THE NEED for accessible clean technologies is accelerating, and Governments, investors and industry continue to drive a tidal wave of technological innovation.
As part of this flux, an increasing number of energy clusters and hubs are evolving throughout the world, their stated aim being to provide a solution to the challenges of scaling up clean-and renewable energy technologies.
There is a growing perception that renewable energy technologies offer an economic growth opportunity. In a speech in 2010 for example, Chris Huhne, the UK's Energy and Climate Change Secretary said the value of the global low-carbon goods and environmental services market is expected to reach £4 trillion by the end of this Parliament. It is growing at 4% per year, faster than world's GDP.
In many countries, an increasing number of national, regional and municipal bodies are exploring cluster models which could stimulate economic growth, provide a solution to the challenges of scaling up clean and renewable energy technologies, as well as address the growing challenges of the twenty-first century resource crunch.
Challenges for renewable energy
In the renewable energy arena, different types of companies face varying challenges. Take energy technology companies, those creating and developing new technologies and/or new processes in the laboratory. Or project development companies, which are looking to deploy new energy technologies in order to generate power.
While these company types address the same global markets, they face very different challenges and require different solutions. One of the key challenges they share lies in raising finance. Whether to finance the move from laboratory to the trial stage, or to finance project deployment.
There are many pitfalls and hurdles for companies to overcome if they are to achieve their full market potential. Billions in investment are required to fund growth, and most investors are averse to risk. This means that the risks associated with renewable energy technology, project deployment, and financing must be minimised in order to achieve the necessary growth for scale.
Fundamentally, investment in either ‘technology’ or ‘renewable energy projects’ remain two options among many for global investment funds, and key to encouraging such investment is to change the economics for the better, and eliminate risk for the investor. An understanding of this has resulted in an increase in supportive domestic and regional policies, from the EU's Emissions Trading Scheme, to renewable energy quotas and national feed-in tariffs (FiTs) across Europe.
These have provided the framework and impetus for investment to date in clean energy projects and new technologies. Clean energy investments have increased 300% globally since 2004. Between 2008 and 2010 an average of US$32bn was invested globally each quarter in the sector.
But there is a great deal further to go. The investment required for the full development of renewable energy in the mainstream market is immense, with hundreds of billions of dollars required.
Ryan Law, managing director of Geothermal Engineering and chairman of the Deep Geothermal Group in the UK's Renewable Energy Association believes that “if the resource and the economics are right the investment will follow.” But these factors are not the only requirement for success. In the UK, Cornwall's Wave Hub has been set up as a centre to pilot a range of marine technologies – yet the FiT in Scotland is twice that of England. So the question remains, what else helps a company to grow, and what structures, scenarios and support networks need to be put in place to make companies thrive. As Law points out, “the game changer for renewable energy will be when it becomes commercially viable – where do the companies go and why?”
The success of an investment (or a company), is dependent on a broad range of measures. The question is not simply whether the technology works, but also whether customers can be found, whether skilled employees can be found, and whether the right partners can be found. With this in mind, technology ecosystems which have evolved organically can provide a model for how to address the challenge.
Renewable utopia – the search for ‘Silicon Valley’
Silicon Valley, and its concentration of high-tech companies, is the model to which many hubs aspire to but which has proved hard to replicate. It combines:
- R&D and training of large campus universities;
- Large scale venture capital funds;
- Large scale corporates focused on technology; and
- An entrepreneurial culture focused on scalable growth.
Germany's Solar Valley has perhaps come closest in the renewable energy sector. The area encompasses the former communist East German states of Saxony, Thuringia and Saxony-Anhalt. In 2009 Solar Valley accounted for 43% of total German photovoltaic revenue, 65% of total German photovoltaic cell production, and 14.5% of global solar cell production. It is also home to three of the world's 10 largest solar cell companies; Q-Cells, SCHOTT Solar and SolarWorld.
The area's organic growth in solar was due to the regions existing expertise in the chemical and semiconductor industries, both of which are key in the development of Photovoltaics. There are more than 60 research groups with a base in the region, and it is this ability to concentrate expertise, supply chains and co-operation within an industry that new cleantech clusters and energy hubs are trying to emulate.
But there is no such thing as a ‘typical’ clean energy hub or cluster. Some grow up organically around existing industries – such as PV around semiconductors, or EVs around automotive. Some are created by the public sector, and they can operate on very different scales. They can be as macro as attempting to create an entirely zero-carbon community, such as in Malmo in Sweden, or as small scale as a local energy park, as created by Evoco Energy in Yorkshire.
|"There are more than 60 research groups with a base in [Germany’s Solar Valley], and it is this ability to concentrate expertise, supply chains and co-operation within an industry that the cleantech clusters and energy hubs are trying to emulate."
Ryan Gill, managing director at Evoco points out that “combining our experience, knowledge and passion for renewable energy and clean technology, with that of other renewable pioneers, not only supports our ongoing campaign to raise awareness of alternative energy solutions both locally and nationally, but strengthens the overall competitiveness of the renewables and the clean tech industry.”
There are many different models that have been used to accelerate the growth of renewable energy and other clean technologies but perhaps the best known are incubators, cleantech clusters and clean energy hubs. While the line between them can be blurred, they are in effect attempting to do the same thing, which is bring policies, technology, people, finance and markets into alignment in order to accelerate the development of clean power.
The incubator model
Perhaps the best known is the incubator model. New technologies come from those performing R&D and research. These are likely to be in the R&D labs of the world's multinationals, dedicated R&D companies such as the AIM-listed IP Group, state-supported research laboratories such as NREL in the U.S. or the Fraunhofer Institutes in Germany and, of course, universities.
Universities have experience in transferring technologies to the corporate market, where they take ideas from the lab and ready them for investment, as Imperial Innovations and Isis Innovations in the UK have shown.
The public sector also supports the incubator approach. In the UK, from April 2009 to March 2010 for example, the UK's Carbon Trust incubated 24 companies, and 10 of the portfolio went on to leverage private finance, a great success in a very difficult funding climate.
Incubators vary widely in the way they deliver services, how they are organised and the types of clients they serve. Typically, an incubator will provide management guidance, technical assistance and consulting tailored to young companies. They will also provide access to rental space and flexible leases; shared basic business service and equipment; technology support services; and assistance in obtaining the financing necessary for company growth.
|"While the line between incubators, cleantech clusters and clean energy hubs can be blurred, they are all...bringing policies, technology, people, finance and markets into alignment in order to accelerate the development of clean power."
In return, they may take an equity stake in the start-up company, charge a fixed fee for services, as well as charge rent for office space. While the model has proved successful, there is a great deal more to a successful industrial ecosystem than the incubation of ideas.
For this reason clusters – or groups of interconnected companies and related institutions in a particular field – have become a focal point of many new policy initiatives in recent years, with the goal of creating competitive and dynamic knowledge-based economies. The nature and impact of such efforts vary enormously, making it difficult for decision makers to find the right combination of tools that most effectively support clusters.
Shawn Lesser, of the Global Cleantech Cluster Association, defines a cleantech cluster as an economic development organisation aimed at growing jobs in a specific geographic region, with the intention of promoting innovation and investment. There are challenges in creating effective clusters. He believes that there are a number of requirements for effective growth of a cluster. These include a thriving technology base; abundant entrepreneurial and management talent; access to capital; and proactive environmental public policy.
Of course, the development of a cleantech cluster can provide support and facilitate growth for a technology company, but what role can it play in the deployment of renewable energy when it has moved beyond the lab, where there is a requirement for extensive and expensive field testing and trial installations before being deployed at scale?
For project development companies the risk of using what investors view as relatively untried technology remains. The problem is that for clean energy technologies to really have impact, they must first be proven at commercial scale. One option is to go the route of shared resource, and access to high-cost energy infrastructure, such as a grid connection.
According to Steve Abbot at Narec, an energy hub based in the North East of the UK, the concept was for renewable energy companies to cluster their R&D teams around Narec's full scale testing and demonstration facilities. He says, “our facilities provide a cost effective solution to help mitigate the risks of deployment (usually in the harsh offshore environment) and are attracting companies to locate into the UK.”
According to Steve McNab, Partner, Environment & Climate Change, Simmons & Simmons, energy parks or hubs are about multiple renewable energy technology companies taking advantage of shared, expensive infrastructure. Alternatively there can be a clustering of technology around specific large energy-intensive operations – from manufacturing to urban developments.
At a regional or a municipal level, a clean energy hub can provide an opportunity to trial and test a range of technologies at a pilot level, learning from deployment. This is increasingly the role that cities and municipalities are playing in encouraging the situation of cleantech companies and clean energy technologies in areas of regeneration.
|“Clusters lead to a 1+1=3 outcome...by sharing resources and access to capital, we have shared outcomes.”
|- Nicholas Sonntagg, Westport Innovations
In the U.S. the Department of Energy has announced plans for the launch of three Energy Innovation Hubs as a critical part of its US$29.5 billion budget. US Secretary of Energy Steven Chu said it was part of an Administration-wide plan to “win the future by out-innovating, out-educating and out-building the rest of the world.
“The United States faces a choice today: will we lead in innovation and out-compete the rest of the world or will we fall behind? To lead the world in clean energy, we must act now. We can't afford not to. Through our investments, we are laying the groundwork for the nation's future prosperity and security,” said Secretary Chu.
One thing that all these approaches share is the need to gain the engagement of all the stakeholders. Nina Harjula of the Finnish Cleantech Cluster, believes that “most critical is to engage all actors in the region. These range from city planning, city strategy, local-to-Government policies. It's important to encourage development and local targets.”
Nicholas Sonntagg, executive vice president at Westport Innovations adds that a key part of his company's decision to set up an office in Lyon was not just that there was an EV ecosystem in the region, but that it was clear that national and local Governments, as well as universities (which provide training and R&D) were all putting in time and resources: “Clusters lead to a 1+1=3 outcome,” he says, “by sharing resources and access to capital, we have shared outcomes.”
Whatever approach is taken, the key is to help clean energy companies overcome barriers to success. Whether that assistance includes incubation space, early stage finance, R&D support, supporting co-operation within sectors or within the supply chain, in the end the successful deployment of renewable energy on a global scale requires minimising investment and company risk wherever possible. Only by doing this can we galvanise the billions in investment required for the low carbon transition.
Clearly, that means that we need to see stable long-term policy frameworks that support the economics of renewable energy projects. Yet given the constraints in public finance, policy support cannot always be fiscal. We must therefore find whatever leverage we need. Bringing together the necessary finance, skills, expertise, corporations and policy makers is critical in creating frameworks for accelerating renewable power. Working in cooperation could transform the sector and clusters clearly have a significant role to play – success lies in ensuring that a total ecosystem is in place to help companies to achieve scalable, long term growth.
Felicia Jackson is an editor and freelance journalist specialising in issues surrounding industry and environment, on topics ranging from technology, policy, investment and sustainability. Author of ‘Conquering Carbon’, she writes for a number of specialist business magazines on issues surrounding the transition to a low carbon economy.
Renewable Energy Focus, May/June 2011.