Last year marked another milestone for investment in cleantech and sustain- able energy, especially in view of the difficult overall investment climate.
At a macro level, the sustainable-energy sector was impacted on by many factors, including politics and economics, the financial markets and the wider energy market. The inclusion of major fiscal stimulus packages in support of sustainable energy suggests that the global political will to secure more sustainable-energy supplies and reduce energy-related carbon emissions has never been greater.
Sustainable-energy-technology-related pro- ducts, on the whole, are becoming cheaper to manufacture as they reach scale and gain operating experience. This has not always translated into price decreases, because of demand outstripping supply and commo- dity prices soaring. But the investment surge of recent years and softened commodity markets have started to ease supply chain bottlenecks, especially in the wind and solar sectors, which will cause prices to fall towards marginal costs and several players to consolidate. The price of solar photo- voltaic modules, for example, is predicted to fall by over 43% in 2009.
The drivers that have propelled investment in the sustainable-energy sector so dramatically for the past five years are still at work, and these include climate change, energy insecurity, fossil fuel depletion and new technologies, besides others. There is also a strong core of demand for clean energy based on firm mandates: feed-in tariffs, renewable portfolio standards, renewable- fuel standards, building codes and effi- ciency regulations. In many markets, clean energy also provides strong economic returns, particularly green jobs, even in a period of lower energy prices.
Back home, we are charting progress on several fronts to make the most of the current global momentum.
These attempts, off the back of relatively immature but, nonetheless, scalable markets, have been met with mixed success. But it is still early days and prospects are looking up. A key impediment to the roll-out of cleantech across industries in South Africa is the dearth of early-stage investment appetite for local entrepreneurs, many of whom are well positioned to introduce local solutions to compete with global technology transfers. This poses a fundamental constraint for early-stage technology businesses and projects, making it increasingly challenging for most to even get beyond the starting blocks.
One of our accolades as a country is a strong private-equity play, which is now approaching 5% of gross domestic product. However, disappointment remains in the negligible proportion of capital allocated to early-stage venture opportunities. In fact, venture capital remains at a dis- mal 1% to 2% of total funds raised last year. Limited venture capital leads to limited opportunity and limited innovation. Limited innovation retards the ability of South African entrepreneurs to compete effectively in local and global markets. The key reason why cleantech innovations are still dominant in Silicon Valley and its surrounds is purely a function of access to early-stage start-up risk capital in the US. It is not a function of smarter entrepreneurs. China and other key competi- tive players still lag way behind the US in terms of access to venture capital.
So, what can we do and what are we doing back home to solve this conundrum and how are we faring? We have the usual suspects, such as the Innovation Fund, the Industrial Development Corporation’s venture unit, the Central Energy Fund and one or two other technology platforms, such as the Council for Scientific and Industrial Research. But these fall far short of the capital requirements to move the local cleantech industry.
With some of the best engineers in the world and some of the most intensive energy industries with inefficient energy processes, there is simply far more room for providers of capital to be more aggressive, to dig deep, and support local cleantech development. The strategic repositioning of some of South Africa’s larger mining groups and industry players into new energy and environment markets is testament to the fact that attitudes are changing.
These recent shifts in commercial business strategy and capital allocations are welcome, although that is often still driven primarily by brand decisions and stakeholder acti- vism. Corporate boards are increasingly considering the opportunity costs of not participating in cleantech and sustainable-energy markets, now firmly underpinned by both regulatory and economic drivers. If we are serious about competing in the cleantech industrial revolution, it is simply time to move away from the old-school, risk-averse investment paradigm. We need to forge public–private alliances in support of moving local entrepreneurs and markets towards a low-carbon economy – one in which we can deliver substantial, lasting green jobs.