“If I had asked people what they wanted, they would have said faster horses.”— Henry Ford
The world is changing and one of the effects of these changes is on how we consume energy. The global annual average consumption of conventional energy has increased by 1.8 percent, overall, from 2011 till 2017.
If we look at the data closely, this increase is primarily driven by developing nations, whereas the developed world is moving towards alternate energy forms.
The United Nations Environment Program (UNEP), in collaboration with the Frankfurt School of Finance and Management, has released a report titled ‘Global Trends in Renewable Energy Investment’, which states that though there was a 23 percent fall in investments in renewable energy in 2016, yet, the overall number of renewable power installations/capacities has gone up over the last decade, and was at an all-time high in 2015 (Figure 1).
This shows that the demand for renewable energy remains strong despite a fall in investor interest. There can be many reasons for this fall in interest, one of which is the financing of projects.
In the developing nations, on the other hand, it’s a different story overall. Even if conventional energy still dominates energy consumption, infrastructural development in the non-core energy sector has gone up, aligned with government policies.
This has created a conducive environment for investments. So, to the question, when is the right time to invest in green tech, I would say, “Now!”
Green technology and the related investment patterns
Technology is the application of knowledge to fulfil practical requirements. When technology is applied in a way that has minimal impact on the environment, by the sustainable use of natural resources in a manner that is socially equitable and economically viable, it is termed as green technology.
In the contemporary world, where ‘progress’ is defined by constant growth driven by large manufacturing facilities, the stress on natural resources is pushing our planet towards destruction.
Therefore, we need to think differently, both socially and economically. Some of the key agents of environmental destruction are the various forms of waste — industrial, natural, chemical, etc.
It’s now critical that we create platforms that enable waste to be converted and reused for the betterment of society, rather than letting it either accumulate in landfills, slowly poisoning the soil; or ruining the air we breathe by emitting hazardous greenhouse gases.
Green or clean technology investments mean backing or funding organisations that have sustainable and environment-friendly products and services.
Some strong industries are emerging in this domain like water and waste management, green energy, the organic agri business, green mobility, and the energy efficiency domain.
Even if, globally, green investments fell in 2016, consolidation in the previous years made the overall category grow in terms of capacity installation from 127.5GW in 2015 to 138.5GW in 2016. Combined renewable sources were responsible for 55.3 percent of all new power generated worldwide.
These are some very strong indicators of how the investor community and business evangelists view this sector.
Listed below are some of the key aspects of green tech manufacturing.
1. Sustainability: The effort here is to convert waste into energy and make it a sustainable process. This helps in creating better societies that are cleaner as well, and lowers the stress on natural resources.
2. Pollution reduction: The idea is to reduce pollution in all formats, and to see how we can create a greener future by converting pollutants into energy — this requires a change in production parameters and in thinking.
3. Provation theory: Here we must consider the built but obsolete assets that we have and try to repurpose them with innovation and creativity to align with current requirements. We must look at these assets and try to provate on them with the latest technology. (Provate is a term derived from ‘product’ and ‘innovate’.)
4. Framework-to-framework design: This is about making reusability the central requirement at the product creation phase itself.
5. Versatile manufacturing processes: Processes must be designed such that they can be aligned to serve multiple purposes, just by changing certain specs in the system.
The hot sectors in the green technology domain are energy, green nanotechnology and green chemistry. And these have enormous potential if the business models are aligned in the right sequence — from managing the input costs to creating value and thereby delivering profits. Figure 2 shows global green investments for 2016.
Different aspects of green technology
In general, green tech initiatives involve environment-friendly methods of production, consumption and disposal. Therefore, investors and evangelists need to look at solutions ranging from product substitution to redesigning production facilities with newer technologies, and in some cases, they may have to completely overhaul factories.
So, green tech products should involve less wastage during production, less dependence on fossil fuels, and reusability of existing infrastructure to include the latest technological advances.
Some of the major product categories to invest in are energy generation, green chemicals, sustainable or recyclable products, and alternate energy producing technologies like solar panels and thermal heating discs.
Apart from solar cells, other products/equipment worth investing in are rainwater harvesting systems (which are mechanical in nature and extremely inexpensive to set up), heating and insulation facilities, wind generation facilities, etc.
Challenges to green tech adoption
The primary challenge that organisations and corporations face in the adoption of green tech is that the initial investment is very high and, in most cases, the overall technology implementation cost is much higher than the technology it replaces. The real deterrent in this case is the cost of R&D, as green technology is in its nascent stages.
The other barriers or challenges are regulatory in nature — there is no set framework in terms of implementation nor is there a policy push from the states’ end.
So, for an investor this is the right time not only to enter the segment but also influence policy formulation within the country and globally.
The positives include the development of a talent pool for this new sector, which with time can take care of most of the key issues, as people make processes, and processes, in turn, make frameworks and institutions.
Planning parameters in the green technology sector
The most important factor investors are interested in is consumer demand for green tech products, and this is growing. Governments are increasingly mandating the purchase of green products.
Support infrastructure is being created by leading technology institutions funded on the public-private partnership models, and developing the right opportunities for incubation and research. There are new rules in place to limit the use of hazardous substances, to use minimal energy, etc.
Ratings that reflect energy consumption levels and end-of-life recycling are now the norm. Such regulatory support makes it easier for investors to evaluate the long-term ecological and financial viability of projects.
However, investors looking at taking the plunge must carry out an internal and external analysis and audit before putting money in the sector. It’s not only about finding the most lucrative segment(s) — investors must also look at their personal and environmental goals, too.
The way forward lies in having a diverse green tech investment portfolio. One common trap investors have fallen into is Green Washing, whereby organisations claim to be creating green products or services, but in fact may not be adhering to green norms of manufacturing.
Therefore, considerable research is the first step in understanding the green tech nomenclature, its application areas and green product requirements.
Those investing in the green technology space face a dichotomous situation — they would need to make profits and, at the same time, make the world a better place to live in! Most major corporations across the world use up vast resources but, in turn, are not able to give back in the same measure.
It’s a Catch 22 situation, but to me it looks like a mindset issue.
I would like to leave you with the thought that if we do not take the plunge in investing in green tech soon, we may have to return to the horse-drawn carriage as fossil resources are dwindling fast.
To post your comments or have a conversation with me, feel free to mail me at [email protected].
Reference: UNEP – Frankfurt School Study.