The recession hampered plans of both governments and businesses to tackle climate change. However, high energy prices, legislation and widespread acceptance that carbon emissions must be cut mean there’s much to occupy cleantech entrepreneurs and investor
Once the realities of the credit crunch and global recession had hit home, it seemed likely for a while that the admirable environmental aims of European governments to tackle climate change and reduce emissions, would be discarded. The messages were to gain growth, investment and jobs rather than look for efficiencies, emission reductions and conservation.
European governments discovered they had enormous fiscal issues to deal with and could no longer afford to spend money on generous subsidies and grants to renewable energy suppliers, or to assist the public who want to ‘green up’ their homes. For instance, the Spanish government axed tariffs on solar retroactively, leaving investors furious and the lawyers called in. In the UK, the government had too been in court, although it finally got its way and cut feed-in tariffs paid to consumers who have solar photovoltaic installed on their roofs. This left solar companies and consumers disgruntled and future business plans redundant.
While the Eurozone crisis continues to rage, the UK economy is tentatively rising from the ashes and, in doing so, proving there is still plenty of life left in the cleantech sector yet. Key drivers such as rising energy costs, uncertainty in oil-producing countries, outdated infrastructure, not to mention concern over climate change mean that cleantech is serious and, in many cases, a perfectly sane solution to a range of large and uncomfortable problems.
Yet not everything in this sphere is being dictated by central governments. Both consumers and businesses are more interested than ever in products and services that can lower their carbon footprints while at the same time reducing energy costs. Indeed, there are many perfectly workable standalone products that are being sold every day.
Adrian Pike is the managing director of Anesco, which helps businesses and individuals cut carbon emissions and lower power bills through the installation of clean technologies, insulation, smart technology and other products that make buildings more energy efficient. The Reading-based company is carrying out work for local councils, businesses and individuals nationwide, and is growing very rapidly. Despite only starting to trade in November 2010, it already has 82 staff and achieved revenues of £60m in its second year and is aiming to hit £89m in 2013/14.
And it was looking positive right from day one. “The first thing we did when we set up was to ensure there was enough liquidity. I got two investors from day one and we had £6m in the bank,” explains Pike. But that does not mean the company can afford to rest on its laurels – even in the short space of time Anesco has been operating there has been a momentous shift in the market, says Pike. “This time last year we were doing a lot of solar projects, but right now insulation and energy efficiency products are big.”
While consumers and businesses are searching out solutions to high energy prices, the UK government is struggling to find the right policies to meet the country’s future power needs. Part of this is fuelled by the fact that the nation’s energy infrastructure is rapidly becoming out of date; some of its nuclear power stations will have to be decommissioned and its coal-fired units are in danger of falling foul of European regulations on emissions.
Britain also lags behind its European counterparts on gas storage, home insulation and renewables. For several years, analysts have been talking about the UK’s ‘energy gap’ – where the country simply won’t be producing enough power to meet its needs – and some predict a shortfall by as much as 20% by 2015. Successive energy ministers have tried and failed to straighten out the UK’s policy, instead ordering countless reviews. Meanwhile, respected energy expert Dieter Helm, professor of energy policy at the University of Oxford, has said there could be a crisis before government is likely to get a handle on things.
But while governments and large power providers grapple over infrastructure, entrepreneurs can at least look at ways to help reduce bills and improve efficiencies in an energy market that is getting ever more expensive. One of the government’s partial remedies to the impending energy crisis is the Green Deal. Under the plan, which starts in 2013, individuals and businesses will be encouraged to insulate their properties and install green technologies through low-cost loans provided by the energy companies. The government wants 14 million households to have signed up by 2020, and to have created a £100bn industry and 65,000 jobs.
Critics say the scheme could falter, as the public is distrustful of the Big Six energy companies offering the loans. Also, fears over miss-selling and the hard-balling of customers could undermine its success, they say. However, Pike, whose company has recently qualified as one of the providers of the Green Deal, is both enthusiastic about its benefits and adamant it can succeed. “A lot of people knock the Green Deal but I think it’s a visionary scheme. It’s an opportunity to create new products and companies and for people to live in better homes. Why wouldn’t the public want triple glazing and better insulation? Why wouldn’t they want better boilers?”
Anesco is well positioned to take advantage of any boom in the sector. And if the government’s plans succeed this is exactly what will happen. However, Pike’s company brought in investors early to ensure it could grow fast and take advantage of opportunities. But are investors ready to get behind firms looking to tap into this market, or have past failures dented their confidence? (See our chat with Ian Thomas below, to find out.)
The credit crunch put paid to some schemes and ideas, particularly those involving heavy government subsidy. However, the messages of reducing carbon emissions, improving efficiency and lowering dependence on fossil fuels are being spoken loudly in businesses, organisations and to a certain extent among the general public. This means there is still much impetus in this sector and there are clearly gaps in the market for entrepreneurs to fill. Bank finance, or the lack of it, will hamper some plans and venture capital cannot step in to carry the burden. However, the reluctance of central governments to shoulder the entire burden might be a boon for the private sector in the long run. Cleantech entrepreneurs should not delay their plans, but look to execute them – and the sooner the better.
The investor perspective
Ian Thomas is the managing director of Turquoise International, which helps cleantech businesses gain funding, and is responsible for the Low Carbon Innovation Fund. He says venture capital investment in renewables dropped about a year after the credit crunch occurred. The behaviour of VCs isn’t governed by macro-economic data, says Thomas, but the credit crunch did affect deals. He says the lack of bank funding for entrepreneurial ventures has meant that some investors have instead been seeking out deals that don’t involve capital investment.
“Cleantech investors have moved away from the asset end of the business, such as wind, solar and hydro and things that involve large equipment, as usually these involved bank finance and that hasn’t been there. Because capital has been scarce people have been looking for investments that involve smaller numbers.”
Such businesses might just be the types that can offer services and products that fit under the Green Deal or simply sell directly to those looking to cut costs. “Investors like businesses that can help other businesses be more efficient and cut energy costs, where there’s a clear commercial payback,” adds Thomas.