Who will win the green energy revolution?

The new Federal Government is pumping millions of dollars into the green energy sector. There will be winners and losers – investors want to know. By AMITA TANDUKAR.

By Amita Tandukar

Investors are holding their breath to see exactly how the new Federal Government will kick-start the low emission or cleantech sector in Australia.

More than $500 million was invested in Australian cleantech companies by the private sector in the last decade, according to venture capital company Cleantech Ventures. But that is nothing compared to the amount that Australian and global venture capital firms and institutional investors are gearing up to invest once a solid domestic market is established by at least $1 billion of election promises.

“There is a sigh of relief that there will soon be certainty… but pragmatic financiers are waiting to see the detail because government policy has done so many u-turns that financiers are cynical,” says Craig Chambers, chief operating officer of cleantech SME GridX.

Even before a national emissions scheme puts a price on carbon some time in the next two years, Federal Climate Change Minister Penny Wong’s new department is working quickly to provide certainty by funding emerging low emission technologies and expanding the crucial Mandatory Renewable Energy Target (MRET) scheme.

Goal: 20% by 2020

To achieve the Federal Government’s goal of having 20% of Australia’s electricity supply produced from renewable sources, the current MRET scheme will need to be expanded by more than four times to ensure electricity suppliers purchase 45,000 gigawatt-hours of renewable energy in 2020.

The Clean Energy Council (CEC) is the new peak body for low emission energy producers, including the gas, wind, hydro, solar and geothermal industries. Dominique La Fontaine, chief executive of the CEC, is calling for the new target to be legislated soon because the pioneering NSW Greenhouse Gas Abatement Scheme has stalled in anticipation of a national scheme.

“It’s very important that the legislation is tabled by mid-year and commences no later than 1 January next year. You can’t have it stop and start; that creates business uncertainty,” La Fontaine says.

There are plenty of issues that need to be discussed regarding the MRET’s design, she says. The Federal Government will need to decide how the target will “ramp up” its expectations on electricity companies to buy renewable energy, whether the penalty price for not purchasing renewable energy will be indexed to inflation, and how it will be integrated with the carbon price.

One of the most important questions for investors is whether MRET will favour certain technologies. A broad range of sources including solar, wind, wave, hydro, biomass and geothermal energy are eligible under the current MRET scheme, but there are ways the Federal Government could pick long-term winners.

Mark Fogarty, director of Wind Corporation Australia and private equity fund CVC Sustainable Investments, says one option is the banding of certificates where certain technologies attract more credit than a standard certificate. “It’s a chance to say, what can [Australia] become a leader in?” he says. “It’s not going to be wind turbines but it could be solar, geothermal or biomass.”

Another market mechanism to play favourites is feed-in tariffs, which reward consumers who own renewable energy assets by paying more than the retail price for excess electricity that is fed back into the grid.

Fogarty says a tariff scheme was first used successfully to launch the wind and solar industries in Germany and similar schemes now operate in 40 countries. The South Australian Government has introduced solar feed-in tariffs and the ACT Government is looking at a similar scheme, but Fogarty thinks a national scheme is the critical next step.

Solar and geothermal cross the line

The Federal Government has already put the spotlight on geothermal and solar technologies in the $650 million worth of funding it promised to make available for low emission technologies.

Cleantech SMEs should be able to apply for new funding rounds quickly as the majority of the money will be allocated through two existing channels.

The Federal Government will continue the Low Emission Demonstration Technology Fund which grants $2 for every $1 raised from private investors. Geothermal energy will receive a boost with $50 million earmarked for the technology under the fund. Listed company Geodynamics is the leader in the nascent industry that aims to exploit the heat from granite rock below the earth’s surface. While the technology to capture the heat already exists, Australian geothermal companies are only in the exploration phase.

The Federal Government is hoping private investors will come to the party as they maintain the CVC Renewable Energy Equity Fund, a venture capital fund seeded by the Federal Government and managed by CVC Limited. To date, about $18 million has been provided by the Government and $9 million from private sources. Companies funded include Wind Corporation Australia and Battery Energy (see below).

Innovation policy please

The Climate Change Department will also set up a new Energy Innovation Fund. The lion’s share of the funding, $100 million of the $150 million total, will go to solar energy through the National Solar Research Centre, an existing CSIRO centre in Newcastle, and the specialist area of photovoltaic research.

BioPower Systems, an ocean tides energy company, was awarded a $5 million energy innovation grant last year under the previous government to build and install full-scale prototypes of its tidal power systems in Tasmania.

BioPower founder Tim Finnigan says he expects the investor community to take their time digesting the details of the new Government policies, but he is optimistic on the consumer outlook. “If anything, the new Government policies may translate into more domestic market opportunities for our products as renewable energy is given a higher profile,” he says.

However Finnigan warns the Federal Government that grants need to be backed up by further incentives for innovators such as tax concessions, capital cost rebates or feed-in tariffs to avoid losing valuable technologies and projects to overseas markets.

The fifth fuel

Energy efficiency could be the sleeping giant of the cleantech sector. Global investors are calling efficiency the “fifth fuel” in the cleantech sector behind solar, fuel cells, biofuels and wind.

“The community has seen renewable energy as the silver bullet, but we need to think downstream, for example about the type of lightglobes we use, rather than just using more energy if we are going to make deep cuts,” says Chambers from GridX.

The new Federal Government has recognised its importance with a new $240 million Clean Business Fund that will help businesses implement efficiency measures, manufacturers reduce their environmental footprint and support the development of efficiency technologies.

However Chambers, whose Sydney company GridX supplies low-emission gas and power supply direct to residential, commercial and industrial sites, says these new measures are being overshadowed by customer demand from commercial tenants and various state schemes, including the new Victorian Energy Efficiency Target. “The energy demand side is being driven by the state governments who are getting on with the job, and that is giving investors a huge amount of confidence.”

Clean coal

The coal industry was a clear winner from the federal election with a $500 Clean Coal Fund being established to assist Australia’s most popular energy source reduce carbon emissions. But spending does not guarantee the Australian industry will be a leader in its field.

Australian researchers specialise in two types of clean coal production, according to Frank Jan van Schagen, the chief executive of the Co-operative Research Centre for Coal in Sustainable Development. Oxyfuel is where coal is burnt in pure oxygen and recycled flue gas. Gasification is where coal is oxidised and gas is captured. Both areas are in the demonstration phase.

Van Schagen is doubtful that Australian clean coal research will result in important innovations that can be exported overseas, a drawcard of many cleantech investments. He says coal research is expensive, often dedicated to production of the types of coal mined in Australia and the country lacks a major power plant manufacturer that could fund break-through technology. Van Schagen says: “We can’t compete. There are single entities overseas bigger than the whole of the Australian grid, and they are spending billions.”

10 cleantech companies to watch

GridX Power – a Sydney-based company that supplies gas-fired power for residential, commercial and industrial sites with lower carbon emissions than conventional power arrangements. Customers include property developer Mirvac.

BioPower Systems – an ocean energy company based in Sydney that mimics nature in designing systems to harness tidal power. Investors include CVC REEF.

Geodynamics – a Brisbane-based geothermal exploration company listed on the Australian Stock Exchange.

Wind Corporation Australia – a NSW-based company developing a wind farm in Hampton, 115kms west of Sydney (has no website).

Global Renewables – a Perth-based waste management company. The ASX-listed company won a $5 billion UK contract in 2007.

Dyesol Limited – the ASX-listed company is commercialising CSIRO research which uses dye to replicate the natural chemical reaction of photosynthesis in its solar cells.

Pro-Pac – the Sydney-based biodegradable packaging company is listed on the ASX.

Carnegie Corporation – a Perth-based ocean energy and clean coal technology company founded by mining specialist Alan Burns.

Battery Energy – a CSIRO spin-off company that produces SuperGel batteries that operate more efficiently at extreme temperatures. Investors include CVC REEF.

Ceramic Fuel Cells Limited – a Melbourne-based company developing solid oxide fuel cells which produce low-emission electricity from natural gas and renewable fuels for domestic and industrial customers. Listed on the ASX and the Alternative Investment Market in London.