Chapter 3 for Cleantech: The Deployment of Innovation Chapter? Thoughts and Wishes for 2016+

The start of 2016 feels like a good moment for a reflective piece, on the one hand, and a look forward one, on the other.

I have a real sense that momentum is building towards a defining and breakthrough 2020’s.

COP-21 has just passed. Perhaps our global leaders will take climate change seriously after all, now that the scientific evidence is stronger, the runway for mitigation shorter, and business and finance has been taking some early steps down the multi-decade adaptation path without them.

2016 also sits neatly between 2002, the year of the very first Cleantech Forum San Francisco and 2030, the date against which so many emissions and renewables targets around the world have been pegged, a date that once seemed so far away as to provide some sense of time-safety, but now a date that feels uncomfortably close. Arguably, we already have pretty good sight of how close we will come to meeting such targets based on existing solutions and technologies. Arguably, therefore, we could already inform our political leaders of the implicit “innovation gap” that exists between Paris’ 2050 net zero promise and what will actually be possible based on extrapolating forward from today’s capabilities.

The “innovation gap” to 2050 is significant; this is good news for innovators and investors – with appropriate patience.   

How healthy today is the ecosystem to produce great sustainable innovation companies, companies who will partly determine if we can remain below 2 degrees, let alone get nearer 1.5? Who is more right, Jigar Shah or Bill Gates, on whether we need more breakthrough innovation or more deployment of what we already have? What can we expect from the 2020’s, and how ready are we for it? These are a few of the questions, top of my mind, as I start 2016, as we enter what I see as cleantech’s chapter 3.

From 2002-2008, in what I think of as cleantech’s chapter 1, a true venture capital innovation ecosystem formed around the idea of building businesses that would provide goods and services which would make good, by doing good, which would provide investment returns for entrepreneurs and venture capitalists alike by enabling customers to do less environmental damage, and to do more with less.

Cleantech is dead” was the spirit and force of the headwind we all faced in the years following the financial crisis, as we entered chapter 2 and many chapter 1 companies entered Chapter 11 (or the equivalent in other countries) or were moth-balled or fire-sold (often to Asian corporations). Some good ideas and some good talent were lost to the ecosystem in this period, as only so many could make it. That said, on the plus side, cost curves were given downward momentum, and we should not lose sight of the knowledge capital that was built up from the many well-funded experiments in science, and business models. Plus, year on year, in looking back at what came of past Global Cleantech 100 award winners, we can see the number of successful outcomes to be increasing.

The mood is now lifting, and the barometer is moving slowly but surely in our favor.

Far from being dead, cleantech has morphed. Its central rallying cry of doing “more with less” with our finite (and in some cases toxic, and polluting) resources remains as relevant today as when CTG started out in 2002, pioneering and evangelizing this innovation theme and building an innovation community around it. (Indeed More with Less: The Makings of the 2020s are with Us Already is the theme of the Cleantech Forum San Francisco). Venture capital may have cooled to the theme, but the Rise of the Corporation in Cleantech (the name of an executive briefing I co-wrote in June 2010) has been an important off-setting trend, bringing new capital and even more importantly, industry know-how, networks, and partnerships to the innovation table. So what might Chapter 3 look like?

A third chapter, it feels to me, is now upon us and brighter times lie ahead.

I first argued this in 2014’s Looking Back, Looking Forward: the Best is Yet to Come. $100 billion of venture and growth capital investment in innovation didn’t all go up in smoke, and the companies and funds who have toughed it out are in better shape. In some cases in some industries, clean technology solutions are proving to be competitive, on both cost and performance grounds. . (Come see for yourself as CTG unveils the 2015 Global Cleantech 100 at the January 25-27 2016 Cleantech Forum San Francisco).

As we start 2016, I have the real sense that momentum is building towards a defining and breakthrough 2020’s. Here are but a few recent signals of the ongoing shift from the old geo and industrial order towards what Heck and Rogers termed “The Resource Revolution”, the third industrial revolution, that they argued “will dwarf the previous industrial revolutions in terms of both size and speed”:

  • It is right that we should have some skepticism about the non-binding agreement signed in Paris. However, as an expression of global will, as a signal to business and finance of the direction of travel, COP-21 was powerful and welcome, especially in a macro-economic environment where oil barrels at $40 or less look set to be with us for some time, and where commodity prices are at cyclical lows; and especially in an agreement that signaled a path to a net-zero 2050 with a clear invitation to the innovation world – “Help! We need your help to get there, as there is a clear gap between the goal and reality, based on extrapolating the present!
  • Big corporations have been heading in that direction in mindset, but the speed and ingenuity of travel needs to be picked up. 2015 was the year in which Europe’s energy majors came out with an open letter asking our politicians for a real global carbon price, to speed them and us along the de-carbonisation path. Unimagine-able 10 years ago.
  • Finance has already started on its journey, albeit it is still early days – note how the divestment from fossil fuels campaign built momentum in 2015. Signals like COP-21 can only help nudge the finance industry further down new paths and capital allocation thought-processes.
  • Talking of signals, the momentum behind pricing feels unstoppable and should enable a new wave of innovation in the energy, resource and industrial sectors. Solar and LED’s continue to outstrip forecasts (in volumes and price per kwh), and there is a growing sense that energy storage costs are at an inflection point, according to Lazard’s LCOS 1.0. On the enabling front, don’t under-estimate the importance of announcements that sensors of the future might be less than $10 (a 20x improvement on today), nor the importance, for bio-related innovation, that the costs of genome sequencing has been improved a million-fold since 2001.
  • On a historical note, with much longer time-cycles in mind, Friday December 18th 2015 saw the closure of the last deep coal mine in the UK, the country where carbon-intensive industrialization began. All era’s do end; history is clear and consistent on this.
  • On a geographical note, the US may still lead in building innovation companies and the Clean Energy Patent Growth Index may show the US on track to break another record after eight consecutive increases, but far more important, when looking for signals of deployment of future scale and the mainstreaming of clean technology, is what is happening in China – with the “airpocalypse” reaching terrifying new levels again; with its 13th Five Year Plan (covering 2016-2020) likely  to be ascribing some huge investment numbers to the development of the clean energy, EV and water industries; and with the “China In” trend that has been the raison d’être for CTG’s China Tours, 2011-15, being highlighted in a recent special report by Fortune, Silicon Valley’s New Power Player.
  • In terms of breakthrough sub-sectors to watch out for in chapter 3, how about agritech, energy storage and EV’s? Padmasree Warrior certainly seems to believe in EV’s and China. Interesting to see a software/communications executive, most recently chief technology and strategy officer at Cisco, recently move to NextEV, a start-up, preparing to go big in Mobility’s future.

Against this backdrop, I finish with three thoughts:

1) Deployment and Innovation. Let’s not push back on Bill Gates and his big announcement on day 1 of the Paris talks, as some in our ecosystem have been inclined to do. The advent of so much private capital and so much “entrepreneurial DNA” to the sustainable innovation table can only be welcome, in its quest for credibility in the mainstream. That said, I do agree with Jigar Shah that the “primus inter pares” priority right now, is to deploy the solutions that are already market-ready and are finance-able for anyone willing to work at it. The good news is we are not being asked to choose, but nor are we being necessarily offered the capital and policy solutions to pull through technologies that already exist; to accelerate their cost curves as volumes scale; to prove out to conservative boardrooms (David Crane’s farewell letter to NRG employees provides a good case in point) that the new energy and resource future is not only an opportunity for new growth strategies but one that is arriving fast (counted in energy/industry/utility time, for sure, if not in Wall Street broker time); and to create the beach-heads, the proof points, and the platforms on which the next wave of innovation, funded by such as the Breakthrough Energy Coalition, can thrive.

2) Family and Impact capital – the rise of the corporate in cleantech has been charted for some time, and has been quite easy to see (as their participation and presence is more public). The rise of family office participation in cleantech has also been ongoing for some time, but is a much quieter and harder-to-quantify trend. It has long been CTG’s belief that this will continue to increase, because family money has some distinct advantages over institutional capital: more flexible, more patient, and often it comes with entrepreneurial nous and industrial backgrounds. In this regard, the recent Breakthrough Energy Coalition announcement was timely and welcome, signaling to other entrepreneurs both the importance of the opportunity set, but also the size and scale of the opportunities.

3) Trends beyond cleantech’s original core, that will shape this innovation mega-trend for years to come.

In 2005, Tim O Reilly wrote that, “Like many important concepts, Web 2.0 doesn’t have a hard boundary, but rather, a gravitational core.”

I feel something similar about cleantech, and time arguing whether a company is, or is not, within a 14-year old definition of cleantech, may be missing the point of what we are trying to do, namely track how innovation, and the global imperative to do more with less, are changing the industrial landscape and the competitive playing-field.

There are so many interesting trends in so many interesting sub-sectors, but if I were to pick out a few things to watch out for in chapter 3, I’d point to the “cross-cutter” trends – as it is these that could impact numerous industrial and technological areas, and as such, be the most disruptive. Here is a selection: try artificial intelligence, block chain, crowdfunding and the democratization of finance, genomics, and robotics.