INNOVATION NEEDS AND CHALLENGES IN THE ENERGY SECTOR AND OPPORTUNITIES FOR EU/RUSSIA COLLABORATION

Transcription

1 EU-RUSSIA INDUSTRIALISTS ROUND TABLE TF for innovations, Renaissance, Brussels INNOVATION NEEDS AND CHALLENGES IN THE ENERGY SECTOR AND OPPORTUNITIES FOR EU/RUSSIA COLLABORATION 1 J. Keronen, VP Innovation development and partnering, Fortum FORTUM FOUNDATION

2 Purpose of the presentation Energy industry and users of energy are facing a big change in way to environmentally sustainable and CO-free infrastructure. This needs a lot of new innovative ways to produce, transport and store energy as well as increase the efficiency of using it. There have been several positive developments in this area but following issues need to be tackled: Is the speed of change sufficient satisfying our sustainability targets? Is Europe strong enough in commercializing new technologies and make this true business opportunity for us? How to develop cooperation between EU/Russia in clean energy/tech? Who should drive the development forward? This presentation addresses following issues: Innovation needs in the energy sector Current status and challenges in commercializing energy innovations Differences with US and Europe in commercialising innovations A proposal for discussion; EU/Russian clean energy/tech fund Next steps? 2 This presentation is made by a team of J. Keronen, E. Suoninen, M. Paavola/Fortum, T. Rapakko/Rapakko Associates, J. Virtanen, JVC Oy

3 Sources of information Who s winning the Clean Energy race? PEW, 2010 Global Clean technology Venture investment rises in 2011 as investors focus on larger late-stage deals, Cleantech Group, April 2011 Record number of Clean Technology Venture Investment Deals in Cleantech Group, January 2011 Global Cleantech 100. A barometer of the Changing Face of Global Cleantech Innovation. Cleantech Group, September Private Equity Spotlight, Bright Future for Cleantech. Pregin, March Bridging the Chasm: Venture Capital is critical to delivering Europe s low carbon objectives and 21st century European jobs and companies. EVCA, November Closing gaps and moving up gear: The next stage of venture capital s evolution in Europe. EVCA, March International Energy Agency, World Energy Outlook

4 Innovation needs in the energy sector

5 Climate change is the biggest driver for energy innovations Global CO 2 emissions 60 IEA baseline scenario GTCO 2 8 wedges 30 Realized emissions 6 additional wedges = Estimated requirement to limit temperature increase to 2 C 5 Sources: IEA ETP 2008, Princeton University, Fortum

6 The need for change is really big. Each wedge equals: Doubling the efficiency of world s coal-fired power plants CCS in 800 large coal-fired power plants 500 Olkiluoto 3 nuclear power plants A bio crops plantation equalling the total area of India More than km 2 2 million 1 MW wind power plants Halving car mileage (or halving emissions from all passenger vehicles) 6 Source: Fortum

7 Ways of doing the business is changing fundamentally Smart grids Branding Transmission Distribution Distribution into cables Distributed generation Market places Deregulation Green certificates Environmental constraints Wide area fleet managent Wireless everywhere Digitalizing contact centre and services Electric transportation Production On-line measurements Rapidly increasing information management Consumption Internet 7 District heating Source: Fortum Heat pumps Smart homes

8 Cost of keeping temperature increase < 2 o C Cost estimates : Current policies 450 scenario: 18 trillion USD. ~ $720 b/a Global population an important driver of energy needs is projected to grow by 0.9% per year on average, from an estimated 6.7 billion in 2008 to 8.5 billion in ~$103/p/y In World Energy Outlook International Energy Agency has estimated that we a new scenario is needed to keep global warming lower than 2 C degrees. assuming that 50% of persons are too poor and from the rest only 50% are working ~$412/p/y ~$34/p/m Source: WEO 2010, Fortum 8

9 Current status in commercialising clean energy innovations 9

10 Clean energy generation is growing rapidly; 230% since Investment to Rise 25% The ongoing priority for energy security, global warming pollution reduction and job creation will drive investment up 25% to a record $200 billion in 2010, Bloomberg New Energy Finance forecasted. In Pew report of the Clean Energy Economy in US (June 2009) it was Found that jobs in the clean energy Sector grew 2,5 times faster than jobs overall. Clean tech is where IT was 30 years ago and biotech was 20 years ago David Prend, RockPort Capital 10 Source: Who s winning the clean energy race? PEW, 2010

11 as well as Clean tech focused fundraising There are currently 603 private equity firms active in the cleantech sector. 65% of those are venture capital firms. 83 of those are focusing only on cleantech. Focus areas are: Energy efficiency, Solar, Wind, Biofuels, Small hydro and Smart grid technolgies. 11

12 Installed renewable energy capacity increased in 2009 to 250 gigawatts (GW) Renewable energy capacity, (GW), 2009 Investments in clean energy, (billion of $), 2009 EU is still leader in installed capacity but China is catching up quickly in investments EU US China India 0 EU China US India 12 Source: Who s winning the clean energy race? PEW, 2010

13 but in the commercialization of clean tech we are behind US... Venture capital/private equity financing, (billion of $) Q Q US - $2,2 billion - 115% up from Q4/ US EU China India Source: Who s winning the clean energy race? PEW, US 1.6 EU- Israel 0.8 Asia US Source: Record number of Clean Technology Venture Investment Deals in Cleantech Group, January 2011 Asia EU- Israel Europe/Isreal - $165 million - 60% down from Q4/10 13 and also here China and India are catching us.

14 In Europe deals are smaller 2010 US: 5,3 b$, 391 deals -> 13,5 m$/deal 2010 Europe/Israel: and we have less companies in the top 100 clean tech list US: 57 Europe/Israel: 35 1,6 b$, 247 deals -> 6,5 m$/deal even the big ones 3 biggest deals 2010 US -> total 675 m$ Europe/Israel -> total 312 m$ and less corporations engaged actively into clean tech From 35 most active corporations 21 were from US and 14 from Europe Source: Record number of Clean Technology Venture Investment Deals in Cleantech Group, January 2011 Source: Global Cleantech 100. A barometer of the Changing Face of Global Cleantech Innovation. Cleantech Group, September

15 We have Ideas Prestudies R&D projects Business plans New businesses Profitable businesses Big, profitable businesses Special focus area for improvement.. but we have difficulties to create big, new profitable companies 15

16 One important element in commercialisation is weak in Europe 16 Source: Who s winning the clean energy race? PEW, 2010

17 17 although EU is attractive for clean tech fund managers

18 What does this mean? Due to its sustainability commitments Europe is still leader in investing clean energy In clean tech Europe grows small scale talent and innovations. When the new company becomes successful and starts to grow, it is often sold to US investors and EU is usually left with no or limited staff, and major decisions are made outside of EU If this trend continues, EU is becoming a farm league in developing clean tech 18

19 19 Differences with US and Europe

20 Differences between European and US fund management and opportunities for a joint EU&Russia fund Phases in innovation development and commercialization Current situation in EU Situation in US funds Opportunity for EU& Russia fund 1. Search for good ideas/companies 1. Many small deal flows; often quite ad hoc 1. Large deal flow (US or global); proactive search 1. As in US 2. Evaluation of ideas/business plans 2. Market knowledge from one country or region (financial emphasis) 2. Market knowledge from whole US or global (market / finance emphasis) 2. Market knowledge EU, Russia, global 3. Linking idea/company with complementary partners 3. Partner knowledge from one country or region 3. Partner knowledge from whole US or global 3. Partner knowledge EU, Russia, global 4. Helping to find best management 4. Mngt resources from one country or region (passive) 4. Mngt resources from whole US or global (active) 4. Mngt resources from EU, Russia, global 5. Investing into growth phase 5. Limited market knowledge, limited risk taking and networking 5. Larger funds, wide market knowledge and networking enables higher risk taking 5. As in US 6. Support in marketing and selling in several markets 6. Support in one country or region (often ad hoc) 6. Support in large market area (systematic) 6. AS in US 7. Other 7. Speed of evaluations, decision making 20 Main differences with European and US VC: intelligence of capital, speed of capital

21 Proposal

22 A proposal for a joint EU/Russia clean energy/tech fund Investments (for example 5-10 Me each) Screening and Investments in EU and Russia xxx Me EU companies EU xxx Me xxx Me Russian companies Russia xxx Me Markets Europe Russia Global EU R&D or cooperation funds or EIB??? Russian public funds??? The aim should be to develop a self-sustainable venture capital structure operating on commercial basis. Public sector could help in creating this. 22 The proposal supports the IRT goal of introducing common economic area for EU-Russia.

23 Next steps If our analysis and conclusions are broadly shared among IRT Innovation TF, we could discuss/agree on: Who should take the ball from here? What would be the best cooperation platform to develop the VC fund idea further? Could a joint VC fund be developed under the framework of the EU-Russia Modernisation Partnership? What could/should be the role of the EU Commission? What should be the role of companies? 23

24 24 THANK YOU!