Cleantech matters

Seizing transformational opportunities

Global cleantech insights and trends report 2011
 Foreword

Cleantech: new energy and resource efficiency

Clean technology encompasses a diverse range of innovative products and
services that optimize the use of natural resources or reduce the negative
environmental impact of their use while creating value by lowering costs,
improving efficiency or providing superior performance.

“First they ignore you, then they laugh at you, then they fight you, At the same time, governments around the world have announced
then you win.” — Mahatma Gandhi strategic plans to develop, adopt and deploy clean technologies
as part of their long-term objectives. These include job creation,
Ernst & Young’s Global Cleantech Center is pleased to present
the establishment of new innovation-based industries, enhancing
Seizing transformational opportunities, our fourth annual global
energy security and meeting climate change and environmental
cleantech insights and trends report. The report focuses on the
goals. The natural disaster in Japan and the political instability
opportunities for competitiveness and growth, whether at the
in the Middle East in recent months have only provided a further
company or national level, engendered by the transformation
impetus to seek cleantech solutions to address such concerns.
to a resource-efficient and low-carbon economy. This trend is
characterized by many observers as the next industrial revolution. As Gandhi’s statement above illustrates, the path of this cleantech-
Supporting this view is the record US$243 billion invested in driven transformation is neither smooth nor easy, for it aims
cleantech globally in 2010, up 30% from 2009 and a fivefold to remake the world’s energy infrastructure and affects a wide
increase since 2004. range of incumbent players and interests. While more bumps can
be expected on the road ahead, increasing global energy and
As the transformation accelerates, global corporations across
resource consumption — and the related concerns about resource
industries are increasingly coming to the realization that they must
scarcity, prices and security, not to mention climate — ensure that
understand the impact of cleantech and develop strategic action
the transformation will continue.
plans, whether to improve their internal operations, implement
a more efficient mix of energy and resources or pursue new We hope that you find this report a source of valuable cleantech
cleantech-enabled revenue opportunities. insight and that it sparks industry dialogue. We look forward to
working with you to seize the transformational opportunities
We have also seen a myriad of pure-play cleantech market leaders
awaiting us.
emerge over the past five to seven years to meet demand for
transformational energy technologies.
Table of contents

Seizing transformational opportunities: Focus on fleets in the near term . . . . . . . . . . . . . . . . . 27

corporations embrace cleantech for An interview with Sam Ori, Director of Policy,
revenue growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Electrification Coalition
Gil Forer, Global Cleantech Leader, Ernst & Young
Key trends in the cleantech capital value chain . . . . . 28
Global public cleantech company benchmark . . . . . . . . 6 A discussion among leading cleantech investors
Scott Sarazen, Markets Leader, Global Cleantech Center, Ernst
& Young Perspective: renewable energy financing . . . . . . . . . . 33
John de Yonge, Director, Account Enablement, Ben Warren, Environment and Energy Infrastructure Advisory
Global Cleantech Center, Ernst & Young Leader, Ernst & Young

National strategies for competitive Perspective: cleantech in China . . . . . . . . . . . . . . . . . . 34

advantage and growth through cleantech . . . . . . . . . 12 Paul Go, AsiaPac and Greater China Cleantech Leader,
John de Yonge, Director, Account Enablement, Ernst & Young
Global Cleantech Center, Ernst & Young
China: the new global leader in cleantech IPOs . . . . . . 35
Perspective: accessing global cleantech incentives . . 16 Paul Go, AsiaPac and Greater China Cleantech Leader,
Paul Naumoff, Global Cleantech and Climate Change and Ernst & Young
Sustainability Services Tax Leader, Ernst & Young Jennifer Lee-Sims, Global Associate Director, Strategic Growth
Markets, Ernst & Young
Cleantech clusters — not companies —
drive national competitiveness . . . . . . . . . . . . . . . . . . 17 Solar opportunity in India . . . . . . . . . . . . . . . . . . . . . . . 38
An interview with Mark Johnson, Chairman, Innosight Sanjay Chakrabarti, India Cleantech Leader, Ernst & Young
Rober Seiter, EMEIA Cleantech Leader, Ernst & Young
Green stimulus update: spending to peak in 2011 . . . 18
Anna Czajkowska, Clean Energy Policy Analyst, Bloomberg The next innovation wave:
New Energy Finance by and for emerging markets . . . . . . . . . . . . . . . . . . . . 41
An interview with Professor Martin Haemmig,
A conversation with Brice Koch of ABB . . . . . . . . . . . 20 Senior Advisor on Venture Capital,
Stanford University — SPRIE
EVs in commercial fleets: accelerating
transportation electrification . . . . . . . . . . . . . . . . . . . 22 Funding cleantech: learning from the UK’s
A discussion among key players in the move toward social impact bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
fleet electrification An interview with Chris Meyer, Founder and CEO, Nerve LLC

Electric vehicles: leasing vs. buying . . . . . . . . . . . . . . 25 Middle East and North Africa outlook . . . . . . . . . . . . . 43
Jeff Henning, Global Automotive Markets Leader, Nimer AbuAli, Middle East Cleantech Leader, Ernst & Young
Ernst & Young Thomas Christiansen, EMEIA Cleantech Operations Manager,
Ernst & Young
Perspective: EVs, utilities and consumer charging . . . 26
Dana Hanson, Americas Power & Utility Advisory Leader,
Ernst & Young

Seizing transformational opportunities Global cleantech insights and trends report 2011 1
Seizing transformational opportunities:
corporations embrace cleantech for revenue growth
Gil Forer, Global Cleantech Leader
Ernst & Young

of change. And all are fundamentally altering the way in which

Key insights natural resources — including energy and water — are produced,
• With resource efficiency well established as a competitive distributed, stored, managed and consumed.
baseline, corporations are now seizing transformational
opportunities to create new cleantech-enabled products, Governments have announced strategic plans to develop, deploy
leverage core competencies to enter the cleantech market or and adopt clean technologies as part of their long-term national
to enter entirely new markets, all with the objective of new strategic objectives, which include jobs and new innovation-based
revenue generation. industry creation, as well as energy security, climate change and
environmental targets.
• The biggest share of cleantech spending — 40% on average —
is dedicated to developing new cleantech-enabled products Figure 1. Global clean energy investment (US$b)
and services.
• Over the next five years, corporations will move away from $243
the acquisition of value technologies in favor of acquiring
leading technologies as they seek breakthrough revenue $180 $186
opportunities. $151

• Similarly, the desire to expand revenue business through $113

brand enhancement, innovation, reaching new customers and $76

entering new markets is driving partnerships with emerging $52
cleantech companies.

2004 2005 2006 2007 2008 2009 2010

Global corporations across numerous industries are moving

Source: Bloomberg New Energy Finance
quickly to pursue cleantech revenue opportunities. During the
financial downturn, businesses looked to cleantech for cost
Overall, a record US$243 billion was invested in clean energy
savings and efficiency improvements. But with efficiency now a
globally in 2010, up 30% from 2009 and a fivefold increase since
competitive given, the corporate focus on cleantech is beginning
2004, according to Bloomberg New Energy Finance (see Figure 1).
to shift toward top-line growth through new products and markets.
Many observers believe that the impact of this trend could have
The revenue opportunities are transformational in two senses: the magnitude of a new industrial and technology revolution.
they arise from a shift to a resource-efficient and low-carbon
economy, and they are changing corporate business strategies.
The path of transformation
Corporations are pursuing transformative opportunities in several
Ernst & Young’s latest Annual survey of global corporate cleantech
important ways. One way is to incorporate clean technologies into
adoption provides insight into how corporations are integrating
existing products to improve their environmental performance.
cleantech into strategy, spending, innovation, partnerships and
Examples include Procter & Gamble’s introduction of a detergent
acquisitions to seize such transformational opportunities.
designed to work in cold water and thereby reduce the amount
A number of factors are propelling the global transformation to of energy required to wash clothes. Another example is Dow
a more resource-efficient and low-carbon global economy. They Chemical’s partnership with Solazyme to produce oils that
include the growth in world population, the increasing purchasing come from algae rather than petroleum for insulating electrical
power of the middle class in emerging markets and the increasing transformers.
scarcity of natural resources worldwide . The necessity for energy
Another route to corporate transformation is to enter cleantech
security, rising energy and commodity prices, the business
segments that are adjacent to existing businesses — the
response to climate change and the new awareness of the need
semiconductor company that begins manufacturing solar cells,
for a corporate sustainability strategy are also important drivers
for example, or a generation company that moves into wind.

2
Cisco’s smart-grid initiatives that draw on its networking and amounts of capital to it. A full third (34%) of corporations will
communications competencies can be seen in this light. spend more than 3% of total annual revenues on cleantech
products and services in 2011.
While the transformations above involve melding cleantech
with existing core competencies, in certain cases, the degree of
Figure 2. To what extent is your company exploring, researching
innovation can be even more profound, resulting in entirely novel
or utilizing cleantech?
cleantech-driven product or service offerings. Here, corporations
are leveraging their brand power to move into new cleantech
In pilots only:
markets and participate in a fast-evolving cleantech ecosystem. we are at an early
This becomes a path to forging new customer relationships, stage of deployment
12 %
supplanting existing industry leaders or even creating completely
new industries. The innovations and emerging business models
related to the new ecosystem of electric vehicles, for example
— involving not only carmakers, utilities, battery manufacturers
In select Very broadly:
and smart-grid companies, but also a broader constituency of business units: it has become
cleantech is only a corporate-wide
consumer products, retailers and communication corporations — a priority in initiative
are generating such fundamental corporate transformations. certain parts of championed by
the company senior management
Widespread corporate cleantech adoption 31 % 57 %

Our survey results show that cleantech adoption is widespread

among the world’s largest enterprises. Fifty-seven percent of
respondents said that cleantech was widely adopted throughout
In terms of actual spending, 44% of executives say their
their organizations and championed by their senior management.
corporations plan to spend more than US$50 million in 2011
Another 31% said that cleantech was a priority at the business-unit
on cleantech initiatives. A subset of this group, 12% of the total
level. In all, cleantech was a major focus for 88% of respondents
population, reported that their cleantech spend would exceed
(see Figure 2).
US$250 million. In addition, 74% of corporations plan to increase
The survey indicates that corporations are doing much more than or significantly increase cleantech budgets between 2012 and
merely talking about cleantech — they’re committing significant 2014 (see Figures 3 and 4).

Figure 3. Cleantech spending in 2011 (US$ millions) Figure 4. Anticipated change in spending 2012–2014

> $500m 6%  

   16%
10%  m  

$250m–$499.9m 6%
Increase 58%
$100m–$249.9m 15%

ema n re a e 
$50m–$99.9m 17% 25%
cnsan

$10m–$49.9 20%
Decrease 1%

$5m–$9.9m 20%
Decrease s
n can 
10% r mre anna  0%
< $5m 16%

0% 25% 50% 75% 100% 0% 25% 50% 75% 100%

Seizing transformational opportunities Global cleantech insights and trends report 2011 3
Growing focus on revenue generation Transformation through
The most notable shift in this year’s survey was the growing focus acquisition of cleantech innovation
on cleantech as a way to increase revenue when respondents were Our survey reveals that the world’s largest corporations are
asked to identify the most important factor influencing cleantech pursuing transformation not only through the internal R&D
strategies. While improving operational efficiency to reduce costs investments noted above but also through an active program
remained the most influential factor cited by respondents (38%), of cleantech company acquisitions. In this instance, 73% of the
increasing revenues moved up to the second position (19%) from companies in the survey say they have acquired a cleantech
third last year. The emphasis on efficiency and revenue generation company or might consider doing so in the near future.
becomes more pronounced when the analysis is limited to
It is not surprising then that 68% of respondents also report
responses from executives in operational roles; of these, 45% say
that corporate development executives will become increasingly
operational efficiency is most important and 24% say that revenue
focused on cleantech over the next three years.
generation is most important.
Figure 6. How will the cleantech focus of corporate development
Figure 5. Top three factors influencing cleantech technology
executives change over the next three years?
Respondents
All in operational Corporate development
Most important factor respondents roles Cleantech involvement executive

1. Improve operational efciency to Signicant increase 21%

38% 45%
reduce costs
Increase 47%
2. Increase revenues through
expansion of core product line to 19% 24%
include clean technologies Stay about the same 28%

3. Meet internal objectives for Decrease 3%

14% 11%
sustainability
Signicantly decrease 1%
Corporations recognize that, without the efficient use of energy
and natural resources integrated into strategy and operations, A shift to leading-edge technology acquisitions
they will lag behind competitors because of growing resource To date, respondents have favored “value” cleantech
scarcity, rising energy prices and energy security concerns. acquisitions — i.e., ones that provide incremental improvements
More important, corporations are viewing cleantech investments to existing technologies with immediate returns. However,
as a way to be more competitive not only through operational over the next five years, executives indicated that they will
efficiency but also through generating new revenues and creating increasingly acquire “leading-edge” technologies that will provide
new markets as industries change, incumbents are displaced transformational opportunities, investments with the potential for
and governments provide cleantech incentives to develop breakthrough performance and/or industry disruption. Executives
national industries. in operational roles show an even stronger preference than the
overall respondent population for acquisitions of leading-edge
The allocation of spending on cleantech reflects the corporate
technologies over the next five years.
transformational agenda. While an average 27% of respondent
cleantech budgets go to internal improvements, just over 40% of
spending goes directly to revenue-generating activities — internal
research and development (R&D) to create “green” products or
develop clean technologies. In accordance with these objectives,
76% of executives said that over the next three years, they expect
the cleantech focus of their R&D departments either to increase
(49%) or to increase significantly (27%).

4
Figure 7. What is the focus of your cleantech acquisition strategy? Figure 8. What are your primary drivers in partnering with
emerging cleantech companies?
Next ve
All executives Now years Change
Primary partnership drivers Respondents
Value (incremental improvement) 49% 46% -3%
Source innovation 39%
Leading-edge technologies
35% 40% +5%
(breakthrough) Enhance our brand 39%
Both value and leading-edge 16% 14% -2%
Enhance internal innovation capabilities 33%
Operational roles only
Reach new customers 33%
Value (incremental improvement) 50% 42% -8%
Grow the business by entering a new market 32%
Leading-edge technologies
37% 48% +11% Fill gaps in existing cleantech product line 26%
(breakthrough)

Both value and leading-edge 13% 10% -3% Grow the business by entering a new geography 24%

The current preference for value acquisitions makes sense in Seizing transformational opportunities
the context of the recent economic downturn when short-term The first stage of the corporate response to the transformation
demonstrable ROI was paramount. As the economy shows signs of to a more resource-efficient and low-carbon global economy —
recovery, however, executives — especially the senior executives improvements in resource efficiency — is well underway and
in operational roles — are looking for acquisitions that will provide already an essential part of corporate competitive positioning.
innovation-driven breakout opportunities. In 2010, there were Now, the executives of market-leading companies are moving
US$19.9 billion in corporate cleantech acquisitions, according to to the second stage — seizing transformational opportunities
Bloomberg New Energy Finance, a number that looks set to rise as to create new cleantech-enabled products, leverage core
corporations pursue a transformation agenda. competencies to enter the cleantech market or enter entirely new
markets, all with the objective of new revenue generation.
Partnerships and the transformation agenda
The transformation agenda can also be seen clearly in corporate While certain companies were early to see and pursue
partnering strategies related to emerging cleantech companies, transformational opportunities, we are now entering a period
vital to boosting in-house innovation and seizing market of dynamic strategy formulation, partnership formation and
opportunities as the world moves toward a resource-efficient and positioning as the broader corporate population seeks to
low-carbon economy. The desire to expand revenues through determine its play in cleantech. As we see from our survey results,
brand enhancement, innovation, reaching new customers and this has important implications for corporate spending, R&D,
entering new markets is currently driving partnerships with acquisitions, innovation and partnerships. As a result, emerging
emerging cleantech companies. For an emerging cleantech cleantech companies will likely face increased competition from
company, understanding a corporation’s transformation agenda large corporate players but will also benefit from partnership and
and demonstrating an ability to advance it will be critical to acquisition opportunities as the corporate demand for cleantech
securing such partnerships. innovation grows.

This is leading us to an era of profound transformation — in

products, companies and industries — as the balance sheets of
global corporations are brought to bear on cleantech-enabled
revenue opportunities.

Seizing transformational opportunities Global cleantech insights and trends report 2011 5
Global public cleantech company benchmark

Scott Sarazen John de Yonge

Markets Leader Director, Account Enablement
Global Cleantech Center Global Cleantech Center
Ernst & Young Ernst & Young

Ernst & Young is introducing our first annual benchmark of the 500,000 people worldwide, underscoring the importance of
global population and performance of pure-play public cleantech cleantech as an engine of job creation. And given the growth we
companies. These are companies whose value is primarily derived are seeing in the revenues and IPO activity of these companies,
from clean energy that are emerging as new market leaders in the we can expect the headcount figure to increase.
global transition to a resource-efficient and low-carbon economy,
driving clean technology and business model innovation. For this
Regional differentiation
With 149 pure-play public cleantech companies, the Asia-Pacific
study, “pure-play” is defined as companies whose clean energy
region hosts the largest share of the population. As might
focus is designated A-1 Main Driver (50%–100% of value) by
be expected, the region also has the highest total headcount
Bloomberg New Energy Finance (BNEF).
and market capitalization (see Figure 2). Regional revenues
It is important to note that the public pure-play population grew 44% to US$46.5 billion with a significant increase in net
represents a thin slice of the overall cleantech population, which income; debt also increased 29% to US$34.0 billion. Asia-Pacific
ranges from start-ups backed by venture capital (VC) to large companies are the youngest on a median basis — 12 years since
private companies and multi-industry Fortune 1000 companies. incorporation — which reflects the new entrants from mainland
There are more than 600 other public companies designated China, Australia and Taiwan in recent years. The median
by BNEF as having either a considerable (25%–49% of value) or headcount per company is 412, far higher than in EMEA or
moderate (10%–24% of value) clean energy focus. Included among North America, largely as the result of the low-cost workforce of
these are companies such as ABB, Schneider Electric and Johnson Chinese manufacturers.
Controls in the “considerable” category and GE, Siemens and
EMEA, with 128 pure-play companies, is the second-largest
Cisco in the “moderate” category. Our research shows nearly
region by number of companies, headcount and market
1,300 VC-backed companies worldwide targeting cleantech to
some degree.1 Figure 1. Global public pure-play cleantech companies
We are highlighting the public pure-play population because,
Number of companies 399
as those most focused on cleantech, these companies are in
many ways the bellwether of the industry and an indicator of the Median age (years) 13
industry’s ability to create new market leaders. The objective of Total headcount 496,311
our benchmark is to provide annual quantitative measures of the
pure-play cleantech population as it grows and matures — including Median headcount 203

the number of companies, headcount, revenues, net income, 2010 market cap (US$b) $243.2
market capitalization and debt — and offer insights into unique
Annual change 27%*
geographic and industry subsegments.
2010 annual revenues (US$b) $152.8
Cleantech growth
We tracked 399 public pure-play cleantech companies with Annual change 21%

total annual revenues of US$152.8 billion in the 12 months 2010 net income (US$b) $5.1
ending 30 September 2010, net income of US$5.1 billion and a
Annual change 126%
combined market capitalization of US$243.2 billion. These figures
represent strong growth compared with the same period in 2009 2010 debt (US$b) $100.8
(see Figure 1). At the same time, total debt increased 23% to Annual change 23%
US$100.8 billion, suggesting that revenue growth is providing the
confidence to increase financial leverage. The availability of capital Note: includes public companies designated as clean energy A-1 Main Driver
for cleantech expansion is a positive sign. (50%–100% of value) by BNEF, excluding listed investment funds and acquisition
vehicles; 2009 and 2010 annual financial data comprises the 12 months
Although this population of companies is fairly young — at just ending 30 September as available in CapitalIQ; market capitalization as of
15 February 2011
a median of 13 years since incorporation — it employs nearly
* Includes addition of new entrant market cap; without new entrants, market cap
1 Dow Jones VentureSource; Ernst & Young’s Venture Insights, March 2011 growth amounts to 7%

6
capitalization, but the leader in terms of revenues, which reached in North America come from the venture capital or private equity
US$72.8 billion in 2010. Median EMEA company revenues ecosystem rather than from the larger family-owned or state-
were US$120.3 million. Supportive European government owned enterprises seen in Europe and China.
policies, such as feed-in tariffs for renewable energy production,
The pure-play population in Central and South America is small —
contribute to the region’s revenue strength. Many countries are
just five companies — and dominated by large Brazilian ethanol
finding it challenging to maintain the previous levels of such
producers such as Cosan. Net income improved substantially
support, however, because of the current austerity measures
in 2010, rising US$540 million from negative levels to reach
they are taking. Consequently, EU-based companies are now
US$368.1 million, even as overall revenues declined. The total
looking for additional revenue sources in other markets.
and median headcount for this population is high, the result of the
North America’s pure-play cleantech company population agricultural nature of ethanol production.
numbers 117. The region’s companies are the smallest across
Despite the regional differences, the median market cap per
the board, with a median headcount of 130 and median
headcount is similar in the major regions, with the exception of
revenues of US$53.8 million. Debt levels are also the lowest.
Central and South America — US$0.66 million in Asia Pacific,
The median age of companies in North America is 15 years since
US$0.66 million in EMEA and US$0.74 million in North America —
incorporation, the highest of all the regions. Their relatively small
suggesting that the companies are broadly comparable in terms of
size may be related to the fact that most pure-play companies
productivity and value creation.

Figure 2. Global pure-play cleantech public company landscape by region

Number of Total headcount 2010 revenues 2010 net income 2010 debt Market cap*
companies (in thousands) (US$b) (US$m) (US$b) (US$b)
[annual change] [annual change] [annual change] [annual change]

   149 219.7 $46.5 [44%] $3.0 [$3.6] $34.0 [29%] $101.0 [50%]

EMEA 128 156.7 $72.8 [0%] $2.4 [$0.6] $51.8 [18%] $85.5 [7.0%]

North
America 117 69.1 $23.2 [34%] -$0.7 [$0.4] $10.3 [13%] $50.7 [27%]

Central
and South 5 50.8 $10.3 [164%] $0.3 [0.5] $4.5 [67%] $6.0 [47%]
America
* 15 February 2011

Median age (years) Median headcount 2010 median Median change Median debt Median market cap
per company revenues in net income (US$m) per headcount
(US$m) (US$m) (US$b)

Aia acic 11 400 $90.2 $8.7 $52.1 $0.66

EMEA 13 140 $120.3 $1.2 $46.2 $0.66

North
15 130 $53.8 -$4.1 $4.7 $0.74
America

Central
and South 8 N/A $286.7 $7.6 $128.9 $0.20
America
200
0

Seizing transformational opportunities Global cleantech insights and trends report 2011 7
Figure 3. Pure-play cleantech company market landscape — top 15 markets by cleantech company population
$70
Market cap
Market Companies (US$b) Headcount
United States 73 $45.1 57.0
China 52 $60.1 133.2
$60 Germany 44 $15.0 36.9
Mainland China
Canada 44 $5.7 12.2
Australia 27 $1.4 0.8
United Kingdom 22 $1.8 6.6
$50 Taiwan 19 $15.1 21.7
India 17 $3.5 20.3
Market capitalization (US$b)

France 12 $4.7 7.0 United

South Korea 8 $4.1 1.9 States
Japan 7 $1.2 10.6
$40
Hong Kong 8 $9.7 16.4
Belgium 6 $6.8 11.6
Switzerland 7 $2.1 3.3
Spain 5 $20.3 35.3
$30

$20 Spain

Taiwan Germany

$10
Hong Kong
Belgium
France Canada
South Korea India
Switzerland UK Australia
Japan
10 20 30 40 50 60 70 80

Number of companies

Note: includes public companies designated as clean energy A-1 Main Driver (50%–100% of value)
by BNEF; market capitalization data as of 15 February 2011
Bubble volume represents cleantech company headcount

Market landscape capitalization, due to Iberdrola Renovables, the pure-play

Further distinctions can be made at the market level (see cleantech company with the highest market capitalization.
Figure 3). China and the US make up a first market tier in Despite its large company population, the United States has not
terms of company population and market capitalization. While yet produced many market-leading companies in terms of market
the US has the largest number of companies (73), China has capitalization. Only one American company is on the list of top
the greatest market capitalization (US$60.1 billion). China’s 10 companies by market capitalization (see Figure 4). In contrast,
company headcount is also several times larger than that of any three Chinese companies are on the list.
other market.
Cleantech companies by segment: solar
Germany and Canada form another tier in terms of company predominates
population, with 44 pure-play cleantech companies each. The rapid scaling of the global solar industry becomes evident
A third tier is composed of markets with fewer than 30 companies. when analyzing the cleantech company population by segment.
Spain is an outlier in this group for its high aggregate market The 102 solar companies constitute the largest share — just over

8
Figure 4. Top ten pure-play cleantech companies by market capitalization

Cleantech Year Market cap

Company Market segment incorporated (US$B) Stock exchange IPO year
Renewable
Iberdrola Renovables SA Spain energy 2001 $15.4 BME: SIBE 2007
generation
NASDAQ/OMX:
First Solar Inc. United States Solar 1999 $14.3 2006
New York
Renewable
Enel Green Power SpA Italy energy 2008 $11.1 Milan SE 2010
generation

Xinjiang Goldwind Science & Technology Co. Ltd. China Wind 1998 $7.6 Hong Kong SE 2010

Renewable
GCL-Poly Energy Holdings Ltd. Hong Kong energy 2006 $6.8 Hong Kong SE 2007
generation

China Longyuan Power Group Corp. Ltd. China Wind 1993 $6.6 Hong Kong SE 2009

NASDAQ/OMX:
Vestas Wind Systems A/S Denmark Wind 1898 $6.4 1998
Copenhagen
NYSE/Euronex:
Umicore Belgium Environment 1904 $6.1 Pre-1990
Euronext
Renewable
NYSE/Euronex:
EDP Renovaveis SA Portugal energy 2007 $5.3 2008
Euronext
generation
Energy efciency
Sanen Optoelectronics Co. Ltd. China 1993 $4.7 Shanghai SE 1996
products

Figure 5. Global public pure-play cleantech companies by segment

Market capitalization (US$b) Revenues (US$b) Net income (US$m) Debt (US$b)

Median Median Median

Number of years since 2010 Annual market cap 2010 Annual 2010 net annual Annual
Segment companies incorporation Headcount market cap change /headcount revenues change income change 2010 debt change

Solar 102 12 161,280 $68.8 48% $0.45 $52.8 46% $1,422 $7.7 $31.8 19%

Wind 52 13 81,694 $47.6 -18% $0.75 $31.8 -6% $1,121 $0.1 $25.4 46%

Energy storage 47 15 59,412 $13.5 63% $0.67 $7.5 16% -$229 -$0.4 $2.0 10%
Energy efciency 42 22 66,078 $29.3 93% $0.32 $12.9 11% $842 $3.8 $3.5 -6%
products

Biofuels 33 7 51,787 $10.5 58% $0.41 $15.5 82% $128 $2.3 $6.0 28%
Renewable energy 23 14 23,174 $42.4 35% $1.13 $8.6 16% $1,295 $0.2 $23.5 27%
generation
Biomass and waste 22 9 6,423 $3.7 -6% $0.57 $2.3 11% $42 -$0.8 $2.5 -12%
energy

Geothermal 20 7 4,309 $5.2 -5% $1.71 $1.2 20% $98 -$0.8 $2.3 28%

Clean transport 15 16 3,875 $4.4 152% $1.11 $1.0 26% -$175 $1.7 $0.2 87%

Power and efficiency 14 18 9,956

management services $3.6 41% $0.45 $3.0 13% $67 $2.5 $0.5 -41%

Hydro 11 12 4,728 $2.5 -12% $1.23 $0.5 25% $47 -$0.5 $1.4 0%

Environment 9 23 13,495 $8.6 64% $0.73 $12.9 0% $295 $3.0 $1.0 -45%
Water treatment and 9 21 10,100 $3.1 -2% $0.47 $2.8 8% $122 $2.6 $0.6 49%
conservation

Note: based on analysis of public companies designated as clean energy A-1 Main Driver (50%–100% of value) by BNEF; market cap data as of 15 February 2011

Seizing transformational opportunities Global cleantech insights and trends report 2011 9
25% — of the population, employ more than 160,000 people and The youngest of all the segments in terms of time since
generated more than US$52.8 billion in revenues, yet the median company incorporation is biofuels, with a median of seven years.
time since incorporation of these companies is just 12 years. Solar Nonetheless, the 33 companies in this segment employ nearly
showed strong improvement in financial growth in 2010. 52,000 people and generate revenues in excess of US$15 billion.

Wind, the second-largest segment at 52 companies, is also At the same time, the segment analysis illustrates another
relatively youthful, with a median time since incorporation of dimension of cleantech: many of the companies existed long
13 years, revenues of US$31.8 billion and a headcount of nearly before the word cleantech was coined. For example, energy
82,000. These figures suggest that solar and wind have matured efficiency products constitutes the fourth-largest segment with
further down the value chain — with greater value creation in 42 companies worldwide generating US$12.9 billion in revenues.
manufacturing and installation than other clean technologies. In contrast to solar or wind, the median time since incorporation

Figure 6. 2010 cleantech pure-play IPOs by market Figure 7. 2010 pure-play cleantech IPOs by segment

Number of companies Total deal value (US$m) Number of companies Total deal value (US$m)

Percent Percent Percent Percent

of total of total of total of total

China 20 52.6% $4,719 48.8% Solar 11 29.0% $1,603 16.6%

US 4 10.5% $526 5.4% Wind 9 23.7% $3,057 31.6%

Energy
5 13.2% $585 6.0%
Taiwan 3 7.9% $307 3.2% efciency products

Energy
3 7.9% $194 2.0%
India 3 7.9% $360 3.7% storage

Biomass
3 7.9% $318 3.3%
and waste
Germany 3 7.9% $295 3.0%
Biofuels 2 5.3% $176 1.8%
Italy 1 2.6% $3,158 32.6%
Renewable
1 2.6% $3158 32.6%
energy generation
S. Korea 1 2.6% $124 1.3% Power and efciency
1 2.6% $122 1.3%
management
Brazil 1 2.6% $91 0.9%
Hydro 1 2.6% $96 1.0%

Sweden 1 2.6% $82 0.8% Environment 1 2.6% $109 1.1%

Australia 1 2.6% $17 0.2% Clean transport 1 2.6% $260 2.7%

Note: includes public companies designated as clean energy A-1 Note: includes public companies designated as clean energy A-1
Main Driver (50%–100% of value) by BNEF; percentages may not Main Driver (50%–100% of value) by BNEF; percentages may not
equal 100% due to rounding. equal 100% due to rounding.

10
for this segment is 22 years. Efficiency was simply smart business by Chinese companies (see Figure 8), underscoring the rapid
before it was cleantech. emergence and importance of the cleantech market in China.

New entrants Outlook

New entrants to the pure-play population through IPOs numbered As evidenced in our analysis, the global population of public
38 in 2010, increasing the overall population by nearly 10%. IPO pure-play companies comes into 2011 with significant positive
activity was propelled by a spate of listings by Chinese companies. momentum. We can expect continued growth in this population
The 20 Chinese IPOs in 2010 raised US$4.7 billion, accounting and improvement in its financial performance as economic
for 52.6% of the deal activity and 48.8% of the capital raised recovery continues, increasing demand for energy and resources.
(see Figure 5).2 Energy security concerns, brought into relief by recent political
events in the Middle East and the disasters in Japan, will likely
The solar segment saw the largest number of IPOs in 2010, with
cause national governments to accelerate or enhance already-
11 deals representing 29.0% of activity and 16.6% of capital raised
substantial initiatives to promote domestic cleantech industries.3
(see Figure 7). Wind offerings, however, raised the most capital —
With global IPO activity having returned to pre-downturn levels4
US$3.1 billion, 31.6% of all IPO proceeds, thanks to several large
and a strong pipeline of cleantech offerings in China, there
deals from China.
will likely be a number of new entrants to the public pure-play
The US$3.2 billion IPO by Enel Green Power SpA on the Milan population as investors recognize the potential of companies that
Stock Exchange was the largest cleantech IPO of 2010. Seven can enable the transformation to a resource-efficient and low-
of the top 10 offerings in terms of capital raised were conducted carbon economy.

3 For a discussion of national cleantech strategies, see “National strategies for competitive
advantage and growth through cleantech” on page 12 of this report.
2 For further discussion of Chinese IPO activity, see “China: the new global leader in
cleantech IPOs” on p. 35 of this report 4 According to the Ernst & Young Global IPO trends report 2011

Figure 8. Top 10 cleantech IPOs in 2010

Total value
Cleantech including Market cap
Company Market segment Stock exchange Pricing date non-deal (US$m) (US$m)
Renewable energy
Enel Green Power SpA Italy Milan SE 1 Nov 10 $3,157.82 $11,158.38
generation

Xinjiang Goldwind Science & Technology Co. Ltd. China Wind Hong Kong SE 8 Oct 10 $1,053.56 $6,107.58

China Datang Corp. Renewable Power Co. Ltd. China Wind Hong Kong SE 16 Dec 10 $642.23 $2,140.93

China Suntien Green Energy Corp. Ltd. China Wind Hong Kong SE 13 Oct 10 $424.74 $1,055.27

Shanghai Chaori Solar Shenzhen: Main

China Solar 18 Nov 10 $355.96 $1,421.69
Energy Science & Technology Co. Ltd. Board
NYSE/Euronext:
China Ming Yang Wind Power Group Ltd. China Wind 30 Sep 10 $350.00 $1,750.00
New York
Shenzhen: Main
Risen Energy Co. Ltd. China Solar 2 Sep 10 $278.34 $1,082.44
Board
NASDAQ/OMX:
Tesla Motors Inc. US Clean transport 28 Jun 10 $260.02 $1,589.14
New York

Trony Solar Holdings Co. Ltd. China Solar Hong Kong SE 7 Oct 10 $256.81 $885.73

Energy efciency NYSE/Euronext:

Elster Group SE Germany 29 Sep 10 $242.19 $1,299.76
products New York

Seizing transformational opportunities Global cleantech insights and trends report 2011 11
National strategies for competitive advantage
and growth through cleantech
John de Yonge
Director, Account Enablement
Global Cleantech Center
Ernst & Young

As the world shifts to a resource-efficient and low-carbon To build on these achievements in its quest for 100% fossil fuel
economy to address the rising consumption of energy and raw independence by 2050, Denmark’s Government has committed
materials, many countries are embracing national cleantech US$2 billion to cleantech. The country’s ambitious goals include
strategies to position themselves for economic competitiveness deploying 400 megawatts (MW) of new offshore wind turbines
and growth. For reasons ranging from creating jobs, to incubating by 2012; renewables kicking in 10% of total energy for transport;
high-value industries, to achieving energy security, gaining cutting greenhouse gas emissions 20% from 2005 levels; reducing
efficiencies or combating environmental degradation, many energy use 4% by 2020 from volumes consumed in 2006; and
governments are making cleantech innovation, adoption and tripling wind capacity by 2030.
exports a top priority.
In transportation, the Danish Government is encouraging electric
While each country is pursuing a different path to cleantech vehicle (EV) adoption through fossil fuel taxes, tax-free sales of
adoption for national advantage, their governments have played hydrogen vehicles and EVs through 2012, and the provision of
pivotal roles in the sector’s development. From Denmark’s EV research funds. As a result, big names like Mercedes-Benz,
pioneering embrace of wind energy to China’s massive cleantech Better Place (with DONG Energy and Renault Nissan), Saab,
investment, here are several snapshots of national processes and Volvo, Tesla and BYD plan to enter Denmark’s hybrid and EV
plans in pursuit of cleantech-driven development. markets. Subsidies are also flowing into municipalities, companies
and industry associations for R&D and tests on the required
Denmark: an early cleantech adopter moves infrastructure, and to study the potential of storing and sending
into electric vehicles excess EV power back to the grid when wind energy falls.
Decades ago, Denmark set itself apart by embracing wind as an
energy, jobs and economic engine. Denmark’s early renewables Collectively, Denmark’s showcase cleantech and fuel efficiency
success shows that even small countries can achieve great things programs — which drove consumption down more than 2% from
with a coherent cleantech strategy. 2007 to 2008 — have made it a global model for cleantech-led
development.
The 1970s oil crisis first sparked Denmark’s determination to be
energy independent. Today, wind generates 20% of Denmark’s China: the emerging clean energy leader
energy from over 5,000 turbines, a percentage pegged to rise When it comes to size, population and output, China is all
to 50% by 2020 with a growing portion from offshore. To boost superlatives. And energy is no exception. China’s energy
offshore wind production, new government incentives include consumption is expected to surge 75% by 2035, according to
citizen share-price purchases of turbines, loan guarantees and the International Energy Agency. Today, roughly 75% of China’s
a scrapping scheme with payments for owners of older turbines electricity comes from coal.
who retire them.
To meet its vast energy needs, curb pollution from coal, cut
Along with reducing Denmark’s dependence on fossil fuels, foreign oil dependence and spark innovation and economic
these initiatives have made Denmark the world leader in the growth, China’s Government is taking an orchestrated approach
wind industry, with a 40% share of the global wind turbine through clean energy-friendly laws, funds, incentives and
market. Danish company Vestas is the world’s largest wind standards. Renewables now rank as a key development sector to
turbine manufacturer. The country also boasts world-class and meet the needs of a country that is both industrializing rapidly
comparatively low-cost wind research and development (R&D) and urbanizing rapidly as citizens migrate from rural areas to join
clusters that draw investments from big names including Suzlon, the growing middle classes in its densely populated cities. China’s
Siemens Wind Power and Gamesa. As a result, since 2000, US$586 billion economic stimulus plan alone earmarks roughly
cleantech exports have grown three times faster than total 37% of spending for cleantech projects, mostly in the renewable
exports to reach US$11.7 billion in 2008 — the largest quantity of energy and smart grid areas. As a result of such initiatives, China
European exports in that category. New, more efficient turbines scored the number one spot on Ernst & Young’s global Renewable
portend even greater growth. Energy Country Attractiveness Index in 2010.

12
Driving long-term action is China’s 12th Five-Year Renewable Chinese clean energy companies and projects received investment
Energy Plan, which calls for boosting renewables use, improving of US$51.1 billion in 2010 — 21% of all global investments in clean
energy efficiency, and fostering cleantech R&D. The country’s energy, according to Bloomberg New Energy Finance (BNEF). With
energy plan targets renewables as 15% of China’s energy mix an expected US$738 billion spend on clean energy sources over
by 2020 and 33% by 2050, from nearly 10% in 2009, as well the next decade, China is the global cleantech opportunity.
as shrinking the country’s energy carbon intensity 45% by
2020. Regulations now require that grid companies purchase
India: a national solar mission
Ramping up India’s power supply to accelerate industrialization,
all renewable energy generated locally, and provide new
create new cleantech industry clusters, serve its growing cities,
state incentives and funds for cleantech projects such as the
and cut poverty and C02 emissions drives India’s interest in
construction of independent power systems in remote areas and
renewables. The power deficit in the world’s second most-
islands, often with regionally produced machinery.
populated country averaged nearly 13% during peak hours in
Though China’s solar sector caught the world’s eye several years the year ending March 2010. India is also the world’s fourth
ago, wind is now at China’s back. China was home to half of all most-polluting nation.
newly operational wind turbines worldwide in 2010 and has plans
India imports almost 75% of its oil, with renewables contributing
to grow its installed capacity for wind to 100 gigawatts (GW), and
just 10% of its energy mix. Reducing renewable energy technology
for solar to 20GW by 2020.
costs is thus a top state goal. Given India’s success with software
Offshore wind is a particular priority, and bidding and tenders and business process outsourcing, its potential is promising,
are underway in 11 provinces. Noteworthy projects include particularly in solar, a relatively untapped and unlimited resource.
China’s first offshore demonstration project near the East China
Investors see opportunity. Clean energy asset financing in India
Sea Bridge in Shanghai, and Sinovel’s planned 5MW turbine
skyrocketed to US$3.4 billion in 2010 from just US$560 million
manufacturing plant in Yangcheng for the country’s first offshore
in 2004, according to BNEF, for a robust 35% compound annual
wind-powered high-tech industrial base. Other big wind turbine
growth rate.
makers, such as CNOOC, Vestas and Siemens, are leading or
eyeing opportunities stemming from the country’s target of 5GW Wind accounts for 70% of the renewables mix in India, followed
of offshore capacity by 2015. by hydro (16%), waste-to-energy and biomass. But to accelerate
cleantech adoption at its factories and farms, the nation recently
Other growing cleantech focus areas include electric vehicles (EVs)
singled out solar energy for development.
and smart grids. A US$15 billion government plan aims to have
5 million electric and plug-in vehicles and 15 million conventional India’s National Solar Mission (NSM) targets a twentyfold growth
hybrids on the road by 2020. To boost the production capacity in its installed solar capacity sourced from the country’s abundant
of hybrids and EVs to about 500,000, the state will spend solar irradiance. As many as 330 average sunny days a year in
US$1.4 billion in the coming three years alone. China’s State Grid India at many sites make solar energy an attractive proposition.
Corporation also plans US$586 billion in smart grid R&D and The country’s average daily insolation of 4–7 kWh/m2 adds up to a
rollout investments by 2020. potential of more than 100GW.
But solar is still a focus. The country’s “Golden Sun” program In particular, the NSM seeks 1GW in installed solar capacity, of
provides subsidies for 500MW or more of photovoltaic (PV) power which 60% would be solar thermal and 40% PV, respectively. Key
projects by 2011. They are earmarked for building-mounted, grid- goals to get there include improving solar cell efficiencies by 15%,
connected PV, stand-alone PV power, large-scale grid-connected achieving grid parity by 2022 and fostering entrepreneurship
PV solar farms and other projects, with half of total PV project and technology transfer. Some 1,100MW for India’s grid-
investment and transmission costs covered in cities and 70% in connection plants is targeted for the first NSM phase through
rural areas. China is also funneling about US$12.2 billion into 2013, encompassing roughly 100MW of rooftop and small
emissions reduction and conservation spending. tail-end solar plants.

Seizing transformational opportunities Global cleantech insights and trends report 2011 13
Companies such as Tata BP Solar, Websol and Titan Energy stations at malls, parking lots, gas stations and public buildings by
are eyeing technology and manufacturing joint ventures and then. The South Korean Government also views smart grids as a
partnerships to participate in NSM project allocations. strategic export industry.

Finally, India, like China, is prioritizing power for remote Brazil: diversifying its renewable energy supply
rural villages, via solar PV home-lighting systems, small South America’s biggest country is best known for its sugar cane
hydropower projects, biomass gasification and biogas engines. ethanol, which emerged as a petroleum substitute during the
It also plans to replace diesel with PV systems in industry and 1970s oil crisis. But Brazil has long been a clean energy pioneer.
telecommunications towers. The Government hopes to electrify Nearly half its energy is renewable today versus the worldwide
10,000 villages by 2012. average of 13%, led by hydropower.

South Korea: smart grid and electric vehicles For Brazil, cleantech is a solution to problems wrought by fast
pave the way economic and population growth. To meet demand for more
When it comes to small countries making big moves, South varied and greater volumes of energy sources for its rising middle
Korea is today’s front runner. This often-overlooked electronics class, burgeoning cities and rapidly industrializing regions, the
powerhouse — which ranks 10th globally for energy consumption world’s fifth most-populous nation is deploying a coherent and
and 9th for CO2 emissions — plans to plow some US$36 billion into targeted renewables-driven strategy. Brazil is the world’s 10th
alternative energy by 2015, led by the private sector. biggest energy user.

Driving interest and investment in Asia’s fourth-biggest economy Among Brazil’s current cleantech sources, its 22 million gallons
are its 50% dependence on energy imports, growing population, of ethanol distilled per day make it the world’s second-biggest
rising incomes and C02 emissions. The country also seeks to grow producer and meet roughly half of Brazil’s domestic fuel needs.
its global share of the renewables market by developing innovative Hydropower from the massive Amazon and its tributaries also
wind, solar, hydrogen fuel cell, smart grid and EV products. provides an impressive 84% of its electricity. Brazil trails only
China and Canada in hydropower production.
South Korea’s ambitious Green Growth program aims to make
South Korea the world’s seventh green power by 2020, and its But deforestation, population displacement and power disruption
fifth by 2050. The Government believes some 500,000 new from drought have pushed Brazil to diversify into small hydro,
jobs, 230 million tons less carbon dioxide, and 440 billion fewer wind and solar power, and to harness feedstock by-products like
imported barrels of oil will result from its smart grid efforts by sugar cane bagasse.
2030 in a market it values at US$54 billion. Other expected
For a sense of the country’s commitment to alternative energy,
benefits include a 3% fall in power consumption, a 4% drop
look to Brazil’s national cleantech strategy for 2022. Government
in emissions from 2005 levels by 2020, and a 15% decline in
targets include boosting Brazil’s clean energy generation capacity
consumer electricity bills.
by 11.5GW by 2019, with no new fossil fuel plants commissioned
A particular focus is on EVs and smart grids, with domestic leaders after 2013; installing smart meters in each of its roughly 62
Hyundai and GM Daewoo championing EVs through their BlueON million homes by 2020; cutting carbon dioxide emissions 40%,
and Lacetti cars, respectively. The country hopes to produce increasing biomass and wind energy tenfold; and tripling ethanol
1 million EVs and install 2.2 million charging points by 2020, production to 75 billion liters, all by 2022.
encouraged by tax benefits for EV owners.
To date, Brazil has captured just a tiny fraction of its total wind
Finally, South Korea’s US$24 billion plan for a nationwide smart potential of 143GW, prompting its Government to focus on this
grid by 2030 — the world’s first — aims for 30,000 charging largely untapped resource concentrated on its Eastern coast.

14
 Corporate views on the role of government
Response from the Ernst & Young annual global corporate cleantech adoption survey

Which of the following do you believe are the most important roles government plays in supporting cleantech?

33% 32% 32%

29% 28% 27%
24% 24%
22%

Providing   
  
 Providing  
   
 # 
  
 '  

         
         
 
  
        
 
   -
   

     
   "  
 
   
      
    
         

 -   !"  
  


 

Corporate survey respondents say that the most important that will drive cleantech adoption. For further insights into
role for government in supporting cleantech is to provide corporate cleantech adoption, see “Seizing transformational
incentives for cleantech adoption, encourage consumers to use opportunities” on p. 2 of this report.
cleantech-enabled products and set environmental standards

Wind is a natural complement to hydropower, particularly during cleantech goals, the scale of transformation in each will be far
dry seasons. The country’s September 2010 renewables auction greater than Denmark’s, positioning them for leadership in our
should increase Brazil’s installed capacity by 2.9GW of wind, resource-constrained and low-carbon future.
hydroelectric and biomass energy and spark US$5.5 billion in
investment, mostly from the private sector.

Emerging economies seize a transformative

opportunity
Denmark engineered a remarkable shift from fossil fuels and
established itself as the center of the global wind industry in
just 30 years with focused, long-term government support. The
Governments of China, India, Korea and Brazil are pursuing similar
objectives with massive investment and ambitious timelines.
Their large and fast-growing internal markets for cleantech and
comparatively lower production costs versus those of developed
economies are a clear advantage. If these countries meet their

Seizing transformational opportunities Global cleantech insights and trends report 2011 15
Perspective: accessing global cleantech incentives
Paul Naumoff
Global Cleantech and Climate Change and
Sustainability Services Tax Leader
Ernst & Young

Cleantech continues to play an important role in governmental Regardless of the geography, companies looking to participate in
policies around the globe, with countries actively encouraging such incentive programs must first identify projects that may be
the sector through various tax credits and other incentives to eligible. Ernst & Young facilitates this by bringing together multiple
help reduce the payback period for investments in cleantech and departments within our clients’ organizations that too often do
renewable energy. not interact with each other, such as tax, operations, facilities
and sustainability, to discuss potential projects. Based on these
In the US, President Obama recently restated his commitment to
discussions, we are able to research and locate available incentives
the cleantech sector in his State of the Union address by proposing
around the globe. Once the projects and related incentives have
a “clean energy standard” that would set a goal of providing
been identified, we assist clients in securing the incentives by
80% of America’s electricity from clean energy sources by 2035.
advising on the project, helping to write applications or negotiating
This new goal is complemented by existing US legislation that
with government officials. After the incentive has been secured,
provides for investment and production tax credits and grants for
Ernst & Young continues to work with clients to help them meet
renewable energy sources. The US Government’s promotion of the
compliance requirements and realize the full value of the incentive.
cleantech sector extends beyond the implementation of renewable
energy to include the research and development associated
with new cleantech products through the Federal Research
and Experimentation tax credit, as well as the manufacturing
of cleantech products, through a tax credit for manufacturing
advanced energy components and products.

Incentives to assist the cleantech industry are not just a US trend,

but a global occurrence. The European Union’s FP7 program
provides funding for research, with many of the calls for proposals
applicable to the cleantech sector. In addition, many European
nations offer incentives for renewable energy, either as tax credits,
feed-in-tariffs or green-certificate programs.

In China, municipalities have offered cheap land and tax incentives,

while Chinese state banks offer low-interest financing for cleantech
projects. Furthermore, through the United Nations, the Clean
Development Mechanism can provide an incentive to develop
renewable energy projects in certain less-developed nations.
Cleantech sector investment is expected to attract significant
interest and influence additional government action in the form
of grants, subsidies and tax incentives as new innovations and
renewable energy production efforts lay the foundation for energy
independence and spur economic growth within any given country.

16
 Interview
Cleantech clusters —
not companies — drive competitiveness
Mark Johnson
Chairman
Innosight

Mark Johnson is chairman of Innosight, a strategic Silicon Valley is just such an ecosystem, generating innovation
innovation consulting and investing company with offices in after innovation, new business after new business. These
Massachusetts, Singapore and India, which he cofounded with ecosystems naturally emerge around leading companies over
Harvard Business School professor Clayton M. Christensen. time. But it could be possible to accelerate their development.
He has consulted to the Global 1000 and start-up companies
Ernst & Young: Can you give an example?
in a wide range of industries and has advised Singapore’s
Government on innovation and entrepreneurship. Mark Johnson: The government of Abu Dhabi believes so. Its
investment in cleantech is centered on the Masdar Initiative,
Ernst & Young: What is your view on the cleantech investment
an ambitious program to advance a constellation of clean
landscape?
technologies by building a completely sustainable city.
Mark Johnson: Just about every modern economy is investing That city, which is now going up and which will generate
staggering sums in developing clean technologies these days. its own power and reuse and recycle its own waste, is
This investment is a wonderful thing: it is widely believed that much more than another spectacular and fanciful Gulf real
cleantech is the key to a resource-efficient, sustainable future. estate development — it is a real-world incubator designed
The problem is that much of the capital is being invested to grow into a world-class cluster of cleantech experience,
inefficiently. expertise and value, and all for a tenth of the money
devoted to cleantech in the US stimulus bill. Hence, national
Take the United States. Many of our cleantech investments
competitiveness in cleantech will be driven by creating
are underwriting very worthy American companies
cleantech clusters that will accelerate the development of
advancing specific clean technologies, such as the Chevy
cleantech companies.
Volt, the electric car batterymaker A123 Systems and the
green cement company Calera. Other investments support
important basic research occurring in labs and universities.
But what these investments miss is the fact that cleantech
is not a robust industry yet, but just a series of market
segments that are part of a nascent and growing industry. We
need more than support for individual players or fundamental
research in isolation; we need support for an ecosystem in
which such an industry can arise.

We need more than support for

individual players or fundamental
research in isolation.

Seizing transformational opportunities Global cleantech insights and trends report 2011 17
Green stimulus update: spending to
peak in 2011
Anna Czajkowska
Clean Energy Policy Analyst
Bloomberg New Energy Finance

Two and a half years since the darkest days of the world financial door through state and other third-party programs. Such large
crisis, the green stimulus programs of governments around the amounts of money require enormous administrative efforts,
world are still making an important contribution to the growth of as most of the programs first need to be allocated by central
investment in clean energy. administrations to the specific agencies tasked with disbursing the
money to individual recipients.
Bloomberg New Energy Finance has been tracking the progress
of those stimulus measures in 12 major economies ever since the Of the approximately US$64.4 billion originally announced in
crisis and estimates that about half of the money — ranging from the US package, US$47 billion had been allocated by late 2010
grants for renewable power projects to subsidies for household through the Department of Energy, the Department of Defense
energy efficiency — has still to be spent. and other agencies. However, of that total, only about one-third,
or approximately US$15 billion, has been spent. This was far lower
That is good news for the clean energy sector, which despite
than we had earlier anticipated, given that the American Recovery
enjoying record investment in 2010, remains vulnerable to
and Reinvestment Act was passed in February 2009.
changes in subsidy arrangements in its major markets and to
competition from power projects using low-priced natural gas. While the American stimulus program is fairly transparent, the
Chinese one was less precise. Our research suggests that much
Late last year, we estimated that the 12 most important green
of the Chinese stimulus money is allocated by the National and
stimulus programs around the world, announced in the wake of
Reform Commission and then channelled through large state-
the financial crisis, totaled US$190.3 billion, and that a bit more
owned companies. Thus, some 70% of the Chinese US$46.9
than 40% of this would have reached projects on the ground by
billion stimulus has been allocated to specific projects, and 56%
the end of 2010. We forecast that a further 35% of the total, or
US$66 billion, might be spent during 2011.

A threat to the stimulus programs emerged during 2010. Growing Figure 1. Green components of national economic stimuli (US$b)
concerns over public debt, particularly in Europe, but elsewhere as
Total $190.3
well, have raised the risk that governments may try to backtrack
on commitments and that some of the promised US$190.3 billion US $64.4
may not be spent.
China $46.9
Global overview
The green stimulus programs that emerged from the financial S. Korea $29.9
crisis of late 2008 were an attempt by the governments of
Germany $14.6
leading economies to kill two birds with one stone: to use tax and
spending policy to generate jobs and support economic growth EU-27 $10.4
while also accelerating their countries’ transition to a low-carbon
Japan $10.3
energy future.
Australia $3.7
In late 2008 and early 2009, the US, China and South Korea
announced the three biggest green packages as part of UK $3.3
their recovery plans (see Figure 1), with US$64.4 billion,
US$46.9 billion and US$29.9 billion respectively. Brazil $2.3

Spending progress France $2.1

Globally, we saw an increased pace in spending during 2010—
Spain $1.6
particularly in China, Japan and South Korea. Some 77% of
the announced funds had been allocated by year-end, but only Canada $0.8
40% had reached the ground (see Figure 2). The delay in actual
spending is in part due to difficulties in getting the money out the
Source: Governments, Bloomberg New Energy Finance

18
should have reached them by the end of 2010. We have also Figure 3. Annual profile of government spending on clean energy
learned that most of the remaining funds will be disbursed by stimuli (US$b)
local governments and/or in the form of loans from local banks.
That means there may be no detailed reporting of the so-far $190.3 (100%)
unallocated 30% of the package.

Spending outlook
Given the progress of all the tracked countries in allocating the
green stimulus funds to specific programs, we expect even more $66.6 (35%)
$59.0 (31%)
money to reach clean energy projects in 2011 than in 2010 (see $34.3 (18%)
Figure 3). This assumes, however, that the stimulus programs are $17.1 (9%) $13.3 (7%)
not changed, reshuffled or cancelled. With the drive for austerity
measures in many of the major economies, at least some of these 2009 2010e 2011e 2012e 2013e Total

projects could well be axed or temporarily frozen.

Source: Bloomberg New Energy Finance
Impact
The initial announcement of the green stimulus initiatives sparked
a mixed reaction of optimism and disbelief among market Secondly, the stimulus programs have sometimes deviated from
participants. As it has turned out, both reactions were justified. their objective of aiding their national economies. In the US in
On the one hand, many of the programs delivered substantial aid particular, there was a great deal of controversy over the stimulus
to the clean energy sector in the uncertain times of the financial grants helping Chinese manufacturers and supporting job creation
crisis. But on the other hand, distribution of the funds proved to be in China’s clean energy sector, rather than in America.
an unprecedented administrative challenge for the governments.
Given the current public debt concerns in many economies, we are
In fact, most of the money intended to aid the financially strapped
unlikely to see any more government spending programs targeting
sector is reaching it when the overall situation on the markets
the sector on a comparable scale any time soon. New measures
has improved.
are likely to be tailored more carefully to support national
economies without going against the country’s commitments to
the WTO rules of free trade. Protectionism is clearly an unwelcome
Figure 2. Funds allocated and spent (estimates) policy approach to the sector from a global perspective, but the
temptation is great for national policymakers to move in
Total that direction.
allocated Percent Percent
Region (US$m) allocated Total spent spent
US 47,000 73% 15,050 23%
Further details of Bloomberg New Energy Finance’s work on green stimulus
China 32,841 70% 26,272 56% programs and other extensive research on clean energy and carbon can be found on
S. Korea 29,920 100% 11,968 40% www.newenergyfinance.com.

Germany 8,174 56% 7,930 54% Because of our methodology, the green stimulus numbers presented by Bloomberg
EU 10,401 100% 3,634 35% New Energy Finance often differ from the official government figures. This reflects
our strict definition. We include only those economic recovery plans (announced
Japan 10,340 100% 6,565 63%
in the form of emergency plans, packages, funds or simply as parts of national
Australia 1,847 50% 1,619 44% budgets) unveiled between September 2008 and the end of 2009. We do not include
UK 2,044 61% 576 17% measures announced later than that, or programs unrelated to the recovery efforts
or earlier support for clean energy, such as feed-in tariffs or tax concessions. We
Brazil 392 17% 172 7% have also focused on measures targeting specific sectors — renewable energy
France 2,111 100% 2,111 100% generation, energy efficiency, grid development and upgrades, clean transportation
Spain 738 46% 627 39% and R&D within these sectors. Hence, our figures don’t include flood prevention, fast
railways or forestry measures, for example, sometimes counted by other analysts as
Canada 579 77% 137 18% part of the green stimuli.
Total 145,974 77% 76,034 40%

Source: Bloomberg New Energy Finance estimates

Note: All estimates based on information disclosed by the governments and/or

recipients of the funds. Total global green stimulus funds announced amount to
US$190.3b. This total may have slightly increased in the last month of 2010,
after this research was completed.

Seizing transformational opportunities Global cleantech insights and trends report 2011 19
A conversation with Brice Koch of ABB
Brice Koch, PhD Interviewed by
Head of Marketing & Customer Solutions and Jay Spencer, Americas Cleantech Leader
Member of Group Executive Committee Ernst & Young
ABB, Ltd., Switzerland

Jay Spencer spoke with Dr. Brice Koch of ABB about the for the next 20 years to satisfy growing demand for electricity.
current cleantech landscape. ABB is a global producer of power More than 80% of this demand will come from non-OECD
and automation technologies that enable utility and industry countries, led by China. These populations want the same quality
customers to improve their performance while lowering of life and energy availability as people enjoy in today’s mature
environmental impact. markets, which means, if left unchecked, we can expect CO2
emissions to continue to spiral. Currently, power generation alone
Jay Spencer: As you look across all of the segments of ABB, what accounts for more than 40% of energy-related CO2 emissions, and
is the significance of cleantech for your global strategy? even if we reduce emissions to the levels that were generated in
2000, we can expect to see average global temperature increases
Brice Koch: Cleantech is at the heart of our global strategy and
of 3°C by the end of this century.
plays a central role in all our activities, from R & D through to
marketing. This combination of environmental perception and economics
drives the demand for clean technologies. According to the
ABB is a merger of two companies, one Swiss and one Swedish.
International Energy Agency, by adopting renewable and energy-
Both of these countries have always had a strong commitment to
efficient technologies, more than 75% of the required emission
taking care of the environment.
reductions needed to prevent further temperature increases can
So it is in the DNA of the company to focus on clean technologies. be achieved. The lion’s share of this would be from increasing
Right from the start, ABB has focused on technologies that energy efficiency.
help reduce environmental impact, providing equipment for
Jay Spencer: Is it safe to say that you feel energy efficiency
the reliable and efficient delivery of electricity on the one hand,
is, from a technology perspective, the most important growth
and technology to automate industrial processes and increase
opportunity right now in cleantech?
productivity on the other.
Brice Koch: Definitely. And huge improvements in energy
Today, a large proportion of our portfolio is linked to energy
efficiency can be achieved with technologies available today.
efficiency and clean technology. In fact, more than half of
You see it in the power generation sector, which is by far the
ABB’s revenue is related to energy efficiency, which means our
largest energy-consuming industry. A round 5% of the electricity
customers can see the competitive returns they can gain by
generated by these plants is consumed during their operations,
installing new technologies that reduce their energy consumption
but by using sophisticated control systems and installing energy-
and costs, and at the same time, reduce the impact of their
efficient equipment, between 10% and 30% of the power required
activities on the environment.
to run the facility can be saved.
Jay Spencer: What do you see as some of the factors
Similarly, about 8% of the electricity that leaves a power station
driving global demand for the cleantech products and services
is lost during its transmission and distribution. This is the global
ABB produces?
average, and in some countries, it may even be as high as 35%.
Brice Koch: ABB’s cleantech products and services are broadly The huge gap between the best and the worst performers shows
appealing to a wide range of customers with a variety of needs. what can be done with available technology.
However, the overall theme is doing more with less. Whether
It’s much the same story in industry. Can you imagine that 40%
motivated by the price of raw materials or the need to reduce
of the world’s electricity is used by industry, and two-thirds of
environmental impact or to raise the standard of living around the
that is used to power electric motors? But the thing is, many
globe, the demand for greater productivity is driving demand for
of these motors are running at full speed even when they don’t
ABB’s cleantech products.
have to. Their speed can be regulated using drives, and this
An additional one gigawatt of power generation and related brings surprising savings. The installed base of ABB drives
infrastructure — which is roughly equivalent to a nuclear power saved an estimated 220 million megawatt hours of electricity in
station and its grid connections — is in theory needed every week

20
 Interview

2009 alone. This is equivalent to the electricity consumption of technology and has set renewable energy targets of 20GW of
54 million European households. new solar capacity and 150GW of wind by 2020. Its policies state
that non-fossil fuel sources of energy should account for 30% of
These are just a few examples, but the list of cleantech products
the overall power supply by 2020. This would be a major shift
currently available is widespread and extends to railways,
given that 80% of China’s current supply comes from coal. This
shipping, buildings and utilities such as water, not to mention
transformation represents a huge market opportunity.
the renewable industries, such as wind, hydro, solar and wave
power. As you can see, the growth opportunities for cleantech are The second and probably the biggest motivator is that if China
everywhere. wants to maintain an 8%–10% growth rate, it needs to continue in
the most environmentally friendly way possible. With 18 million
Jay Spencer: ABB and other companies have offered efficient
people moving to urban areas every year, China needs as much
equipment and efficiency management systems for years. What
cleantech as possible. The Chinese fully understand that their
are the barriers that have prevented these technologies from being
energy demands and pollution levels are unsustainable. They
adopted more quickly?
know they cannot keep going on that growth path with a non-
Brice Koch: One of the key barriers is lack of information cleantech industry base.
about what exists, for both consumers and for businesses. And
A further motivation is that China does not have as much raw
another is associated with who purchases the new equipment. The
material as it needs, and this will start to have an impact on
manager who decides what motor to buy is normally in charge of
growth. Cleantech investment and development is essential to its
the capital expenditures for the company, but the manager who
plans for the future.
gets the benefit in the organization is in charge of the operational
expenditures. To buy the high-efficiency motor would probably Jay Spencer: How do you see ABB’s role and opportunities in
cost 5% more — which could stretch the capex budget — but the supporting the capital needs across the cleantech landscape?
manager who is in charge of the opex budget could save that
Brice Koch: We spend 50% of our R&D budget on energy
5% every six months for the operational lifetime of the motor.
efficiency-related activities and have special research projects
The challenge is getting businesses to measure the real cost of a
underway with other companies to explore important areas like
product by looking at its entire life cycle, taking into consideration
electric vehicle infrastructure. We are also actively engaged with
not only the purchase price but also the running costs. A third
emerging cleantech companies through our corporate venture
barrier to adoption — especially for consumers — is the cost of
capital activities.
electricity. Look at your home’s electric bill. If I look at my own, it
is more or less equivalent to a dinner for four every month. Given In the past several months, ABB Technology Ventures has made
the low cost, will I ever accept the utility turning off some of my investments in companies such as Trilliant, operating in smart grid
uses — maybe my air conditioning — for a 20% savings per month? communications; Power Assure, working on data center power
As long as we price it that way, we will have an issue. optimization; Pentalum, working on wind turbine and wind farm
efficiency technologies; Aquamarine Power, working on wave
Jay Spencer: What do you see as China’s role in the cleantech
power technology; and ECOtality, working on electric vehicle
market — as an investor, as a user, as an installer, or across the
infrastructure technologies.
whole value chain?
We will support these companies as they approach the market by
Brice Koch: It’s hard to imagine China restricted to any one of
providing access to customers or projects they would otherwise
these single roles. It is already a prominent investor, user and
fail to reach. It’s a kind of dual benefit: we not only provide
installer of cleantech. You see, China has a double motivation to
financial investment but also help as a strategy partner — aiding
go for clean technologies.
their company’s development to gain value.
The first one is it wants to be a good global citizen. The Chinese
Government is determined to become the world’s leader in clean

Seizing transformational opportunities Global cleantech insights and trends report 2011 21
EVs in commercial fleets: accelerating
transportation electrification

Moderator In 2010, for the fifth year, Ernst & Young’s Global Cleantech
Center hosted a series of executive roundtables that brought
Jeff Henning
together key stakeholders to discuss important cleantech issues.
Global Automotive Markets Leader
The sessions, held in Munich, Shanghai and Silicon Valley,
Ernst & Young
focused on the “Electrification of Transportation — from Vision
to Reality.” Over the next five years, electric vehicles (EVs) are
expected to account for a growing portion of overall vehicle
sales. This transformational change in the industry cuts across
many sectors and will require new business models and new
Scott Sarazen
partnerships.
Global Cleantech Markets Leader
Ernst & Young One key subsegment of the vehicle market is already showing
growing adoption and is anticipated to continue as a catalyst
for market growth: the application of EVs in commercial
delivery fleets.

Participants To better understand this new market, Ernst & Young’s Global
Cleantech and Automotive Centers assembled a panel of leading
Deb Frodl experts to discuss some of the key issues. Highlights of the
SVP and Chief Strategist discussion follow.
GE Capital Fleet Services

Scott Sarazen: Mike, could you share with us the motivation that
led Frito Lay/PepsiCo to purchase 176 electric vehicles for your
Bryan Hansel
commercial fleet?
CEO
Smith Electric Vehicles Mike O’Connell: We have set some very aggressive goals to reduce
our environmental footprint with a strategy we call “The Promise of
PepsiCo.” One part of it is a focus on running our fleet operations
more efficiently. When we introduce any new vehicle technology,
we have to ensure that our sales force can deliver products to
Mike O’Connell our customers each and every day. We look at the power train
Director of Fleet Capability and the business benefit associated with that vehicle. With EVs, it
Frito Lay/PepsiCo is a win-win — meeting both our business needs and significantly
improving our environmental footprint. Our introduction of 176
Smith Electric vehicles will take a half a million gallons of diesel fuel
out of our fleet next year. So it is a big win for us.

John Schaaf Jeff Henning: Bryan, as you speak to customers in different

Vice President, Market Development markets, what has been most surprising about their perceptions
Johnson Controls, Inc. of electric vehicles?

Bryan Hansel: Customers are initially shocked that reliable

electric trucks are already in production and ready for delivery. A
lot of people perceive EVs as being in the future or envision them
as golf carts. So having a truly full-size, operating utility vehicle

22
 Roundtable

available and in production today is a surprise. We have built a today, customers are less able to buy vehicles or replace as many
vehicle to a specification such that whether you are driving a diesel as in previous years, and leasing gives them more flexibility. We
truck today or you are driving electric, you are not changing your are also being asked about new and unique models for financing
operation. We feel it is critical that our customers not be required the battery separately from the vehicle. We are in the early stages
to change their business to adopt this technology. of exploring these options and solutions, and if there is a demand
for battery financing solutions, we will look into it more.
We also find a good deal of surprise when we discuss the financial
questions — people don’t fully understand the level of impact. True, Here in the US, we typically have open-ended leases where
there are capital premiums, but there are meaningful operational customers carry the burden of the upside or downside of the
savings that enhance the affordability of the technology. residual. In other regions — Europe, Australia and Japan as
examples — GE holds that residual risk. This is a new market and
When we talk to the drivers, the biggest “ah-ha” is that frankly,
a new technology and, as such, there are new business models
it is not a lot different from a traditional vehicle other than that
being contemplated. But we are starting to see customers deploy,
it doesn’t make a lot of noise, it doesn’t pollute and it doesn’t get
and there is definitely a level of interest in every region.
fueled the same way. They love driving the vehicles.
Jeff Henning: As you look at the market and think about potential
Scott Sarazen: Mike and John, let’s dig in a little deeper on this
residual values associated with EV batteries, how do you see them
cost-of-ownership question. How did Frito Lay and other similar
affecting the holding period or your economic modeling?
customers approach the economics of EVs?
Deb Frodl: Residual values are a very important element when
Mike O’Connell: Whenever we are looking at replacing vehicles, we
you are looking at total cost of ownership. This is an emerging
look at all the available solutions — their current cost and benefits,
industry and there are a lot of unknowns. We now have five years
including total cost of ownership. Things like maintenance, fuel
of experience with hybrid electrics. We have seen that those
economy, tires and brake wear are compared with our fleet profile.
residuals out-performed and stayed strong. Using what we’ve
When we buy replacement vehicles, we expect a certain level of
learned, we are now working through comprehensive total
investment and return. With emission standards tightening and
cost-of-ownership models for EV customers.
fuel prices continuing to escalate, the economic decision to switch
to EVs is becoming easier. The benefits of operating an electric Mike O’Connell: At Frito Lay, we own and operate all of our
vehicle far outweigh the associated up-front acquisition costs. vehicles and look to maximize the life of an EV. We anticipate 10
years for the chassis and at least 5 years, maybe 7 or 10, for the
John Schaaf: Certainly, economics are a tremendous factor, as
batteries. With the next generation of EVs, we expect there will be
are the specific infrastructure challenges. So I would first answer
a secondary market that will start to stabilize residual values and
that question as a fleet operator. Analyze your current operation
provide a variety of solutions to help different-sized companies
to determine the sweet spots in the fleet where, given the current
make the economics of EV adoption work.
economics and constraints, there is an opportunity for some level
of EV penetration. There is a place within most fleets where the Bryan Hansel: There are some unique things about an electric
economics do work — it is very much a business decision. vehicle that affect useful life. There is a very long life expectancy.
There are only two moving pieces with an electric motor, and there
Jeff Henning: Deb, considering the higher up-front cost, are there
is no transmission, no fuel system and no exhaust system. A lot
new financing models that companies are using for these vehicles?
of the costs that impact a vehicle as it ages, and that would drive
Are fleet operators gravitating toward leasing?
down residual value because of replacement costs, simply don’t
Deb Frodl: Absolutely. One of the things we are seeing in the early exist. Fast forward five years and I can argue that the vehicle is
days of this transformation is a higher propensity to lease electric not even halfway into its life because the power train, which tends
vehicles because of the higher capital cost. And the lease gives the to take trucks off the road, isn’t a factor here. And the used truck
customer more flexibility in the amortization of that vehicle, so we is still going to be 80% cheaper to operate. Even if we put a new
are seeing customers asking more about leasing because there is set of batteries in it in year five, the customer effectively has an
more pressure on the capex budget. With prices where they are almost-new vehicle that will provide a lot of operational savings.

Seizing transformational opportunities Global cleantech insights and trends report 2011 23
We also believe that there will be a very strong secondary market In terms of launching an EV industry, we are talking about
of customers that cannot afford to get into EVs today, but have hundreds of vehicles competing with companies that have built
a smaller fleet or would like to try them out for environmental or hundreds of thousands. This grant has allowed us to offer a better
business reasons. price point to our customers. We are confident that even by the
end of 2011, our costs will come down as our volumes grow. We
Scott Sarazen: John, considering that JCI has building
know we can get to a price point that works for our customers
management and other potential battery applications, do you see
even without subsidies.
a secondary market for batteries that might improve the potential
residual value? Deb Frodl: Government funding has had a substantial impact
on the supply side; we now need to make sure that there is an
John Schaaf: The unknown is, of course, what those batteries
appropriate demand side as well. The operational savings are
could be used for and how to set the potential value. There
there and we don’t have to convince fleet managers of that.
have been a lot of pilot projects and a number of different uses.
The initial up-front costs remain an issue — subsidies help drive
At Johnson Controls, we are looking at other applications to
adoption, especially as orders reach 100 to 200 vehicles. So I
determine what that market might be. I agree with Bryan that in a
think it is important to have these programs as we enter this new
commercial fleet, the vehicles will last longer. It is starting to look
industry and this new phase.
like the airline industry, where they refresh the plane with a new
power plant. Mike O’Connell: It was critical to us that we could apply this
technology over the long term. We were not interested in buying
Jeff Henning: Mike, where is Frito Lay/PepsiCo experiencing
these 176 vehicles and stopping. We considered not only how
value creation resulting from the introduction of EVs to your fleet?
the industry could evolve from a supply chain and cost profile,
Mike O’Connell: We have experienced operational improvements but what we could do as an organization. We approached this as
associated with reducing fuel purchases and the associated a partnership with suppliers, government agencies and our own
repair and maintenance. There are also both internal and organizations and believe the cost curves can come down if we all
external interest and excitement from delivering our products in work together. If Bryan is trying just to take cost out in a supply
an EV that directly supports our core business strategy around chain, he may not get there alone. But in my route profile, I may
sustainability, which is helping fuel productivity and improving not need an 80-kilowatt pack on every truck. Together, we can
our environmental footprint. For example, we are looking to partner to rightsize the demand and develop the industry while
potentially tie in one of our facility solar projects with the EVs also making it a good value proposition. We feel strongly that
and charge the vehicles off the available solar power. Today’s there is going to be a business proposition without subsidies in
consumers are very interested in what we are doing as an the future.
organization — not only in the product we are selling them, but in
John Schaaf: There is an awful lot of work being done by the
what we are doing for the environment and for the community.
battery suppliers to drive down cost. At Johnson Controls, we
Scott Sarazen: Can EVs compete without government subsidies are spending a lot of time on potential cost reductions. The
in the short term, and when will we reach a tipping point where biggest, most immediate battery cost reductions will result
adoption will grow even if subsidies are removed? from scale — government subsidies help significantly in terms of
customers being able to purchase more units. We also recognize
Bryan Hansel: At Smith Electric, we received a Department of
that it is going to take technological advances to improve battery
Energy grant to put a demonstration fleet into the market. Frito
performance and lower costs.
Lay is a part of this, and we are gathering data that will help
the Department of Energy assess this strategy. We also used
this grant to help cushion some of that up-front capital cost for
our customers.

24
 Roundtable

Electric vehicles: leasing vs. buying

Jeff Henning, Global Automotive Markets Leader, Ernst & Young
As one of our panelists noted, there is expected to be growing
interest in leasing electric vehicles for several reasons, including
the relatively high initial acquisition cost and the desire for more
flexibility in the payment terms. As we talk to participants around
the globe in this emerging EV ecosystem, we are also hearing
questions and concerns about alternative leasing models that
might be uniquely applicable to EVs. Some are considering models
that involve separate transaction streams, one for the battery
and one for the core vehicle. There are also questions about the
implications of the unknown secondary market for batteries,
unclear residual values and the anticipated duty life cycles of
other components.

One particularly timely issue with which we are assisting our

clients is the assessment of the accounting, financial reporting and
tax implications of these new models. The evolving EV sales and
lease transaction structures have the potential to cause significant
impacts on the consumer, the vehicle manufacturer and the
financing company. Leasing transaction structures are inherently
challenging from a reporting perspective, given the lack of a clear
EV residual value history, and this is further complicated by the
unique questions that arise should the vehicle lease be separated
into battery and chassis components. Recent accounting rule
proposals that affect revenue recognition and lease accounting
must also be specifically considered when modeling the
implications of EV sales today and in the future.

Regardless of the structure, the evolution of new sales or lease

models must be designed to manage these parameters for all
parties, and the financing sources must be competitive enough
to meet the needs of the EV market customer.
Perspective: EVs, utilities and consumer charging
Dana Hanson
Americas Power & Utility Advisory Leader
Ernst & Young

It has been reported that each new EV equates to as many as There is very little difference in the delivery chains of traditional
three new households being added to the grid, depending on the gasoline and electricity. Both fuels are commodities produced
region and so forth. As a result, most utilities are considering both and priced at the wholesale level on a regional basis. Both are
the business opportunities and the transmission and distribution purchased by intermediaries or retailers in bulk quantities on a
challenges related to EVs. regional basis. Both are transported to delivery locations where
they are metered at the point of sale. And both are subject
The business opportunity for utilities lies in increased sales of
to regional price variations at the wholesale and retail levels.
KWhs at existing rates. And as far as the existing infrastructure
Consumers accept this reality with gasoline purchases today. Why
can support the additional load, most utilities are willing
does electricity used for charging EVs need to be any different?
to take the revenue with little or no additional costs. This
approach is viable during the era of early EV adoption, but The use of a credit or debit card to pay for charging an EV away
once EVs break through this phase into the mainstream, there from the normal “home base” EV location represents the easiest
is significant concern surrounding their impact on the electric abstraction of complexities and risk for all parties. This method
delivery network. The solutions to the challenges vary, and is routine to consumers and merchants, including utilities, and
no one solution will fit every utility’s circumstance. However, is easily integrated into point-of-sale equipment such as public
the implementation of infrastructure upgrades, direct load and retail charging stations. It also allows for differentiation by
monitoring and control, and economic incentives via time of use retailers (not necessarily utilities) through the offering of various
rates, or combinations thereof, will allow utilities to meet the charging options at differing price points. This also enables utilities
needs of their customers with EVs. to earn income from non-local purchases through the use of
“affinity” cards or fleet cards that could offer fixed prices, rebates
One concern that we hear often is about the need for power
or points. The key aspects of the systems and infrastructure
contract “portability” associated with EVs. Consumers don’t drive
required to process and clear these transactions already exist, and
their houses outside of their utilities’ regulatory boundaries, but
there is little, if any, learning curve for consumer adoption.
obviously this will be an issue with EVs.
This option does not address charging the EV from a non-retail
Do consumers put electricity into their EVs or do they put “fuel”
point of sale, such as at a relative’s home. For those instances, the
into their EVs? Most associate the energy in an EV as “fuel.” An
vehicle’s onboard charging meter can calculate the approximate
analogy would be when you drive your gasoline-powered vehicle
cost, display the total and the parties are free to settle the
out of state and purchase fuel, do you expect to pay the same price
transaction as they see fit — since the transaction is between the
posted at your corner gas station — regardless of the price at the
party paying for the energy at the meter (not the utility) and the
pump you are using? And do you expect the operator of the pump
party using the energy as “fuel.”
you are using to handle and clear that transaction with your corner
station so that you pay the corner station, not the owner of the
pump you are using out of state? The answer is clearly no. So why
do we feel we need to do so if we put electric “fuel” into an EV?

26
 Interview
Focus on fleets in the near term

Sam Ori
Director of Policy
Electrification Coalition

Sam Ori is the Director of Policy for the Electrification Coalition Fleet operators should be well prepared to address a number
and a principal author of the Electrification Roadmap and the of the early challenges constraining adoption. By matching the
Fleet Electrification Roadmap. The Electrification Coalition is a proper vehicle, battery and drivetrain technology to payload
nonpartisan, not-for-profit group of business leaders committed requirements, drive cycles and usage profiles, fleet operators can
to promoting policies and actions that facilitate the deployment of minimize up-front costs. Total investment in public and private
electric vehicles on a mass scale in order to combat the economic, charging infrastructure can also be more efficient and better
environmental and national security dangers caused by our optimized. Perhaps most important, grid-enabled vehicles could
nation’s dependence on petroleum. appeal to a large number of fleet operators in a short period
of time. In that case, fleet operators would create significant
early-demand volume in the development of the large-format
Ernst & Young: What are the most important factors constraining
battery industry, in addition to catalyzing the electric drivetrain-
electric vehicle adoption?
component supply chain.
Sam Ori: An impressive array of automakers will introduce the
Ernst & Young: What role should public policy take in promoting
first wave of grid-enabled vehicles to American consumers in
EV adoption?
2011. These vehicles signal important progress and the successful
collaboration of multiple private and public sector entities. Sam Ori: Public policies can and should play a role in supporting
But to capitalize on the full economic and security potential of this process. There are federal tax credits for light-duty vehicles,
electrification, better coordination and focus will be required, but currently no purchase incentives in place to support adoption
as will penetration of the vehicles at a pace faster than currently of grid-enabled medium- and heavy-duty trucks. This should be
projected in typical forecasts. rectified. Existing infrastructure tax credits should be expanded
and modified so that larger installations qualify for applicable
The most important challenges constraining the growth of the
benefits. All federal tax credits should be made transferable so
market for grid-enabled vehicles are largely related to the cost
that non-profit and public sector entities can access them, and
and range associated with the first generation of large-format
all qualifying credits can benefit consumers closer to the point of
automotive batteries. Costs have already fallen significantly
sale. Finally, the federal government can assist in minimizing risk
as manufacturers move from pilot-phase projects to market
by facilitating the development of a secondary market for large-
offerings. However, higher volume in battery manufacturing and
format automotive batteries.
electric-component supply chains will be required to drive costs
down. At the same time, technical advancement can improve the The analysis in the Electrification Coalition’s recently released
performance of batteries, reducing weight and increasing range. Fleet Electrification Roadmap suggests that even a subset
of these policies would have a meaningful impact on vehicle
Ernst & Young: What impact can EV adoption by corporate and
penetration rates. Combined with efficient investment allocation
government fleets have on the overall market?
by fleet operators, temporary public policy measures could drive
Sam Ori: While electrification of the light-duty, personal-use more than 200,000 grid-enabled vehicles into commercial and
passenger vehicle market is the most important long-term government fleets by 2015. Penetration rates of this magnitude
objective for strengthening energy security, the grid-enabled would have a considerable impact on battery and electric
vehicle industry at this early stage will benefit from a more drivetrain-component costs, providing greater certainty for
diverse market. During the period from 2011 to 2015, commercial suppliers and lower costs. Such developments, in turn, would
and government vehicle fleets could represent a large share of benefit the broader consumer market and help to speed adoption.
the market for plug-in hybrid and fully electric vehicles. Recent
announcements by commercial and government entities suggest
that their fleet adoption is occurring rapidly.

Seizing transformational opportunities Global cleantech insights and trends report 2011 27
Key trends in the cleantech capital value chain

Moderator The last issue of Cleantech matters featured a roundtable

discussion among investors and market observers focused on key
Gil Forer
trends in the cleantech marketplace. We reconvened our panel
Global Cleantech Leader
for this year’s report to continue the conversation, discuss what’s
Ernst & Young
changed in the cleantech marketplace and exchange perspectives
on what is perhaps the most important issue in cleantech today —
the capital value chain.

Participants
Gil Forer: What has changed in the cleantech marketplace since
Brian Bolster our last roundtable discussion 18 months ago?
Managing Director and Head of
James Cameron: Investors have become extremely risk averse
Alternative Energy/Cleantech Investment Banking
and have started to take out private equity from their allocations —
Goldman Sachs
in the time between the last conversation and now, we’ve had very
poor capital flow generally.

I genuinely believe that the financial crisis and the recessionary

James Cameron experience in most of the developed world — coupled with a
Executive Director and Vice Chairman universal desire to better manage resource flows, to be more
Climate Change Capital efficient in the use of fossil fuels, to be more intelligent about
the systems for power production and consumption and to find
ways of allocating capital to reduce dependency upon fossil fuel
imports — have all helped the cleantech sector become more
than a niche.
Stephan Dolezalek
Managing Director and Group Leader, CleanTech However, we still haven’t seen capital flows in large enough
VantagePoint Venture Partners amounts to know whether the sector’s ready to take that amount
of capital, because almost everything that looks attractive in the
cleantech sphere — from renewable energy to energy efficiency
or game-breaking, rule-altering technologies — none of it’s been
done at scale before.
Mark Fulton I see lots of good signs for investment in cleantech. I think it’s
Managing Director and Global Head, a solid sector to concentrate on, but I’m very aware of how far
Climate Change Investment Research & Strategy short we are of the scale of capital deployment necessary to
Deutsche Bank transform the systems that we have, for delivering clean energy,
in particular.

Also, I’m more and more confident now about the idea of resource
efficiency. I think the cleantech sector will be a very attractive
Michael Liebreich
place for capital to be deployed simply in innovative technologies
Chief Executive
around the resource depletion issue, and that will be the case for
Bloomberg New Energy Finance
decades, not just the year ahead.

28
 Roundtable

Mark Fulton: There has been concern in markets over the past to grow, regardless of the overall political climate in any given
year about the lack of what we call TLC in policy: transparency, country.
longevity and certainty. In particular, we’ve been suffering
Michael Liebreich: I would build on that by saying, number one,
uncertainty around the longevity of policy in some of the
cleantech has survived the crisis actually in better shape than one
key markets and areas. And that is always a problem for the
might have feared. If you look at the investment volumes, we’re
investment markets.
again in record territory, and there aren’t a lot of infrastructure
Specific examples include the failure to achieve any high-level capital goods sectors that can say that. The second thing is that
global deals from Copenhagen through to Cancun. The United the macroeconomics of cleantech broadly, but particularly around
States energy and climate policy was uncertain and delivered very clean energy, had another year to prove themselves — we are
little during 2010. We also have the arrival of a new Congress, seeing continuing progress down the cost curve and increasing
which is more hostile to climate and clean energy. And in Europe, knowledge on how little it actually costs to deal with some of the
there were major changes in renewable energy tariffs. downside of clean energy versus dirty energy. This is a sector that
really is at scale: this is not marginal, it’s mainstream now.
If you combine the policy uncertainty with what James observed
about the general uncertainty in the investment market, it’s quite Mahatma Gandhi said, “First they ignore you, then they laugh
a high barrier to get over. However, the fact that 2011 was the at you, then they fight you, and then you win.” We’re almost in
largest year on record for total clean energy investment — the fact the “then they fight you” phase, and that’s why — to Stephan’s
that there is still money flowing into cleantech markets — is very point — they are trying to reduce subsidies and supports because
encouraging. certain constituencies now realize that the cleantech agenda will
dramatically undermine some incumbencies.
The good news is that China continues to move forward on most
policy fronts and its deployment of cleantech manufacturing And then the third thing is that dealing with climate change
bases, and has turned out to be the world leader in cleantech. The has become synonymous with job losses, whereas shifting to
other good news is that Proposition 23 in California was defeated, clean energy has become in some ways synonymous with job
and that UK green policies came out of the Comprehensive creation and with the vibrancy of economies. And you see that,
Spending Review in pretty good shape. whether it’s in Korea with the Green Growth Initiative or in the
various pieces of legislation in the US. The dialogue is all around
Stephan Dolezalek: At the first Ernst & Young ignition event in
how do we secure jobs for the future and, more profoundly, for
2006, someone from one of the big oil majors said, somewhat
structural competitive advantage. But I think what you’re seeing
in jest, “you realize that the entire market capitalization of
is that you’re now getting much more understanding that to solve
cleantech is less than one month of profit for us, and so buying
climate, you have to solve energy. And that means clean energy
up all of cleantech and getting rid of it might be cheaper than
and that means cleantech, whereas in the past, the two agendas
having to deal with it.” It was a great line because it indicated just
were only very loosely connected.
how small and meaningless cleantech then appeared to large
energy incumbents. What’s changed since is that cleantech has Gil Forer: There’s still a gap between the capital required to
been quietly growing to a size where it can’t just be pushed aside enable the transformation to a resource-efficient and low-carbon
any more. economy and the capital that is available today. How do you
think this gap will be closed or minimized? And are we seeing
At the same time, we’re seeing increased political pressure to stop
any beginnings of capital innovation, whether new models, new
supporting cleantech — pullbacks on feed-in tariffs and legislative
players or new roles for existing players?
difficulties in the US. Yet despite waning pressure, in terms of
public opinion on climate change, and pullbacks in policy, solar Stephan Dolezalek: I don’t know that we’re seeing many new
and wind, all of these things are much more alive and well than players, but we continue to be surprised by the huge number of
one might expect. I think it’s very meaningful that cleantech players participating in cleantech in what we would characterize
has grown into its own and into a position where it can continue

Seizing transformational opportunities Global cleantech insights and trends report 2011 29
as a dabbling fashion, doing one transaction a year. The number Mark Fulton: I think there’s definitely a concern as to whether
of funds that are very active still remains tiny. there is enough public and private money to really do what seems
to be required. The latest data shows we’re running in the range of
What that means is, while the majority of companies likely won’t
US$250 billion, but it still seems that a quantum leap is required
make it across the chasm, there are a small number of companies
at some point. We remain sort of cautious as to whether the whole
coming out the other side of the chasm who are growing stronger
market can step up fast enough and with sufficient size. While we
by the day because they have been able to get financing, to get
always talk about the policymakers creating the right environment
their projects and factories built. I think 2011 will be the year
and the right incentives, we’ve got to maximize the leverage of
in which we will see a greater separation between winners and
every public dollar to private investment.
losers. You’ll begin to see some of these winners emerge at real
scale. Gil Forer: In 2010, we saw a significant increase in activity by
large corporations in the cleantech space. Whether acquisitions,
Brian Bolster: We’ve seen the project finance markets return, so
partnerships or investments, what have you seen in terms of
I think we’ll start to see large-scale solar and wind financings. But
changes in the corporate approach, and what do you anticipate in
what we haven’t seen emerge yet is the source of capital that will
the next couple of years?
help us bridge the technologies that need US$300, $500, $600
million to show proof of concept. We would have hoped that the Brian Bolster: Our conversations with large corporations
government would step in here, but we’ve a lot less government about strategic opportunities in cleantech continue to increase.
support than we expected. Two things are probably most helpful on that front. One is that
valuation expectations have come in a bit as companies realize
And so I think Stephan’s right about the emergence of winners
that they may need the corporate strategic investors who want
and losers. A lot of business plans in some of the more capital-
growth but aren’t willing to pay billions of dollars for pre-revenue
intensive areas are being recrafted if they weren’t able to get
companies. Second, I think that corporates have become more
access to sufficient capital. In utility-scale solar, you’ll probably
comfortable with cleantech as it has proven capable of long-term
have 1 or 2 or 3 remaining players out of a market of 20 or
sustainable growth. A third piece is that corporates are feeling
30 companies currently. In the fuel sector, you see a lot of
better about themselves and increasingly thinking about M&A in
the players turning to the large corporations making strategic
general across the spectrum of industries, including cleantech.
investments to find some support.
Stephan Dolezalek: When we first started visiting multinational
James Cameron: We’ve worked very hard in the UK on a green
corporations in 2002 to discuss cleantech, we kept running into
investment bank idea, which I do think is an idea whose time has
situations where one or two business units were enthusiastic
come, and not just for the UK. We have over-relied on the capital
and wanted to participate in some way, while other business
markets and private investors to deliver the sort of societal
units in the same company were hugely skeptical. What we’re
change that we now know we need to deal with climate change
now seeing is instead of having pro or con business units within
and resource depletion. Yet we have depleted government coffers
a given organization, entire corporations are embracing clean
in almost all the developed nations, while in the developing world,
technologies as a meaningful driver of their future results. We now
there are enormous demands for capital to feed growth.
see active cleantech strategies being pursued by certain players
This is an ideal moment to build institutional capacity to channel in almost every major sector of energy and in other industries
capital at scale into something that delivers the public good and like lighting and transport that cleantech touches. There is a
rewards the expertise, the judgment and the skill associated with growing divide between those companies that are betting on this
investment for financial returns. transformation and those that are betting on the status quo.

We’re in a phase now where we can’t carry on having discussions Mark Fulton: I think this is really significant. We’ve got to see
on the lines that the private sector will do this or the state will do corporate balance sheets, we’ve got to see incumbents, we’ve got
this. We clearly need some combination of the two. to see the big industries deeply involved in cleantech if we’re going

30
 Roundtable

to meet any of these numbers. And the good news is, you do conventional energy sources, we’ll take what we can get,
see them there. In project finance, balance sheet activity is very particularly because we’re not yet at a place, in terms of project
significant. And let’s face it, in the end, most of this will become a finance, debt or building larger-scale factories, where you can
project finance infrastructure rollout. So that’s good news. ignore government support. We are also beginning to see the
impact of government support and attractive credit terms in
The question is: whether they are energy companies, utilities or
China on domestic job growth and global competition in cleantech.
original equipment manufacturers, will they continue to be active
I think there will be a second global wave of government support
players in the rollout that needs to be done?
that is more job-focused than climate change-focused. This
James Cameron: Corporate balance sheets are critical right will likely provide more long-term benefit than the measures
now, and it looks quite optimistic. It goes back to the scale issue. immediately focused on getting through the economic crisis or
We don’t have enough large cleantech companies to receive focused on climate change.
institutional investor capital so that deployments can take place
Brian Bolster: I think it’s hard to imagine a period when
in pure plays.
government won’t be influential in some way because it’s just
I’d like to see some real game changers, and not just emerging central to the nature of energy. You really have to go industry
from old energy. There are plenty of people who can take on the by industry to assess the results of the stimulus because its
incumbents in the utility sector. But we might find some very impact was very different in solar, for example, than it was in
different global corporations dealing with cleantech than the ones some of the smart grid applications. So perhaps there’s less
we have currently. And that tells you that to encourage innovation optimism than there was two years ago. That is to say, there was
and make sure there’s sufficient capital deployment from large a great sense of optimism that has probably gone back to kind of
companies, you need to have a public policy regime that supports moderate optimism.
competition and rewards capital deployment for innovation, and
Michael Liebreich: I think that the cleantech industry has really
not just the policy for climate change or clean energy.
misplayed the whole debate in the US regarding the stimulus. It
Michael Liebreich: In terms of the coming 12 months, we’re may have been a tactical victory, but it was a strategic mistake
going to see a ton of quite good companies related to industrial around the messaging of “give us the money or there’s a hundred
energy efficiency and industrial processes come into the spotlight. thousand jobs gone.” I don’t doubt that jobs were protected and
Many of these were funded in ’05–’06 and are being held on their businesses were protected, but it sent a really clear message to
investors’ books at conservatively low values. In the next 12 to the skeptics that said, “ah, without this money, that industry does
24 months, we’re going to see some of these companies gain not exist.” And it’s not true. While some of the stuff at the margins
the attention of corporate strategic investors who will find them of this industry wouldn’t exist, there’s still an industry, a supply
complementary to some aspect of their operations. While they are chain, projects that make sense, projects that have secured other
below the radar now, these companies are going to be quite an forms of support. While of course it’s always better to have money
interesting acquisition pipeline. than not, the messaging of the industry in the US served to really
polarize some of the opposition.
Gil Forer: We are midway through most of the governmental
stimulus programs and probably will soon see the next wave Gil Forer: COP16 recently concluded in Cancun, where there was
of energy plans. What has been the impact so far and what is a decision to create a green climate fund although the details of
needed? What can we expect going forward? actual implementation are still to be determined. What do you
anticipate will be the overall impact of COP16 on the cleantech
Stephan Dolezalek: There was quite a bit of optimism that
marketplace?
between loan guarantees and grants, the stimulus would provide
significant benefits, but we have always been of the view that Michael Liebreich: For me, COP16 was kind of the dog that didn’t
if you’re building a business, you’re best off not depending on bark because a lot of people were expecting a real rupture in the
long-term government subsidies. As has been true of most global process. So I think the fact that there is a process and that

Seizing transformational opportunities Global cleantech insights and trends report 2011 31
it continues to have some momentum actually is pretty positive. countries, such as Deutsche Bank’s Global Energy Transfer Feed-
But in terms of actionable change on the ground for cleantech in Tariffs (GET FiT) initiative.
companies, perhaps something will come out of that process in
James Cameron: We should see Cancun as broadly positive for
three or four years that will be worth engaging with, but right
policy developments in emerging markets. Cancun is, first of all, a
now, they’re just kind of happy that the process is continuing. And
global agreement. It’s not of the type that we expected or wanted
that’s pretty much the summary of where we are.
in Europe before Copenhagen, but it is a global agreement. You
Stephan Dolezalek: From a US perspective, I think that one can no longer argue that there is no international agreement on
important thing that emerged is that you no longer have the climate change. Now there is one.
ability to argue that there’s a free-rider problem here and that
The other thing is that you can’t argue that nothing is happening
somehow, Western nations will have to pay for something that
in the developing world on climate change. There’s now a lot of
the rest of the world will benefit from. And as we move away
policy intervention specifically on climate change, specifically
from a purely climate-centric agenda, you have two separate
favoring investment in cleantech and clean energy in many
questions: 1) What is the long-term economic upside that comes
developing countries, including in the larger and more populous
from winning in some of these clean technologies? and 2) Is the
developing countries. And that’s all going ahead really quite well in
real fight ultimately going to be in terms of sustainable economic
the Philippines, in Indonesia and certainly in Korea and China, but
growth, in terms of which countries secure an affordable energy
also in Latin America and Mexico.
future? Climate change becomes an outgrowth and a benefit, but
the real driver is not so much the need to address climate change There’s a lot taking place within the emerging markets focused on
as it is the fact that there will be winners and losers economically clean energy and climate, and that is going to create opportunity
and nationally. for capital deployment there. And not just deployment of
Western capital, but capital that is formed in those jurisdictions,
Mark Fulton: I think the good news coming out of Cancun is
capital that’s moving between sovereign wealth funds in those
there are still efforts to make it work. There’s the Green Climate
jurisdictions, capital that’s also moving from development bank
Fund that they’re talking about, and there is a lot of hope that
finance sources that’s going to encourage more investment in
governments will attempt to fund the US$100 billion by 2020.
those markets.
That’s not over, and a lot of investors like ourselves are working on
just the simple realities of project finance de-risking in developing

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Do you need a This recent Ernst & Young white paper discusses our
chief capital officer?
How to meet the financing challenges of
capital-intensive cleantech companies
recommendation that emerging cleantech companies should
consider the creation of a new executive role: the chief
capital officer (CCO). The CCO would possess specialized
financing skills and focus exclusively on capital formation
and deployment, given the scale of cleantech company
capital needs and the competing demands on the CEO and
CFO in fast-growing companies. To view this publication,
visit www.ey.com/cleantech.

32
Perspective: renewable energy financing
Ben Warren
Environment and Energy Infrastructure
Advisory Leader
Ernst & Young

The renewable energy sector is massively capital hungry. With capital requirements and liquidity ratios of Basel III coming into
nearly US$250 billion invested worldwide last year in renewable play, banks are also busily rebuilding their balance sheets. At the
energy, and still more needed, we’re seeing a global race for same time, government policy support in the US and Europe is
capital, with a large number of jurisdictions around the world likely to become less generous as the focus shifts from stimulus to
competing for green collar jobs, strategic positions around certain austerity and debt reduction.
technology types and more generally, economic diversification.
With these traditional sources of capital for renewable energy
Over the last 12 to 24 months, divergent policy approaches have
infrastructure likely to remain constrained for the foreseeable
emerged in the rapidly growing renewable energy markets of the
future, the sector needs new investors and new conduits for
East — mainland China, Taiwan and South Korea — and the mature
their capital. While the gap between needed and available capital
Western markets, such as the US and Europe.
remains large, there are some encouraging signs that new sources
Policy-setters in the East are very much focused on driving and conduits will emerge.
economic growth to seize advantage from this increasingly
Given the very long-term and low-risk nature of renewable energy
important sector — providing an energy policy framework
infrastructure investments, along with the benefit they receive
designed to stimulate substantial levels of investment, together
from transparent long-term feed-in tariffs or other forms of
with a closely aligned economic and industrial policy geared
government backing, the asset class appears well suited to attract
towards generating jobs in manufacturing, and capturing
annuity funds, such as defined benefit pension schemes and the
intellectual property or cost reductions as a source of long-term
like. In the UK, for example, there has been a lot of debate about
competitive advantage.
the proposal to create a green investment bank, whose role, for
In the West, government policy has included this same strategic example, could be to consolidate and repackage existing project
focus but with the realization that manufacturing jobs might not finance debt. This would free up banks’ balance sheets, and if
be sustainable in the longer run. What we see now in some of the such an institution had the ability to issue bonds, it could enable
more mature renewable energy markets are policies focusing on pension funds, life and insurance funds and fixed income to invest
security of energy supply and delivering de-carbonized energy in the sector.
at the lowest possible cost. This, then, has implications for
Spurred by government policy objectives, state-owned banks
technology and capital flows. Much of the intellectual property-
and multilateral financial institutions are becoming more active
driven technology developed in Europe or the US is likely to be
players in cleantech. For example, Chinese state-owned banks
transferred, over the longer term, to the developing markets for
have stepped up lending to renewable energy companies. Both
commercial deployment or industrial-scale manufacturing. At
the European Investment Bank and the European Bank for
the same time, capital flows will become truly global, with donor
Reconstruction and Development are focused on stimulating clean
organizations and multilaterals helping deploy funds from the
energy markets and are actively lending to the sector.
developed to the developing world.
Outside the asset-financing realm, venture and growth capital
From a European or US perspective, the issue for policymakers
has a significant role to play. Here, the rather patchy historic
is how to stimulate investment in areas where value is protected
performance of listed renewable energy or cleantech company
for that local market. So intellectual property-based technology
stock can undermine certainty of exit for such investors.
companies, energy efficiency, support services and data
management services are probably going to be more of a focus for
the Western markets than the manufacturing of equipment such Renewable Energy Country Attractiveness Indices
as solar panels or wind turbines, for example. For further perspectives on global renewable energy, visit
www.ey.com/renewables to view the latest edition of
Despite the recent growth in investment, capital scarcity the quarterly Ernst & Young Renewable Energy Country
remains the single biggest inhibitor to growth in renewable Attractiveness Indices, which provides scores on the relative
energy infrastructure investments. As a result of the recession, attractiveness of national renewable energy markets and
corporations and utility companies no longer have the deep renewable energy infrastructure in 30 countries.
balance sheets that they can bring to bear. And with the minimum

Seizing transformational opportunities Global cleantech insights and trends report 2011 33
Perspective: cleantech in China
Paul Go
AsiaPac and Greater China Cleantech Leader
Ernst & Young

In keeping with China’s commitments to the international China’s growing market demand for clean, low-carbon energy
community, the national energy policy aims to achieve key sources provides important opportunities for cleantech
strategic objectives: to generate 15% of the country’s total companies. As China continues to implement its strategic energy
primary energy from renewable sources by 2020 and to lower policy, a complementary objective is to make cleantech a source of
the energy intensity of economic growth by 16% in terms economic growth and an enabler of mid- to long-term sustainable
of energy consumption and 17% in terms of carbon dioxide development. Four of the seven new priority emerging industries
emissions by 2015.1 in China are part of cleantech — clean energy, energy efficiency,
advanced materials and electric vehicles.
In this context, the main focus is on developing wind power
and resolving critical issues related to connecting wind power From a global perspective, China is at a key stage of development.
generation to the grid and transferring power from offshore wind Energy demand is outpacing economic growth. With the
projects to land. Currently, only 31GW of China’s total 41GW of ever-increasing demand for energy and the complexity of the
wind generation capacity are connected to the grid.2 Developing international energy supply chain, it is time to address the
nuclear power as a safe source of low-carbon energy is another energy issue — to stabilize the economy and promote economic
important priority. development through clean but safe energy.

China’s renewable energy targets will be met through hydropower, China ranks as the number one destination for clean energy
nuclear fuels, wind power, solar energy, geothermal power, tidal technology investment. Key research and innovation areas in
power and biofuels. Of these, hydropower is expected to provide China include clean, high-efficiency coal generation — 600MW to
the largest share of clean energy generation although the fastest 1,000MW super-critical plant units, for example — hydropower,
growth will occur in nuclear and wind. clean energy vehicles, wind power, solar energy, nuclear energy
and large-scale environmental projects.
Nuclear is expected to account for 4% of total generation by
2020, up from 1% at present. Wind power and other renewables
combined will have a 2% share of generation, up from the current
0.5%. Hydropower will provide 9% of power, up from today’s 7.5%.3

To achieve the hydropower target will require prioritizing

hydropower development and deployment, avoiding the waste
of hydro resources and accelerating medium to large standard
hydropower projects. Development in this sector will be supported
by promoting domestic hydropower technology and construction
capacity on the international market.

Four of the seven new

priority emerging industries in
China are part of cleantech.
1 “Key targets of China’s 12th five-year plan,” Xinhua News Agency, 3 March 2011.
2 “China takes grid connected capacity to 31 GW,” Windpower Monthly, 17 January 2011.
3 “China’s Alternative Power Generation Expansion World-Leading:Top Energy Executive,”
Xinhua News Agency, 16 September 2010.

34
China: the new global leader in cleantech IPOs

Paul Go Jennifer Lee-Sims

AsiaPac and Greater China Global Associate Director
Cleantech Leader Strategic Growth Markets
Ernst & Young Ernst & Young

China’s concerted strategy to foster a cleantech industry competitors and then beating them on price, suggesting strong
has resulted in a market rife with opportunities for cleantech future gains in market share for Chinese wind companies.
companies: it took the number one spot on Ernst & Young’s
Chinese solar companies conducted six IPOs raising a total of
Renewable Energy Attractiveness Index in 2010. China was
US$1.2 billion. Notable among them were the US$356 million
also the largest recipient of clean energy investment in 2010,
offering by Shanghai Chaori Solar Energy Science & Technology
garnering US$51 billion of the US$243 billion global total.1
Co. Ltd. and the US$278 million offering by Risen Energy Co. Ltd.,
Combined with strong investor interest in China’s booming
both on the Shenzhen exchange. While solar offerings were as
economy, these factors have led to a record-breaking spate of
numerous as wind offerings, they raised less than half the capital.
Chinese cleantech IPOs that is likely to continue.
The market view on potential solar IPOs is less bullish. While solar
China generated 20 of the 38 global pure-play cleantech IPOs
companies drove cleantech IPO activity in China and globally
completed in 2010.2 Raising US$4.7 billion, Chinese transactions
during the period 2005–2007, the key Chinese solar players are
accounted for 49% of total global cleantech IPO proceeds. Solar,
now listed. Following years of falling solar module prices and
wind, energy storage and energy efficiency companies made up
margin contraction, there is likely to be some consolidation and
the majority of offerings, reflecting the major areas of cleantech
shake-out in the solar industry in China and elsewhere. Further,
development in China (see Figure 1).
Chinese solar companies have already realized the major gains to
A breakthrough year for wind be made through achieving technological parity with their Western
Although China’s solar company offerings have garnered the counterparts at a lower price. It is hard for new entrants to excite
most attention in recent years, 2010 was notable as a breakout the market in such an environment.
year for wind financings. The six Chinese wind offerings raised
US$2.8 billion, 59% of the cleantech total (see Figure 2). Largest
Growing mainland China cleantech listings
2010 was also a breakout year for mainland China stock
among them was the US$1.0 billion offering on the Hong Kong
exchanges — the Shenzhen exchange hosted 9 IPOs raising
Stock Exchange by Xinjiang Goldwind Science & Technology Co.
US$1.6 billion (see Figure 3).
Ltd. This 2010 activity builds on the momentum generated by the
US$2.2 billion IPO of the wind-power generator China Longyuan The cleantech IPO activity on mainland exchanges reflects the
Power Group Corporation in December 2009. importance of the domestic cleantech market in China. Companies
with a primarily domestic customer base are showing a preference
The market view is that these are just the beginning of a long
for listing on one of the mainland stock exchanges in order to
line of wind company IPOs. The biggest deals are seen likely to
stay close to clients and suppliers. Some state-owned enterprises
come from wind farm operators and developers rather than wind
have also decided on mainland listings as a matter of policy. The
technology companies. Analysts point to a pipeline of big wind
majority of the Chinese mainland stock exchange trading volumes
offerings that could include spin-offs of the subsidiaries of China’s
come from retail (i.e., individual) investors. These investors have
five large generating companies or the renewable units of other
provided the mainland exchanges with extra impetus in recent
energy conglomerates.
years as they’ve increased their stakes in domestic companies in
Investors are bullish on wind because the Chinese government the wake of the financial crisis in the US and Europe.
is targeting steep increases in wind energy production by 2015,
In contrast, Chinese cleantech companies with international
suggesting that government financial support for the industry will
market ambitions most frequently list on an “offshore” stock
remain stable, at least for the medium term. Also, many of the
exchange, such as the Hong Kong Stock Exchange, NASDAQ or
large wind players are state-owned enterprises, which provides
NYSE, where they demonstrate their ability to operate under the
further assurance that they will enjoy continuing government
highest levels of corporate governance. As cleantech companies
support. Finally, the Chinese wind industry is just beginning the
continue to demonstrate the ability to raise significant amounts of
process of meeting the technological capabilities of Western
capital on the mainland exchanges, ones already listed offshore
will likely seek to establish a second domestic listing in the onshore
1 BNEF
2 Defined as companies designated as clean energy A-1 Main Driver (50%–100% of value)
market in China.
by BNEF

Seizing transformational opportunities Global cleantech insights and trends report 2011 35
Government policy sets the stage Venture investors are focusing on innovative companies with
The recent surge in Chinese cleantech IPO activity is the product strong near-term IPO prospects in cleantech segments such as
of a long-term Chinese Government strategy to develop a energy efficiency, smart grids, offshore wind, electric vehicles and
cleantech industry and deploy cleantech broadly across the water treatment. A growing trend is venture investors working
economy.3 For example, the 2010 National Renewable Energy with established manufacturing companies to convert them into
Action Plan allocates US$735 billion of government spending cleantech companies, with a view toward eventual IPOs in Hong
directly to saving energy, reducing emissions and other energy Kong or the United States.
and ecology projects for 2011–2020. The goal is to increase the Chinese cleantech IPO outlook is
use of renewable energy sources (mainly wind, hydro and solar) to highly promising
15% of its total energy supply by 2020, from 9% in 2008. The fast flow of cleantech IPOs from China looks set to
In addition, many cleantech companies enjoy a preferential tax continue, barring a major economic setback or reversal of
rate of 15% (compared with a 25% tax on other corporations). government policy.
Cleantech firms are also offered ready access to finance through Cleantech is likely to keep benefiting from the current flood of
state-owned bank loans at low interest rates, as well as money Chinese IPOs across industries. The sector is part and parcel of
for research and development and government power-purchase the China growth story that has made the country the leading
agreements that guarantee demand. generator of IPOs for several years running. It accounted for 36%
As a result of government policies such as these, Chinese of global IPO activity last year, according to Ernst & Young’s Global
cleantech companies can grow quickly by tapping into surging IPO trends report 2011.
demand with significantly lower capital outlays, thus offering The unparalleled government and private sector investment
investors substantial returns. Investors also have confidence in the in cleantech in China is creating an industry that is broad and
stability of government supports. deep, encompassing a range of segments with promising growth
Venture capital firms building the cleantech prospects. These include renewable energy to generation, clean
IPO pipeline water and air, electric vehicles, smart grid, energy storage, energy
As little as three years ago, few if any venture capital firms efficiency and materials science. As the IPO window opens for
deployed specialized teams to invest in cleantech in China. various clean technologies, China will be able to offer strong
Investors had hesitations related to their understanding of companies in each.
clean technologies and the suitability of investing in companies The domestic challenges that China’s cleantech industry is being
that seemed to depend on government subsidies. However, developed to address — growing energy consumption, energy
their views changed when it became clear that the Chinese security, resource scarcity, environmental degradation and carbon
Government was determined to transform the nation’s economy dioxide emissions — are also the world’s. China, however, is at the
to address critical issues with regard to energy and resource leading edge of these issues in terms of their size and urgency.
scarcity, pollution and carbon emissions, while making cleantech The cleantech companies that succeed in China will thus be well
a source of innovation and jobs. positioned to compete on a global stage.
Today, both international and domestic venture capital firms see
opportunities to leverage government policies in their cleantech
investments and to help China’s cleantech sector transform from
one based on low-cost manufacturing to one succeeding through
innovation. In 2010, Chinese cleantech companies received
US$410 million in venture financing, according to Dow Jones
VentureSource, making China the third-largest cleantech venture
market after the US and Europe.

3 For a more detailed discussion of Chinese government policy, see “National strategies for
competitive advantage and growth through cleantech,” p. 12 of this report.

36
Figure 1. 2010 Chinese pure-play cleantech IPOs

IPO proceeds Market cap

Issuer name Cleantech segment Primary exchange (US$m) (US$m)

Xinjiang Goldwind Science & Technology Co. Ltd. Wind Hong Kong Stock Exchange $1,053.6 $6,107.6

China Datang Corp Renewable Power Co. Ltd. Wind Hong Kong Stock Exchange $642.2 $2,140.9

China Suntien Green Energy Corp. Ltd. Wind Hong Kong Stock Exchange $424.7 $1,055.3

Shanghai Chaori Solar Energy Science & Technology Co. Ltd. Solar Shenzhen $356.0 $1,421.7

China Ming Yang Wind Power Group Ltd. Wind NYSE $350.0 $1,750.0

Risen Energy Co. Ltd. Solar Shenzhen $278.3 $1,082.4

Trony Solar Holdings Co. Ltd. Solar Hong Kong Stock Exchange $256.8 $885.7

Xiamen Changelight Co. Ltd. Energy efficiency products Shenzhen $195.8 $783.3

Titan Wind Energy (Suzhou) Co. Ltd. Wind Shenzhen $194.5 $769.7

Shanghai Taisheng Wind Power Equipment Co. Ltd. Wind Shenzhen $139.0 $555.9

ZheJiang Sunflower Light Energy Science & Technology Co. Ltd. Solar Shenzhen $126.5 $1,262.4

Power and efficiency

Dalian East New Energy Development Co. Ltd. Shenzhen $122.4 $481.5
management services

Shenzhen Green Eco-manufacture Hi-tech Co. Ltd. Environment Shenzhen $109.3 $437.3

Beijing Easpring Material Technology Co. Ltd. Energy storage Shenzhen $105.5 $422.0

China Hydroelectric Corp. Hydro NYSE $96.0 $766.9

Daqo New Energy Corp. Solar NYSE $87.4 $322.5

Chaowei Power Holdings Ltd. Energy storage Hong Kong Stock Exchange $71.5 $280.1

Figure 2. 2010 Chinese pure-play IPOs by segment

Proceeds
Cleantech segment IPOs Pct. (US$m) Pct.
Energy efficiency products 3 15% $240.7 5%
Energy storage 2 10% $177.0 4%
Environment 1 5% $109.3 2%
Hydro 1 5% $96.0 2%
Power and efficiency management services 1 5% $122.4 3%
Solar 6 30% $1,169.2 25%
Wind 6 30% $2,804.0 59%
Total 20 100% $4,718.6 100%

Figure 3. 2010 Chinese pure-play cleantech IPOs by exchange

Market cap.
Exchange IPOs Pct. (US$m)* Pct.
Hong Kong SE 6 30% $10,591 59%
NYSE 5 20% $118 4%
Shenzhen 9 45% $7,216 40%
Total 20 100% $17,925 100%

*Market capitalization at the company IPO date

Source: CapIQ;BNEF

Seizing transformational opportunities Global cleantech insights and trends report 2011 37
Solar opportunity in India

Sanjay Chakrabarti Rober Seiter

India Cleantech Leader EMEIA Cleantech Leader
Ernst & Young Ernst & Young

India has closely followed China in its economic growth in the last intent but a well-drafted operational plan. The mission document
decade. Economic prosperity, along with growing urbanization comprehensively covers various particulars, such as project
and changing lifestyles, has resulted in an almost insatiable need allocations, manufacturing, research and development, and skills
for energy. India’s electricity requirement is expected to grow enhancement.
about 7% over the next 10 years. To meet this demand will require
The NSM was formally launched in January 2010. At the launch,
both conventional and renewable sources of energy. While India’s
the Prime Minister of India, Dr. Manmohan Singh, emphasized the
current electricity mix is dominated by conventional fossil-based
importance of solar energy by stating that in India’s renewable
generation, renewable energy is fast emerging as a sustainable
strategy, the sun should occupy center stage, literally being
alternative that is beneficial to the environment — and to the
the original source of all energy. He stated that the objective
economy. In India, renewable energy is not only about going green
of the solar mission is “to establish India as a global leader in
but is also spurred by another key consideration — energy security.
solar energy by creating the policy conditions for its diffusion
The renewable energy installed capacity in India has grown at a across the country as quickly as possible.” The mission has set
CAGR of about 24% over the last five years to reach approximately out phased targets for off-grid as well as grid-connected solar
17,000MW at present. Today, renewable energy sources account power by 2022. According to Ernst & Young estimates, achieving
for about 10% of the total installed power generation capacity in these objectives will require a cumulative investment in the
India.1 However, in terms of electricity units (kWh) generated, it range of INR2,500 billion to INR3,000 billion (US$55 billion to
accounts for only 3%–4%. The Indian Government aims to increase US$66 billion) by 2022.
this to 10% by 2015 and 15% by 2020. Until now, wind has
Figure 1. Cumulative installed solar capacity roadmap
dominated renewable energy generation in India, accounting for a
share of about 70%. 20,000

Solar potential in India

India has abundant solar potential. Many parts of the country
receive substantial sunlight for more than 300 days a year. The
average annual insolation ranges from approximately 1,460 kWh
per square meter to 2,555 kWh per square meter, depending upon
the location. While the total potential in GW terms would depend
on the amount of area that can be used for solar installations, it
is estimated to be greater than 100GW. Thus, based on current 4000
estimates, solar has the highest potential among renewable 2,000
1000 1000
energy sources in India. However, the grid-connected installed 200
capacity stands at a mere 10MW–15MW at present. Consequently, FY13 FY17 FY22
solar power has experienced the greatest gap between
potential and achievement. To harness this potential, the Indian Off-grid Grid connected
Government launched the National Solar Mission

National Solar Mission (NSM) Source: Bloomberg New Energy Finance

India is thinking big on solar. The NSM envisages an ambitious
target of achieving 20,000MW in 10 years’ time. The magnitude
Following the launch of the solar mission, the Government
of the mission can be better understood in view of the fact that the
released detailed guidelines and incentives for solar power
entire global solar installation in 2009 was just above 20,000MW.
projects broadly covering three categories of projects: (1) off-grid
It is also worth noting that the NSM is not just an announcement of
and decentralized solar applications; (2) rooftop photovoltaic (PV)
installations and small solar generation (RPSSGP); and (3) grid-
1 In India, only the small hydropower projects (less than or equal to 25MW) are accounted
for under renewable energy installed generation capacity from an administrative and connected solar power projects (PV as well as thermal).
accounting perspective. If all hydropower capacity is taken into account, the share of
renewable energy becomes about 32% of total installed power generation capacity.

38
For the first scheme, the financial support entails a combination Figure 2. Allocation of solar projects by state under current phase
of one of or both a 30% subsidy and a 5% interest-bearing loan. of NSM
Solar PV systems up to a maximum capacity of 100 kWp per
Total PV Total CSP Percent
site and off-grid and decentralized solar thermal applications allocations allocations share of
would be eligible. For mini-grids for rural electrification State (MW) (MW) Total total
applications, projects up to a maximum of 250KW per site would Rajasthan 141 430 571 81%
be considered. About 20MW worth of solar projects have been Andhra Pradesh 15 50 65 9%
sanctioned under this scheme so far. Gujarat 0 20 20 3%
The second scheme, RPSSGP, aims to promote rooftop solar PV Maharashtra 16 0 16 2%
and other small solar power plants connected to the distribution Karnataka 10 0 10 1%
network at voltage levels below 33kV. The Government support Punjab 7 0 7 1%
here would be in the form of generation-based incentives (GBI).
UP 5 0 5 1%
The GBI would be the difference between the tariff determined
TN 5 0 5 1%
by the Central Electricity Regulatory Commission (CERC) and
Orissa 5 0 5 1%
a base rate, which has been fixed at INR5.5 per KWh (US$0.12
per KWh) for fiscal year 2010–11. The RPSSG program, which is Total 204 500 704 100%

being administered by the Indian Renewable Energy Development Source: NVVN website, EY analysis
Agency (IREDA), targets 100MW solar capacity. Eighty projects
totaling about 98MW have been approved to date. Renewable purchase obligation (RPO) to
The third program, which is also the largest, is for grid-connected fuel growth
solar power projects. Here the government has put in place a The Government’s RPO policy is designed to ensure that electricity
mechanism for assured off-take of solar power generated through distribution licensees purchase a portion of their electricity from
the projects. NTPC Vidyut Vyapar Nigam Ltd. (NVVN), a public renewable sources. RPO targets will be announced by the different
sector entity, will act as the central agency and will purchase states depending on their renewable energy potential. States will
power from the solar power project developers. This will be gradually assume solar-specific obligations within the overall RPO.
bundled with electricity from conventional sources and sold to The NSM policy document envisages a solar-specific RPO target of
distribution utilities. Feed-in tariffs (FITs) will be announced by the 3% by 2022. Ernst & Young estimates that, with a target range of
CERC on an annual basis. The tariffs for fiscal year 2010–11 have 2%–3% solar RPO, India would need about 17.5GW–26.2GW of solar
been set at INR17.9 (US$0.39)/kWh for solar PV and INR15.3 power by 2022, which substantiates the NSM target of 20GW.
(US$0.34)/kWh for solar thermal. Figure 3. Solar capacities required by 2022 to meet the
Diverse sectors of corporate India have shown significant RPO estimates
interest in participating in the grid-connected projects. The first
Solar-specific RPO Solar installed capacity
phase of bidding for such projects received 418 applications by 2022 (%) requirement (GW)
for a cumulative 150MW in solar PV projects and 470MW in Case 1 2% 17.5
solar thermal projects. NVVN has selected 37 companies for
Case 2 3% 26.2
development of solar power projects, based on the reverse
bidding. Of the 37 companies, 30 will be developing 5MW of solar Source: EY analysis
PV projects each, totaling 150MW, while seven will develop a total
The RPO policy will be supported by a renewable energy
of 470MW of solar thermal plants. The Government had previously
certificate (REC) mechanism that is similar to the carbon credit
approved the migration of 16 projects totaling 84MW from earlier
mechanism. The REC mechanism was launched recently and will
schemes to the NSM. The winning bidders offered discounts of
enable states with relatively lower renewable energy potential to
30%–40% for solar PV and 20%–30% for solar thermal projects
meet their RPO targets by buying RECs from other states. Each
compared to the respective CERC-determined base tariffs. There
REC will represent 1MWh of electricity from renewable sources,
is an implicit hope that the Government of India will play an
with a fixed floor price of INR12,000 (US$264) for solar RECs
important role in driving down the cost of solar generation, as it
and INR1,500 (US$33) for non-solar. The mechanism should
did in the telecom sector.
encourage states to turn their attention to harnessing their
Overall, the state of Rajasthan leads the allocations and is renewable potential. Rolling out supportive policies, such as those
emerging as the clear favorite among project developers with on RPO and REC, emphasizes the Government’s determination to
571MW or an overwhelming 81% of the total allocations of promote renewable energy.
704MW made so far, including the projects that have migrated.

Seizing transformational opportunities Global cleantech insights and trends report 2011 39
Enhancing domestic manufacturing went ahead and signed the power purchase agreements (PPAs)
The NSM also aims to boost India’s domestic manufacturing for procurement of approximately 420MW of solar power. The
capability with regard to components and equipment required Gujarat state government has also signed a Memorandum of
by solar power plants. The NSM targets a 4GW–5GW equivalent Understanding with the Clinton Climate Initiative to set up five
manufacturing capacity by 2020, including poly-silicon for which solar parks with a cumulative capacity of 3,000MW. In a separate
India currently relies on imports. As far as possible, project initiative, the foundation stone was recently laid for a 500MW
developers are expected to procure their project components solar PV park in the state. In the first phase, projects amounting
from domestic manufacturers. The NSM also lays down certain to 176MW are expected to be commissioned by 16 developers
requirements with respect to domestic content required in within six months time. The state also plans to set up facilities for
solar projects. For example, for the first batch of the grid- solar power-related manufacturing and research and development
connected solar PV projects (selected during FY 2010–11) as part of the park. A total investment of about INR100 billion
based on crystalline silicon technology, it will be mandatory (US$2.2 billion) is envisaged for developing the park.
to use modules manufactured in India. Solar thermal projects Elsewhere, the states of Rajasthan and Madhya Pradesh have
under the first phase of NSM are required to employ 30% of local released their draft solar policies, which are likely to be finalized
content in all plants or installations. These requirements may be shortly. Rajasthan has one of the highest solar potentials in India,
increased in subsequent phases. The Government is providing and its 2010 draft solar policy targets a solar power capacity of
subsidies, tax incentives and efficient approval mechanisms 10GW–12GW over the next 10 to 12 years.
to facilitate manufacturing in India. The country is thus set to
witness significant progress in domestic solar component and The state of Maharashtra became the first state to introduce a
equipment production. solar-specific component as part of its RPO. The state directed
power-distribution license holders to obtain 0.25% of their
In a related policy initiative, the Government had earlier launched electricity from solar power. Regulatory authorities in other states
a semiconductor policy aimed at promoting semiconductor and are also expected to introduce such solar-specific obligations.
solar PV manufacturing. The policy offered a capital subsidy of
20% for manufacturing plants in special economic zones (SEZs) The overall state solar play is important as it provides additional
and 25% for those outside SEZs. The subsidy is based on the opportunities for solar project developers and product
condition that the net present value of the investment should be manufacturers. The roll-out of projects under state policies would
at least INR10 billion (US$220 million). Many large players have be in addition to the NSM and could result in the solar power
expressed an interest in setting up facilities under this policy. installed capacities exceeding the target of 20GW by 2022.
However, in the past year, the Government’s concentrated focus Focus shifts to financing and execution in 2011
on project development has to some degree kept this initiative on After the substantial number of solar project allocations in 2010,
the back burner. the focus now shifts to the financing and execution of these
State solar policies projects. Contribution and commitment are required from all
In addition to the solar mission at the national level, various stakeholders, including the Government, project developers,
Indian states have taken independent steps toward harnessing engineering/procurement/construction players, equipment
state solar potential. According to a study being conducted by suppliers and financing agencies. The successful execution of the
the Indian Institute of Science (IISc), the states of Rajasthan, first set of projects is imperative for the rapid scale-up of solar
Gujarat and Karnataka have been identified as suitable for large capacities going forward.
commercial-scale solar plants whereas the states of Kerala,
Jharkhand, Uttar Pradesh and Andhra Pradesh are more suited
for smaller applications.

Among the states, the western state of Gujarat has taken the
lead. It announced its state solar policy in 2009 and since that
time, has allocated about 700MW of solar power projects. It then

40
 Interview
The next innovation wave:
by and for emerging markets
Professor Martin Haemmig
Senior Advisor on Venture Capital
Stanford University — SPRIE

Dr. Martin Haemmig specializes as international innovation massive problems in the hinterlands, where basic infrastructure,
and commercialization researcher, lecturer and advisor on the education and modern communication are missing by any
globalization of venture capital. The Stanford Program on Regions dimension for several hundred million people. In addition, there
of Innovation and Entrepreneurship (SPRIE) is dedicated to is an endless demand for unlimited products and services for the
the understanding and practice of the nexus of innovation and masses at the bottom of the pyramid at a fraction of the current
entrepreneurship in the leading regions around the world. market prices, hence the quest is “more for less for more,” in the
words of C.K. Prahalad.
Ernst & Young: While emerging market countries are
experiencing fast growth, the conventional wisdom is that local Ernst & Young: Won’t Western entrepreneurs see and pursue the
innovation has not progressed at the same pace. Is that a fair same opportunities?
assessment?
Martin Haemmig: Western innovators and corporations are
Martin Haemmig: Not only do China, India, Brazil, Russia and not exposed to such problems and thus are likely unable to find
other countries offer companies fast-growth prospects; they also simple and affordable solutions. Hence, the innovation for the
generate opportunities for developing new products, services, opportunities above will have to come from locals who grew up
manufacturing techniques and business processes. Innovation and/or live in such environments.
doesn’t happen in black boxes. It happens in markets.
Plenty of new entrepreneurial start-up companies with simple and
In the Western world and mindset, research on innovation tends affordable solutions can fix many of the mega-problems in these
to overemphasize patents, inventions and scientific publications high-growth and populous nations, and they will benefit from
coming out of research labs and large multinational firms. High- economies of scale that are unprecedented. The domestic markets
growth businesses in the BRIC and other countries focus on the will first be used to test and deploy new solutions en masse,
middle layer of the innovation game, where products, processes followed by a rollout from their own emerging market to other
and know-how converge. In addition, businesses in emerging emerging nations. Since this new group of entrepreneurs may not
markets adapt to the local market environment and user-level be sufficiently trained to compete in the most advanced foreign
needs and are likely adding a business twist, which is completely markets, they will have a chance to learn the traits of international
novel and often the key element of innovation. business in other emerging nations first, likely in the absence of
any serious competition.
The aspiration of most governments and rising entrepreneurs in
the new high-growth BRIC countries is to conquer the Western With Chinese and Indian citizens dispersed all over the world
markets with new products, services, manufacturing techniques in Asia, Africa, the Middle East and Latin America, product
and business processes. The larger corporations will likely have adaptation and localization, distribution channels, service and
the means to do this over time, as great examples have already support will be done in a new way, where Western multinational
proven themselves to be truly global players among their Western firms or even local players will have little or no chance to compete,
peers (Huawai, ZTE, Tata, Infosys, Bharti Airtel, Ranbaxy, given the economies of scale and the understanding of local
Embraer, Kaspersky Laboratories, SAB Miller and so on). and consumer needs by their like-minded country fellows as
business partners.
However, the next wave of innovation will stem from a new
generation of entrepreneurs in these high-growth nations, Ernst & Young: How would you characterize these emerging-
who will be leading innovative companies, driven by unique market to emerging-market innovations and what impact will they
opportunities in their local markets. The drivers are provided have in Western markets?
by their high-growth environment, such as the development of
Martin Haemmig: These innovations do not yet involve
dozens of mega-cities from scratch over the next decades at a
transformational technological shifts — such inventions remain
pace with which Westerners have no experience. New concepts
the preserve of the developed world with its long-established
and processes for water, electricity, transportation, municipal
waste and so forth will have to be found. Then there are the Continues on page 42

Seizing transformational opportunities Global cleantech insights and trends report 2011 41
 Interview
Funding cleantech: learning
from the UK’s social impact bond
Chris Meyer
Founder and CEO
Nerve LLC

Christopher Meyer is a founder of Monitor Talent. Chris’ mission is if, the reoffending rates fall by 10% or more, the Ministry will make
to anticipate and shape the future of business. He has pursued this payouts to the bondholders. These would rise in proportion to the
goal as entrepreneur, executive, consultant, author and as leader results, but at a 10% reduction, the investment would return 7.5%
of a think tank. Chris’ fourth book, Standing on the Sun, will be annually, compounded over eight years.
published by Harvard Business School Press in November 2011.
The idea works for three reasons: (1) it specifies the outcomes
Ernst & Young: Around the world, the cleantech industry looks desired in measurable terms; (2) it transfers the risk that the
to government to play the role of demonstration customer, program won’t work from the government to the investors, so that
financial incentive provider or guaranteed source of demand for the only commitment government makes is to pay for bankable
innovative solutions. But how can government, hemmed in by both results; and (3) it offers philanthropists, who are increasingly only
straightened finances and political controversy about the value of interested in funding measurable results, what they are looking
cleantech, make such a wide range of commitments? for. An added benefit: over time, the social investors who pick
effective programs get their money back to invest again while the
Chris Meyer: The question arises not just in cleantech, but with
less skillful are penalized.
respect to many social goals. But an innovation in finance called
a social impact bond is creating new options. In the first pilot How might this apply to cleantech? Again, there are social goals
of this arrangement, a philanthropic organization called Social in which private parties and government bodies share an interest,
Finance focused on the recidivism rate in UK prisons. It proposed and unproven approaches to reaching them. Perhaps instruments
that investing £50 million in rehabilitation work would cut the could be created to monetize government commitments to pay
reoffending rate from 60% to 48%, allowing four prisons to be for results; this might de-risk cleantech investments to attract
closed within five years and saving £62 million in annual costs. patient, private capital without asking government to take a role it
The Justice Ministry would, of course, welcome such an outcome, cannot sustain.
but cannot fund the program. The bond provides that if, and only

Continued from page 41

universities and commercial laboratories. But the emerging world Watch the “new generation” of entrepreneurs one or two
is spawning product improvements with commercial implications decades from now as they get business savvy in other emerging
that are game changing. They do not win Nobel prizes but they do markets and as they gain confidence and have loads of cash
make money. The innovations may be simple or incremental, but available. They’ll identify a niche where there is demand for
the effects are not. radical innovation and then rapidly introduce changes and start
challenging leading players to catch up. The top entrepreneurial
In the past, technology was developed in the Western world
innovators will benchmark the best in their businesses, as well
and deployed in emerging markets, often as product-life cycle
as in the other lines of business. They’ll combine ideas and
extensions. Later, however, these markets moved up the value
technologies in novel ways, rather than developing products from
chain by adding process and improvements and leveraged some
scratch. They are using the “principle of the pressure point,”
of their inherited strength, and then went back to the Western
which is the tactic of expanding strategically via cost-innovation
countries as fierce competitors. There is a precedent: in the
into the area where the global players are weaker and chipping
1970s, Japanese groups advancing in world markets were often
away at adjacent sectors. The most successful of them focus on
dismissed as low-cost, low-quality copycats. But later, they were
high-growth opportunities.
recognized as innovators, notably in miniaturization and just-in-
time manufacturing. Japanese companies are themselves now The danger for many Western multinationals is that they don’t see
under pressure from revived Western groups and new Asian rivals the emerging market innovations coming because they are not yet
(remember the four tigers?), and today, their innovations are coming directly into their home markets. However, they will, as
imitated everywhere by the new high-growth nations — China, history has proven.
India, Brazil, Russia and others.

42
Middle East and North Africa outlook

Nimer AbuAli Thomas Christiansen

Middle East Cleantech Leader EMEIA Cleantech Operations Manager
Ernst & Young Ernst & Young

Ernst & Young co-hosted the first annual Project Village at the to ensure a safe water supply for residents. Innovative and low-
2011 World Future Energy Summit (WFES) in Abu Dhabi, home cost desalination, filtration and efficiency technologies are being
to the future Masdar City, the green city being built to research, introduced in rapid order.
develop and showcase clean technologies. Hosted by Masdar, the
Abu Dhabi government-owned company that is developing Masdar
Government: both driver and barrier
Asked to identify the major drivers for the development of
City, WFES attracted 26,000 attendees from more than 100
clean technologies in MENA, a full 88% of respondents said that
countries. Project Village is designed to give renewable energy
government policy was a primary driver for cleantech growth
project developers a platform for presenting their projects to
(see Figure 2).
potential investors.
Indeed, MENA countries, both rich and poor in petroleum
To gauge sentiment regarding cleantech development in the
resources, are pursuing significant cleantech initiatives. One
Middle East and North Africa (MENA), Ernst & Young surveyed 100
example is Abu Dhabi itself, which possesses significant oil and
Project Village visitors on their views of clean technologies and
gas reserves, but is still heavily promoting clean technologies as
their implementation in the region. The majority of respondents
it seeks to diversify its energy-related revenue sources. Another
(54%) were representatives of cleantech manufacturers;
example is Jordan, which has few conventional oil and gas
respondents also included executives from cleantech investment
reserves except for oil shale. It is aggressively seeking to diversify
firms, government, utilities and service providers. The survey
its domestic energy supply using solar energy.
provides insight into the outlook of active cleantech players
regarding the MENA region, as represented by WFES participants At the same time, the largest percentage of respondents (39%)
and exhibitors. identified insufficient government support as the single most
important barrier to the development of renewable energy globally
Key technologies: solar, green building, water (see Figure 3). Another 31% said the price competitiveness of
In general, the respondents were highly optimistic about the
market prospects for a number of technologies in the MENA
region. The respondents were nearly unanimous in their view Figure 1. Likely areas of MENA cleantech leadership
that the region would become a leading global center for solar
thermal energy and photovoltaic technologies, with 97% and 94%
What is the likelihood that the MENA region will be one of
respectively, indicating strong potential for manufacturing and
the leading global regions in manufacturing or implementing
implementation over the next five years (see Figure 1). Given that  
   
solar irradiance levels in this region are among the highest in the
world, this projection is very plausible. However, neither technology
Solar thermal
is established at scale in the region, suggesting that respondents energy 97%
expect a very rapid adoption curve over the coming years.
Photovoltaics 94%
Green building is another technology area in which respondents
said that MENA would likely take a leading role. This optimism
seems realistic given that Masdar City is among the world’s most Green building 89%
ambitious plans for the deployment of green building technology
Waste to energy
and architecture. Many countries in MENA have rapidly expanding 85%
and recycling
populations that are spurring new building activity. This offers
the chance for clean technologies to be integrated into newly Water
technologies 83%
constructed buildings, neighborhoods and even entire cities.

The MENA region is also expected to be a leading region for Wind 58%
developing water technologies. The region is faced with rapidly
expanding populations and overtaxed local water resources. As a Carbon capture
and storage 52%
result, governments and utilities are investing increasing amounts

Seizing transformational opportunities Global cleantech insights and trends report 2011 43
renewable compared to traditional sources was the most important the level of coordination involved, the respondents surveyed at
barrier. This too has a government dimension, given government’s WFES are exceptionally positive on the EU-MENA electricity grid.
role in establishing a competitive environment for energy sources.
Positive MENA investment outlook
Bullish on Desertec While the impact of ongoing political events in the region on
Survey respondent were bullish on one project with heavy cleantech remains to be seen, our sampling of WFES participants
government involvement — the Desertec/Transgreen/ suggests that the prospects for continued MENA cleantech
Mediterranean Solar Plan. Involving more than 40 countries development are good, with 65% of respondents expecting
around the Mediterranean, this initiative calls for the creation of investment to increase over the next five years and another 29%
a high-voltage supergrid to pipe solar power from the Sahara to expecting it to increase strongly in this period.
the energy markets of Europe. Queried about the initiative, 89% of
respondents felt that the program would be realized, either fully as
planned or at a reduced scale. Given the nature of the projects and

Figure 2. Drivers of cleantech development in MENA Figure 3. Single most important barrier to development of
renewable energy

What will the main drivers of cleantech growth in MENA be?   
 
! 
  

Government '+#
88% 9% 97% 

policy 
!  ;

#   4%

Water scarcity 63% 23% 85% 5%
! 4%

Global climate 

64% 20% 84%  39% 
change response 16%


Reduce use 50% 32% 82%

Grow business
49% 33% 82% 31%
revenues

Solar "

opportunities 50% 21% 79%
!!
 

Major driver Driver

44
Global cleantech leadership network

Global Cleantech Center

Gil Forer, Global Cleantech Leader . . . . . . . . . .New York . . . . . . .+1 212 773 0335 . . . . . . . . . . . . . . . . . . . . . [email protected]
Scott Sarazen, Global Markets Leader. . . . . . .Boston . . . . . . . . .+1 617 585 3524 . . . . . . . . . . . . . . . . [email protected]
Ben Warren, Energy and Environmental . . . . .London . . . . . . . .+44 20 7951 6024. . . . . . . . . . . . . . . . . [email protected]
Infrastructure Leader
Paul Naumoff, Global Cleantech and . . . . . . . .Columbus . . . . . .+1 614 232 7142 . . . . . . . . . . . . . . . . [email protected]
CCaSS Tax Leader
John de Yonge, Director, Account . . . . . . . . . .New York . . . . . . .+1 201 872 1632 . . . . . . . . . . . . . . . [email protected]
Enablement

Americas
Jay Spencer. . . . . . . . . . . . . . . Americas . . . . . . . . . . . . . . . . . . .+1 617 585 1882 . . . . . . . . . . . . . . . . . . [email protected]
Cynthia Orr . . . . . . . . . . . . . . . Canada . . . . . . . . . . . . . . . . . . . . .+1 604 643 5430 . . . . . . . . . . . . . . . . . [email protected]
Ray Mikovits . . . . . . . . . . . . . . Financial Services . . . . . . . . . . . .+1 212 773 8366 . . . . . . . . . . . . [email protected]
Itay Zetelny . . . . . . . . . . . . . . . Israel . . . . . . . . . . . . . . . . . . . . . . .+972 627 6176. . . . . . . . . . . . . . . . . . [email protected]
Greg Kuykendall . . . . . . . . . . . East Central. . . . . . . . . . . . . . . . . .+1 703 747 1098 . . . . . . . . . . . . . . [email protected]
Paul Chevalier . . . . . . . . . . . . . Midwest . . . . . . . . . . . . . . . . . . . .+1 313 628 8220 . . . . . . . . . . . . . . . . [email protected]
Sean Riegler . . . . . . . . . . . . . . Northeast . . . . . . . . . . . . . . . . . . .+1 860 725 3820 . . . . . . . . . . . . . . . . [email protected]
Matthew Sapp . . . . . . . . . . . . . West. . . . . . . . . . . . . . . . . . . . . . . .+1 408 947 5758 . . . . . . . . . . . . . . . . [email protected]
Steven McCabe . . . . . . . . . . . . Southeast . . . . . . . . . . . . . . . . . . .+1 404 817 5573 . . . . . . . . . . . . . . . . [email protected]
Lisa Shepard . . . . . . . . . . . . . . Southwest . . . . . . . . . . . . . . . . . . .+1 713 750 8466 . . . . . . . . . . . . . . . . [email protected]
Daniel Maranhão . . . . . . . . . . . South America: Brazil . . . . . . . . .+55 11 3054 0000 . . . . . . . . . [email protected]

EMEIA (Europe, Middle East, India and Africa)

Robert Seiter . . . . . . . . . . . . . EMEIA/Germany . . . . . . . . . . . . . .+49 30 25471 21415. . . . . . . . . . . [email protected]
Philippe Grand . . . . . . . . . . . . France . . . . . . . . . . . . . . . . . . . . . .+33 4 7817 5732 . . . . . . . . . . . . . . [email protected]
Alexis Gazzo . . . . . . . . . . . . . . France . . . . . . . . . . . . . . . . . . . . . .+33 1 4693 6398 . . . . . . . . . . . . . . [email protected]
Marcel Schwab . . . . . . . . . . . . Germany: Central/Frankfurt . . . .+49 6196 996 27531 . . . . . . . . [email protected]
Stefania Mandler . . . . . . . . . . Germany: Northeast . . . . . . . . . .+49 341 2526 23583 . . . . . . . [email protected]
Jan-Menko Grummer . . . . . . . Germany: Northeast . . . . . . . . . .+49 40 36132 11478. . . . . [email protected]
Peter Lennartz . . . . . . . . . . . . Germany: Northeast . . . . . . . . . .+49 30 25471 20631. . . . . . . . . . [email protected]
Gert von Borries . . . . . . . . . . . Germany: South . . . . . . . . . . . . . .+49 89 14331 17200 . . . . . . . [email protected]
Dr. Eckart Wetzel. . . . . . . . . . . Germany: Southwest . . . . . . . . . .+49 761 1508 23131 . . . . . . . . . . [email protected]
Markus Senghaas . . . . . . . . . . Germany: West . . . . . . . . . . . . . . .+49 221 2779 25652 . . . . . . [email protected]
Ludger Weigel . . . . . . . . . . . . . Germany: Advisory. . . . . . . . . . . .+49 40 36132 12456. . . . . . . . . . . [email protected]
Sanjay Chakrabarti . . . . . . . . . India. . . . . . . . . . . . . . . . . . . . . . . .+91 22 4035 6650. . . . . . . . [email protected]
Andrea Paliani . . . . . . . . . . . . Italy . . . . . . . . . . . . . . . . . . . . . . . .+39 02 80669761 . . . . . . . . . . . . . [email protected]
Michael Hasbani . . . . . . . . . . . Middle East . . . . . . . . . . . . . . . . . .+97 1 43129141. . . . . . . . . . . . [email protected]
Nimer AbuAli . . . . . . . . . . . . . Middle East . . . . . . . . . . . . . . . . . .+97 1 24174566. . . . . . . . . . . . . . . . [email protected]
Wolfgang Paardekooper . . . . Netherlands . . . . . . . . . . . . . . . . .+31 10 406 8159 . . . . . [email protected]
Karsten Boeael . . . . . . . . . . . . Nordics (Denmark) . . . . . . . . . . . .+45 35 87 29 44. . . . . . . . . . . . . [email protected]
Roger Müller . . . . . . . . . . . . . . Switzerland . . . . . . . . . . . . . . . . . .+41 58 286 3396 . . . . . . . . . . . . . . [email protected]
Steven Lang. . . . . . . . . . . . . . . UK and Ireland . . . . . . . . . . . . . . .+44 207 951 4795 . . . . . . . . . . . . . . . . . . . [email protected]
Thomas Christiansen . . . . . . . EMEIA Operations Manager . . . . .+49 711 9881 14464. . . . . [email protected]

Asia Pacific
Paul Go . . . . . . . . . . . . . . . . . . Greater China . . . . . . . . . . . . . . . .+86 10 5815 3688 . . . . . . . . . . . . . . . . . [email protected]
Deirdre Rose . . . . . . . . . . . . . . Brisbane . . . . . . . . . . . . . . . . . . . .+61 7 3011 3550 . . . . . . . . . . . . . . . [email protected]
Patrick Lavery . . . . . . . . . . . . Brisbane . . . . . . . . . . . . . . . . . . . .+61 7 3243 3694 . . . . . . . . . . . . patrick.lavery@ au.ey.com
Anne-Marie Perret . . . . . . . . . Canberra . . . . . . . . . . . . . . . . . . .+61 2 6267 3848 . . . . . . . . [email protected]
Adrian Gibby . . . . . . . . . . . . . . Melbourne . . . . . . . . . . . . . . . . . .+61 3 8650 7281 . . . . . . . . . . . . . [email protected]
Adam Green . . . . . . . . . . . . . . Melbourne . . . . . . . . . . . . . . . . . .+61 3 9655 2971 . . . . . . . . . . . . . . [email protected]
Peter Ferguson . . . . . . . . . . . . Perth . . . . . . . . . . . . . . . . . . . . . . .+61 8 9429 2186 . . . . . . . . . . . . [email protected]

Seizing transformational opportunities Global cleantech insights and trends report 2011 45
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About Ernst & Young’s Global Cleantech Center
From start-ups to large corporations and national
governments, organizations worldwide are embracing
cleantech as a means of growth, efficiency, sustainability
and competitive advantage. As cleantech enables a variety
of industries, old and new, to transform and be part of
a more resource-efficient and low-carbon economy, we
see innovation in technology, business models, financing
mechanisms, cross-industry partnerships and corporate
adoption. Ernst & Young’s Global Cleantech Center offers
you a worldwide team of professionals in assurance, tax,
transaction and advisory services who understand the
business dynamics of cleantech. We have the experience
to help you make the most of opportunities in this
marketplace, and address any challenges. Whichever
sector or market you’re in, we can provide the insights you
need to realize the benefits of cleantech.

© 2011 EYGM Limited.

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EYG No. FW0009

CSG NY 1101-1219843

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