Feature article • • •

Global Forces Driving a Revolution

Climate, costs and China are among the trends transforming “clean tech” into a major engine of worldwide economic growth.

By Ron Pernick and Clint Wilder

Organizations of all types are embracing clean tech. The U.S. Air Force has installed the nation's largest photovoltaic system at Nellis Air Force Base, Nev. Photo courtesy of Nellis Air Force Base

Recent years have brought drought in Australia, Africa and across the United States; vanishing sea ice and glaciers; and storms of appalling fury. These are symptoms of a long, gradual process, but they’re dramatic enough to be newsworthy, and they’ve focused the attention even of a conservative financial community on the need to invest wisely for 21st century growth.

At a time when the U.S. economy sputters in fits and starts and faces unprecedented challenges from high energy prices, depleted natural resources, volatile sources of foreign oil, record deficits, and environmental and security challenges, clean tech offers the promise to be the next big engine of business and economic growth. Companies, investors, entrepreneurs, job seekers and governments have a choice: either to embrace and lead in this brave new world of clean tech innovation or risk falling behind a host of competitors. At stake: trillions of dollars in economic opportunity and prosperity for the vanguard of this next great investment opportunity.

What is clean technology? Clean tech refers to any product, service or process that delivers value using limited or zero nonrenewable resources and/or creates significantly less waste than conventional offerings. Clean technology comprises a diverse range of products and services, from solar power systems to hybrid electric vehicles. Clean technologies can —
• Harness renewable materials and energy sources or reduce the use of natural resources by using them more efficiently and productively,
• Cut or eliminate pollution and toxic wastes,
• Deliver equal or superior performance compared with conventional offerings.

Clean tech covers four main sectors: energy, transportation, water and materials. It includes relatively well-known technologies such as solar thermal and photovoltaics, wind power, biofuels, advanced lithium-ion batteries and large-scale reverse-osmosis water desalination. It also includes such emerging technologies as tidal power, silicon-based fuel cells, distributed hydrogen generation, plug-in hybrid vehicles and nanotechnology-based materials.

So how did clean tech go from the stuff of back-to-the-earth utopian dreams to its current salience in corporate boardrooms, on Wall Street trading floors and in government offices around the globe?

We’ve identified six major forces — what we call the six Cs — that have pushed clean tech into the mainstream and that are driving the rapid expansion of clean tech across the globe: climate, costs, capital, competition, China and consumers. Following are brief descriptions of four of these global forces, and an explanation of why we believe each will continue to have a significant impact for decades to come.

Climate
Alarm is growing about the climate change consequences caused by our continued dependence on carbon-intensive, greenhouse gas (GHG)-emitting energy and transportation technologies and manufacturing processes. Scientific data overwhelmingly support this growing concern. Eleven of the hottest years on record occurred between 1995 and 2006; the United States and Japan both recorded their highest number of extreme weather events in the form of hurricanes and typhoons in 2005. The devastation of Hurricane Katrina in particular brought the issue of the effect of warming oceans to the forefront of public attention.

The Arctic ice cap melted at a record rate in the summer of 2007, due to what oceanographer Michael Steele, of the University of Washington, called “off-the-charts warming.” The National Academy of Sciences (NAS) delivered a 155-page report to the U.S. Congress in 2006 supporting the human/climate change connection. The NAS panel of climate scientists reported that the “recent warmth is unprecedented for at least the last 400 years and potentially the last several millennia” and that “human activities are responsible for much of the recent warming.” The United Nations’ Intergovernmental Panel on Climate Change warned in 2007 that global GHG emissions must be in decline by 2015 to avert disastrous “runaway” climate change. Insurance giants such as Swiss Re and Munich Re began to think carefully about the impact of climate on their policies — try getting an insurance policy for an oil rig in the Gulf of Mexico in this post-Katrina casualty environment. The climate issue is coming front and center for companies, governments and individuals.

That’s driving clean tech investment and deployment and becoming an increasingly important factor in assessing investment risk factors. Global companies from DuPont to Wal-Mart are investing heavily to promote energy efficiency and clean tech in their operations, to reduce their GHG contributions and to save money on rising energy costs. Government and private carbon trading schemes, in which companies earn financial credits for cutting CO2 emissions and pay penalties if they don’t, are creating further economic incentives for companies to operate more efficiently and to run clean.

“As an investor, do you believe that we’re going to take climate change seriously in terms of legislation?” asks Mark Trexler, president of Trexler Climate + Energy Services. Trexler, based in Portland, Ore., advises companies and utilities on carbon-reduction strategies. “If you do, then figure it into your investment decisions. If you’re right, you’ll be way ahead in the long run. To completely ignore it, in terms of investment decisions, would be a terrible thing.”

Costs
Perhaps the most powerful force driving today’s clean tech growth is simple economics. As a general trend, clean-energy costs are falling as the costs of fossil fuel energy are going up. The future of clean tech is going to be, in many ways, about scaling up manufacturing and driving down costs.

As recently as a decade ago, most clean technologies were not ready for prime time and were often prohibitively more expensive than their conventional counterparts. Now, as players in the solar industry can attest, that’s changing. Recent advances in core technology and manufacturing processes have significantly improved performance, reliability, scalability and cost.

At the same time that clean energy technologies are getting cheaper, the costs of products and services driven by conventional fossil fuels are rising dramatically. In conventional fossil-fuel power such as coal and natural gas (which together provide approximately 60 percent of the world’s electricity), the generating technologies are mature, stable and already widely deployed. Turbines powered by coal and natural gas still function essentially the same way they have for decades — so their technology costs are relatively steady and predictable. What determines the price of conventional power is the cost of fuel. Since the 1970s, the costs of finding, securing, extracting and transporting fossil fuels, while certainly experiencing directional gyrations, have moved in the same general direction over the long term: up.

With solar, wind, small-scale hydroelectric, geothermal and even the nascent technology of ocean tide- and wave-generated electricity, the price-determining formula is just the opposite. There is no cost of “fuel”— the sun, the breeze, the heat of the earth, the tides and waves arrive free of charge daily. “Coal, natural gas and oil costs move in directions that can be hard to predict,” says Mark Little, former vice president of power generation at General Electric’s energy unit, and now senior vice president and director of GE Global Research. “But we can make one projection that we know will be accurate: The price of wind will always be zero. And that is a fundamental of our industry.”

Capital
An unprecedented influx of capital is changing the clean tech landscape, with billions of dollars, euros, yen and yuan pouring in from a myriad of public and private sector sources. Since the 1970s, investments in clean technology have moved from primarily government research and development (R&D) projects to major multinationals, well-heeled venture capitalists and savvy individual investors. While governments still have a significant role to play, this shift has changed the investment landscape and pushed clean technology to the commercial forefront.

A number of leading companies, for example, have embraced clean tech initiatives and plan to invest billions of dollars in their efforts. GE, the world’s largest diversified manufacturer, expects to spend up to $1.5 billion a year on clean tech R&D by 2010, as part of its “Ecomagination” business strategy. BP has launched an alternative-energy unit that will spend up to $8 billion over 10 years to advance the company’s activities in solar, wind and hydrogen. Spain-based energy giants Iberdrola and Acciona are both poised to spend billions of dollars building out their clean-energy portfolios, primarily in wind power, over the coming years. In 2006, Toyota is reported to have spent an astounding $8 billion in R&D, much of it for hybrid and fuel-cell development. Sanyo, the fourth-largest solar cell manufacturer in the world behind Sharp, Q-Cells and Kyocera, has said it will invest $350 million over five years to expand its solar operations.

The trend is significant. In 2006, clean-energy investments represented more than 9 percent of total venture investing in the United States — up from less than 1 percent in 1999. In all, clean tech investing, comprising clean energy, water and materials, represented more than $2.9 billion of venture investments in North America.

China
Clean tech is being driven by the inexorable demands placed on the earth not only by mature economies but also by the explosive demand for resources in China, India, Brazil, Russia and other developing nations. Their expanding energy needs are driving major growth in clean-energy, transportation, building and water-delivery technologies. China exemplifies the resource constraint issues facing our planet. The nation is currently the Earth’s No.1 consumer of coal, burning more of it each year than the United States, India and Russia combined. It is now the second-largest consumer of oil on the planet behind the United States, recently eclipsing Japan, and also the world’s largest consumer of steel, meat and grain. With a projected migration of more than 400 million people from rural areas to cities by 2020 (equal in size to three New York Cities per year), China will not be able to sustain its growth if it doesn’t widely embrace clean technology.

The Chinese government is starting to understand this and in 2006 committed to investing more than $200 billion over 15 years to meet nationally mandated targets for clean energy. China plans to have 60 gigawatts of renewable energy (not including large hydroelectric) by 2010, and 120 GW by 2020.

These powerful global forces — the six Cs — have put clean tech onto center stage and awakened a diverse range of stakeholders across the world. From Beijing to Berlin, from San Francisco to Bangalore, the clean tech revolution is well under way. It will determine which regions lead and prosper and which regions are left drowning in their own effluents, choking on their own emissions, and struggling to compete in a world that is leaner, greener and less reliant on fossil fuels.

We believe the choice for investors, companies, governments and individuals is simple. Be part of one of the greatest business and economic shifts in recorded human history, or become extinct like the dinosaurs whose fossils fueled the last great industrial revolution.

About the authors: Ron Pernick and Clint Wilder are co-authors of The Clean Tech Revolution: The Next Big Growth and Investment Opportunity (Collins, 2007), from which this article is adapted. They are co-founder/principal and contributing editor, respectively, at Clean Edge (cleanedge.com), a leading research and publishing firm that has covered the clean tech industry since 2001.

---

To read this article in print, order the March/April issue: pubs@ases.org. Or subscribe today, and don’t miss another issue. To subscribe, click here.