First published in Cleantech magazine, July/August 2009. Copyright Cleantech Investor 2009.
by John O’Brien
Australia is blessed with many things, despite some global views to the contrary. My English father-in-law once said that he loved Australia - it was just the Australians he had a problem with!
From a cleantech perspective, Australia has all the natural resources a country could wish for. There are abundant solar, wave, wind and geothermal resources. Depending on your definition of cleantech, the country is also home to much of the world’s uranium. More than that, however, Australia has plenty of uninhabited flat land, strong research capabilities, a long history of innovation, large pension funds and a surprisingly healthy economy compared with much of the rest of the developed world at the present time.
Australia’s economy has been built largely on its natural mineral resources and, in particular, extensive supplies of cheap coal and, more recently, cheap natural gas.
It seems strange, therefore, that Australia has not become a global cleantech leader. There are two factors that may be behind this. First, the plentiful cheap coal that has built the economy is now driving a focus on ‘clean coal’ technologies in a bid to extend the industry’s life and preserve jobs. Secondly, Australia has a very small venture capital community and many of the best Australian innovations have been funded and commercialised in North America, Europe and, more recently, in Asia - with Suntech as the best example.
However, the Australian cleantech industry is now starting to thrive. On the stock market, the Australian Cleantech Index has recovered strongly in recent months and some of the mid-sized companies are beginning to see strong growth – with profitability moving from the forecasts to the actuals.
The regulatory environment is also showing signs of improvement, although it remains fairly volatile. Australia’s Emissions Trading Scheme, with the apparently voter-friendly name of the Carbon Pollution Reduction Scheme, is struggling to survive, but will be legislated in some form within the next few months. Grants are available for renewable energy, energy efficiency, recycling, water efficiency and “retooling for climate change”. There are limited feed-in tariffs and, until a recent turn-around, subsidies for households installing PV panels. Maybe the highest profile projects will come out of the Solar Flagships programme that plans to subsidise the construction of 1GW of large scale solar projects across four sites. Companies in the running to secure this funding include Ausra (an Australian business that moved to California), Solar Systems and Acquasol.
The dominant Australian cleantech sub-sectors currently include waste, with large companies also present in water, biofuels and environmental services. An assessment of what sub-sectors will dominate in ten years might be made by looking again at Australia’s areas of natural competitive advantage. With its abundant renewable energy resources, along with its water scarcity, the country is likely to see the emergence of large scale solar, wave and geothermal generators and providers of water efficiency solutions. Examples might include the wave power technology of Carnegie Corporation, the geothermal plants of Geodynamics and the many privately owned water technology companies.
However, the issue of venture investment in Australia is still a problem. There are only a handful of small VC firms in Australia and, because of the lack of competition in funding, they are understandably extremely conservative in their risk profiling. There are companies looking for venture funding in Australia that would be able to secure the financing they need in more competitive environments. Many of the companies failing to secure funding just fade away, whilst some relocate to more investment friendly countries. The source of this investment conservatism, which existed even when the bulls were running, has been the subject of much discussion. Regardless of the cause, the consensus is that it is the pension funds that can break the cycle and start to back some larger venture funds. Unfortunately, this has not yet become a reality.
This is where the biggest opportunities lie for international investors. By moving before the domestic pension funds become active, a great opportunity exists to invest in local managers, create local operations investing in the technologies or to invest directly into some of the larger projects. Like its natural resources, Australia has abundant opportunities for global investors to back projects and technologies that can be taken to the world.
For instance, Desertec has received much recent publicity over its plans to bring renewable power from North Africa to Europe through HVDC cables. A similar scheme exists in Australia under the auspices of Desertec-Australia. Not only does this project envisage connecting the solar resources of the Outback to the east coast cities, but it also foresees an opportunity to link Australia through South East Asia into China. It is a plan of enormous vision that, hopefully, may one day be pieced together.
The above example is just one of a multitude of opportunities detailed in a recently published book, Opportunities Beyond Carbon: Looking Forward to a Sustainable World, which I was fortunate enough to edit. The book presents climate change as potentially the “best crisis we ever had”. It maps the many opportunities for residential, business and investment communities large and small, local and international, as they make the transition to a low carbon economy. Cleantech products and services are central to almost all of these opportunities.
The future for cleantech in Australia is bright, with multiple global drivers and Government backing which makes it stand out from previous growth industries. As the sector grows, mainstream corporates will buy in through purchasing and acquisition decisions, which will enable the entire economy to move towards sustainability. By combining industry with investors, the cleantech sector is set to underpin and be essential for the transition to a sustainable world.
Australia, despite being full of Australians, therefore has much to offer the cleantech investment world. The opportunities for international investors are exceptional and those who brave the long-haul flights and the time difference will be well rewarded.
Read company comment by John O'Brien from this issue of Cleantech magazine:
John O’Brien is Managing Director of Australian CleanTech, a research and broking firm that provides advice to cleantech companies and financial institutions. Australian CleanTech publishes the ACT Australian CleanTech Index. ‘Opportunities Beyond Carbon: Looking Forward to a Sustainable World’ is published by Melbourne University Press.
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