By David Bicknell
New research from audit specialist Grant Thornton has highlighted the change drivers behind the growing demand for cleantech products to reduce business costs.
Grant Thornton’s third annual International Business Report (IBR) report on the global cleantech industry shows that in general the adoption of cleantech products and practices is motivated by the commercial need to reduce costs and increase profits. It is no longer about being ‘green’.
For example, despite short-term fluctuations, the trend for key commodity prices continues upwards for example, Brent Crude oil recently rose back above US$120 a barrel. The outlook for nuclear energy is unclear following the Fukushima disaster – Germany, for example, has opted for the renewables route – and partly due to this uncertainty, cleantech is emerging as a suitable alternative source of energy or a means of reducing consumption of expensive resources.
Over half of the business practitioners surveyed for the IBR who choose cleantech options do so to reduce their costs (52%); with 45% making the choice as a way to increase profitability. Corporate social responsibility (CSR) requirements and environmental concerns also remain important, but are not the main reason for adoption.
This increasing maturity of the sector is filtering through to expectations of cleantech business for the year ahead creating a bullish outlook for 2012.
Compared with companies in other sectors, the Grant Thornton report suggests that privately held businesses in the cleantech sector are now among the most confident enterprises in the world when it comes to future prosperity, far outpacing the optimism found in most global industries – and with good reason.
64% of cleantech businesses interviewed expect revenue to increase this year, up from 54% the previous year. 64% of respondents also expect higher profitability this year compared to 42% in 2011. Cleantech providers currently see the greatest demand from the developed economies of Europe (51%), and US and Canada (39%).
Nathan Goode, head of energy, environment and sustainability at Grant Thornton UK said: “Interest in cleantech is no longer just about environmental concerns, it’s about whether it offers solutions that can boost the financial performance of companies. What we’re seeing is the potential for these technologies to compete with traditional forms of energy and the expectation that over time, they should.
“Governmental support remains key in many sectors and jurisdictions for cleantech to be successful, and fluctuations in this support are causing short term volatility for the cleantech arena. The mood of optimism in the sector appears to be driven by fundamental trends and reflected in broader indicators such as oil prices.
“Cleantech is a sector on the road to commercialisation but it is not necessarily all the way there yet. We’re at a stage now where the value proposition for cleantech is to save money and consequently demand for cleantech is set to increase meaning we could be on the cusp of something very big indeed.”
Cleantech and IT
The Grant Thornton report demonstrates how the cleantech sector is in transition. There are more companies involved in R&D (42%) and IT (29%) than in previous years (31% and 22% respectively).
Goode said: “Judging by this analysis, cleantech appears to have parallels with the biotech industry in that R&D is being used to explore new concepts and applications for existing technologies. As a result, R&D and IT is receiving greater focus as companies exploit advances in areas such as storage and smart grid technologies. In addition, the sector is adopting a broader base on which to apply its learning, putting greater focus on areas such as waste and water.”
In contrast, manufacturing activity has become relatively more subdued. The number of businesses citing involvement in manufacturing of energy efficient products has decreased over the past year from 26% in the 2012 survey to 19% in 2011, although manufacturing of products for cleantech energy generation has increased marginally to 17%, up from 14% the previous year.
There could be a number of reasons for this, but the Grant Thornton report stresses that the issue of capital constraint represents a big challenge for the sector and as a result, governments.
Goode added: “Manufacturing items such as wind turbines and waste processing plants is an incredibly capital intensive business. However, what we’re seeing is a slowing in the pace of growth as a result of constraints on raising capital. This continues to be an issue, especially in European economies where credit is constrained.
“Governments must be mindful of acting as a brake on investment, as it will quickly become a barrier to achieving carbon reduction targets and the desire to supply businesses and households with alternative supplies of energy – and at a time when it’s really starting to compete.”