by Carol-Ann Brown, Vice-President of Cleantech and Innovation at GLOBE Series and The Delphi Group
A World Resources Institute (WRI) report estimated that the potential market for clean technologies in the developing world alone is US$2.5 trillion through 2022. The International Energy Agency (IEA) predicts that renewable energy will account for almost a third of total world electricity generation in 2023. These are big numbers, demonstrating the sheer size of the opportunity for investors and entrepreneurs.
Small and medium-sized enterprises (SMEs) are poised to capitalize on many of the business opportunities in the cleantech space. Here in Canada, the sector employs more than 55,000 people in more than 800 firms, according to Analytica Advisors’ 2017 Canadian Clean Technology Industry Report. The same report confirms that growth capital is the number one barrier for Canadian clean technology companies. As firms scale up and look to commercialize and export their products and services, they often find themselves limited by a lack of financing.
The Proverbial Chicken and Egg: Financing vs Revenue
Commercial banks are constrained by strict regulations with respect to how much risk they can take on in their lending practices. Cleantech companies looking to scale typically can’t meet their conditions. It’s a chicken and egg scenario: cleantech firms need the cash to get past the first demonstration stage and shift to commercialization and sales, and banks can’t lend them the cash until they can show they have viable revenues.
Not all cleantech requires the same level of investment. Digital technologies, such as sensors, as well as software don’t require the same levels of investment as hardware, which often requires many millions of dollars to prototype, test and demonstrate, let alone commercialize . Many of the stickiest challenges in our resource sectors require hardware-based solutions such as:
- Turning waste to fuel and chemical such as Enerkem
- Capturing carbon from post combustion industrial sources, such as Inventys
- Replacing steam produced by natural gas with solvents for extracting bitumen – like producing companies Imperial, Cenovus and others are testing, or heating the reservoir with electromagnetic heating to extract bitumen, such as Acceleware’s technology
Creative Solutions are Beginning to Emerge
Fortunately, creative solutions as well as non-traditional players can address this financing gap. For example, RBC has a partnership that allows them to funnel money into the cleantech sector via Espresso Capital, which has the ability to lend at different levels of risk tolerance. Espresso leverages an experienced team and proprietary software that takes in all the particulars of a company and, by evaluating the history of investing in the cleantech space, predicts the likely return for a debt-based instrument.
Another example is the Ontario Teachers’ Pension Plan taking over BluEarth Renewables, which focuses on commercial-scale renewable energy development. This followed an initial equity investment several years earlier, following increasing calls from its constituents to invest in socially and environmentally responsible enterprises and projects.
Video: Jennifer Reynolds, President and CEO of Toronto Finance International, talks about the understanding and appetite for investment in clean technology in Canada.
Tips for Making the Most of Your Time at GLOBE Capital and Capital Exchange
One of the greatest barriers to finding creative solutions and instruments is that financial institutions, investors, and cleantech companies don’t always have the full picture when it comes to the requirements and restrictions of potential partners. They don’t necessarily understand each other’s pain points, or the potential opportunities.
Government policymakers will be at these events, as well as other large financial institutions and investors. Together, they will collaborate on models and mechanisms for financing the 21st century. Here are our top tips for making the most out of this unique opportunity.
If you’re a cleantech innovator:
- Talk to BDC and ED about their financing mechanisms.
- Talk to the people representing hundreds of millions of dollars in potential investment.
- Talk to corporates for whom cleantech may be a strategic investment.
- Talk to the big pension funds about how your solution can help them address financial and climate-related liability.
If you’re an investor:
- Talk to Generate Capital and others about aggregating projects so they are a more viable investment.
- Talk to growing cleantech companies to find out what they need – you might be surprised by their answers.
- Talk to other investors to learn more about what deals they can or cannot fund, and to learn about new deals and partners.
No matter who you are:
- Find three people you’ve never met because you don’t know what you might learn.
- Talk to fellow attendees about how we can adjust the policies that maintain the reliability we need in our banking system to help us achieve our economic and environmental goals. What are the enabling conditions for large banks, pension funds, and private equity to partner and create different vehicles for companies that don’t fit traditional risk profiles?
- Take a long look at the big infrastructure projects and partnerships being showcased at Capital as they could very well provide roadmaps on how to make cleantech an essential pillar of the 21st century economy.
Carol-Ann Brown is a Vice-President of Cleantech and Innovation at GLOBE Series and The Delphi Group. Join her and hundreds of investors, innovators and business leaders at Capital Exchange (February 26) and GLOBE Capital (February 27-28) in Toronto to learn more about opportunities in the clean economy.