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IBR 2012 Cleantech sector report

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  • 1. INTERNATIONAL BUSINESS REPORT 2012 – CLEANTECH SECTOR FOCUSCapturing opportunity:Cleantech business booms aroundthe world
  • 2. The global cleantech sector has emergedas viable, thriving and future-oriented.Whereas once activity in the sector wasfuelled by startup companies emergingwith marketable ideas, productsand services, today a vast array ofindustrialists, service organisations andutilities see the enormous opportunity inthe sector and want a piece of this rapidlyexpanding market.Contents 1 Introduction 2 Cleantech sector full of optimism 5 Financial measures on the upswing 8 Identifying international and subsector opportunities 1 1 Sector driven by cost-conscious customers and government intervention1 3 Cleantech suffers traditional constraints1 8 Call to action1 9 About the Grant Thornton International Business Report
  • 3. Introduction“Companies once approached the involved with or support large, lucrative • pproximately two-thirds of acleantech sector – as buyers or sellers projects such as wind farms and solar investors surveyed believe that a– because it was a good thing to do, a fields. full recovery of the IPO marketsocially responsible corporate action,” The global market for solar for cleantech companies is likely tosays Randy Free, member of the global photovoltaics, for example, has occur by the first half of 2012Cleantech group and tax partner in the expanded from US$2.5bn in 2000 • ore than three-quarters of mUnited States. “But today, around the to US$71.2bn in 2010, representing investors surveyed believe that largeworld, cleantech means reducing costs a compound annual growth rate company conglomerates are expectedand increasing profits.” (CAGR) of 39.8%, according to Clean to begin consolidating the cleantech Capturing opportunity, the Grant Edge. During that period, the global sector during or after 2012Thornton International Business Report market for wind power expanded • table government subsidies and s(IBR) cleantech sector focus, reveals from US$4.5bn in 2000 to more than regulation are seen as being the mostthat privately held businesses (PHBs) US$60.5bn, a CAGR of 29.7%. Other important growth driver for thein the cleantech sector are among the cleantech sectors – eg. hybrid electric cleantech sector.2most confident enterprises in the world vehicles, green buildings and smart gridswhen it comes to future prosperity, – have seen similar growth rates. The Grant Thornton’s IBR survey offar outpacing the optimism found in sector is forecast to double in size from cleantech companies confirms themost global industries – and with good US$188.1bn in 2010 to US$349.2bn in Jefferies market trends and uncoversreason. 2020.1 others. Capturing opportunity examines In some countries, government A booming cleantech sector also this global data on the industry –policies have caused sudden and means booming subsectors, as merger financials, trends and constraints – anddramatic cleantech market changes. and acquisition opportunities and IPOs offers perspectives on these issues fromTraditional energy markets and players grow exponentially, driving demand Grant Thornton experts around theimmediately faced declining futures, for cleantech financial and consulting world.while cleantech and renewable energy services. For example, investment incompanies saw demand where there was the capital-intensive cleantech sectorlittle to none. Furthering high demand is being driven to record levels byfor cleantech, customer companies government policies, stimulus fundingare seeing the cost reduction benefits and recovering financial marketsof cleantech to their organisations. and investor attitudes. The JefferiesOne point of caution for the sector is CleanTech Survey, conducted at the 11ththat with heightened demand comes Global Clean Technology Conference inincreased competition, competition 2011, found that:that is willing to cross the globe to be Ron Pernick, Clint Wilder, Trevor Winnie, Sean Sosnovec, Clean1 Energy Trends 2011, Clean Edge, March 2011.2 T he Jeffries 2011 CleanTech Survey Results; A Review of Investor Sentiment, Jeffries Company Inc., 2011. 1
  • 4. Cleantech sector full of optimismBusinesses in the cleantech sector around “We’re really on the cusp of The National Energy Regulatorthe globe expressed optimism about the something big,” says James Brice, of South Africa (NERSA) regulateseconomy for the next 12 months, with sustainability service head, Grant the single state entity that controlsnet 37% optimistic in 2011, up from net Thornton South Africa. “We’re not the national grid. Earlier this year,34% in 2010. This contrasts with the all- quite sure yet how big, because the NERSA changed from a refit-basedsector average, which declined from net government keeps on changing its tack, model to a competitive-bid model24% in 2010 to net 22% in 2011. Grant but we’re going through the first wave for energy, meaning that it will nowThornton experts around the world point of our country’s renewable energy procure megawatts for onshore wind,to myriad reasons for positive prospects, tendering process.” concentrated solar thermal (CST), solarand in some countries government policy photovoltaic solutions, biomass andchanges have ignited a firestorm of biogas, landfill gas capacity, small hydrobusinesses. and other energy sources.Figure 1: Outlook for the economy over the next 12 months 2011 37% 2010 34% Source: Grant Thornton IBR 24% 22% All sectors Cleantech2
  • 5. “We’re really on the cusp Vivek Vikram Singh, associate director, He says that after initial stirrings in Grant Thornton India says, “Like in 2005 and 2006 from research institutions,of something big. We’re South Africa, we had the first phase academia and policy makers, cleantechnot quite sure yet how big, of solar power projects tendered sectors in India took off in 2010, andbecause the government under the US$22bn National Solar Grant Thornton’s cleantech client base Mission, and they have already been has grown exponentially. “Even duringkeeps on changing its tack, commissioned. The next phase of solar the recession, this was one sector wherebut we’re going through the projects will be tendered and awarded we saw a lot of optimism, and that isfirst wave of our country’s in the next six to eight months. And partly because of the government and the now there may be a stipulation that policy changes that have come in.” Largerenewable energy tendering says that you cannot import equipment industrial firms – Reliance, Tata, Punjprocess.” for solar; it will have to be produced Lloyd, Moser Baer, Thermax – are all in India, which represents a lot of focusing on entering the Indian cleantechJames BriceSustainability service head opportunity. Regardless of the proposed sector, Vivek says, and regardless of theGrant Thornton South Africa change, regulations that favour power nature of the business conversation, it generation from renewable sources, eventually turns to cleantech. “There’s been a flurry of activity like duty exemptions, tax breaks Kai Bartels, senior partner, Grantas local and international partners try and depreciation rate changes, have Thornton Germany, says there are goodto comply with the different tendering already been put in place.” reasons for the cleantech and renewablerequirements, such as complying with industry to have a positive outlook. Invarious socioeconomic development Also dramatically affecting the Indian Germany the government plans to closeobjectives,” adds Brice. “The first round market is a proposed clean energy cess all 17 nuclear plants by 2022. Amidof bidding for 3,725 MW of renewable or coal tax, that would be applied on preparations to close their Germanpower was undersubscribed with the 28 imported and domestic coal. “For every nuclear power plants, large utilities in theprojects (out of a possible 53), accounting ton of coal that one uses, you will have country and across the EU are divestingfor 1,416 MW of power. However, the to pay a dollar to the government. And operations to cover debt.projects are geographically dispersed in a country like India, where 70% of thearound South Africa and reflect a balance total energy produced is from coal, that “This is a dramatic change of theirof wind and solar energy. No projects for would mean about US$600m every year, business model, and cleantech ishydropower, landfill gas, biomass or biogas which the government plans to reinvest one definite way to come out of thiswere selected, although capacity has been into the cleantech sector through a Clean problem they now face.”allocated to these renewable resources. Technology Fund.” Vivek adds that thereThe combined investment in new energy also could be a requirement that 5% ofcapacity, in this first phase, will amount to all new power generation be mandatorilyabout R100bn and will be invested during from renewable energy sources.the course of the next six to 24 months.Bidding for the second, larger phase beginsin March. This demonstrates that, for thefirst time in Africa, a government is seriousabout keeping up with the times andleading by example. The process was, asfar as published, entirely independent andtransparent.” 3
  • 6. But German cleantech firms face “Government support Similarly in France, the governmentincreasing competition from Asian has promoted and supported the sector,companies, notes Bartels, especially from and the regulatory says Marc Claverie, transaction advisoryChina and especially in the solar energy environment generally are services, Grant Thornton France, butsubsector. “I think the general trend in very important, and the the EU economic crisis and politicalthe German market will be very positive, pressures have mitigated the effects ofalthough we really face increasing new government that’s that support. Nonetheless, water andcompetition.” Some German firms will been in place for just over a waste remain strong cleantech subsectors.export their technologies – wind projects year now is in the process In Ireland, the United States andto Asian and US markets and solar to Russia, cleantech shows promise and of undertaking someItaly, Spain, Portugal and Greece to growth, but less so than in some othercounter inbound competition. very significant changes countries. Peter McArdle, head of Like India and South Africa, to the electricity market Grant Thornton Ireland renewablegovernment policies in the UK, rather in general, not just in the energy group, says there is growththan market demands, drive much of the and opportunity in the Irish cleantechcleantech activity, says Nathan Goode, support for cleantech.” market, but there also is fundingpartner, head of energy, environment Nathan Goode liquidity, which presents challenges toand sustainability, Grant Thornton Partner, head of energy, environment and sustainability cleantech companies. Grant Thornton UKUK. “Government support and the Free in the United States says, “Weregulatory environment generally are have a relatively small cleantech industry Michel Lefebvre, tax partner,very important, and the government is in the United States. We see significant Raymond Chabot Grant Thorntonnow in the process of undertaking some research and development (RD) in Canada, says the government hasvery significant changes to the electricity activity in the cleantech sector. There been promoting cleantech and is verymarket in general, not just in the support also are companies that are beginning proactive in its support of the industry.for cleantech,” says Goode. “Nobody to scale and go into production – direct Its monumental move has been Planis entirely sure how that is all going to production of power that is going into Nord, a 25-year northern developmentpan out. The high-level view is that this the grid or production of equipment plan, released in May 2011 by Québecgovernment is committed to securing a that enables the generation of power Premier Jean Charest, that calls for nolow-carbon economy, both in terms of from renewable sources.” He adds that industrial activity in half of the province’senergy and other sectors, but the detail Grant Thornton is working with firms territory above the 49th parallel and willof what that really means for investors that have completed initial RD and apply sustainable development standardsand businesses is highly uncertain at the are now entering business operations, to the remainder, respecting existingmoment. Having said that, we’re seeing raising additional capital, expanding rights and treaties with the region’smuch more deal activity, and we are their customer bases and generating a aboriginal communities.3 Governmentseeing businesses in different parts of the sustainable stream of revenue to turn support, along with cultural demandcleantech sector actually starting to make them into successful companies. for cleantech in the province, aremoney.” Unlike economies where government encouraging companies to develop new intervention has had huge market technologies and grow the sector. ramifications, Free says the US cleantech sector is more free market driven by profit-motivated customers. “Very large“Very large companies, manufacturers and building companies, manufacturers and building owners, in particular, are interestedowners, in particular, are interested in cleantech. The in cleantech. The reason there is areason there is a demand for cleantech is not because the demand for cleantech is not because thegovernment is telling them that they have to do it. It’s government is telling them that they have to do it. It’s because they have figuredbecause they have figured out that it actually makes sense out that it actually makes sense andand it’s a way to put a couple more points on the gross it’s a way to put a couple more pointsprofit line.” on the gross profit line. I think that’s a tremendously positive development. WeRandy Free finally have crossed the line from doingMember of the global Cleantech group and tax partner, Grant Thornton United States good to making money out of cleantech.”3 “Building a New Empire in the North – Québec’s Plan Nord,” Globe-Net, Aug. 13, 2011.4
  • 7. Financial measures on the upswingWhile revenue prospects improved Figure 2: Revenue expectations over the next 12 monthsin most industry sectors in 2011, Net percentage of businesses expecting an increaseaccording to IBR survey findings, net64% of businesses in the cleantechsector expected top-line growth, up 2011 53% All sectorsfrom net 54% in 2010 and well above 2010the all-sector net 53%. What’s more, net Source:64% of cleantech businesses expected 40% Grant Thornton IBRto increase profits, significantly higherthan in 2010 (net 42%). For all sectors,only net 40% of businesses expected to 64% Cleantechincrease profits in 2011, up from 29%in 2010. The revenue and profitabilityexpectations appear to have fuelled 54%workforce expansion plans, with net42% of cleantech businesses expectingto expand their workforces in 2011,compared to net 28% of all-sector Figure 3: Profitability expectations over the next 12 monthsbusinesses. Net percentage of businesses expecting an increase In addition, net 48% of cleantechbusinesses expected to increase sellingprices in 2011, more than double the 2011 40% All sectorspercentage in 2010, and well above the 2010all-sector percentage of net 27%. But Source:selling-price optimism is not necessarily 29% Grant Thornton IBRunanimous around the globe. 64% Cleantech 42% 5
  • 8. Figure 4: Employment history 2011Net percentage of businesses expecting/reporting an increase 2010 42% Source: Grant Thornton IBR 35% 28% 20% All sectors CleantechFigure 5: Selling pricesNet percentage of businesses expecting an increase 2011 2010 27% Source:All sectors Grant Thornton IBR 11% 48%Cleantech 23%6
  • 9. “In Israel, there is continued growth “The US economy is not a place wherein demand,” says Shlomi Bartov, we are seeing a lot of price increasespartner, head of advisory services, in anything,” says Free. “There isGrant Thornton Israel, “and we see the not a great deal of opportunity hereresults of growth in revenues.” He is to increase prices, quite frankly,less certain, though, about a continuing for almost anything, even though aincrease for cleantech profitability in lot of businesses are trying to do itIsrael due to increased competition in because they cut prices dramaticallythe cleantech business sector across the to get through the downturn. They’recountry. Cleantech sector companies operating on very thin margins or notare beginning to understand the effects operating on any margin at all. Thereof regulations and tariffs in the Israeli is some pressure to try to drive pricesmarket, which should help them up, but I just don’t think it’s going tomanage their finances better and keep happen in this economy.”profitability in check. Cleantech revenues and But cleantech, of all businessprofitability are definitely increasing sectors, “could buck the pricing andin Germany, confirms Bartels, “and profitability trend,” adds Free, “becauseI’m quite convinced that, in terms of their value proposition is that theyemployment, this sector will be one of can actually save a company money.the very important sectors within the Are companies willing to save moneyGerman economy.” at a little bit higher price? Certainly the venture capitalists interested in the cleantech sector would like to see their“I’m quite convinced that, portfolio companies begin to increasein terms of employment, pricing, because that’s the only waythis sector will be one they’re ever going to get to profitabilityof the very important – right now they’re all losing money.” Denis Zhivchikov, valuationsectors within the German director, Grant Thornton Russia,economy.” reports that the cleantech sector in Russia is exhibiting sluggish growth:Kai BartelsSenior partner “Revenues will hardly changeGrant Thornton Germany significantly compared to pre-economic crisis years, profitability will not change The UK’s Goode says that like significantly if compared to 2010, andthe general economic environment it’s possible that employment will bein his country, there exists a mixed reduced.” He adds that selling prices havebag of cleantech financial performers, barely increased, and that any growthespecially when assessing the different exhibited in the cleantech sector is thesubsectors in the industry. But in result of consumer pressure/publicgeneral he is witnessing an increase in opinion.business opportunities and activities,which translate to anticipated revenue,profit and employment increases. For the foreseeable future, UScleantech firms do not have muchupward control over their pricing and,thus, their profit margins. 7
  • 10. Identifying international andsubsector opportunitiesGrant Thornton experts around the Figure 6: Which of the following geographies do you see the greatest demand/potentialglobe see cleantech sectors in their for your products/services?countries attracting foreign competition Percentage of businessesas well as their own country’s cleantechorganisations expanding their reachinto other regions. They also note that Europe 51%cleantech presents a diverse range ofbusiness subsectors around the world. Europe is seen to be the locationwith the greatest demand/potential US andfor cleantech products and services 39% Canada(cited by 51% of cleantech businessesresponding to the IBR survey),followed by the United States andCanada (39%). The most prominent Asia Pacific 24%subsectors within the cleantechindustry are research and development(42% in 2011, up from 31% in 2010),information technology (29% in 2011, Latin Americaup from 22% in 2010), and energy-related consulting (24%). More thanone-third of cleantech companies areinvolved in manufacturing: manufactureof energy-efficient products (19%) Africa 12%and manufacture of products for use inenergy generation (17%). Source: Grant Thornton IBR8
  • 11. In India, most Grant ThorntonFigure 7: Which areas of the sector are you involved in?Percentage of businesses cleantech clients are in energy – wind, hydro and solar – “and right now, it’s too early to say where these people will branch out to – some clients want to Research and 42% go away from power generation and development 31% to power equipment because that is Information 29% where everybody sees the big money, technology 22% as in the suppliers to all the small Energy-related consulting 24% power generators,” says Vivek. Other or other services 25% cleantech subsectors are relatively slow Manufacturing of energy- 19% because they have not been affected efficient products 26% as much by government policies, andManufacturing of products for 17% some, such as service providers and use in energy generation 14% consultants, have been in place for some Bio-fuels 16% time and do not exhibit the high growth 20% they previously had recorded. Energy generation – solar 15% In Ireland, McArdle says that the 14% wind subsector is attracting the most Exchanges/trading 14% attention and that some Irish companies 9% have secured rights to develop solar Energy generation 14% – waste 12% farms in the Middle East and Africa. Hydro, wind and waste are the Green building 14% construction services 15% top cleantech sectors in Quebec, says Lefebvre, as those energy-generation 12% Energy distribution subsectors are core to Hydro-Quebec, 11% the province’s government-owned Energy storage 10% 11% and profitable public utility. He sees Energy generation emerging but limited potential in 10% – wind 7% biofuels, solar and waste, the latter especially in large industrial companies Investing/financing 9% 9% such as pulp and paper, aluminium and Energy generation – other 8% agrifood. 2011 (nuclear, geothermal) 6% In Germany, manufacturing and 2010 Energy generation 8% energy generation constitute a solid Source: – hydro 9% Grant Thornton IBR client base for Grant Thornton, says Bartels. He also anticipates a rise on the service side – especially RD and cleantech financing – as well as a one- to two-year trend of more activity in biofuel and energy generation from wastes. 9
  • 12. “You don’t do research and development just for the sake of it. You do research and development for the sake of developing a product or a service.” Randy Soifer Partner, Advisory Services Grant Thornton Canada In the North America, equipment Bartov sees substantial business Similar to trends in the Unitedmanufacturing – for either sale or in Israel in solar, hydro and water, States, Goode also cites the rising issuelong term licensing – as well as RD, but also recognises changes in the of energy storage. “But I’m not seeing aenergy generation and storage are market as many firms expand their lot of activity around that sector; we aregrowing markets. But in recognition of current operations to include wind seeing a lot of interest in smart meteringcleantech’s evolutionary trend, Randy and waste projects. There also are – the efficient use of the energy once it’sSoifer, partner, advisory services, Grant product companies looking to expand actually in the grid and passing round.”Thornton Canada, notes, “You don’t into energy generation, which can help South Africa’s Brice says thatdo research and development just for them move from startup to established country’s attention has thus far beenthe sake of it. You do research and company. Many companies in these on energy generation – primarily solar,development for the sake of developing sectors are currently at an RD stage wind and waste – and that “almost alla product or a service.” with plans to manufacture, but, Bartov our equipment is going to be imported Ultimately, the United States will adds, they may look to produce goods until we get similar regulations likedevelop a “huge manufacturing sector,” outside of the country. “Maybe they’ll they have in India, but I don’t seeespecially for large equipment such try to manufacture in China, the US or that happening for the next couple ofas solar panels and wind turbines that other countries to grow a more global years.” He also sees momentum inare challenging to ship efficiently, adds company.” green buildings and the water subsectorFree. For example, logistics costs for (water efficiency, water treatment) duetransport from China of a solar panel “There is a mix of cleantech to drought restrictions. South Africa’soutweigh the cheaper production costs subsectors growing in the UK, with tendering process also will drivefound in China. Storage products are a focus on energy generation, consulting and financing subsectors.a growing market. “We know how to particularly wind and to a lesser “This is the first of several tenderinggenerate enormous amounts of energy extent solar, hydro and waste,” says waves that’ll come over the next couplefrom the sun, wind and other sources, Grant Thornton’s Goode. “On the of years. As the market becomes morebut we can’t hang on to it. We can’t services side, we’re seeing a lot refined, companies are going to needstore it for when we need it. So what of activity around green-building more advice to stay ahead of the pack.”we currently do is feed it into the grid, construction. Going forward, waterand that makes the current power- is a big issue for the UK, both cleangenerating mechanism inefficient… water and sewage management. ItIt doesn’t take too long to figure out might sound strange, but some partsthat that’s not a real winning business of the UK have less average rainfallproposition.” than the Sahara Desert. That’s going to be a big issue going forward.”10
  • 13. Sector driven by cost-consciouscustomers and governmentinterventionFigure 8: What factors are driving the demand for clean technologies from businesses?Percentage of businesses 52% 45% 44% 41% 40% Reducing costs Increasing profitability Government mandates Corporate social Reducing carbon responsibility emissions 37% 35% 32% 27% 26% Pressure from Price of fossil fuels Public opinion Pressure from Enhance brand customers suppliersSource: Grant Thornton IBRHalf of cleantech businesses cite especially government programmes,reducing costs (52%) as a factor but Grant Thornton experts also citedriving demand for clean technologies, the influence of other factors, such asaccording to the IBR survey. Increasing availability of working capital and,profitability (45%), government simply, customer demands for cleantechmandates (44%) and corporate social goods and services.responsibility (41%) also were topmarket factors driving demand forclean technologies. These factorsare the epicentre of most cleantechconversations around the globe, 11
  • 14. There is no shortage of Grant Government regulation is at the core “We don’t have the governmentThornton opinions citing the power of South Africa’s cleantech emergence. mandate in most of the Unitedof government regulation in driving The country has had cheap electricity States (California being theprogress in the cleantech sector around for many years, but it now faces exception) that has occurred inthe world: expensive energy costs because so much Europe,” says Free. “I think it is• Germany – Bartels says the most energy is derived from the burning highly unlikely, given all the other dominant driver of the cleantech of low-grade coal, says Brice, adding challenges that we’ve got here on industry is government regulations, that higher grades of coal are typically the political front, that we’re going but also notes the availability of exported to India and China. This to get any serious mandate on working capital, improved supplier situation has contributed to government carbon reduction out of the federal quality and foreign competition action and government regulations government. This is a private sector• France – regulations have not been driving the market in South Africa driven initiative. Unfortunately, the supportive in the country, especially as well as the rest of the Southern private sector seems to be willing to for the solar sector, says Claverie, African Development Community, absorb the cost of oil at the current but upcoming elections could alter certainly sub-Saharan Africa. “Africa levels. Some people have suggested the regulatory landscape is really in two main camps,” he says. that it would take oil being two or• UK – government regulation drives “North Africa, north of the Sahara, is three times as expensive as it is the market in the UK, says Goode, more aspirant to European business today to really get people serious who also cites working capital as an models, while south of the Sahara really about this. And, quite frankly, I influence along with availability of operates differently and looks to South think that a lot of the demand for skilled labour Africa for guidance in terms of trends.” cleantech in the United States• Canada – Lefebvre reports that As such, he says, many countries are is going to have to start with the regulation is the key driver, but the still looking to see how South Africa’s consumers. Right now, consumers provinces are waiting for cleantech- cleantech sectors evolve. are focused on other stuff and specific regulations to emerge India’s Vivek says his country’s they’re not focused on holding• srael – Bartov similarly identifies I companies have begun to make corporate America accountable government regulation, but is quick inroads into East Africa, but most for sustainable business operations to point to the price of fossil fuels, of the partners in large renewable and for reducing the cost of energy, which underpins activity within energy projects, such as the Turkana getting rid of gasoline cars, etc.” many cleantech subsectors wind project in Kenya or the Aysha• ussia – Zhivchikov says R Wind Farm in Ethiopia, are European. government regulations are “a However, he agrees that most of very strong influence due to that region is still dependent on governmental energy-efficiency hydroelectric and traditional energy programs” for their energy sufficiency. “The• ndia – Vivek rates the following I rest of Africa is really struggling with cleantech market drivers: “One to the traditional energy, and cleantech 10 would be government regulations hasn’t happened. South Africa is the – everything else is 11th.” clear leader in that continent in any technology influence.”12
  • 15. Cleantech suffers traditionalconstraintsWhile government policies and Figure 9: Constraints on expansionregulations are a major factor Percentage of businesses rating constraint 4 or 5 on a scale of 1 to 5, where 1 is not a constraint anddriving the cleantech sector, they 5 is a major constraintare also responsible in some areasfor constraining sector expansion. 33% Regulations/red tapeRegulations/red tape was cited by 33% 30%of cleantech businesses as an expansion Availability of skilled 32% workforce 28%constraint (rating constraint 4 or 5on a scale of 1 to 5, where 1 is not a Cost of finance 31% 37%constraint and 5 is a major constraint onexpansion). Approximately one third Shortage of long term 29% finance 38%of cleantech businesses also identifiedavailability of skilled workforce (32%) Shortage of working 27% capital 37%and cost of finance (31%) as expansionconstraints. Shortage of orders/ 25% reduced demand 26% It is important to note thatthe IBR survey data shows that Quality of ICT infrastructure 17% 2011percentages of cleantech businesses 2010 Quality of transportidentifying financial constraints – cost 17% Source: infrastructure Grant Thornton IBRof finance, shortage of long termfinance, shortage of working capital –decreased substantially compared to2010. In addition, when answering aseparate question about accessibilityof financing, a lower percentage ofcleantech businesses expected finance tobe less accessible: 19% in 2011 vs. 24%in 2010. In what is a capital-intensive “The availability of financing in France varies dependingindustry, increased access to funds islikely see businesses invest in waste on the type of the company: many large cleantech(24% of businesses), solar (23%) and companies have the cash in hand to invest in theirbiofuels (22%) according to the IBR operations and continue to fund growth opportunitiessurvey. and launch RD programmes. This is especially true of companies in the waste and water subsectors.” Marc Claverie Partner, Transaction Advisory Services Grant Thornton France 13
  • 16. Figure 10: Accessibility of financePercentage of businesses 2011 2010 Source: Grant Thornton IBR 9% 2% 29% 38% 40% 28% 17% 19% 2% 5% Much more More accessible No change Less accessible Much less accessible accessible Grant Thornton’s Zhivchikov says Cleantech activities in the UK In Germany, Bartels is helpingcleantech companies in Russia have had – such as offshore wind farms – are Grant Thornton clients raise financingno problems obtaining financing and very capital intensive, says Goode, and providing them with transactionare comfortable taking on more debt, as and require huge amounts of financial advisory services (financial checks,debt burdens are generally low. Many support. “Even large corporations and due diligence, valuation, mergers andcompanies, especially strong market utilities have to think carefully about acquisition strategy). Specialists in theplayers that are doing everything where they get finance. Smaller, more United States, India and Israel concurpossible to increase their market shares, agile emerging technology businesses with Bartels about the demand forwould use funding to acquire smaller or are also finding it difficult to finance financing-related services, as well asweaker competitors. There are attractive their need for growth.” He adds that valuation, due diligence and businesstargets, he notes, as the quality of helping these companies raise capital planning services (feasibility analysis).cleantech suppliers and supply chains in has been a key activity for Grant Free says that US cleantech companiesRussia is good and poses no constraint Thornton UK, with clients seeking also request audit services:to cleantech development in the country commercial and financial advice on– “the market structure has changed structuring deals, engaging the public “These companies that have venturesince many weak companies went sector and tax services for what can be capital money have a requirementunder.” relatively complex corporate structures. to get annual audits. Certainly the companies that are thinking about IPOs have an enormous need for audit services. And with governmental programmes making grants and loan guarantees available, we are getting requests for assistance with that as well.”14
  • 17. Figure 11: Which of the following renewable energy sources/technologies are you focusing on/investing in to grow your business?Percentage of businessesWaste 24%Solar 23%Biofuels 22%Hydro 16%Wind 15% Source: Grant Thornton IBR Cleantech companies in France Economic conditions in the EU and “Cleantech is an interestinghave three main requirements that are Ireland’s recent history of economicdriving services at Grant Thornton, crisis have made it harder for cleantech space, but it’s quite capitalsays Claverie: growth via mergers and companies to obtain financing, intensive. Capital intensityacquisitions; financing of that growth, says McArdle. So despite market needs capital. If I’m correctwhich includes requirements for cash opportunities being present, companies and liquidity comes backreporting; and tax issues. are deferring decision making. Next Lefebvre in Quebec identifies year when liquidity eases, he adds, into the marketplace,strategic planning (where and how to the sector will see more growth and we’re going to have a veryparticipate in cleantech), financing and then huge growth in the years after. exciting time and a verytax incentives as the needs among the “Cleantech is an interesting space,cleantech client base in the province. In but it’s quite capital intensive. Capital busy time.”addition, Grant Thornton in Quebec intensity needs capital. If I’m correct Peter McArdleis working with the government and liquidity comes back into the Head of renewable energy group Grant Thornton Irelandto create new funds to support the marketplace, we’re going to have a verysector. Financing has been limited exciting time and a very busy time.”and cleantech companies have looked The Government recognises theto venture capitalists for funding. need for cleantech financing, saysCleantech companies also have been Goode, and is attempting to establish ahesitant to increase their debt and bank specifically for financing cleantechprudent in their investments. But activity. “That’s seen as a majorLefebvre expects change in early 2012 initiative in policy and recognising thatas federal and provincial budgets are there’s a significant funding gap for alldelivered and companies “will know a the things that the government wantsbit more about the strategies, and we’re to see happen in this sector. The banksexpecting some funds to be created. are still very selective about the kinds,This should open the market and the types and sizes of projects that they’recompanies’ minds for investing more.” prepared to finance. So that does leave a significant gap for somebody else to fill.” 15
  • 18. Claverie says that the availability of In Germany, because of the strategic “I think MA will increase duringfinancing in France varies depending shifts of utilities in response to the coming year in the technology fieldon the type of company: Many large government policies, Grant Thornton’s and in power generation,” says Israel’scleantech companies have the cash on Bartels sees increased MA activity, Bartov. “But it’s a big challenge for thehand to invest in their operations and especially among large utilities in the companies to continue to raise money.”continue to fund growth opportunities German market. “But not only focused That challenge may be diminishedand launch RD programmes. This on the German market, but rather in in Israel by banks now financing theis especially true of companies in the Europe and all over the world, just to sector, with a shift occurring betweenwaste and water subsectors. Another step into new activities or to get a new private equity (PE) and venture capitalgroup of large companies have faced business field they can be active in.” to standard banking.funding cuts, so are going about their Buyers also are coming to Germany. “Quite a few MAs and PEbusiness as usual and waiting for 2012 Asian companies want to acquire deals totalling about US$400m haveto invest. Third, small companies and German technology companies with happened in the cleantech sector, whichmidcap companies look to France a focus on cleantech, says Bartels, in is very promising given that this is aand private equity funds for support. order to buy knowhow and production sunrise sector,” says Vivek. “The MAClaverie expects funding for the experience that they can then use in market in India is on the rise, as wellcleantech sector and all facets of the their home countries to build up new as in Asia and China. But right now,cleantech value chain to increase, productions – but at a much more cleantech is more of a private equitywith growing ranks of credit clients attractive price level. But he cautions play. MA will pick up – 2011 was faremerging. “They are ready to become that financing and MA looked better than 2010 and 2009 in terms ofa really key player in this market. They more positive in early 2011. “I think cleantech activity.”know the sector. They are experts in companies will have a problem if theytheir industry, so they are ready to play don’t have a good equity portion inthis role.” their balance sheet to get affordable Any financing gaps are likely to be financing, even though companiesfilled soon enough. Across the globe, would be comfortable taking on morethe cleantech sector is attracting money. debt. The question will really be, in twoCleantech global venture investment in or three months, whether the bankingQ3 2011 was 23% higher than Q3 2010 sector in Germany and Europe is really($1.81 billion). The number of deals willing and able to still support therecorded in Q3 2011 was 189, compared cleantech sector in the way it wouldto 179 in Q2 2011. Cleantech global be necessary to develop the wholeMA activity in Q3 2011 also was industry.”significantly higher than in Q3 2010.4MA is a hot cleantech sector topic,and both big and small organisationslook to grow and expand their base. “Quite a few MA and PE deals totalling about US$400mn have happened in the cleantech sector, which is very promising given that this is a sunrise sector. The MA market in India is on the rise, as well as in Asia and China. But right now, cleantech is more of a private equity play. MA will pick up – 2011 has been far better than 2010 and 2009 in terms of cleantech activity.” Vivek Vikram Singh Associate director, Grant Thornton India “3Q 2011 Global Cleantech Venture Investment Up 124 Percent from Previous Quarter,” Cleantech Group, Oct. 5, 2011.16
  • 19. “We’re actually seeing an increasein deal activity in the UK,” saysGoode, and that’s being driven bya number of factors. “There’s moreconfidence coming back into themarket generally. Also, we havea number of major players in theenergy sector in particular who arelooking at their balance sheets andconsolidating their portfolios. Sosome of the large utilities, such asGerman utilities E.ON and RWE, havehighly geared balance sheets and alot of capital commitments in a lot ofdifferent areas. As a result, they’redisposing of what they see as beingnoncore assets. At the same time,we’re starting to see more financialplayers coming back into the marketafter the credit crunch, so they’rebidding for these sorts of assets.All of this is creating quite a healthymarket, particularly in onshore windtransactional activity.” South Africa’s Brice expectsconsolidation to occur in comingyears, and the first players will lookfor the right funding mechanisms,the right funding structures and theright business partners. “This is awhole new sector that’s developing,and the way the tendering process isstructured in South Africa, it’s got to belocal companies. They can source thetechnologies from offshore and theirequipment providers can be overseaspartners in the projects, but there hasto be local empowerment. It’s going tobe a steep learning curve. I think there’sgoing to be a lot of advisory servicesrequired in the corporate financearena.” Free, too, agrees that someconsolidation is underway, as well asIPOs, finally giving the sector proofof being a real business. “If you canpresent a convincing business model,you can not only attract venture capital,but there have been several cleantechIPOs here in the United States that arevery big deals.” 17
  • 20. Call to actionCapturing opportunity, the Grant Thornton International Business Report cleantech sector focus, highlights emergingtrends and their impact on cleantech companies worldwide. How will your organisation respond to these opportunities andprepare for the challenges that are sure to come as well?• deation to sales: Does your company have the internal resources and insight to thoughtfully plan your business I approach by analysing market opportunities and determining how to bring cleantech product and service ideas efficiently out of labs and into markets? Have you comprehensively reviewed your cost structure and cost drivers to see if they can support business development requirements? Can your company develop the relationships – product suppliers, service providers, financial institutions – needed to enhance your technological and operational performance?• Mergers and acquisitions: Companies in and out of the cleantech sector see acquisition as a way to gain a foothold and grow. Even amid a shaky economic recovery, there is a sharp upswing in cleantech MA activity. Are you able to identify target acquisitions that will fit well with your company? Does your company have the internal expertise to identify MA opportunities and then to conduct effective due diligence? Can you find financing to support acquisitions?• inancing: Private equity money is chasing cleantech. Is your company able to approach venture capitalists to obtain F needed funding? Are you able to rapidly and accurately perform financial checks, valuations and audits that are required by venture capitalists and necessary to secure government grants and loan guarantees? Can you bring your company to an initial public offering?• Regulatory understanding: Country specific regulations and tendering processes are defining how cleantech and renewable energy markets will operate and who will operate them. Is your entire company aware of the regulations in its own market – today and those possible next year – as well as in regions to which it will be exporting products and services? Cleantech is truly a global industry and players can capture opportunities around the world. Does your company have the ability to monitor, measure and document regulatory compliance wherever it operates?• Country specific changes: The global trends cited in this report affect individual companies and individual countries in unique ways, challenging cleantech executives to stay abreast of trends that affect their bottom lines. Is your company ready to identify and respond to trends on its own?Any company can benefit from a fresh set of eyes to help address challenges and manage opportunities efficiently andeffectively. As one of the world’s leading professional services organisations – with more than 2,500 partners in more than100 countries providing business advisory, assurance and comprehensive tax services – Grant Thornton is ready to help.18
  • 21. About the Grant ThorntonInternational Business ReportThe Grant Thornton International In the cleantech sector, 458 businesses To find out more about IBRBusiness Report (IBR) is a quarterly were interviewed. The majority were from and to obtain copies of reportssurvey of the views of senior executives the manufacturing sector (38%), followed and summaries, please visit:in privately held businesses (PHBs) by business and professional services www.internationalbusinessreport.com.all over the world. Launched in 1992 (13%), retail (12%), construction and realin nine European countries, the estate (9%), technology (9%), and otherreport now surveys 3,000 listed and (19%).privately held businesses every quarter For the purpose of this research,– 12,000 annually – in 40 economies, the cleantech sector was defined asproviding insights on the economic and those businesses for which more thancommercial issues affecting a sector 40% of their activities relate to theoften described as the “engine” of the research and development, production,world’s economy. or distribution of alternative energy/ cleantech.
  • 22. Global contactsAustralia IsraelCarina Becker Shlomi BartovT +61 (8) 9480 2000 T +972 (3) 5665777E carina.becker@au.gt.com E shlomi.bartov@il.gt.comBrazil PakistanRobson Izabel Shahid Ahmed KhanT +55 (11) 3886 5100 T +92 (0) 51 2271906E robson.izabel@br.gt.com E s.khan@isb.aasr.com.pkCanada RussiaGrant Thornton Canada Denis ZhivchikovRandy Soifer T +7 495 258 99 90T +1 780 401 8240 E denis.zhivchikov@ru.gt.comE randy.soifer@ca.gt.com South AfricaRaymond Chabot Grant Thornton James BriceMichel Lefebvre T +27 (0) 11 322 4726T +1 514 393 4717 E jbrice@gt.co.zaE lefebvre.michel@rcgt.com United Arab EmiratesFrance Simi NehraMarc Claverie T + 971 (2) 406 4690T +33 (0) 1 56 21 0303 E simi.nehra@ae.gt.comE marc.claverie@fr.gt.com United KingdomGermany Nathan GoodeKai Bartels T +44 (0)131 659 8513T +49 (40) 4321 862 13 E nathan.goode@uk.gt.comE kai.bartels@wkgt.com United StatesIndia Randy FreeVivek Vikram Singh T +1 949 608 5311T +91 12446 28024 E randy.free@us.gt.comE vivek.singh@in.gt.comIrelandPeter McArdleT +353 (0) 1 6805683E peter.mcardle@ie.gt.comwww.gti.org© 2012 Grant Thornton International Ltd. All rights reserved. References to “Grant Thornton” are to the brand under which the Grant Thornton member firms operate andGrant Thornton International Ltd (Grant Thornton International) refer to one or more member firms, as the context requires. Grant Thornton International and the memberand the member firms are not a worldwide partnership. firms are not a worldwide partnership. Services are delivered independently by member firms, which areServices are delivered independently by the member firms. not responsible for the services or activities of one another. Grant Thornton International does not provide services to clients.

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