The shift to a low-emission, low-carbon world is introducing high-value business opportunities
There’s something awfully sexy about the idea of jet fuel derived from Blenheim sewerage. Or a city powered by a generator submerged in the Kaipara Harbour. Or extracting plastic from the prunnings of a Rotorua pine forest.
Clean technology is very sexy. But is it a reality? Well, yes—all the above are real projects by real New Zealand companies, reflecting a worldwide explosion in clean tech investment.
“Just as thousands were drawn to California and the Klondike in the late 1800s, the green energy gold rush is attracting legions of modern day prospectors in all parts of the globe,” says Achim Steiner of the United Nations Environment Programme.
“New investment in clean energy surpassed US$148 billion in 2007”
All parts of the globe that is, except New Zealand, where investment in clean tech is comparatively pathetic compared to the sums sucked into property, farming or traditional infrastructure. Indeed, it’s a measure of how insignificant that is that no one, neither government nor private enterprise, has bothered to count it.
Several initiatives signal a change.
Last year, Pure Power, a fast growing, Asia–Pacific clean energy company, made two strategic investments in New Zealand. It took a 19.9 percent stake for $3 million in Aquaflow Bionic Corporation, the Blenheim-based biofuel company. It also paid $6 million for 100 percent of BioJoule, the wood-waste project headed by Genesis R&D’s Jim Watson (see ‘Big Jim’ in this issue for a detailed profile). Pure Power’s plays are the first real investments in New Zealand by an overseas clean tech specialist. David Milroy, the founder of Pure Power, says there’s every reason to expect New Zealand to produce world class clean tech companies—and attract foreign investment. For one thing, the demand for alternative energy technology is growing faster than it can be supplied. “The demand for energy is rising like a ramp … every potential idea needs to be explored.” He also was impressed with the engineering and ingenuity downunder. Jim Watson and the BioJoule team now form a core part of his research arm.
Locally, no such specialist investment firms exist, but an encouraging move was by Cranleigh Merchant Bank, which launched the first dedicated clean tech fund, CE3, hoping to raise $250 million across New Zealand and Australia.
For example, nitrogen inhibitors have already been proven to lift productivity and reduce fertiliser needs. Only five percent of farmers currently use the technology because it’s expensive. An ETS would allow farmers to enjoy three new sources of income: increased productivity, banking carbon credits and avoiding carbon costs that are inevitable under a Kyoto regime. The report estimates the upside on such inhibitors could increase dairy farm incomes by $714 million a year and provide 1,728 new direct jobs with an annual wage value of $98.5 million. This will also cut dairy farmers’ emissions liability by $98 million a year.
“The NZBCSD report claims that $12.3 billion new investment and revenues and 9,600 jobs will result from the ETS”
A failure to implement the ETS could jeopardise the benefits. For example, “it could cost the primary industry up to 7,600 direct jobs: If the reputation and carbon-intensity competitiveness loss results in overseas consumer boycotts, a loss of five percent of primary industry sales would cost 7,600 direct jobs, and $433 million a year, and probably a similar number in indirect jobs. A one percent reputation and market share loss will cost 1,520 direct jobs and $250 million a year.”
In summary, the council warns: “A failure to pass the bill—which could delay an ETS until 2012—will continue stalling billions of dollars of investment decisions till ETS detail is settled. This will deny the country new jobs and export income. Having a price on carbon has also been factored into billions of dollars worth of investment in wind, geothermal power, and other new forms of ocean, wood-waste-based and biofuel power generation.”
The report is a landmark for one simple reason: until now, only the government has attempted to calculate the risks and return of a Kyoto-aligned economy. Now it seems the private sector is taking action. The council’s chief executive, Peter Neilsen, says the report is timely especially as the costs of implementing an ETS gets harder as time goes on. “It’s like slowing a car down from 100 kilometres per hour. Better if you can brake slowly, rather than leave it to the last second. We know we have to reduce our emissions. Better that we get started now,” he says.
These are just three bellwethers of the change. To get a sense of where the investment in clean tech is heading, here’s a snapshot from around the country. This list is by no means exhaustive. Nor is it supposed to be investment advice. But it gives you a flavour of what clean tech can offer savvy investors who want to not just save the world—but make a buck in the process.
Greening the Greens
Agriculture may once have been our economic powerhouse (it generates only about five percent of our GDP) but it is responsible for nearly half of the nation’s greenhouse gas emissions. That provides us a unique opportunity: solve the agricultural emissions problems here and we can export our knowledge to the world.
The PGGRC research programme aims to provide livestock farmers with scientifically tested techniques to cut emissions by 20 percent by 2012. The consortium is made up of the major players in the relevant industries, plus research and promotion organisations.
It operates under a Memorandum of Understanding with the Crown. The government picks up half the tab, which has totalled $19 million since 2002 and is now running at about $5 million a year.
Manager Mark Aspin says while it is still mostly seen as a problem-solving operation, it’s also an investment to increase productivity. “If we crack it here with New Zealand grazing systems, there are other countries—like in South America—using a lot of grazing, where it could have applications.”
New Zealand is woefully short on clean tech investors. Enter Cranleigh Merchant Bank. Its new subsidiary CE3 aims to provide Australasian clean tech businesses with much needed capital, skills and leadership.
With a proposed maximum value of $250 million, the fund brings together an experienced management team including former managing director of Waste Management New Zealand, Kim Ellis, and former Neuronz chief David Clarke.
Their expertise will assist the many promising startups with the governance and networks that money can’t buy. “Any good company can get money. What we are talking about isn’t venture capital, it’s active management for existing businesses—licensing technologies internationally and deploying them internationally,” says Cranleigh director Andrew Bayly.
Catching the Wave
Crest has applied for resource consent to conduct a 35-year marine turbine power generation project in the Kaipara Harbour in Northland.
The plan is to build up to 200 completely submerged marine tidal turbines located near the entrance to the harbour with a maximum generating capacity of around 200 megawatts. The company estimates this will generate power for up to 250,000 homes and could contribute three percent of New Zealand’s power supply.
If it gets the green light this year, the firm will need to raise about $600 million over the next ten years. But with electricity prices the way they are, and Crest’s generators turning as early as 2010, they could be on to a winner.
Director Nick Eady says: “There is significant interest in marine energy generation particularly throughout Europe, Canada and South East Asia.”
It sounds like a new form of alchemy, but Aquaflow Bionomic, the company partially backed by former Christchurch mayor Vicki Buck, aims to produce ‘bio-crude oil’ from algae harvested from the oxidation ponds of sewage works and other nutrient-rich water. This could also potentially use wastes from the transport, dairy, meat and paper industries.
ABC is keeping the process—in which they have so far invested about $6 million—a secret. But up to half of an alga’s body weight is comprised of oil. In theory this could be harvested and converted into biodiesel. Their carbohydrate content can also be fermented into ethanol. Both are much cleaner than petroleum-based fuels.
ABC first demonstrated the fuel in 2006 and already has interest from Boeing, which is currently searching for alternative aircraft fuels. Last year ABC sold a 19.9 percent stake for $3 million to Singapore-based Pure Power.
“One of the biggest challenges is understanding just how big this may be,” reckons investor Nick Gerritsen.
Combine the irrefutable talents of Sun Microsystems founder Vinod Khosla with Dr Sean Simpson, a former Leader of the biofuels initiative at New Zealand’s own AgriGenesis BioSciences Ltd, and you have a potentially explosive idea.
Lanzatech’s plan is to generate ethanol fuel from the gases from factory chimneys or decomposing organic waste. Their approach uses bacterium to produce ethanol from carbon monoxide in a process similar to the way yeast turns sugar into alcohol. It could remove the controversial competition between food production and potential biofuel plantations.
Lanzatech’s work attracted the first major contract awarded under the Foundation for Research, Science and Technology’s Low Carbon Energy Technologies fund, receiving $12 million.
“When you are talking about fuel production technology, you are talking about an industry worth $3 trillion. It doesn’t come any bigger than that,” says Simpson.
Stephen Tindall is no stranger to this space. He co-founded the New Zealand Business Council for Sustainable Development and is chair of both the Climate Change Leadership Forum and Growth and Innovation Advisory Board.
And through K1W1, sister company Norwood Investments and other routes he has invested more than $100 million in startup and early-stage businesses, including those working in biotech and environmental technology.
Investments include Lanzatech (biofuels), Wellington Drive Technologies Ltd (energy efficient electric motors), Anzode Inc (battery technologies), Optisolar Inc (solar power), Vertical Composting Ltd (industrial scale organic waste recycling) and Celsias Ltd (online climate change projects).
K1W1 manager Brian Mayo-Smith says sustainability is a logical area of investment. “Consumers have become much more aware and enquiring of the sustainability of products and services. Any business whose economic welfare is dependent on consumers ignores such issues at their peril.
“Purpose-grown energy forests could meet all of New Zealand’s future transport fuel and heat energy needs, without threatening the country’s important agricultural industry,” says Scion spokesperson Deborah Gray.
That might sound ambitious but Scion, the former Crown’s New Zealand Forest Research Institute has, together with top players in the forestry and energy industry, invested $1 million into the first stage of a feasibility study on the conversion of wood waste to bioethanol. A further $1.4 million is being spent on research into the potential wider role of forestry in biofuel production.
A recently-won Foundation for Research Science and Technology grant of $7 million will help keep the work going. The studies fit into the Biomaterial Futures Strategy launched in 2003 which has resulted in the development of new materials like environmentally friendly bio-plastics.
Venture capitalists Direct Capital and Inventages have come together with New Zealand’s largest Crown Research Institute AgResearch to pump millions into the emerging biotech market.
BioPacific Ventures’s portfolio includes 100-percent natural digestive aids, research into the effects of sugar cane on food absorption, plant-based ‘bio-polymers’ with a range of applications in food, pharmaceuticals and agriculture as well as a process for extracting keratin from wool for use in hair and nail care products.