The world’s population is rising at a remarkable pace.
There are about 6.7 billion people on earth today, with
projections reaching 9.2 billion by 2050. Even more
significant than the raw population growth, the number
of people moving to cities in search of a middle-class
livelihood afforded through industrialization and
economic growth has accelerated rapidly. According to
the UN, by 2015 (which is just around the corner and is
incidentally well within the 10 year time frame of a new
cleantech venture fund) there will be 26 cities with 10
million people or more. In 1975, the number of these
“mega-cities” was just 5. More people, particularly more
middle class urban people mean far greater consumption
of natural resources, potable water, and energy.
The West is dependent on oil and natural gas supplies
from unstable and unpredictable regimes, some of whom
are using oil revenues to fund terrorism and war.
Regardless of whether oil is at $140 per barrel or $40
per barrel, the Western industrialized world is
dependent on OPEC supplies and is therefore stuck in the
position of funding some of its own worst enemies.
Taken together, these three drivers will continue to
push policy, innovation, and investment in cleantech
over the coming years. But even in the short term, we
have already seen at least two encouraging signals about
the future direction of the cleantech industry. First,
on the policy side, it is noteworthy that the $700
billion Emergency Economic Stabilization Act passed in
the US, included a tax extenders bill containing several
tax breaks and incentives for renewable energy and clean
technologies.
This $17 Billion bill
mandates an eight year extension of the investment tax
credits (ITC) for all solar systems, and removes the
$2,000 cap on residential systems. Passage of this bill
gave long-awaited certainty to the solar markets in the
US with both residential and utility scale solar
companies set to benefit. In addition, the bill offers
substantial incentives for wind, biofuels, and fuel
cells. This is likely just a first step toward a more
active US national policy approach towards renewables,
given that President-elect Barak Obama
supports carbon
mitigation legislation at the federal level. And with
the US consuming nearly 25% of the world’s energy, once
the federal government starts putting effective price
signals in place, the pace of cleantech innovation is
likely to balloon.
A second encouraging sign
came in the form of GE’s public announcement on October
20th, which included results and expectations from its
environmental business. Despite the economic downturn,
GE said it expects 2008 revenue from its energy
efficiency products to increase by 21% to $17 billion
since last year. Its annual investment in cleaner
research and development will surpass $1.4 billion, a
$300M increase over last year. GE also said it has cut
greenhouse gas emissions from its own operations by 8%,
from about 7.7 million metric tons of carbon dioxide
equivalent, since 2004. Energy cost savings to GE have
so far been $100 million. "There is a green lining among
the current economic storm clouds and GE customers and
investors are benefiting," said Jeff Immelt, GE’s CEO.
"Cleaner innovation and technology resonate in the
marketplace, while we slash our own energy and water
costs and emissions, further strengthening GE's
competitive position and the advantage GE offers to its
customers."
GE is betting its future on
cleantech innovation, and they are not the only large
company doing so. Policymakers in Washington extended
renewable energy tax credits for 8 years and that is
likely just a prelude to more far-reaching national
legislation. So yes, in the short term, cleantech
markets will likely be jittery as a result of financial
volatility and the precipitous decline in oil prices. A
reduction in the price of oil will go hand in hand with
reductions in the price of natural gas and even
coal-generated electricity. The immediate impetus for
change at the consumer level may ease as energy bills
come down.
Later stage cleantech
companies that were counting on access to public markets
or significant debt financing to fund their future
growth are going to have a challenging time ahead. We
can expect a drop in cleantech VC investments in Q4, as
compared to Q3, and likely continuing into 2009. But the
bigger picture is that unlike with previous oil price
declines, this time the larger, more sustained drivers
for cleantech innovation are not likely to disappear
from the consciousness of policymakers and industrial
giants.
To conclude, let me put
things into a slightly more personal perspective. When
we completed the first closing of Israel Cleantech
Ventures in January 2007, oil prices were at $55 per
barrel. At the time, that price was considered
relatively high. We have now made nine investments and,
despite the unprecedented drop in commodity prices of
late, oil still has not returned to that price point.
Yet just since January 2007, we humans have emitted
about 50 billion additional metric tons of carbon
dioxide equivalents into the atmosphere, increased the
world’s population by 150 million people (that’s about
20x Israel’s total population), and provided OPEC
(including countries like Saudi Arabia, Iran, and Libya)
with $1.6 trillion worth of oil revenues (that’s the
equivalent of 10x Israel’s GDP).
Needless to say, the
motivating forces behind cleantech are here to stay. In
fact, as former President Bill Clinton recently
remarked, once we stop looking to make money out of
money and go back to making money out of business
innovation, the cleantech industry will be at the center
of that innovation, leading us out of recession and into
the next great phase of economic growth. Now, more than
ever, is a perfect time for Israeli cleantech
entrepreneurs to start new businesses and to secure this
country’s part in that next great phase of growth.
