THE FUTURE OF CLEANTECH “Co-opetition” not competitionKey lessons and recommendations

A report by Climate-KIC, September 2014.

The project team is grateful for the vital input of numerousexperts across the Climate-KC community who have madethis report possible.

Lead author:Frans Nauta, Deputy Director Entrepreneurship, Climate-KIC

Project director:Angela Howarth, Head of Communications, Climate-KIC

Producer: Peter Koekoek, Digital Communications Manager, Climate-KIC

Words: Ben Smith Design: Chris Jones

© Climate-KIC 2014

Climate-KIC is the EU’s main climate innovation initiative. It is Europe’slargest public-private innovation partnership focused on mitigatingand adapting to climate change. Climate-KIC consists of companies,academic institutions and the public sector.

The organisation has its headquarters in London, UK, and leverages itscentres across Europe to support start-up companies, to bring togetherpartners on innovation projects and to educate students to bring about aconnected, creative transformation of knowledge and ideas into productsand services that help mitigate and adapt to climate change.

Climate-KIC is one of the Knowledge and Innovation Communities (KICs)created in 2010 by the European Institute of Innovation and Technology(EIT), the EU body tasked with creating sustainable European growthwhile dealing with the global challenges of our time.

www.climate-kic.org

@ClimateKIC

3THE FUTURE OF CLEANTECH – A report by Climate-KIC

1. CLEANTECH ISN’T DEAD.............................................4

2. THE POWER OF “CO-OPETITION” ............................7

3. THE WORLD’S NEXT ECONOMY................................8

KEY LESSONS1. Recognise the importance of consistent policy frameworks2. Don’t get hung up categorising things as ‘cleantech’3. It’s not just about venture capital funds4. Support for innovators5. Dare to have big vision and ambition

KEY RECOMMENDATIONS1. Make our horizons global2. An international network of partners3. Gaining the power of a real community

Climate-KIC believes that entrepreneurs and innovators hold thekey to responding to the climate challenge.

From the low of 2009, and the so-called ‘death’ of cleantech, the lastfive years have seen a steady resurgence of climate innovation asgovernments and organisations around the world increasinglypursue the sustainability agenda.

There is no time for complacency, however, which is why we havechosen this time to detail our vision for cleantech 2.0.

Frans NautaDeputy Director Entrepreneurship, Climate-KIC

THE FUTURE OF CLEANTECH

CONTENTS

4 THE FUTURE OF CLEANTECH – A report by Climate-KIC

Just as claims that the “internet is dead” afterthe dotcom crash of 2000 were wide of themark, however, so cleantech hasn’t ‘died’ inthe years since 2009. Global investment inclean technology grew to $381bn in 2009,representing an astonishing 32% overallincrease from 2008 (source: GlobalData).Global VC funding for cleantech firms hit$8.8bn in 2008, private equity financingreached $19bn. In the US, according to theNational Venture Capital Association, VCfunding in cleantech grew from hundreds ofmillions of dollars in 2005 to $4.1 billion in2008.

From that peak of excitement, interest andinvestment levels the cleantech sector hassuffered some setbacks. 2010 saw a significantdecline in cleantech investment. Despite arecovery in 2011, Global VC investment incleantech slumped to $6.8 billion in 2013(source: Cleantech Group), and overall newcleantech investments dropped to $212 billionaccording to Clean Energy Pipeline, a 20% fallcompared to 2012.

There is now widespread scepticism,particularly in the US and other developedmarkets, regarding cleantech start-ups andcleantech in general as a viable investmentmarket. This scepticism has dominatedcoverage of the sector. In 2012 Wired ran astory detailing the ‘collapse’ of cleantechinvestment: “Why the Clean Tech Boom WentBust”, and in January this year US current affairsshow 60 Minutes broadcast a special on “TheCleantech Crash”.

CLEANTECH 2.0

However, just as claims that the “internet isdead” after the dotcom crash of 2000 were wideof the mark, so cleantech hasn’t ‘died’ in theyears since 2009. In fact cleantech hascontinued to develop in both developed anddeveloping markets and the sector is nowregaining its momentum – although perhaps itis slightly misleading to refer to the sector onlyas ‘cleantech’. We are now very much in the eraof ‘cleantech 2.0’, going far beyond therenewable energy focus of ‘cleantech 1.0’, toinclude energy, material and resource efficiencyas well as adaptation technology – a muchbroader spectrum of what we would term‘climate innovation’.

Although Europe has historically lagged behindthe US in terms of VC infrastructure, it remainsthe world’s preeminent hotbed for climateinnovation. In the latest Global CleantechInnovation Index, a report identifying theworld’s leading hotspots for sustainableinnovation released in June 2014, Europeancountries made up 7 of the top 10, and 12 ofthe top 20. This world leading innovation hasenabled Europe to produce some of the world’smost successful cleantech ventures. Forexample, Denmark has the highest number ofpublically traded cleantech companiesproportional to its population – such asNovozymes, Vestas and Grundfos. Companieslike ABB in Switzerland, Avantium in TheNetherlands, Glo AB in Sweden and Eniram inFinland, have also been recognised as some ofthe most successful examples of Europe’scleantech innovation.

1. CLEANTECH ISN’T DEAD

5THE FUTURE OF CLEANTECH – A report by Climate-KIC

GROWING MOMENTUM

In the US VC investment is returning to thecleantech sector. Of the global total of VCfunding for cleantech, the US accounted for $5billion, with investment rising each quarterduring 2013 at 14%. The recent successes ofcompanies like Tesla, Nest, XL Hybrids andSolarCity demonstrate how the momentum isonce again growing for cleantech ventures inthe US.

Although China experienced a 4% drop incleantech investments in 2013 according toBloomberg New Energy Finance, thegovernment continues to push ahead withambitious plans for large-scale sustainabledevelopments. The country’s 12th Five-YearPlan, covering 2011–2015, marked the firsttime China had formally incorporatedmitigating climate change into its coreeconomic strategy. The government has alsocommitted to spending $850 billion to improvewater supplies over the next decade and $283billion to tackle air pollution over the next fiveyears. China’s nine “New Areas” are major neweconomic development zones establishedacross China earlier this year to spurdevelopment in line with ecological principleswith the help of the central government. Chinahas also set itself very ambitious goals in solarand wind power – targeting tripling its solarcapacity to 70 GW, and increasing wind powergeneration to 150 GW by 2017.

India too is becoming a major part of the

global sustainability drive. In particular thesolar market in India is soaring, setting thestage for fast growth of sustainable energy inthe Asian market.

As this momentum builds across the world, so the cleantech sector finds itself aligningwith some key technological and politicaldrivers that are bringing new focus to the space and re-establishing cleantech’scredentials as a dynamic, growing and desired investment market.

For example, wind and solar are quicklybecoming the cheapest forms of energy –indeed the price of PV cells dropped to 74cents per watt in 2013 (source: Bloomberg NewEnergy Finance), and earlier this year JinkoSolarin China announced that it was producing sub-50-cents-per-watt solar modules. For the firsttime since 2006 the industry is faced withproduction shortages, and is expected toinstall 52 GW of new solar capacity this yearand over 60 GW next year.

The adoption of electric vehicles isaccelerating, with a report by the InternationalCouncil on Clean Transportation (ICCT) statingglobal sales of electric vehicles doubled lastyear. Moreover, the price of the lithium ionbatteries required by electric vehicles aretumbling – several forecasts have suggestedthat prices could fall by as much as 70% in thenext few years – with lower cost manufacturingspurred by the Obama administration andother governments around the world.

“We are now very much in the era of ‘cleantech 2.0’,going far beyond the renewable energy focus of

‘cleantech 1.0’, to include energy, material and resourceefficiency as well as adaptation technology”

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RENEWED POLICY FOCUS

As well as these technological developments,for international governments there is also arenewed policy focus on emissions and energyefficiency. China is clearly pursuing anambitious programme of government-fundedsustainability projects, the European Union ispushing ahead with its multibillion Horizon2020 programme, and the UN is hosting itsSeptember 2014 Climate Summit in New Yorkto: “catalyse climate action … reduceemissions, strengthen climate resilience, andmobilise political will for a meaningful legalagreement in 2015 [at the COP21 conference].”

These trends, amongst others, are ushering in anew, more meaningful period of growth in thecleantech sector. We are already seeing signsthat investment is creeping up – Clean EnergyPipeline reported that the first quarter of 2014saw a 14 per cent year-on-year increase inglobal clean energy investment. Asgovernments and organisations around theworld increasingly pursue the sustainabilityagenda, we expect to see greater recognitionfor the long-term, durable value of cleantechventures.

This is good news, but when we look at the sizeof the climate change challenge we mustrealise that there is much more than needs tobe done. How can we increase cleantechinvestment exponentially? How can we bettersupport and nurture cleantech entrepreneurs?How can we inspire the next generation ofbusiness leaders to adopt even more ambitioussustainability goals? And ultimately: how dowe give cleantech innovators andentrepreneurs the best chance of success?

THE FUTURE OF CLEANTECH – A report by Climate-KIC

7THE FUTURE OF CLEANTECH – A report by Climate-KIC

Of course the fact that four of the world’smost influential regions – China, the US, Indiaand Europe – are actively stepping up theirsupport for and engagement with thecleantech sector is a significant step forward.However, the fact is that each region on itsown does not have the perfect environmentto maximise the potential of cleantechentrepreneurship.

Europe has a long-standing tradition ofcleantech innovation, but lacks the start-upventure capital infrastructure of the US, andalso lacks the investment capacity of China inimproving production facilities. The US lagsbehind in terms of having a stable andconsistent policy environment. China has theambition and the funding, but is lookingoutside its borders for new ideas andinnovation.

Clearly there is much that each region canlearn and adopt from each other – frominstitutional change, to educationprogrammes, investor knowledge, long-term

strategic thinking and many other elementsboth big and small. If cleantech is going todeliver the benefits that are required tomitigate and adapt to climate change then weneed to create a consistent global environmentfor entrepreneurs so that they can generate theinvestment they need, deliver returns andmaximise their chances for success.

If this is to be achieved then it is necessary toembrace collaboration and the virtues of “co-opetition” on an individual, company, countryand international level. Climate change is not aproblem that is going to solved by individualsor unilateral action. The best and most effectivesolutions are only going to come from workingtogether, sharing ideas between organisationsand across borders, and utilising the power ofthe network.

This is no small challenge, and it is not saidlightly. However, Climate-KIC truly believes thatif we are going to confront climate changethen this reimagining of the way we dobusiness and entrepreneurship is fundamental.

2. THE POWER OF “CO-OPETITION”

“The best and most effective solutions are onlygoing to come from working together, sharing ideas

between organisations and across borders, andutilising the power of the network.”

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KEY LESSONS

Clearly this is not going to happen overnight,and there is a lot of knowledge andinformation that needs to be shared andabsorbed if meaningful change is going to beachieved. Looking at the key regions of theUS, China and Europe, Climate-KIC believesthere are five key lessons to be learned for allthree regions:

►►1. Recognise the importance of consistent policy frameworks

Government and legislators clearly have a keyrole to play in the future of cleantech and thereis much that they can do to improve theregulatory and policy environment forinnovators and entrepreneurs. Deutsche Bankhave detailed how the most attractive policyframework for investors is one that providestransparency, longevity and consistency (‘TLC’).Clarity and consistency are crucial to successfulpolicy frameworks as they are needed to steerpublic and private financing for cleantech.Europe has already shown the benefits that

THE FUTURE OF CLEANTECH – A report by Climate-KIC

3. THE WORLD’S NEXT ECONOMY

Ultimately Climate-KIC believes that entrepreneurs and innovators hold the key toresponding to the climate challenge. Responding to climate change should not stifleinnovation, but instead it should create new businesses, new economic models and newopportunities, ending our reliance on the economics and thinking of the last century –and Climate-KIC was created to fulfil that vision, truly creating the world’s ‘next economy’.

At the heart of this vision is the network – helping to establish creative partnerships betweendynamic companies, the best academic institutions and the public sector. By forming theseproductive alliances ideas can flourish to create economically beneficial change – creatingthe opportunities for entrepreneurs and innovators to address climate change and shape theworld’s next economy.

this can bring. The EU’s 2020 targets, and therecently proposed 2030 framework are thefoundation stone of Europe’s approach tocleantech. It has enabled Europe to lead theworld in clean energy technologies, despitethe deficit in VC funding compared to the US. For example, the EU has claimed 40% of allrenewable energy patents over the last decade– more than the US – according to a reportfrom the European Commission, and theEuropean renewables sector today employs1.2 million people.

As cleantech businesses come to the foreagain, regional, national and internationalregulators must take note of the lessons fromEurope on policy.

►►2. Don’t get hung up categorisingthings as ‘cleantech’

The US has shown how perceptions ofindustries and sectors can shift very quicklyand have very damaging effects. While before 2009 putting anything under the‘cleantech’ banner was seen as a good thing,

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since 2009 the reverse has been true for largeswathes of time.

The cleantech banner has perhaps not beenthe most useful – after all clean energytechnology is very different to energyefficiency systems or other sustainablebusinesses. The sector also suffered incomparison to rising digital stars like Facebookthat received mammoth VC funding whichcoloured many investors views of what theyshould expect from cleantech companies.

Climate innovation is now a much more usefulterm to apply to the sector as it broadens itscope and reach. There is now a new cohort ofventures entering the market that are muchmore likely to align themselves with newindustry trends like big data, home automationor the Internet of Things. As a result manyentrepreneurs have managed to avoid thecleantech categorisation completely – but theyare undoubtedly climate innovators. Investorsaround the world need to consider lesswhether a start-up is ‘cleantech’ or not, but lookat the potential climate impact any business inany sector could have. Sustainable businessesare the future, but they are not all going to bein the shape of a classic ‘cleantech’ start-up.

►►3. It’s not just about venture capital funds

VC funding of course gets a lot of attention,but in the US there is now greater recognitionof the fact that there are other types ofinvestors rapidly expanding their interest inthe cleantech sector. As a recent CleantechGroup report has shown big corporates and‘Big IT’ are increasingly making majorinvestments in the cleantech sector. Theseinvestors include names like GE, BP, Google andApple. These companies are recognising thatcleantech can help them drive durable growth

and create differentiation while at the sametime increase the sustainability of their businesses.

►►4. Support for innovatorsInnovation is vital to overcoming climatechange, but alone it is not enough. Innovation needs to go hand in hand withentrepreneurship. Of course there is noguarantee that a great innovator will be a greatentrepreneur.

Transforming an idea into a commerciallyviable business is no easy task and innovatorsneed all the support they can get. Networkslike Climate-KIC can help connect the mostpromising start-ups with the right experts, toformulate their business plans, develop theirentrepreneurial skills and fund their businessesthrough the early stages.

These things can’t be left to chance, and if weare to foster greater knowledge sharing,partnerships and support for innovators thenwe need more organisations like Climate-KIC.

►►5. Dare to have big vision and ambition

Over the past decade China has experiencedthe most rapid cleantech growth – it is now thebiggest manufacturer of PV cells, cleantechfirms are booming, and China is now one of thetop global investors in overseas renewableenergy. The important lesson for other regionsis that this has been achieved because Chinahas shown huge ambition and commitment tosupporting cleantech on a large scale.

Not only has China’s use of renewable energyskyrocketed, but government funding forcleantech projects is still growing rapidly. Areport from Pew Charitable Trusts last yearhighlighted how China’s clean energy

THE FUTURE OF CLEANTECH – A report by Climate-KIC

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marketplace has evolved from a scant $5 billioninvested in 2005, to become the largest andmost diverse in the world. Schemes like the“New Areas” are hugely ambitious projects andthe Chinese government is also keen for thecountry to become something akin to the‘world’s test bed’ for clean technology.

When compared to governments elsewhere inthe world, clearly there is much to be learnedfrom China’s success. And when we are talkingabout a challenge as big as climate change wemust all dare to have bigger vision andambition.

RECOMMENDATIONS

These lessons are important, and Climate-KICis working hard to help spread thesemessages in its work. But this knowledgesharing must go hand in hand with practicalaction. So what can be done? We want tofinish this report with three recommendationsfor practical steps that governments andregulators, academics and researchers, andbusinesses and entrepreneurs can take now tomaximise the impact of cleantech innovationaround the world.

►►1. Make our horizons globalToo often the impulse of entrepreneurs andgovernments is to think locally first and globallylater. But thinking nationally or regionally is notenough. Everyone involved in the cleantechsector needs to start thinking on a global scalefirst and foremost. The value of “co-opetition” isin ensuring that knowledge, skills, insight andbest practice is shared across borders aroundthe world. This needs to be our guidingprinciple, and with the UN’s COP 21 conferencenext year now is the time for it to come to thefore.

With COP21 on the horizon then we must alsostart thinking globally about policy frameworks.As we have said clear and consistent policyenvironments are crucial to maximising thesuccess of climate entrepreneurs. We firmlybelieve that entrepreneurs and innovators need

to play the leading role in responding to theclimate challenge, and so we need to have aglobal conversation about policy to ensure thatmarket conditions are stable and consistentacross multiple regions to give start-ups thebest chance of creating solutions. Climate-KICwill be attending the COP21 conference andthese issues will be at the top of our agenda.

►►2. An international network of partners

We need to maximise the power of the networkby expanding partnerships and collaborationoutside of our own countries and regions.Cleantech innovators need to reach out to everycorner of the globe and to do that we needmuch closer public/private partnership withinand between regions.

These partnerships are not just about closer tiesbetween Europe, China and the US – they needto go further. Climate-KIC is already engaging inBrazil, and supports start-ups exploring theIndian and African markets. It is not only aboutcloser ties between countries, but we also needto develop better ties between academia,finance and corporations. Climate-KIC is activein creating these partnerships – for examplehelping to develop connections betweenEuropean innovators and Chinese financiers tohelp these start-ups to scale quickly andeffectively.

There is a wealth of cleantech expertise andknowledge that has been built up in the leadingregions – creating channels for that expertise tobe shared globally will be crucial to the futuresuccess of climate change innovation.

►►3. Gaining the power of a real community

Ultimately we want to see a global communityof cleantech entrepreneurs and innovators. Butreal communities are built on trust, and trustcan only be established with real-world face-to-face interaction. To this end there is a vital rolefor governments and trade missions to play infacilitating these connections. This is themotivation behind Climate-KIC’s start-up tourprogramme. Our start-up tours provide

THE FUTURE OF CLEANTECH – A report by Climate-KIC

European cleantech entrepreneurs with vitalinternational experience, mentoring andnetworking opportunities. In September 2014,13 European start-ups are taken to the US tomeet entrepreneurs, investors and potentialcustomers. In 2013, as part of the tour, threeEuropean start-ups were honoured at theCleantech Open Global Ideas Competition, also known as the cleantech Oscars, in Silicon Valley.

These opportunities are a huge part of thefuture of cleantech. They are really aculmination of all of the lessons and advicewe have provided in this report in a practicalreal-world experience – cross-bordercollaboration, knowledge sharing and globalbusinesses. For cleantech innovation to growwe need to foster a global communitythrough just these experiences.

CLIMATE-KIC’SACCELERATORClimate-KIC is very much at the forefront ofthe global efforts to maximise climateinnovation and entrepreneurship. A majorfocus of Climate-KIC’s work is in helping todevelop Europe’s start-up incubatorecosystem, and at the centre of this work isthe Climate-KIC Accelerator.

The Climate-KIC Accelerator offers uniqueaccess to ideas, people and partners acrossEurope to help provide the most promisingcleantech start-ups with the tools,opportunities and network to transformtheir ideas into commercial success – fromconnecting with the right experts, toformulating business plans, to developingentrepreneurial skills and funding a rangeof businesses through their early stages.

Through the Accelerator, Climate-KIC isalready supporting over 120 start-ups inEurope each year. By giving start-upsaccess to its network, workshops andbusiness coaches, Climate-KIC is helping todeliver investable cleantech start-ups tothe market – helping to make its world agreener place one venture at a time.

More about the 2014 US Start-up Tour:climate-kic.org/USA2014

Join our start-up network:climate-kic.org/start-up-network

Interested in ordering copies of this report? Contact our Marketing & Communications Unit at climate-kic.org/MCU

www.climate-kic.org