Canadian Manufacturing

Oil and gas incumbents: the upside of cleantech collaboration

Established energy players that partner with cleantech start-ups stand to benefit from the transition to a low-carbon economy by creating a new class of low risk, high value 'cleanfield' projects



TORONTO—The global transition to a low-carbon economy is now inevitable.

Yes, there will be winners and losers. To remain dominant, energy incumbents (like Enbridge and Royal Dutch Shell) must find scalable, low-carbon energy assets to develop. Cleantech collaborations—partnerships between traditional energy companies and emerging cleantech stars—offer new ‘cleanfield’ developments with significant upside to both parties.

It’s no longer “us” versus “them.” It’s just us.

Think of clean energy projects as new oil or gas fields to develop, and an equity investment as exploration costs. Just like a test well provides visibility into project risk and economics, so does an equity investment.

But it has much more upside, since it comes with ownership of the intellectual property that unlocks those new clean energy projects.

Get Social:

• Given decent ‘cleanfield’ IRR’s, and scalable technology, what’s the biggest hurdle to incumbent engagement on low-carbon energy?
• What might change existing patterns of investment behavior?
Respond on the Zero2014 LinkedIn Group or via Twitter using the hashtag #Zero2014

Early movers like Enbridge, which invested ‘exploratory’ money in cleantech upstarts Morgan Solar and Hydrogenics, are already reaping the rewards of profitable partnerships.

Hydrogenics’ stock has increased almost seven-fold stock since Enbridge invested, as they developed electricity-to-gas projects across Germany.

Morgan Solar’s projects will generate internal rates of return (IRR) in excess of 35 per cent, and Enbridge has earned a front-row seat.

Here’s a great collaboration waiting to happen: Woodland Biofuels. Their commercial plants will produce ethanol using cellulosic fiber from agricultural, forestry and municipal waste.

Their IRR is comparable to, or better than, oil & gas development, with a lower risk profile and higher long-term upside. They don’t need subsidies to be profitable, have de-risked the technology, but need the financial heft and market access of an incumbent. Here’s the icing on the cake: Woodland’s patents also cover conversion of reformed natural gas to ethanol.

Cleantech has matured. Many emerging stars—like Woodland and Morgan Solar—can compete head-to-head with fossil fuels, without subsidies and at scale.

Incumbents who partner with them stand to benefit from the transition to a low-carbon economy by creating a new class of low risk, high value ‘cleanfield’ projects.

The cost of entry is a small equity investment. The potential upside is huge.

Link to the MaRS site for Tom’s apples-to-apples comparison of a 25,000 bpd oil or gas field development versus financing a project the size of ten Woodland commercial plants.

Tom Rand is a Managing Partner of the privately-backed MaRS Cleantech Fund, an early-stage equity investor in Canada’s most promising cleantech companies. Tom will be opening keynote at the Zero2014 oil & gas conference in Edmonton, April 16.

Disclosure: MaRS Cleantech Fund has an investment in Woodland Biofuels, and Tom Rand has an investment in Morgan Solar.

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