Government Policies

Green opportunities for storage-battery production

Posted on by S Klamp

China Daily reports an interesting story on Energy Storage, aka Batteries, today. (see: Green opportunities for storage-battery production)

According to the paper, China account for about 25% of global lead-acid storage batteries. These batteries are widely used in Electric Vehicles. The export growth has been a staggering 23% p.a. CEEIA estimates that annual growth is likely to continue with a rate of 15% p.a. for the next five years.

As we highlighted in our China’s 12th 5-year plan piece, the government is keen to promote green technologies and has earmarked the renewable sector as part of its Magic-7 industries.

Clean.Invest – RSS Feed for our Cleantech & PE/VC Fund and Company Blog

Posted on by S Klamp

We have reached 50,000 readers on our blog – we are surprised about the level of interest and like to thank our readers for the continued support. If you haven’t subscribed to our RSS feed yet, you may want to consider to add https://cleaninvest.wordpress.com/feed/ to your RSS feed either in MS Outlook, netvibes.com or any other news/content aggregator. Alternatively, you can click on the link on the left navigation pane to subscribe.

We have also enabled the tweets, email, facebook and print functionality for all our content. Use it if you think others may be interested in the same stories and research.

Again, many thanks for your support. If you have any suggestions for topics, insights or critique, please feel free to get in touch. We welcome your thoughts.

Chinese 12th 5-year plan – New Energy, New Energy Cars

Posted on by S Klamp

Are the days counted for China’s top-down macro economic decisions and for its state-owned monopolies? The next 5-year plan proposed by the Chinese Government focuses its attention on new energy and clean-energy cars. According to China Daily the government intents to ‘speed up new energy development and promote clean and efficient use of traditional energy, develop hydroelectric and nuclear power, and increase strategic oil reserves’.

Alongside new materials, high-end manufacturing, next generation information technology, and biotech,  these industries form part of the “new magic 7” emerging strategic industries. (The old magic 7 consisted of national defence, telecom, electricity, oil, coal, airlines, and marine shipping.) It appears that the new magic 7 are more focused on bottom-up drivers and allow companies to use their ‘innovation’ process to drive capital allocations.

Ahead of the Chinese party conference, HSBC published a report titled ‘China’s next 5 year plan – what it means for equity markets‘ which investigates the new proposal in some detail. Specifically, the overall objective of the 12th five year plan (2011-2015) lies in the pro-rate increase in domestic demand to total demand and secondly, and as importantly, the overall reduction of the carbon footprint (CO2) by 40%-45% by 2020.

Source: HSBC, China's 12th 5-year plan, New Magic 7

Further, the proposal projects that urbanisation will march on. HSBC estimates that a further 200-300m people could be urbanized over the next 20 years. If the hukou or registration simplification process moves in line with this shift, the projection suggests that consumption should increase significantly. The caveat here is that the property market development should ensure that the property bubble itself can be contained and price movements are more gradual going forward.

More importantly, there appears to be a continued drive to allow private capital to compete in what once were state monopolies or controlled industries. This should be great news for China focused private equity funds. From our view, there are still many low hanging fruits to be harvested by the largest funds in the region, including John Zhao’s Hony Capital for example. The investment pace has slowed a little since 2007 but funds are still putting capital to work. We need to wait and see whether some assets were overpriced and IRRs for Investors will be meaningful. Our views is that funds that put money to work throughout business/ macro cycles will do well for the time being.

We also note the drive to reduce high pollution and high energy consuming industries. For one, any energy price subsidies should be reviewed to allow a ‘fairer’ market price. Regrettably we feel that this process will take longer than currently proposed. We see a risk that some local producers/ polluters input cost competitiveness may be at risk on the global stage. In particular, pharmaceutical, the glass and other high water/power consuming sectors could lose some of their appeal. Can the government afford this – yet?

Source: HSBC, China's 12th 5-year plan, Roadmap

Certainly, the governments objective to double or indeed triple per capita income can only be a welcomed target. With that, domestic consumption levels should raise dramatically allowing for more propensity to consume (let’s hope little will be used for gambling!). Overall, the plan is intriguing and we look forward to seeing particulars.

To sum up, the China Council for International Cooperation on Environment and Development (CCICED) suggests four scenarios for a low carbon economy until 2050. Although not that specific yet, it demonstrates the authorities focus on renewable energy and commitment to cleantech. The four scenarios proposed split into four categories: (i) BaU (business-as-usual) under high growth rate (BaU), (ii) Low Carbon Scenario under high growth rate (HCL), (iii) Enhanced Low Carbon Scenario under high growth rate (HELC), (iv) Low Carbon under high growth rate (LLC). See the link above for more details.

China’s Pathway Towards a Low Carbon Economy

China’s Pathway Towards a Low Carbon Economy

Tresalia Capital makes Artega Investment: Fraunhofer’s EV platform/ Electromobility concept

Posted on by S Klamp

What do BMW, Aston Martin and Artega have in common? Its designer: Klaus Dieter Frers. He was instrumental in designing BMW’s Z8 and Aston Martin’s Vantage. The Artega GT was his latest work. Now Artega has been sold to Mrs Maria Asunción Aramburuzabala. She heads Tresalia Capital.

Tresalia Capital is probably most famous for its interest in ‘Corona’ brewer Modelo Group. Tresalia essentially acts as a family office to the estimated $2bn net worth of Mrs Aramburuzabala. The office is relatively secretive and information is difficult to come by. Nonetheless, it appears an odd addition to the stable of deals the office has made recently or are electric vehicles only a ‘lifestyle’? We would disagree if that is what Mrs Aramburuzabala and her team think.

On a more serious note, Germany’s Fraunhofer institute uses the Artega GT to test its latest research in electric hub motor technology. The Fraunhofer Institute has been granted significant resources to pursue Germany’s thought leadership in electromobility. The institute secured €14m of the Stimulus I package and a further €44m are likely. The electromobility research is overseen Fraunhofer Institute for Structural Durability and System Reliability LBF. Recently, the Economist issued a critical piece on Germany’s research heritage. The paper cites that the nations research capabilities measured by researchers age 25-24 years is the smallest in the EU. For what it is worth, the fact that both the public and private sector appear to be working together to put resources into this paradigm shifting industry and technology may just be enough. Germany’s Mittelstand and corporates are likely to be among those firms that will drive the future of electromobility.

The electric hub engine research appears to gather momentum. Firms such as Continental, Protean Electric, Bosch, Michelin and other traditional tire manufacturers appear to make progress.

To echo the efforts made by the Fraunhofer’s Institute, the political debate surrounding Electric Vehicle’s (EV) and electromobility continues to get ever more attention not only among parliamentarians but with the general public also. The German government released a 2009-report (German Federal Government’s National Electromobility Development Plan) that set forth the neccessary investment that is needed ‘to speed up research and development in battery electric vehicles and their market preparation and introduction in Germany’.

The forecasts made by the Fraunhofer Institutes are exciting. As ever, execution will be key. We will monitor in which ways corporates engage. Thus far, Aral Petrol Company (in German) has published a study that shows that Germans are willing to pay a small premium for EV’s. That premium is between €2000-€3000. Thus the cost of new technology has to come down further or the price for fossil fuel to raise substantially before a significant change in consumer trend may be observed.

Efficiency, the alternative Alternative

Posted on by brettalan

Earlier we wrote about the superior returns on investment efficiency plays offer when measuring reduced energy and emissions per dollar spent. Today we tackle the question- what does a region do that is renewable energy resource poor? What if there are no windy areas? When solar, biomass, geothermal and nuclear play a limited role- how do we lessen emissions, energy use and the need for additional power plants? The answer is not a surprise- reduce wasted energy.

A recent report by both Duke and Georgia Tech Universities gives further support to the argument that focusing efforts on efficiency can have a more dramatic effect than other methods, and can do so in areas where renewables are not competitive or available. The SouthEastern US is a perfect place to focus- an area that has virtually no wind resources.

Here are the highlights from the report:

  • In 2020, energy bills in the South would be reduced by $41 billion, electricity rate increases would be moderated, 380,000 new jobs would be created, and the region’s economy would grow by $1.23 billion. (regional GDP)
  • The cost/benefit ratios for the modeled policies range from 4.6 to 0.3, with only two showing costs greater than benefits. When the value of saved CO2 is included, only one policy is not cost effective
  • The initiatives would involve actions at multiple levels (state and local, national, utility, business, and personal). In the absence of such initiatives, energy consumption in these three sectors is forecast to grow by approximately 16% between 2010 and 2030.
  • The nine illustrative policies show the ability to retire almost 25 GW of older power plants and also avoid over the next twenty years the need to construct 49 GW of new plants to meet a growing electricity demand.
  • 8.6 billion gallons of freshwater could be conserved in 2020 (56% of projected growth in cooling water needs) and in 2030 this could grow to 20.1 billion gallons of conserved water (or 45% of projected growth).

Investments of $31.5B over the 20 years (to 2030) would generate a savings of $126B (4.0x ROI.) Clearly this is a net positive investment for any region and returns numbers that most renewables currently can not beat. The nine suggested policies include: increased appliance standards, weatherization of buildings, retrofit incentives, enhanced building codes and more (see page 15 of study.) Increasing appliance standards has the best ROI at 4.6x and all of the policies together have a 3.4x ROI.

Energy Use with & without efficiency (Duke/ Ga. Tech Report)

The South consumes 43% of the nation’s electric power, 40% of the energy consumed in residences, and 38% of the energy used in commercial buildings, says the study- thus a successful efficiency policy would have a major impact on both the US as well as any other renewable resource region in the world.

One would expect resistance for any political measures that mandate clean energy requirements from areas that are not fortunate enough to have the natural resources to comply. Accounting for improved efficiency standards in commercial and residential homes is a worthy compromise that achieves the same goals as clean energy and does so, at times, at a more economical rate. Because the numbers speak for themselves, it likely is a good idea for the capital and policies to follow.

Batteries, Lithium Ion and the Automotive Industry

Posted on by S Klamp

MEET (Muenster Electrochemical Energy Technology), Germany is getting ready to launch a new 2000sqm research hub focusing on battery technology, most likely a significant effort will go into lithium-ion.

Prof Winter, MEET (University of Muenster, Germany)Professor Winter (recently at Graz, Austria) will chair the workgroup at MEET (homepage). Research-in-Germany.Org gives a summary of the plans and objective proposed by MEET. We note that the commitment by the regional government, the University and the private sector (including Volkswagen, Evonik and Chemetall) is impressive, on a regional scale: “The Ministry of Innovation, Science, Research and Technology of the state of North Rhine-Westphalia is funding the project to the amount of €5.5 million for the coming three years. Münster University is contributing €7.5 million. Further funding is coming from the North Rhine-Westphalian Ministry of Economic Affairs and Energy as well as the German Federal Ministry of Economics and Technology.” The private sector is financing the chair at the University with some €2.25m which is certainly impressive given the economic climate we are in.

We wrote about Evonik previously and consider it a very interesting company that may be in the position to shape the future of lithium-ion batteries. Naturally, since Volkswagen is one of the key sponsors of the centre we must assume that they have a commercial interest to link themselves with Professor Winter and his battery research team. The automotive industry is bound to change forever, no doubt. My colleagues focused on the supply side of the lithium-ion market and whether, subject to a successful scale of electric vehicles, the supply chain is secure. In his piece “The Great, Fake Lithium Supply Scare” Brett draws the conclusion that we should not worry. Although the market is too young to make credible predictions the debate is certainly worth watching. Arguably we need to better understand whether lower grade lithium-ion can be used as an input into a high-end technology process.

Autocluster, NRW (http://autocluster.nrw.de/)

Autocluster, NRW (http://autocluster.nrw.de/)

We wrote about the need to direct further money into research for energy storage and continue to see this as one of the most important research and investment themes for any serious cleantech venture investor. It is interesting that governments can play a significant role in kick-starting a debate as well as put money into the area with a targeted approach. Autocluster.NRW gives a strong, systematic approach how to create a new hub/ cluster that can concentrate core capabilities in a region. We would like to draw readers of the report to page 58ff (‘Screening of R&D project in NRW’). It highlights the efforts of various academic institutions and how their co-ordinate their efforts to maximize their combined research capabilities. The report highlighs efforts currently made by industry to drive battery technology forward. ‘According to the German government, the number of electric vehicles on the road will be 1 million by 2020’ and ‘[a]ccordingly, the resultant higher electricity needs for 1 million vehicles in 2020 must be addressed’. The authors deduct that this would require some 5 power plant blocks of 600 megawatts each (~total need about 3TWh).

To contrast the recent UK initiative of a Green Investment Bank, Autocluster’s core competence building based on a regional level sounds proactive, constructive and combines both a coordinated effort made by governments and the private sector. Can the UK mirror the effort and come up with a strategy that is as visible? Bob Wigley, good luck!

Green Investment Bank – Bob Wigley, Lord Stern to lead Commission

Posted on by S Klamp

We keenly await further details coming out of the UK’s pre-Budget report on plans of creating a £2bn Green Investment Bank in the UK. The plan is to use £1bn of taxpayers money and marry it with private funding. No doubt, the question is whether this is only a starting point or ‘Is that all’?

A mere £2bn would not make much of a difference; a number of philantrophic investors are putting similiar amounts into the space – single-handedly.

Surely, two things must be addressed for a successful Green Bank (a) a path for the masses to access investments and saving schemes to participate in this growing, and long-ranging industry that is at the brink of becoming *the* growth driver for many economies and (b) the institutional client business unit must encompass an asset management division that sets out significant strategic investment mandates on how to (i) increase the UK’s participation in Alternative Energy (AE) segment and (ii) increase the UK’s position in the world in attracting foreign capital for (UK based) venture firms which are in desperate need for funding. The industry is emerging ‘bottom-up’: full-stop. No doubt, it is risky to invest into a young industry and whereas Europe is talking a lot about what a Renewable Energy and Cleantech (CT) world could be like, the San Francisco bay-area venture community is busy funding businesses that promise the ‘holy grail’ of renewable energy, or near enough.

Contrasting the efforts to China, Germany and the US, the UK must seek to identify this initiative as a root cause event for change with regards to transition a fossil fuel economy into an AE one. The objectives are not simply altruistic: both the Conservatives and Labour must identify an industry that can make good on loosing key industries over the past decade and create a new domestic industry that can absorb and subsume available labour and their respective skills and capabilities. AE is a high-tech industry and missing out on a promising cross-sector industry may be one of the largest strategic mistake any developed nation may make.

A global view on clean growth can be found on the United Nations Trade and Environment website. It published a report comprising of 20 essays how to address the Renewable Energy issues. Under the title “Promoting poles of clean growth to foster  the transition to a more sustainable economy” it brings together thoughts on active ways to engage, both from a private and public sector perspective.

Bob Wigley, Chairman Green Investment Bank Commission (Source: bobwigley.co.uk/)

In the UK, Bob Wigley has been announced as a key banker to steer the Green Investment Bank Commission (pdf). His pedigree should put the plans on strong footing and we are keen to see a swift execution of the proposal. In our view, he can only do good. The business case is simple: “New green technologies represent an important new source of jobs, investment and enterprise in the UK. Over the past decade, the UK has been reliant on housing, the public sector and the financial industries for over 70% of our economic growth. This has to change”. Furthermore Lord Stern, instrumental in assessing the Renewable Energy position and the economics of Climate Change of the UK, agreed to advise the Working group. His comments on the plans can be found on the LSE website but we found that his views are right: “But it will need substantial investment, some of it risky in the early stages as learning takes place and policies become more settled”. The Financial Times reported of delays in the execution of the plans and the final proposition may take some time to crystallize; most certainly nothing is likely to happen prior to the General Elections.

To sum up, we are in full support of the idea of a Green Investment Bank and will keep an eye on the development. Our thoughts are simple and pragmatic: whatever the final idea, if the Government makes a start, private money will follow. We disagree that the ‘cost of learning’ can be described as ‘sunk-costs’. It is an investment into the future of an aging industrial economy and re-inventing and re-education of a nation comes at a price. That price most certainly is higher than £2bn.

Incandescent lights to start dimming

Posted on by brettalan

On the continued theme of the superior value of efficiency plays, news breaks out just this week that Toshiba will halt production of their incandescent lighting business, a product they have sold since 1890. The company will now focus on LED lights instead. For reasons of: consumer preferences, government legislation and frankly, common sense, the incandescent light bulb is being replaced by both CFL lights and eventually LED. See Toshiba’s own sales chart of incandescents and CFLs here:

Toshiba Light Sales (Credit: Toshiba & CNET News)

Select Govt Incandescent laws:

US: A 30% increase in efficiency in selected light bulbs which is an effective phase out of incandescents from 2012-2014.
UK: Ban, beginning 1/1/2011
Canada: Ban, beginning 1/1/2012
European Union: Ban, beginning 1/1/2010
Argentina: Ban, beginning 1/1/2011.
Australia: Ban, beginning 1/1/2010.
Others include: Philippines, Malaysia, Ireland, New Zealand, Venezuela & Cuba.

Lumens Produced per each Watt of electricity:
Incandescent: 10-18 lumens
CFL: 35-60 lumens
LED (cool white, 5000k): 47-64 lumens

Thus, for equal lighting needs we can see an instant 2-4x reduction in electricity consumption when using advanced light technologies.

Challenges: Like many clean tech products, consumer acceptance is a key challenge. Convincing consumers of another generation that advanced lighting will produce the same amount of light and justify a small upfront premium is a challenge I experienced personally when family helped me move to a new house this month. Additionally, finding CFL light bulbs that will fit into your “dimmer” light sockets is very difficult at the moment which can leave consumers with only an incandescent option (until selection improves.) Other, specialized lighting needs are also difficult to satisfy with the current CFL/LED selection in stores however this flaw is expected to improve. CFL lights contain a small amount of mercury. Care is needed should a CFL break, or you can purchase this CFL with a safety skin.

Advanced Light Firms: Toshiba, GE, Phillips plus many start up firms likely with goals to be purchased by one of the larger OEMs such as: ClearLite, Luminus Devices, YLX, Cree, Neo-Neon, & Seoul Semiconductor.

Fun Fact: “Toshiba estimates that switching 60 percent of the world’s incandescent lights with LED lights would reduce greenhouse gas emissions by 125.5 million tons in 2025, compared to 2000.”

Efficiency, King of Power

Posted on by brettalan

A recent panel discussion with John Doerr (KPCB), Vinod Khosla (Khosla Ventures) and John Holland (Foundation Capital) in the WSJ caught my attention. The lesser known of the three panelists, John Holland, had a quote I felt trumped his two better known colleagues when asked what is “hot” in the CleanTech sector.

Mr. Holland:  “We’ve focused our efforts around the demand side, around energy efficiency, smart grid, smart materials and so forth. I’m disappointed in, but I’m not surprised by, some of the things that we’ve seen—you know, technology’s trying to drive to sort of a lower cost per watt. That’s just a very, very difficult place to play. You’re making a bet that your set of scientists is going to beat the other 500 sets of scientists that are working on that one particular piece. And then how long is that competitive advantage going to last?”

This quote I believes sums up a remarkable albeit less discussed facet of the CleanTech sector which is that a  efficiency company can trump an energy supply side company anyday, anywhere. Here is why:

Supply side technologies face replacement risk. E.g. a competing solar or wind technology may out engineer or innovate your firm’s basis for existence whereas a consumer will always have a need for a device or system that reduces the need to spend money on electricity so long as the economics are favorable. For example, I can and would purchase multiple technologies such as a smart grid technology, more efficient lighting, windows, and insulation for one place even though some of these products offer better economics than the others. If a newer and more efficient version of these demand reduction products arrives, my existing products are still viable and offer cost savings to me, the consumer.  Contrast this to selling solar panels, where a competitor’s improvement notches you further back on the supply curve if you have higher capital costs or a less productive panel. A consumer has no incentive to buy a less efficient producer of electricity, all else equal, whereas the same is not true for products that reduce consumption/save money.

Consumers seek efficiency even if it is not a market leader, perhaps seeking it at a lower price but still desire the cost savings offered whereas an outdated energy producer might be used until it no longer functions and then scrapped. From the investor’s perspective, you want your investment’s product to be as relevant and attractive as long as possible despite competitive entrants to the market.

The Asymmetry Principle: Reducing consumption of one watt of energy, saves the production of 50 watts of energy. Accounting for the inefficiencies of electricity production, transmission and conversion to light, in this example, it takes 50 watts to receive one watt of work (light.) Thus, reducing the consumption of watts is a much more efficient product than attempting to marginally improve production of watts. For a lightbulb this ratio is 50:1 as noted, for a car it is 6:1 and for many common household products this ratio is somewhere between these two examples.  The Asymmetry Principle heavily weighs the odds in favor of efficiency over production in both cost savings and efficient use of resources. (Credit to Peter Tertzakian, The End of Energy Obesity.)

Credit: Peter Tertzakian

An advantage in efficiency is why it is inevitable that one day electric cars will replace the internal combustion engine as we note here. An improvement in efficiency for existing technologies is easily the most cost “efficient” way to lessen electricity demand and consequently lower emissions as we note here.

With this in mind, no improvements in efficiency will ever wipe out all demand, only lessen it of course. There is and always will clearly be an enormous market for innovation in the power markets (“supply side.”) John Holland’s quote merely helps point out that when comparing the two, one side of the fence is safer, more economic, readily distributed and likely a safer, long term investment.

If you live in the US, check here to see if you are eligible for financing assistance to improve the efficiency of your home or business here. Link to DOE. List of Programs.