China and clean technology implications for Australia

Nigel Hennessy

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Innovation Challenge

Australian Commercialisation LandscapeR&D Indicators Figure (‘08) Rank

Gross Domestic Expenditure on R&D (GERD) $28B 10/28

GERD as % of GDP 2.21% 12/28

Basic Research Expenditure as % of GDP 0.43% 5/15

FTE Researchers Employed 136,000 8/28

FTE Researchers per 1,000 Total Employment 8.5 9/28

Source: OECD, Main Science & Technology Indicators, Vol 2010/1

Australian Commercialisation Landscape (2)

Comm. Indicators Figure (‘08) RankNumber of Triadic Patent Families 317a 16/31

VC Investment: Seed/Start-up 0.02% of GDPb

13/23

VC Investment: Early Development/Expansion 0.12% of GDPb 6/23

Source: a. OECD, Main Science & Technology Indicators, Vol 2010/1b. OECD, Measuring Innovation: A New Perspective, 2010Source: a. OECD, Main Science & Technology Indicators, Vol 2010/1

b. OECD, Measuring Innovation: A New Perspective, 2010

The Innovation Challenge

An Innovation Challenge exists for Australian firms:– Australia is comparatively strong in R&D– Systemic lack of funding in the seed stage

Lack of funding

Lack of Entrepreneurs

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CleanTech Commercialisation Challenge

™ Unilateral Climate Policies

Region Carbon Reductions

EU 20-30% lower 2000 levels by 2020

US 14-18% lower 2005 levels by 2020

Aus 5% lower 2000 levels by 2020

Japan 25% lower 2000 levels by 2020

Canada 17% lower 2005 by 2020

NZ 10-20% lower 1990 levels by 2020

42% of global emissions

™The CleanTech Opportunities

Global Clean-tech Needs for a Low-carbon Economy

• Low carbon materials/plastics/carbon fibre, low carbon steel• Biofuels, waste recycling, efficient home design, • Agricultural/food seeds and technologies• Efficient Transport/Logistics - cars, planes, trains, ships• Clean energy (biomass, geothermal, wind, solar, thermal, wave/tidal) • Energy storage technology, advanced battery technology• Infrastructure for low carbon economy (rail, roads, gas networks, transmission

grids..) • Water purification technology, energy efficiency/automated systems/IT

software• Carbon financial markets

™ Carbon CycleAustralia is one of the biggest carbon producers in the world, BUT it is a nation that is uniquely placed to lead the world in clean and sustainable technologies:-• Australia has some of the longest hours of

sun shine – solar power• Australia is constantly under threat of

drought – water technologies• Australia is big and surrounded by oceans

– tidal/wave energy sources.• One of the biggest producers of

Agricultural products - Biofuels• Australia is a major producer of coal –

remove dependency on carbon fuels• Australia has some of the best research in

the world in sustainability.

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Australian CleanTech is world leading …

• We don’t turn R&D into commercial products very well

• Big investment in R&D but little in commercialisation

• Only 8 companies achieved funding through VC’s in 2009 in the clean space.

BUT… we are falling behind!

• Most investment, when it does occur, is in INFRASTRUCTURE and not commercialisation of technology.

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China’s Clean Technology

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• Objective: 45% carbon intensity reduction by 2020– Carbon intensity = carbon emissions per unit of GDP

• Background: Since 2003 China’s carbon intensity was going up - meaning carbon was growing faster than economy!

China’s Commitments

• 15% renewable energy target– Just became 2nd largest wind power producer and among

the top solar producers– First electric car company – Diversify away from coal (renewables, hydro, gas and

nuclear)

How are they to achieve this?

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China Surges Ahead in Private Clean Energy Investment

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20

40

60

80

100

120

140

2005 2006 2007 2008 2009

South AmericaAsia/OceaniaEuropeUS

• Chinese clean energy surged 53%in 2009 to $35b • China investment double that of the US ($18b)

China ($34b)

$US billions

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China’s Current Status

• Enormous investment by China and change in direction– Leads the world in clean-energy investment

growth– Currently at $35billion pa, 53% growth in 2009– Ambitious 2020 carbon intensity target (45%

reduction)– 40GW of carbon-neutral energy built in 2009

(Australia’s entire energy supply +30%)– Electric cars expansion and carbon neutral cities

China/Australia R&D Comparison

R&D Indicators Australia ChinaGross Domestic Expenditure on R&D (GERD) $28B $66B

GERD as % of GDP 2.21% 1.52%

Basic Research Expenditure as % of GDP 0.43% 0.074%

Source: OECD, Main Science & Technology Indicators, Vol 2010/1

Australia spends proportionally 6 times more on Basic Research. Correspondingly, China spends significantly more money on DEVELOMENT as opposed to RESEARCH compared to Australia. Around 80% of all funding in R&D in China is on DEVELOPMENT.

™ Opportunities in China• Globally No. 1 largest market for

– renewable energy investment – PV, wind turbine, ethanol biofuel, solar water system productions– Hydro power– CDM projects, – Super-critical and ultra super-critical (high efficiency) thermal coal

plants constructed

• Huge investment proposed for environmental protection – water treatment (sewage/river courses/lakes) – garbage treatment – air pollution control – environmental monitoring for pollution emissions/water quality

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10 KEY Energy Efficiency Programs of Chinese Government

1. Upgrade coal-burning industrial boilers (kilns) 2. Local cogeneration3. Make use of exhaust heat and pressure 4. Save and replace petroleum 5. Energy conservation in electrical motors 6. Optimization energy system-through system optimization design,

technical renovation and improved management, to reach energy efficiency in key energy intensive industries

7. Environment-friendly lighting-candescent lamp to light emitting diode (LED) and high intensity discharge (HID) lamps.

8. Energy conservation in governmental departments 9. Energy conservation in buildings -50 percent energy saving in residential

buildings and public structures10. Build energy monitoring and technical service system

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Future CleanTech Investments

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The Accidental Environmentalist

CleanTech InvestmentsThe world is accelerating towards a low-carbon economy. China is today in the driving seat.

IF Australia doesn’t try and take advantage of the new technologies we will be left behind.

Clean Tech?

™CleanTech Business Accelerator (CTechBA)

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Formation of CTechBAThe Australian market suffered with:-

– Lack of Investment– Lack of capabilities– Lack of understanding– Lack of commitment

Recognising the problems, CTechBA was formed by a group of concerned senior executives with skills in:-

– Clean Technology– Executive Management– International Sales and Marketing– Investment Banking

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Our Differentiators

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Typical Problems facing an Emerging Company BEFORE

No Time

Competition

No Money

No Knowledge

No Plans

Global Opportunities

No Improvements

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Typical Development PhasesStart-Up•New Idea•3 F Funding•No revenue

Incubation• Concept Dev• 3F funding• Grants• IP Protection• No Revenue

Prototype• Angel Investment• Grants• Limited Revenue

Commercialisation• Angel Investment• Grants• Introduction Customers• Channels• Subcontractors

Growth 1• VC’s• Grants• Customers• Dealers/Distributors• Overseas Channels• Manufacturers• Agents

Growth 2• VC’s• Expansion Capital• Repeat Customers• All Channels• Re-design of products?• Agents• Exits?

Growth 3• PE’s• Agents• All Channels• Manufacturing Options• Exits

Start-Up•New Idea•3 F Funding•No revenue

3F’s and Grants Angels VC’s PE’s

3F’s and Grants Angels PE’sVC’s

Current Funding Arrangements

Traditional Funding Arrangements

Critical Phases for Success

Time

VC’s taking lower risks and Angels less willing or able to invest larger sums has

created a gap – the “Valley of Death”

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Typical Problems facing an Emerging Company AFTER

No Time

Competition

No Money

No Knowledge

No Plans

Global Opportunities

No Improvements

Source Funding

AndSales

Business Disciplines

PlanningAnd

Strategy

Market ResearchMarketing

Resources

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Some Client Examples…

All of these will be looking towards China for investment, sales and partners.

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Solar Paint

• Organic PV (OPV) material can be made into a paint or into a thin film. As a film it can be used to tint windows and create energy at the same time.

• Expected cost will be around $0.15 per kwh compared to $0.70 for silicon based PV.

• Current market for PV is $32B per year.• Product is still at prototype stage and is pre-

commercial

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BSmart• Recycled Bricks and Pavers.

Takes rubbish from a building site and creates bricks or pavers locally.

• Prototype built and has made several thousand bricks on a commercial basis.

• Smart water fund with Melbourne water to use dried processed sewage to make bricks.

• Currently looking at using pavers to store hazardous products such as lead dust.

• Average cost of bricks and pavers are lower than standard bricks and pavers

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Windesal

• Innovative Wind and diesel driven RO based Desalination system.

• Hybrid power control system using wind and a diesel motor reduces carbon emissions by as much as 85% compared to conventional desalination systems.

• Current test site is expected to create drinking water from an aquifer at a rate of 3-5GL per year.

• With water security an issue world wide, Windesal provides a localised solution.

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Pixalux

• LED based lighting for Advertising Boards and specialty lighting.

• Unique lighting solution based on 12V LED lights and acrylic with a diffuser matrix printed on the surface provides homogenous lighting panels ideal for display boards as well as shelving and back-panels for desks and furniture.

• Already sold products to the Australian Museum and have a number of other clients and partners under discussion.

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CTechBA’s ‘Real Value’Since we manage a diverse and varied portfolio often we get synergies between own clients which can be exploited:-1. We are speaking to a biofuels company using algae. Windesal can use

brine from the discharge of their RO system to feed an algae lake to make biofuels.

2. We are using Bsmart and Pixalux in a proposal for eco-housing design. We also have a ‘green’ cement company in our portfolio as well. Later, we shall include Solar Paint and another client in Water Storage.

As our portfolio gets bigger we look for synergies and opportunities for all our clients to create ‘total solutions’.

China we see as an important part of our overall strategy for developing the businesses as well as sourcing capital.

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Summary

• Historically not been good at commercialisation, although CTechBA will make progress in this area.

• Clean Technology provides a new opportunity for Australian technology and for entrepreneurs to develop world-leading technology markets.

• China is a substantial player in the clean technology space which is likely to grow a lot more than the rest of the world over the next 10 years and more.

• Therefore there are GOOD opportunities for Australian Clean Technology companies in China and for cooperation with Chinese companies BUT we cant afford to be complacent.