August 2007 for a process demonstration unit and it was built and delivered on budget this year,’ says Curran. Now that ethanol producers can see how the process works, he is confident a deal is closer to getting signed.

Waiting games
Companies developing alternative energy solutions can be at the proof-of-concept stage for years (much like those in the pharmaceutical sector). Chromogenics, a Swedish developer of a technology that reduces air-conditioning bills by controlling the amount of heat that comes through windows, is a case in point.

‘We are addressing an area of clear interest for people who want to see better technology for the building industry in Europe,’ says Bengt Åkerström, Chromogenics’ CEO. ‘Buildings consume 40 per cent of all energy produced in Europe. If we have a technology that can help in reducing energy consumption, that is a major breakthrough for society.’

Commercially, the company has clinched offbeat revenue-generating deals with motorcycle manufacturers after it applied its technology to crash helmets. ‘We have a coating that goes onto the visor so that it can be adjusted according to the levels of light and the weather. This is not our main market, but it does give us help on the way,’ says Åkerström.

The heart of the business is the light-filtering window panes. Åkerström says that a new production plant is to be opened in 2009 and while that pushes the company forward, a few years of testing remain before reaching the stage where deals can be signed to try and generate returns for investors.

Political sway
For both TMO and Chromogenics to develop as commercial, profit-delivering entities, additional funding is required.

In Chromogenics’ case, a consortium of organisations interested in its application – including tech giant Siemens – is approaching the European Union for a ?500,000 grant under the Seventh Research Framework Programme. ‘We have applied for funding
and signed a contract with the consortium,’ observes Åkerström.

Politics and alternative energy now go hand in hand. For Curran at TMO, Barack Obama’s presidential win is music to the ears of the ethanol industry. ‘We’re working hard with clients [who are interested in our process] to find out how we can leverage government support in the US.

It takes capital for a client to adopt our technology and these aren’t the greatest times for raising it.’

There are a number of grant schemes and tax credits which should set the wheels in motion. February will see the “farm bill” – passed earlier this year – come into play. This includes $1 billion in funds for new energy programmes and will allow companies to go to a bank and get a triple-A-rated loan. ‘You’ll have a better rating than the bank itself as you’ll be backed by the White House,’ quips Curran. 

According to the UN’s report on sustainable energy, the second quarter of 2008 showed solid investment despite the chaos in the global markets. Sustainable energy venture capital and private equity in the second quarter was up 34 per cent on the equivalent period the year before.  However, merger and acquisition activity increased by 52 per cent to $25.7 billion in 2007. Saving the world is all well and good, but the bottom line matters and that is leading to consolidation and exits for investors.

Tessa Laws, a partner at Rosenblatt Solicitors, which works with a number of renewable energy clients, notes that it’s the nature of these complex companies to be at the pre-profit stage for a considerable period of time. But she notes that the fluffy PR about green businesses “saving the world” – reaching a climax in 2007 – has ‘always been a bit of a myth. People don’t invest lightly in green businesses – it’s not all about conscience.’

High hopes
Sustainable energy companies accounted for 19 per cent of all new capital raised by the new energy sector on the global stock markets last year. But research by Business XL’s sister publication, Growth Company Investor, into cleantech and renewables on the Alternative Investment Market (AIM), the London Stock Exchange’s platform for junior companies, highlights how difficult it is for these concerns to prosper.

In the first ten months of 2008, only two new ventures in this sector have managed to complete an IPO on AIM (against seven last year) and the amount of new money raised has fallen away dramatically, from £465 million in 2007 to just £8.5 million. The decline mirrors overall trends on AIM, where total IPOs have fallen to 67 this year (2007: 222)
with £900 million of new funds raised (2007: £6.2 billion).

Renesola, the Chinese recycler of silicon for the solar energy industry, is one of the AIM-listed energy ventures that appears to be succeeding in its bid to achieve scale. Its third quarter net revenues for 2008 reached $215.8 million, an increase of 197.4 per cent on the same period in 2007. Chief exec Li Xian Shou observes that the company has ‘utilised large-scale, cost-effective manufacturing while capitalising on strong technology development capabilities to become one of the largest solar wafer manufacturers in China’.

That’s not to say that economic conditions aren’t biting. Li acknowledges a downward pricing pressure on Renesola’s products and expects a ‘negative impact’ on operating and financial results in the next two quarters. ‘We are confident the current challenges in the industry are temporary and that the mid- to long-term prospects remain strong,’ he states, adding that the lower raw material costs should, in theory, increase demand and ‘lessen the industry’s reliance on government subsidies’.

Fear of the new
For Simon Daniel, the CEO of USB battery developer Moixa, getting the product to market has been a source of frustration. Even when deals have been negotiated with a large distributor, such as a supermarket, there’s no guarantee it will hit the shelves.
There is light at the end of the tunnel, however. ‘We’ve just gone live in Morrisons and also recently in Halfords,’ says Daniel with evident relief.

An additional problem is the disruptive nature of Moixa’s product. Daniel is pitting his battery against multi-national organisations which sell regular batteries through long-established distribution networks.

‘It is partly about scale,’ notes Daniel. ‘In the UK battery market, 650 million units are sold every year. So there is a particular way you enter the market as you can’t enter from day one at that scale. There are so many types of [suppliers] and, of course, batteries are sold virtually everywhere.’

Moreover, the buyers which stock the batteries can predict their sales as opposed to taking a risk on margins with an unknown product: ‘There are – not quite cartels – but historic distribution channels that control how this volume happen. Sales in supermarkets border on the scientific.’

Resistance from traditional players can form a significant barrier to entry. TMO’s Curran knows this only too well, claiming that the American Grocers’ Association (AGA) has been instrumental in the campaign to discredit biofuel. ‘On this matter, the press has been totally hoodwinked [in the US] by a very well-funded campaign. Corn growers are now getting the subsidies to grow an indigenous fuel and the AGA’s objective is to reduce the strategic support that has gone into the ethanol industry and stick the subsidies back into the food industry.’

Hard yards
CEOs running these companies are generally exceptionally bright individuals, leaving you to wonder why they haven’t opted for a simpler way to make a living. The technology is complicated, the politics both a blessing and a curse, and profits can remain elusive for years – or never come. Of course, the lure for these entrepreneurs is the thought of the riches to be attained when they hit the jackpot and, who knows, perhaps some do actually want to make a difference. 

The renewable energy revolution presents a melting pot of ingenuity, greed, foolishness and standout brilliance. It’s the hunt for ivory in Africa, and gold in the Klondike, and new technology in Silicon Valley, all rolled into one.

Then there’s the planet too and the human cost of oil. To go back to TMO’s Curran: ‘An alternative fuel source is very much a strategic issue in the US which everybody understands.’

For more information about the full, comprehensive report, Cleantech and
Renewable Energy on AIM 2008, contact Danica Pasinis on 020 7250 7039 or email danica.pasinis@vitessemedia.co.uk