Cleantech Group's Ten clean technology predictions for 2010

For several years now, as each year comes to a close, we’ve been issuing predictions for the coming one.

While we certainly acknowledge we’ve not necessarily gotten each one right in years past, a great number of our predictions have proved prescient (see Eight cleantech developments to watch for in 2008 [1] and Nine clean technology predictions for 2009 [2]).

Why such a good record? We’re fortunate to be able to formulate these predictions from our unique position at the heart of the global clean technology value chain. The trends we’ve identified here are informed by the Cleantech Group’s global network [3] of relationships, from our newsgathering [4], research [5] and advisory [6] activities, and from speaking at or attending dozens of high profile conferences internationally—including all five of the Cleantech Group’s own worldwide Cleantech Forums® [7] every year. As a company, we speak to entrepreneurs, investors, corporate executives and service providers on a daily basis.

What we’ve heard in the marketplace has been synthesized and threaded together with our own data [8], collected on the cleantech industry since 2002, and our ongoing research to inform this mix of viewpoints on financials, politics, sectors, industries and geographies.

What follows is an abridged version of a more detailed document available to members of the Cleantech Network (see Ten predictions for 2010 [9] - member login required). Members receive more context and data supporting the below.

Private capital growth recovers, record fund year
All in all, given the global recession, 2009 was not such a bad year for cleantech investing. Global cleantech venture capital flows (startups and growth) receded to around 2007 levels, still the second highest amount ever, and in the U.S., cleantech pulled ahead as the largest single venture investment theme in 2Q09 and 3Q09, surpassing biotech and software (it’s easy to forget that only a few years ago cleantech barely registered; it was only 3 percent of all VC/PE in 2004).

In 2009, the pool of investors focused on cleantech continued to widen, yet remained shallow as investors held back on deploying capital.

We predict global venture and private equity in cleantech in 2010 will exceed that in 2009, and exceed it by a healthy margin. We also think 2010 will be a record year for general partner fundraising. The sector has gone from $100M funds to $250M funds to $500M funds over the past six years since Cleantech Group identified and defined the asset category in 2002.

Further, watch for more blockbusters like Khosla Ventures’ September $1.1 billion new fund announcement. And watch for greater capital formation in Asia, particularly in China with domestic RMB capital joining with international counterparts. Above all, watch for greater innovation in fund strategies, for example those that bring “innovation and infrastructure” together or those that focus on cross-border plays.

Clean economies become the new space race
Agreement on a new global climate regime, as well as one in the U.S., will make halting progress over the coming year, likely disappointing many. Yet the race to dominate the emerging clean economy has already begun and will accelerate regardless. This race will become front-of-mind in 2010, simultaneously impeding, eclipsing and hopefully fostering attempts to reach climate accords.

Fueled by unprecedented quantities of “green and clean” stimulus money, cities, states, provinces and countries are now competing to grow cleantech businesses, to bring innovation to market, to attract inward investment and to brand themselves as hubs of cleantech growth. It’s no longer about trading our way out of the carbon crisis, it’s about inventing new industries.

Look out for changes in momentum, admittedly starting from very different starting points, from places such as Australia, Singapore, France, Germany, Scandinavia, Israel, parts of the U.S., Ontario in Canada, Maharashtra in India and numerous cities planting their flags in clean ground. The downside will be increased protectionism, so companies, investors and export agencies will need to navigate around this with bilateral deals involving research, manufacturing, investment and deployment.

Electric cars take the back seat to smart mobility
In 2009, electric vehicles and hybrids eclipsed fuel cell vehicles as the undeniable new center of gravity of the auto industry. Virtually every car company in Asia, Europe and North America announced ambitious clean car strategies, and many brought new models to market, in addition to startups funded by venture capitalists.

In 2010, clean cars will form part of a broader shift to smart mobility. Smart mobility will quickly permeate beyond simply the transport sector, and will be integrated into the new energy paradigm and influence the design of urban systems, even shipping ports. Look increasingly in 2010 for eco-city designs based on concepts such as “new urbanism.” Leading governments around the world will rethink tax systems, fiscal incentives and budgets to encourage greener forms of work and transport based on smart mobility concepts (SNCF, the French state-owned rail operator, set up a fund in 2009 specifically to invest in e-mobility.)

Resource constraints beyond carbon rise to the fore
While the world is understandably fixated with the challenge of moving to a low carbon economy, in 2010 we anticipate more attention will begin to be paid to other natural resource constraints.

Already in 2009, while in a recession, oil prices have touched $80 a barrel, and prices for commodities and precious metals have moved upwards. There are even signs of food price inflation returning with companies such as Cargill calling policymakers’ attention to a looming crisis.

As and when the global economy picks up, the demand for commodities—especially metals, food and oil—will underscore that the natural resource problem hasn’t gone away. In 2010, watch for price spikes that affect cleantech industries, as well as for potential trade conflict over supplies of valuable natural resources. For example, with the rollout of a new generation of EVs in 2010, will there be a shortage of lithium?

With Argentina, Chile and Bolivia much of the known lithium supply, and China controlling some 95 percent of the rare earth elements used in wind turbines, will these become part of these countries’ competitive advantage?

Natural resource scarcities, manifested in rising prices, impact both cleantech industries and society more broadly. Watch for consumer companies, as well as industrial and utility enterprises, to drive more resource-efficient technologies into their operations, production facilities and supply chains in order to preserve or even enhance their profitability.

Commodity tradeoff debates intensify
Associated with rising concerns over the scarcity of natural resources are tradeoffs between how resources should be used. Watch for these tradeoffs to hit the headlines in 2010 and the hunt for solutions to intensify:

• Water-energy
• Land-energy
• Land-water
• Carbon-water

For instance, there are major tradeoffs in choices of transport fuels, with the internal combustion engine being far more water efficient than its fuel cell or biofuel alternatives, for instance. Similarly, in power generation, thermal plants require large amounts of water, and the mining of coal or bitumen is also water intensive. Power plants can substitute some water cooling for air-based systems but their fans can be energy hogs, thereby pushing up overall energy production costs.

The water factor is going to be an increasingly important variable in energy production economics, just as energy and electricity costs are with cleaning and piping water to urban centers, and dry agricultural lands. Indeed, in some places, such as Alberta and Australia, water for coal and oil mining may soon compete with that for food production.

In 2010, expect to see more environmentalists objecting to wind and solar farms for land use and other reasons, stalling more of these projects.

Energy efficiency, driven by ICT, eclipses solar
In the coming year, software-based innovations are going to make up a much larger proportion of cleantech venture and PE investment than they currently do in a wide range of areas related to more sustainable and efficient use of energy, materials and natural resources, from the smart grid to remote sensing to industrial design.

Indeed, information and communication technology (ICT), and smart systems with embedded intelligence everywhere will begin to drive even greater productivity in resource use while reducing toxicity and other pollutants. This will happen at both the macro and small scale, from cities to products.

Major ICT enterprises will further push to brand and position themselves as major solution providers in a carbon, energy and resource-constrained world, accelerating a process increasingly apparent over the past two years. This will be particularly true with anything to do with more efficient use of energy.

The boom in energy efficiency will reach frenzied levels in 2010, driven by increased policy support, such as broader decoupling of utility revenues from power generation, and even recognition of ‘negawatts’ as effectively ‘sources’ of power for regulatory and incentive purposes by the U.S. FERC and other bodies. Private innovation capital/finance in energy-efficient ICT products and services could even eclipse that in solar, we predict.

Marketing suddenly matters
Marketing will take on an increasingly important role in cleantech in 2010. For clean technology vendors in some vertical technology sectors, such as solar and biofuels, an increased number of competitors, commoditized products and ballooning inventories are going to drive investments in marketing. In 2010, it’s going to be important to be able to articulate certain clean technologies’ propositions and differentiation, to consumer or enterprise buyers alike, and telegraph them in shorthand in a brand that stands for something in the mind of the prospect.

Likewise, in 2010, as consumer cleantech goes from cottage industry to mainstream, watch for widespread use of leading edge marketing strategies to take cleantech from B2B to B2C. Companies such as Wal-Mart and Toyota will be joined by organizations ranging from electric utilities to financial institutions in bringing cleantech to the masses.

Finally, for large companies, attention will need to be paid in 2010 to the significant backlash forming against real or perceived greenwashing. Consumer concerns need to be met not just with messaging, but with concrete, meaningful action—for instance, by greening supply chains, sourcing clean technology products, and reinventing products and services.

Buffett leads the super rich into cleantech
In late 2008 and 2009, the world’s most successful investor, Warren Buffett, made four high profile investments that, when stitched together, paint a picture that suggests the super-rich are now ready to play big in cleantech related investments. And that will further increase the awareness of cleantech as an investment sector and decrease the risk of participating in it.

At the height of the economic crisis in the U.S., Buffett invested in Goldman Sachs and GE, the former being arguably the largest institutional investor in cleantech, the later being the most audacious industrial company to embrace cleantech through its highly successful ecomagination initiative. In 2009, he invested in BYD, the Chinese car company that seeks to be a major player in electric cars using its advanced battery technology, turning BYD’s founder into the country’s richest man. His recent acquisition of Burlington Northern Sante Fe was at least partly informed by rail’s superior carbon and energy efficiency over other freight forms, which could be especially significant in a future when fossil fuels powering transport trailers that haul commodities worldwide become increasingly more expensive.

In 2010, Warren Buffett is likely to be joined by other super rich and super savvy, some partially motivated by worries over global warming, to make large scale commitments to cleantech innovation, directly and indirectly. George Soros is but one recently example, joining early players such as Virgin’s Richard Branson.

Acquisitions and consolidations accelerate
Not all will be pretty in cleantech during 2010. There will be losers as well, particularly in sectors and geographies where there has been overinvestment in recent years.

Germany and China are two countries where overcapacity will be most keenly felt and a bloodbath of consolidation and liquidation will surely result. We expect, for example, many wind and solar equipment manufacturers in China to be consolidated or out of business by the end of 2010. That’s despite dramatic growth still expected in the Chinese renewable energy market, and strategic central government support of cleantech crown jewels such as Suntech, Yingli or JA Solar.

The coming year will also likely see an overbuild of capacity in some cleantech sectors that will drive consolidation in 2011. LEDs (light emitting diodes) are poised, for instance, to follow the same bubble and bust seen in the solar PV manufacturing sector.

In 2010, we also expect to see not only corporate acquisitions of nascent cleantech companies but also more corporate acquisitions of other corporate assets. Panasonic’s $4.5B acquisition of Sanyo, first announced in November, 2008 and cleared regulators in 2009, is a leading example of what to expect. Panasonic is seeking to combine its strong balance sheet with Sanyo’s leading market position in solar cells and batteries for electric vehicles. Many such M&As will be seen as corporations create business unit platforms for the emerging cleantech economy by combining a range of tech and non-tech assets acquired from both large and small competitors.

The rise of waste-to-energy, geothermal and aquaculture
Forecasting specific hot cleantech investment segments for 2010 is challenging in light of the broad secular megatrends driving toward a clean economy that touches every mainstream industry and sector—from cement to consumer electronics. We see investors, corporations and consumers continuing to focus on clean energy, but with an awareness of a bigger range of opportunities represented by the cleantech category.

While we think well-known clean energy technologies such as waste-to-energy and geothermal power will receive greater attention in 2010, in addition to the more visible renewable energy segments of wind and solar, we also believe increasing attention will be paid to nutrition-related investments, with sustainable aquaculture being one such area, as part of a shift to more sustainable agriculture and food production.

With current approaches to aquatic farming proving largely unsustainable, and increasing concerns over ocean toxicity and species imbalance, new thinking and technologies are emerging about how to sustainably harvest food from the sea. Areas such as Hawaii and Oman are emerging as hubs of acquacultural innovation. The Scripps Institute in California, for instance, and corporations such as Unilever are doing important work in the area. We believe aquaculture is poised to become a breakout agriculture category, in much in the same way biology-based natural pesticides have become an important area of focus for innovation and private investment.

Thoughts? Feedback? Agree or disagree? Leave your comments below.

Nicholas Parker is co-founder and executive chairman of the Cleantech Group, which introduced the cleantech concept to the investment and business community in 2002. The company now offers leading research, events and advisory services fostering cleantech worldwide.