California’s clean technologies

IE Focus

1 February 2005

The State has always been eco-friendly But recent electricity problems and rising oil prices have focused Californians’ attention on “clean-tech.” Sustainable development and environment-friendly growth are much on the minds of investors and entrepreneurs, state-wide.

Times are green in the Golden State. A record number of investors and entrepreneurs from America and Europe, all active in clean-tech, met in San Francisco for the Fourth Cleantech Conference in April. Sales of hybrid cars (powered by gas and electricity) are at an all-time high, rising over 25 percent since 2003, while the auto market sagged 1 percent. Gov. Arnold Schwarzenegger expressed his commitment to a clean economy by launching an infrastructure of hydrogen pumps that will outfit on the State’s highways by 2010.

You might be convinced that environment and the quality of life actually do lie at the heart of California’s economy, as its leaders are proud of saying. With the population expected to spurt another 30 percent by 2025, government and the private sector appear to be adopting a long-term vision.

Gavin Newsom, the mayor of San Francisco, recently unveiled 5,600 sq. meters of solar panels on the roof of the city’s new Convention Center. The panels will generate 675 kilowatts of electricity - not 100 percent of the building’s needs, but enough to save over $200,000 a year in electric bills.

This is the first reusable energy project to come out of the Mayor’s new Energy Account, a $100-million city fund, born by referendum in 2001, and destined to develop renewable energy sources for the Bay Area. And California is not alone. New Mexico passed a similar measure in January, and New Jersey is working on one. The city of Austin, Texas, not long ago approved a tax to develop solar energy.

New mindset

Global political tensions and their impact on oil prices, plus memories of recent blackouts on both coasts have contributed to this new mentality.

It stretches far and wide. Clean-tech also means new research in treatment of water and waste, in decentralized hydrogen production, in advanced materials, photovoltaic systems and combustible batteries.

Like nanotechnologies, cleantechs include many different technologies and are present in nearly every industrial sector. Observers believe cleantechs have reached a degree of maturity comparable to computer programs of 20 years ago, at the dawn of the information age.

Interest in the new sector is climbing, though investments are not – not yet, anyway; the sector remains largely underinvested. This lack is felt both in startups and older firms. Investors are skeptical of the return on investment they can hope for, and worry over uncertainties about the degree of maturity of markets and possible exit strategies.

Capital-risk investment in renewable energy technologies represented 2.4 percent of all U.S. capital-risk investments in 2003. While overall investment fell from $21 million to $18 million between 2002 and 2003, investment in renewable energy technologies remained steady at just over $400 million, or one-third of the $1.2 billion invested through capital-risk in cleantechs last year.

Calpers, the U.S.’ largest public pension fund ($167 billion in assets), announced in March the launch of their Program for Environmental Technologies. The California group is considering investing $200 million in cleantechs over the next few years.

“The way we invest will define the world we’ll live in tomorrow,” said Phil Angelides, California’s Secretary of the Treasury, and president of Calpers. “You don’t want to be first, but you don’t want to be last, either. Life isn’t risk-free. So we believe we are on the right path toward an economy that’s stronger because it’s sustainable.”

European angle

The U.S. approach is pragmatic, and the Internet bubble is still fresh in minds everywhere. One problem with cleantechs, experts say, is that the more sophisticated a technology is, the less applicable it is to developing economies. Meanwhile, in countries like France, the eco-industrial sector remains an excellent investment opportunity, too: it is growing faster than the GNP. There are 1,500 eco-industrial companies in France, half SMEs and half multinationals, like Suez. Together they represented a €28-billion market in 2002. Many of these firms were created over 15 years ago and must develop new technologies today, thus are in need of financing and investors.

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