Investor risks and opportunities in clean tech

TORONTO—Demand for renewable energy and clean technologies is snowballing, but widespread policy uncertainty could stint the sectors’ growth.

That was the message at CIBC Markets’ recent Renewable Energy and Clean Technology Conference in Toronto.

New global investments in renewable energy and clean technology hit $243 billion last year—a 30 per cent increase from 2009.

Don Roberts, vice-chairman of renewable energy and clean technology at CIBC, says most of that growth was driven by China’s expanding economy and worldwide government stimulus spending.

From 2009-2013, the U.S. led green stimulus spending with $65 billion, followed by China with $46 billion and South Korea with $32 billion.

Canada only spent $800 million.

On top of that, Canada has yet to create a national energy policy and is still waiting for the U.S. to develop any kind of carbon pricing system.

“The reality is we’re going nowhere fast and meanwhile companies have to make investment decisions in the face of uncertainty,” Roberts says.

Indeed, some are.

Roberts points to global power company TransAlta, which went ahead and assumed a carbon price of $30 per tonne.

“Is that the right amount? It’s tough to know. But if companies don’t make an assumption, that in itself is an assumption,” Roberts says.

The good news, he says, is some provinces are stepping up in the federal government’s absence.

British Columbia has developed a carbon tax while Ontario’s Green Energy Act has created “the most generous feed-in-tariff (FIT) program in North America.”

However, Roberts says that with a provincial election in the wings, prospective projects awarded through FIT programs could be at risk.

“If the Conservatives are elected, they could repeal the Act. While it’s not likely they’ll tear up FIT contracts, it could call into question some of the renewable energy manufacturing facilities being contemplated in the province,” he said.

Despite those risks, conference speakers agreed Ontario’s policies are attracting worldwide investment―even though some say the rules need tweaking.

“Because of local content requirements, there’s been a phenomena of manufacturers setting up shop there to extract the premium,” says John Brace, president and CEO of Northland Power, a developer of renewable power technologies.

He says that sometimes means paying higher prices in the province.

“A panel bought in Ontario is potentially more expensive than the same panel made by the same manufacturer in another jurisdiction,” Brace says.

Long wait times, complex negotiations between solar developers and roof top owners as well as questions about the maintenance of panels are also holding back developments.

“If the permitting process isn’t fixed up, there’s not going to be much happening in Ontario,” Brace says.

Clean tech, on the other hand, has been less susceptible to regulatory cloudiness, investors agreed.

Roberts says many companies are breaking into clean tech as a way to reinvent themselves and stay competitive.

“Look at the forest industry, which had been challenged in recent years but is now looking at bioenergy” he says.

Another sector filled with opportunities is water treatment, including detection, treatment, reuse and redistribution technologies.

“Industrial water treatment is becoming increasingly important, especially among oil sands companies,” says Joe Gysel, senior vice-president of water services at Epcor, an Edmonton-based power company.

Gysel most of the opportunities will be in the U.S., where there are more than 400 privately held utilities.

That hasn’t stopped Canadian companies from tapping into the water market.

Pure Technologies is a Calgary-based clean tech company specialized in water inspection, monitoring and management. It’s acquired 50 patents and is performing infrastructure work for major municipalities in Canada as well as the U.S.

“We’ve seen big change in past years with municipalities and utilities addressing infrastructure,” says Pure Technologies chairman, James Paul.

Paul adds there’s expected to be $60-million spent in Canada for water transmission over the next 20 years.

Other infrastructure issues are creating opportunities in sectors such as alternative vehicles and smart grids.

“The ability to integrate renewable technologies into the grid is going to be huge,” says Gord Reynolds, practice leader of global utility services with Capgemini Canada, Inc., a global consulting and technology services firm..

He says most systems in Canada aren’t ready for the amount of renewable energy that’s expected to hit the grid, especially in Ontario.

As a result, utilities will be building relationships with companies that can provide solutions in areas such as demand response and smart meter reading.

That will especially be the case as more electric vehicles make their way into the system, Reynolds adds.

Some Canadian businesses have already parked their sights on North America’s transition to cleaner transportation.

Electrovaya Inc. is a Mississauga, Ont. company that makes lithium ion batteries and systems for electric transportation, energy storage and smart grid power.

The company has landed contracts to supply batteries for Chrysler hybrid Ram trucks, Hero electric scooters, and with utilities south of the border.

“The real push is coming from the U.S. They want one million plug-in vehicles out and Obama has put billions of dollars behind four OEMS,” says Sankar Das Gupta, chairman and CEO of Electrovaya Inc.

But alternative vehicles technologies aren’t without investor risks, including the lack of spending and infrastructure to support their adoption.

Bill Larkin is CEO of Westport Innovations, a Vancouver-based company that has developed technologies for fuel-efficient internal combustion engines and fuel systems to run on natural gas, biomethane and hydrogen.

He says the companies he talks to recognize there’s an ROI in switching to alternative fuels for their fleet, but they’re worried about the amount of refueling stations along their route.

“It’s not going to take thousands of refueling stations, but a few hundred strategically placed ones,” he says.

Larkin acknowledges progress is being made, pointing to recent plans to build stations along the corridor from Quebec City to Detroit and in B.C.

“It will build up over time…but it is a long-term concern for us.”

Larkin says the Canadian government could be doing more to encourage clean technology investments.

Electrovaya’s Sankar agrees.

“What Canada is doing is chump change compared to the Americans’ $27-billion and Korea’s $13-billion,” Sankar says.

“In Canada, it’ll be interesting to see with the election coming up, what new changes could come of it.”