Get Set For The Green Revolution

Get Set For The Green Revolution

Let us analyze some events that marked the beginning of the economic revolutions we’ve witnessed in the past. In the 19th century, the emergence of steam engines and power generation systems signaled the arrival of the second industrial revolution. Fast-forwarding to 1972, the launch of the world’s first microcomputer from Intel Corporation marked the beginning of the digital age. Over the years, we’ve seen unbelievable growth in technology, industrialization and product innovation. However, along with all this growth, we’ve also overlooked the side effects caused by our own inventions. Our carefree use of oil and coal has led us to an impending oil crisis. Emission and improper waste management is at the helm of the climate crisis.

We’ve certainly heard about global warming and depletion of our natural resources. But there’s one man who is credited with spreading the message world over – Al Gore, a former vice president of the United States. Al Gore’s documentary film ‘An Inconvenient Truth’ played a marquee role in spreading the awareness about climate crisis with a fundamental message that time is running out and immediate action was required. For starters, Silicon Valley jumped in to take action. Some well-known investors like Vinod Khosla of Khosla Ventures and John Doerr of Kleiner Perkins Caufield & Byers declared clean technologies (or cleantech as popularly known) as a ‘hot’ sector. Cleantech-focused funds were raised. Entrepreneurs jumped in with ideas across several domains including renewable energy, electric vehicles and waste management. One of the world’s most challenging problems had laid the platform for innovators to take centre stage and carve out the next big revolution. As Mohanjit Jolly, Executive Director at Draper Fisher Jurvetson (DFJ) India, a venture capital firm that invests actively in the cleantech sector passionately says, “There are very few markets in the world that can be described as trillion dollar markets, and cleantech is one such sector”. A trillion dollar market it is, and it has the ability to throw up some game-changing products that’ll set ablaze one more large-scale economic revolution.

Our cover story in this edition analyses several aspects of the cleantech sector that’ll sweep India through a world of change. From electric vehicles and renewable energy to smart grids and carbon-related financial instruments, the product landscape in India is going to be completely different within the next 3 decades. And this time, India will be one of the countries that’ll be at the forefront of this innovation. We analyse what is in store for the cleantech industry India.

The story so far

India’s large-scale foray into cleantech started long before Al Gore’s film released. Tulsi Tanti, India’s wind man, founded Suzlon Energy in 1995. Today, it is one of the largest wind-turbine manufacturers in Asia, and in terms of market share the fifth largest worldwide. But Suzlon’s ride has been anything but smooth.  It had technology problems related to its windmill blades, financial hurdles caused by high debt-equity ratios and several environmental challenges. Critics say that the manufacturing facility of a windmill manufacturer should also pursue clean technologies failing which the whole purpose of going green is lost. Clearly, the ride to the top for any company in this sector is not going to be easy and several such hurdles will have to be overcome.

“VCs back six-sigma entrepreneurs with exceptional passion and drive. Finding good entrepreneurs who think about scale and have shown a proof of concept is key, regardless of their prior background. We will see entrepreneurs and managers from other sectors build successful companies in clean tech.”

Let us take a step back to analyze what exactly the cleantech sector encompasses. Broadly, it could be any product or service that tackles the oil and climate crisis (See Box: Cleantech sub-sectors). From an Indian perspective, the important thing is to remember these risks while pursuing rapid growth. The learnings from the West will help. Being a low-carbon player and targeting rapid industrial growth is not easy. Strong support system is needed to take advantage of the opportunity presented by the climate and oil crisis. Entrepreneurs and managers can now build groundbreaking products and if built right these could be marquee inventions, similar to several information technology products or even the first ever motor car.

The foundation: entrepreneurs and risk capital

In general, it’s easier for a startup to build completely new and innovative products. Large companies tend to allocate capital to tried and tested business units, and their managers are answerable to stakeholders. Risk-taking ability is reduced, and there is no doubt cleantech as a sector is risky. Chances are several cleantech ideas will be thrown into the market; the most optimal ones will survive. In some sense it’ll be no different from the dotcom boom and bust we witnessed in the late 1990s.

But the timing of the opportunity presented to cleantech entrepreneurs cannot be riper. According to Cleantech Group, an information services company that tracks the cleantech sector, venture investments in cleantech companies across North America, India and China was around $8.4 billion in 2008, close to a 100 per cent increase since 2006. And this is only slated to increase, as VCs are willing to bet on high-quality management teams who are telling the right story.  Manoj Gupta of Nexus Venture Partners says, “Investments are happening in the cleantech sector to provide both demand and supply side solutions”. However, there’s one issue that needs to be tackled, the sector itself is fairly new and this means there are not enough entrepreneurs with experience in cleantech. But, Gupta feels this is no reason to worry. “VCs back six-sigma entrepreneurs with exceptional passion and drive. Finding good entrepreneurs who think about scale and have shown a proof of concept is key, regardless of their prior background. We will see entrepreneurs and managers from other sectors build successful companies in clean tech,” he adds.

There are several entrepreneurs making a mark already. DFJ-funded startup D.Light design sells solar power lanterns that could replace kerosene lamps in rural areas in India and China. Sam Goldman and Nedjip Tozun conceptualized the idea for a business plan competition at Stanford University in 2007. Says Jolly, “They were so passionate and committed to the idea that Sam moved to New Delhi and Ned to Shenzen to go implement the idea”. He excitedly adds, “This is an unbeatable combination of doing social good but with high margins. The applications for the rural masses in India, Africa and elsewhere are enormous, from lighting, to charging points, to potentially heating, cooking and beyond”.

There also is the story of Chetan Maini, the founder of Reva Electric. His mission in life for the last fifteen years has been to build electric vehicles (EVs).  Jolly asks, “Did you know that Reva has more electric vehicles on the road today than any other car company?” While the rest of the world joined the electric car bandwagon 3 years ago, Chetan and his family have been in the business for the last fifteen years. Jolly opines, “The level of activity globally in the past 2-3 years is a testament to the fact that EVs will be the way to transport in the not so distant future”. EVs by themselves could be a solution to the oil crisis. Transportation takes up a huge chunk of the world’s oil, and if a scalable, sustainable model to drive electric vehicles is conceptualized, there will be nothing like it.

D.Light and Reva Electric are just few examples here; there are several startups that are on the right path. D.Light has figured out the business model to expand and the underlying technology is fairly simple. Electric vehicles have a long way to go both in terms of business model and technology platform. There are several other startups including Suminter India organics (organic products using an outsourced agriculture model), Aura herbal wear (organic textiles), Deeya Energy (energy storage technology), Atterro Recycling (electronic-waste recycling), Husk Power systems (using crop husk to generate power) and Ramky Enviros (large-scale organised waste management) that are showing tremendous promise in the cleantech space.

The support structure: government policies and research

Climate change policy is serious business. We do have the Ministry of Urban Affairs and the Ministry of Renewable Energy, but climate change policy issues are handled directly by the Prime Minister’s Office (PMO). Ashutosh Pandey, CEO of Emergent Ventures a consulting firm that advises several large companies on climate and carbon related risks says “Very soon climate change will impact everyone. Policy making is done at the central level, and implementation will be left to the State governments”. Though government subsidies and incentives are not sustainable in the long run they provide the initial impetus. The clean development mechanism (CDM) that is part of the Kyoto Protocol (United Nations protocol to combat global warming) also allows the Western countries to invest in emission reducing ventures in emerging economies. Pandey explains, “Let’s take the example of someone running a solar power plant. There are two revenue streams: one, the energy generated is sold and two, because it’s a solar plant there is a green aspect to it. This can be converted into a financial instrument that can be sold in carbon markets”. The government is also working on a new financial instrument called the renewable energy credit, which can be sold in local carbon markets.

Ashok Das, CEO of SunMoksha (a renewable energy consulting firm) and consultant at World Bank’s climate technology innovation center says, “Two aspects that’ll accelerate innovation in this space are low-cost financing and performance-based incentives”. He believes that the key for India will be commercialization of research. “The startups we’re seeing today are doing very well, but they are attacking the problem from the business-model side. What I’d like to see is more innovation from a technology and research perspective,” he adds. In spite of risk capital being available he feels more needs to be done to fund commercialization of research.

Going Forward

In short, there is general consensus among innovators, entrepreneurs, investors and policy makers that climate change and the high price of oil will be seen not as problems, but opportunities for the business world. Wealth generated through cleantech will be comparable to the transformation we saw in information technology and telecom. Large number of jobs will be created, new sub-sectors will be established and both product and service-driven companies will thrive in India. Silicon Valley, usually at the forefront of all major technology innovations, will have to share honours with emerging economies like India and China. These countries now have the financial power and the entrepreneurs to use this capital effectively. Larger companies will slowly break ground and join the party through their own business units and acquisitions of smaller firms. But the foundation is being laid by dashing entrepreneurs who are seeing opportunity amidst one of the most complicated challenges the world needs to tackle. As Mohanjit aptly concludes, “We don’t have a choice here, cleantech is a must-have sector”.