clean tech private equity · 2.3.4 water stress 14 2.3.5 aging and underdeveloped infrastructure 14...

2011

Clean Tech Private EquityPast, Present and Future

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© SAM 2011 3

1. EXECUTIVE SUMMARY 5

2. CLEAN TECH DRIVERS 8

2.1 General Description of Clean Tech 9

2.2 Recent Developments 9

2.3 Root Causes 11

2.3.1 Rapid Population Expansion and Urbanization 11

2.3.2 Increased Demand for Products and Services and Shifting Consumer Demand 12

2.3.3 Increased Demand for Energy and other Finite Resources and Resource Concentration 12

2.3.4 Water Stress 14

2.3.5 Aging and Underdeveloped Infrastructure 14

2.4 Protective Government Policies and Government Stimulus 15

2.5 Large Capital Requirements 17

2.6 The Clean Tech Opportunity 17

2.7 The Clean Tech Value Chain 18

3. CLEAN TECH PRIVATE EQUITY MARKET 19

3.1 Clean Energy Funding Sources 20

3.2 Private Clean Tech Funding 21

3.2.1 Venture Capital and Expansion Capital 22

3.2.2 Asset Investments 24

3.3 Exit Opportunities 25

3.3.1 IPO Activity 26

3.3.2 M&A Activity 28

3.4 The Clean Tech Fund Universe 28

4. OVERVIEW OF MAJOR CLEAN TECH SECTORS 30

4.1 Wind Energy 31

4.2 Solar PV 35

4.3 Electric Vehicles 39

4.4 Sustainable Building 44

4.5 Smart Grids 47

5. ABOUT SAM PRIVATE EQUITY 53

5.1 SAM Private Equity’s Investment Capabilities 54

5.2 SAM Private Equity Team 55

Table of Contents


© SAM 2011 5


1. Executive Summary

This study is an update and extension of last year’s publication. The purpose is to provide investors with a

broad overview of the clean technology (“Clean Tech”) private equity market, its drivers, size and devel-

opment, as well as insights into five major Clean Tech sectors.

Section 1 defines Clean Tech as well as the macro drivers for investments in this sector;

Section 2 describes the Clean Tech private equity market, the amount, stage – venture capital (“VC”),

growth capital (“DC”) and infrastructure development capital – and geographic distribution of invested

capital, as well as the exit environment and the market for private and project equity funds;

Section 3 highlights the views of SAM and Rabobank on wind, solar photovoltaic, electric vehicles, sus-

tainable buildings and smart grid, and explains why these are seen as major investment sectors in the Clean

Tech private equity market.

KEY DEVELOPMENTS:

The drivers for the development and adoption of Clean Tech solutions remain strong

Rapid population growth combined with a trend toward urbanization and increasing per capita income leads

to growing demand for energy, products and services. Shifting consumer demand away from traditional

plant-based staples toward increasing consumption of meat and dairy products adds to the pressure arising

from energy and water scarcity issues. Finally, a deteriorating and deficient global infrastructure is in drastic

need of capital. Technologies that provide superior performance at lower costs, improve the productive and

responsible use of natural resources and greatly reduce or eliminate negative environmental effects are

needed to meet these challenges in a sustainable manner.

Clean energy solutions are becoming a cost-competitive alternative to conventional energy generation and a

number of sub-sectors no longer rely on government subsidies

Moves toward a more sustainable use of resources and energy have gained momentum, and several coun-

tries have assumed a pioneering role in this effort, often facilitated by incentive schemes. However, investors

remain reluctant to invest in what they regard as a heavily subsidized industry. To put this into perspective:

According to the International Energy Agency, the OECD and the World Bank, global subsidies for the gen-

eration and consumption of fossil fuels exceeded USD 400 billion in 2009, about ten times the amount of

direct subsidies allocated to renewable energy. Aside from this argument, the subsidies for clean energy so-

lutions have declined and most other Clean Tech business models work without direct support, but certainly

profit from changing consumer preferences, government policies and long-term corporate strategies.

© SAM 2011 5


6 © SAM 2011

Clean Tech is currently not overfunded, but requires significant additional capital to reach the environmental

targets that have been established on a global level

One of the major concerns about the Clean Tech investment theme is that too much money is already flow-

ing into the sector. We believe that the Clean Tech drivers will not subside and that, in order to reach the am-

bitious environmental targets set by governments around the world, much more capital will flow into this

sector in the future. As shown in section 4, wind power plants alone have the need and capacity for more

than USD 100 billion in annual investments during this decade; this will be matched by solar asset financing.

The recent uncertainties concerning nuclear power and prices for fossil energy carriers will support the case

for renewable energy and energy efficiency solutions, as well as for continuous support of technology and

process innovations. This is especially true in emerging markets with their growing appetite for sustainable

energy and infrastructure. The asset finance and fundraising data in section 3 clearly illustrate that attention

is shifting toward these geographies.

Climate-sensitive strategies such as Clean Tech are becoming more essential in strategic asset allocation

decisions

A recent report by Mercer, in collaboration with 14 major institutional investors, concluded that, over the next

20 years, the uncertainty surrounding climate policy and associated adjustment costs can contribute as much

as 10% of the portfolio risk of a typical asset mix1. The report recommends increased allocations to climate-

sensitive assets that will be the key beneficiaries of the evaluated scenarios. According to the report, renew-

able energy-related private equity and infrastructure as well as venture capital and buyouts focused on low-

carbon solutions and efficiency can help improve portfolio resilience.

The Clean Tech private equity market has matured and is becoming more globally diversified

We are witnessing a shift of fund managers’ attention away from West Coast venture capital toward a global

deployment of Clean Tech and investments in the expansion of the successful players. This trend is accom-

panied by a continuous consolidation process within the industry and more extensive involvement on the part

of large corporations. Meanwhile, the fund market continues to develop, with an increasing number of

funds, on the one hand, and growing platforms, on the other. However, the fundraising climate remains very

harsh and many funds struggle to reach their targets. On the positive side, many new emerging markets-

based funds are being formed, as well as locally focused funds that take advantage of the strong position

SMEs have in innovation and industrial Clean Tech, especially in Europe.

1 Climate Change Scenarios –

Implications for Strategic Asset

Allocation, Mercer Public Report,

February 2011.


© SAM 2011 7

Funding along the entire Clean Tech value chain is expected to increase

• Total investments in clean energy reached an all-time high in 2010, with nearly USD 250 billion flowing into

this sector and just about USD 1 trillion invested since 2001. Clean energy captures 70 to 80% of the total

Clean Tech market.

• Asset finance, the large-scale deployment of clean technologies, continues to take up the largest share of

clean energy investments (55% since 2001).

• The fast-growing share of distributed, small-scale projects reflects attractive economics, a need for decentral-

ized solutions and changing attitudes on the part of property owners.

• Clean Tech venture capital and expansion capital investments have bounced back from a disappointing 2009

and totaled USD 7.8 billion in 2010.

• The strongest growth is in emerging markets.

The Clean Tech fund universe continues to grow and mature, with exit markets healthy

• USD 50 billion has been raised in 293 IPOs since 2005, and 2010 was a record year in terms of both the

number and volume of IPOs. Asian stock markets accounted for 67% of the capital raised last year.

• 900 M&A deals worth USD 175 billion were closed between 2005 and 2010 plus an additional 1550 deals

of undisclosed value. In 2010, the total number of deals, grew by 26% from 2009.

• Since 1994, Clean Tech funds have raised around USD 44 billion for venture capital, expansion capital and proj-

ect equity investments. The number of funds with successful closings increased by 20% to more than 290.

• The fund universe is maturing with several managers raising their third- or fourth-generation Clean Tech funds.

• We are witnessing a gradual shift from funds focused on North America and venture-type investments to-

ward expansion capital and infrastructure development funds globally.


8 © SAM 2011

2 THE CLEAN TECH DRIVERS


© SAM 2011 9

2.1 GENERAL DESCRIPTION OF CLEAN TECH

The Clean Tech concept embraces a diverse range

of products, services, and processes across industry

verticals that are inherently designed to:

• improve the productive and responsible use of

natural resources;

• greatly reduce or eliminate negative environmen-

tal impacts; and

• provide superior performance at lower costs.

Clean Tech spans many industry verticals and can

be broken down into the following major seg-

ments, with energy being the largest. Please see

table below.

2.2. RECENT DEVELOPMENTS

In recent months, two of the world’s main sources

of large-scale energy production, oil and nuclear

power, have experienced major accidents. The

Deepwater Horizon oil spill in the Gulf of Mexico

2. Clean Tech Drivers

Table 1: Examples of Clean Technologies

Sectors Clean Technology Examples

Energy Generation Wind, Solar, Hydro, Marine, Biofuels, Geothermal, Clean Coal Technologies, Coal Bed Methane

Energy Storage Fuel Cells, Advanced Batteries, Hybrid Systems

Energy Infrastructure Management, Smart Grids, Transmission

Energy Efficiency Lighting, Buildings, Glass, ESCOs, Combined Heat & Power

Transportation Structures, Fuels, Hydrogen Highways, Biofuel Distribution, Electric Vehicles, Vehicle Sharing

Water & Wastewater Water Treatment, Water Conservation, Wastewater Treatment, Desalination

Air & Environment Cleanup/Safety, Emissions Control, Monitoring/Compliance, Carbon Capture, SOX/NOX Removal

Materials Nano, Bio, Chemical, Other

Manufacturing/Industrial Advanced Packaging, Monitoring & Control, Smart Production

Agriculture Natural Pesticides, Land Management, Aquaculture

Recycling & Waste Recycling, Waste Treatment


10 © SAM 2011

and the unfolding nuclear crisis in Japan have led

governments around the globe to reassess their

energy programs. Even though some countries,

such as France, Russia and the United Kingdom,

are holding on to their nuclear expansion strate-

gies, many countries have put their nuclear pro-

grams on hold. While Germany has taken the most

dramatic actions, the United States and China as

well as other European countries such as Italy, Bel-

gium and Switzerland are also reconsidering their

nuclear policies. Besides its impact on the nuclear

industry, the crisis has affected prices of natural gas

and coal – the two main alternative commodities

for power generation – both of which have risen

sharply, as has the price of carbon permits.

Ultimately all of this has brought fresh attention to

alternative forms of energy and could stimulate

Clean Tech developments as well as policy discus-

sions around the globe. In the future, the focus will

lie on more cost-effective renewable energy genera -

tion, innovative integration of natural gas and car-

bon sequestration, energy efficiency, smart grids

and intelligent energy management.

Figure 1: Overview of Clean Tech Drivers

Source: SAM Private Equity

Clean TechOpportunity

Urbanization

Demand forEnergy & OtherFinite Resources

Demand forProducts &

Services

FossilResource

Concentration

WaterStress

ShiftingConsumerDemand

ProtectiveGovernment

Policies

Population Expansion

Aging & UnderdevelopedInfrastructure

Large Capital Requirements


© SAM 2011 11

2.3 ROOT CAUSES

Rapid population growth combined with urban-

ization and increasing per capita income leads to

growing demand for products and services.

Meeting the increased need for energy and nat-

ural resources in a sustainable way will pose ma-

jor challenges to governments. Shifting con-

sumer demand away from traditional plant-

based staples toward increasing consumption of

meat and dairy products adds to the pressure

arising from energy and water scarcity issues. In

light of growing environmental concerns, calls

for sustainable alternatives are getting louder

and are being reflected in numerous legislative

and policy initiatives that governments have

adopted around the globe. Finally, a deteriorat-

ing and deficient global infrastructure is in dras-

tic need of capital.

These trends are creating massive investment op-

portunities in the Clean Tech area. The following

section outlines the main drivers of Clean Tech and

explores the key opportunities arising in the fast-

growing Clean Tech market.

2.3.1 Rapid Population Expansion and

Urbanization

The world population was estimated at 6.9 billion

at the end of 2010 and is projected to grow to over

9 billion by 2050 (see figure 2).2 More than 90%

of this growth will occur in the developing coun-

tries where the population is expected to grow

from 5.6 billion in 2009 to 7.9 billion in 2050.3 The

number of children and young people in the less

developed regions has reached an all-time high of

more than 40% of the population, forcing these

countries to provide education and employment to

large numbers of children and youths in the after-

math of the financial crisis.3

Alongside this development, the urban population

is expected to increase by almost 3 billion by 2050.

This means that urban areas are not only expected

to absorb global population growth but to also

cope with the migration of parts of the rural pop-

ulation. As shown in figure 3, the worldwide ur-

banization level crossed the 50% mark in 2009. By

2050, almost 70% of the world population is ex-

pected to live in urban areas. Developing regions

will be most affected by this trend, above all Asia

(+1.7 billion), followed by Africa (+0.8 billion),

Latin America and the Caribbean (+0.2 billion).4

“Population growth is therefore becoming largely

an urban phenomenon concentrated in the devel-

oping world”.5 Up to 1975, only three megacities6

existed (New York, Tokyo and Mexico City). Since

Figure 2: World Population 1950 to 2050

Source: U.S. Census Bureau, Population Division, December 2010 Update

2 US Census Bureau, International

Data Base, December 2010 Update.

3 United Nations Population Division,

World Population Prospects, The 2008

Revision.

4 World Urbanization Prospects,

the 2009 Revision

5 David Satterthwaite, 2007

6 Cities with at least 10 million inhabitants

2.6 Billion

3.7 Billion

5.3 Billion

6.9 Billion

8.2 Billion

9.3 Billion10

9

8

7

6

5

4

3

2

1

01980 1990 2000 2010 2020 2030 20501950 1960 1970 2040

Pop

ula

tio

n (

Bill

ion

s)


12 © SAM 2011

then the number has increased markedly, with 11

megacities in Asia, 4 in Latin America and two

each in Africa, Europe and North America today.

Cities will need to deal with such issues as increas-

ing water and air pollution, growing amounts of

solid and hazardous waste, the conversion of agri-

cultural land and deforestation.

2.3.2 Increased Demand for Products and Services

and Shifting Consumer Demand

Population growth, urbanization and the associ-

ated increase in per capita income lead to growing

demand for products and services. At the same

time, demand patterns are shifting toward more

sophisticated and resource-intensive goods. Ex-

amples include demand for transportation, espe-

cially vehicle ownership7, and changing dietary

habits with a shift away from cereals toward high-

value crops, livestock and fish products (see figure

4). Growing livestock production will lead to in-

creased demand for grain for feed while also

adding to the water scarcity problem as the pro-

duction of meat, milk, sugar, oils and vegetables is

typically more water-intensive than cereal produc-

tion.8

At the same time, more and more people, espe-

cially in developed nations, are becoming aware of

the need to adopt more environmentally sustain-

able consumption patterns. This is reflected, for ex-

ample, in the growing interest in hybrid and elec-

trical cars as well as increasing demand for green

food and clothing.

2.3.3 Increasing Demand for Energy and other

Finite Resources and Resource Concentration

In the absence of prospective legislation or policies,

the U.S. Energy Information Administration (EIA)

expects world marketed energy consumption to

grow by 49% from 2007 to 2035, i.e., from 495

quadrillion British thermal units (Btu) to 739

quadrillion Btu (figure 5). Most of this growth can

be attributed to non-OECD countries, where en-

ergy consumption is projected to almost double

from 2007 to 2035. In contrast, energy consump-

tion in OECD countries is expected to remain al-

most stagnant at 250 quadrillion Btu.

The EIA expects increased world energy consump-

tion from all fuel sources over the 2007 to 2035

projection period, with fossil fuels and especially

liquid fuels remaining the primary source of energy

used (figure 6). However, their relative share is ex-

pected to fall in light of rising oil prices, giving way

to unconventional resources, such as oil sands, ex-

tra heavy oil, biofuels, coal-to-liquids, gas-to-liq-

Figure 3: Urbanization 1990 to 2009

Source: World Bank, 2011

7 Vehicle ownership growth in non-OECD

countries is expected to be as high

as 3.5% annually, and increase particularly

fast in China (10.6%), India (7%)

and Indonesia (6.5%). Vehicle Ownership

and Income Growth, Worldwide:

1960–2030, Joyce Dargay, Dermot Gately

and Martin Sommer, January 2007.

8 International Water Management Insti -

tute, Water for food, water for life, 2007

51%

50%

49%

48%

47%

46%

45%

44%

43%

42%1999 2002 2005 20091990 1993 1996

42.9%

44.0%

45.1%

46.3%

47.5%

48.7%

50.3%

Urb

an P

op

ula

tio

n (

% o

f To

tal)

The urban popula -tion is expected toincrease by almost 3 billion by 2050.


© SAM 2011 13

Kg

per

Cap

ita

Meat

Milk

100

90

80

70

60

50

40

30

20

10

01964 –1966 1997–1999 2030 1964 –1966 1997–1999 2030

uids and shale oil, which would become economi-

cally competitive. Without national policies and

binding international agreements limiting green-

house gas emissions, world coal consumption is

expected to almost double from 2007 to 2035,

with non-OECD Asian countries accounting for

95% of the projected increase.9 How the nuclear

crisis in Japan will affect estimations for the future

energy mix remains to be seen. In light of growing

public skepticism toward nuclear energy, a likely

outcome would be an increase in the share of nat-

ural gas and renewable energies.

Besides environmental issues related to fossil fuels,

the growing resource concentration is becoming

an increasing cause for concern. The world’s re-

maining oil and natural gas reserves are concen-

trated in a small group of countries (see figure 7),

which will increase their market dominance. Ac-

cording to the International Energy Agency, the

United States imports two-thirds of its oil require-

ments, a ratio that is likely to increase to three-

quarters over the next 20 years.10 As a result, gov-

ernments are trying to reduce their dependency on

imported oil. In the United States, for example, this

Figure 4: Annual Per Capita Consumption of Livestock Products

Source: FAO, 2003

Figure 5: World Marketed Energy Consumption

OECD and Non-OECD (1990 to 2035) Source: Energy Information Administration (EIA), International Energy Statistics database (as of November 2009)

Qu

adri

llio

n B

tu

Non-OECD

OECD

800

700

600

500

400

300

200

100

01990 2000 2007 2015 2025 20352030

Historic Projections

9 International Energy Outlook 2010,

U.S. Energy Information Administration

10 See the statistics provided on the IEA

website for the US for 2005.

http://www.iea.org/Textbase/stats/

oildata.asp?COUNTRY_CODE=US.

World marketedenergy consumptionis expected to grow by 49% from2007 to 2035.


14 © SAM 2011

has resulted in the passing of the Energy Bill of July

200511 and in the American Recovery & Reinvest-

ment and Emergency Economic Stabilization Acts

of 2008 and 2009.

Amid growing environmental and economic con-

cerns related to fossil fuels, the use of renewable

energies for electricity generation is expected to in-

crease by an average of 3.0% per annum even if

no legislation limiting greenhouse gas emissions is

adopted. While hydropower and wind power are

leading this growth, other renewables such as so-

lar, geothermal, biomass and waste are also pro-

jected to expand at a rapid rate over the projection

period.

2.3.4 Water Stress

Growing demand for water in the household,

agriculture and industrial sectors combined with

increasing water pollution is placing increasing

stress on freshwater resources. Water scarcity, the

degradation of groundwater and surface water

quality, competition between sectors as well as in-

terregional and international conflicts are becom-

ing a serious concern. Figure 8 illustrates the exist-

ing gap between water supply and water demand

which is expected to widen dramatically by 2030.

2.3.5 Aging and Underdeveloped

Infrastructure

Infrastructures in many countries are in drastic need

of expansion or repair, calling for a significant

amount of public and private capital. For example,

the 2009 Report Card for America’s Infrastructure12

rated the infrastructure in the United States on av-

erage at a D, on a scale of A (excellent) to F (failure),

and stated that about USD 2.2 trillion will be

needed over the next five years to bring the nation’s

infrastructure to a good condition (table 2). Based

on this study, which includes investments in water,

energy, waste, rail and transit, the potential infra-

structure opportunity for Clean Tech over the next

five years amounts to approximately USD 400 bil-

lion in the United States alone.

The Organization for Economic Co-operation and

Development (OECD) estimates the average annual

global investment requirements (additions and re-

newal) for rail, road, telecoms, electricity transmis-

sion and distribution as well as water infrastructure

at up to USD 2 trillion until 2030. Traditional

sources of public finance alone will not be enough

to meet these huge requirements.13

In short, a need to replace, fix and build new infra-

Figure 6: World Marketed Energy Use by Fuel Type, 1990 to 2035

Source: Energy Information Administration (EIA), International Energy Statistics database (as of November 2009)

11 Even President George W. Bush con-

ceded in his 2006 State of the Union

address: “America is addicted to oil”.

But he also declared: “The best way to

break this addiction is through

technology”.

12 2009 Report Card for America’s

Infrastructure, ASCE, 2009

13 OECD, Infrastructure to 2030

Nuclear

Renewables

Natural Gas

Liquids

Coal

Qu

adri

llio

n B

tu

800

700

600

500

400

300

200

100

0

Historic Projections

1990 2000 2010 2020 2030

World coal con-sumption is expected

to almost doublefrom 2007 to 2035.


© SAM 2011 15

Oil 43%

Gas 60%

Coal 57%

Share of top 3

countries in

global reserves

structure is driving a huge investment opportunity

for Clean Tech private equity.

2.4 Protective Government Policies and Govern-

ment Stimulus

Increasing environmental concerns have resulted

in the adoption of numerous legislative and policy

initiatives around the globe. The Clean Air and

Water Acts in the US, the Waste Electrical and

Electronic Equipment Directive (WEEE) in the EU

and Restrictions of Hazardous Substances Regula-

tions (RoHS), which have been passed in various

countries, are just a few examples of protective

legislation. Many governments have adopted re-

newable portfolio standards (RPS) that set bind-

ing targets for the share of renewable energy in

the total energy mix. The European Union has

passed the Directive on Electricity Production

Figure 7: World Fossil Resources

Source: Rabobank based on US EIA, 2009. Countries with the Top 3 Shares of Oil, Gas and Coal Reserves

40% Gap

Wat

er D

eman

d (

km3 )

Water Supply GapWater Supply

8,000

6,000

4,000

2,000

0 2009 2030

Figure 8: Aggregate Gap Between Water Supply and Demand by 2030

Source: Water Resources Group, 2009


16 © SAM 2011

from Renewable Energy Sources, which requires

20% of energy generation and 33% of electricity

from renewable sources by 2020. Germany has

adopted very ambitious goals for the coming

decades, with renewable energy targets of 18%

by 2020, 30% by 2030, and 60% by 2050 and re-

newable electricity targets of 35% by 2020 and

80% by 2050. In the US, RPS have been imple-

mented at the federal level, with 29 states having

introduced relevant policies. China’s 11th Five-Year

Plan & Renewable Energy Law includes limits on

energy consumption per unit of GDP; plans for a

20% reduction of energy intensity and a 10% re-

duction of major environmental pollutants; land

use restrictions to maintain 120 million hectares

of arable land; and a target of 140 GW of electric-

ity from renewable sources by 2020.

Overall, according to REN21, the number of coun-

tries that have passed some type of policy related

to renewable energy has almost doubled over the

last five years, from 55 in 2005 to more than 100

in 2010.14

Government grants, loan guarantees, feed-in tar-

iffs and other incentives have led to the presump-

tion that Clean Tech cannot compete without

state support. These measures have certainly con-

tributed significantly to jump-starting new tech-

nologies, such as solar and wind, and have made

some of the first large-scale Clean Tech deploy-

ments economical. In addition, they have helped

boost manufacturing capacities, know-how, sup-

plier competition as well as investor and bank con-

fidence. However, these types of support are typi-

cally designed as temporary measures. Today, the

economic success of many Clean Tech companies

is independent of governmental support. For ex-

ample, once the momentum is built, even the

drastic reduction of feed-in tariffs for solar PV in

Spain, Italy or Germany will probably not hinder

the growth of the industry as a whole. Solar panel

prices, for example, have dropped by 40% over

the past two years alone, and the levelized cost of

energy (LCOE) for large solar PV plants is now

comparable with diesel generators that are used in

many emerging economies for peak power. Con-

tinuous innovation and ramped up production are

rapidly driving costs down in many Clean Tech sec-

tors and open up doors to new possibilities.

Government subsidies are certainly not confined to

renewable energies alone. In an effort to measure,

understand and push for the phase-out of fossil

fuel subsidies, the International Energy Agency, the

OECD and the World Bank have calculated that, in

Table 2: United States Infrastructure Estimated 5-Year Investment Need, 2009

Source: 2009 Report Card for America’s Infrastructure, ASCE, 2009. The green Section indicates the potential Clean Tech opportunity.

14 Renewables 2010, Global Status Report

In billions 5-Year Estimated American Recovery 5-Year Investmentof USD Need Spending Actual & Reinvestment Act Shortfall

Aviation 87 45 1 (41)

Dams 13 5 0 (7)

Drinking Water & Wastewater 255 140 6 (109)

Energy 75 35 11 (30)

Hazardous & Solid Waste 77 33 1 (43)

Rail 63 42 9 (12)

Transit 265 67 8 (190)

Levees 50 1 0 (1)

Public Parks & Recreation 85 36 1 (48)

Roads & Bridges 930 352 28 (550)

Schools 160 125 0 (35)

Inland Waterways 50 25 4 (21)

Total Need 2.2 trillion 903 billion 72 billion (1.2 trillion)

USD

400

bn

Cle

an T

ech

o

pp

ort

un

ity

just

in t

he

US

A need to replace,fix and build new

infrastructure is dri-ving a huge invest-

ment opportunity forClean Tech private

equity.


© SAM 2011 17

2008, worldwide direct subsidization of fossil fuel

consumption amounted to USD 558 billion15. For

2009, that figure was estimated at USD 312 bil-

lion, a reduction that is mostly attributed to lower

world market prices for fossil energy carriers. In de-

veloping nations, these types of subsidies are typi-

cally seen as a means to provide access to energy

as well as to support energy-intensive industries

worldwide. In both years, an estimated additional

USD 100 billion was spent to subsidize the produc-

tion of fossil fuels16. OECD countries, in particular,

use these subsidies to protect regional employ-

ment interests and national supply. In contrast, di-

rect subsidies for renewable energy amounted to

USD 45 billion in 2009.17

2.5 LARGE CAPITAL REQUIREMENTS

Over the past few years, private sector investors

and governments have begun initiatives to pro-

vide capital to Clean Tech companies, which has

facilitated growth and created value within this in-

dustry. However, public and government funding

is insufficient to meet the growing demand for

capital in the Clean Tech industry. The large in-

crease in energy demand coupled with the need

to replace, maintain and build new infrastructure

is therefore creating enormous investment oppor-

tunities for the private sector. The continually

growing awareness of these opportunities is re-

flected in the development of global Clean Tech

venture and asset investments over the last few

years (see section 3).

2.6 THE CLEAN TECH OPPORTUNITY

Rapid population growth combined with finite

quantities of natural resources not only results in

an increased environmental footprint but also in

rising prices for materials and energy. High prices

and material shortages call for more efficient pro-

duction processes. This is the essence of Clean

Tech investing. The SAM Private Equity team

strongly believes that there is a huge opportunity

to invest in funds, companies and technologies

that provide superior performance at lower costs,

improve the productive and responsible use of nat-

ural resources and greatly reduce or eliminate neg-

ative ecological impacts.

Growth is expected to accelerate as Clean Tech

projects become economically competitive – even

in the absence of government support. The combi-

nation of a commercially driven trend for compa-

nies to capitalize on more efficient production

methods combined with increasing private sector

capital allocation makes this an exciting time to in-

vest in Clean Tech private equity.

15 „The Scope of Fossil-Fuel Subsidies in

2009 and a Roadmap for Phasing

out Fossil-Fuel Subsidies“, an IEA, OECD

and World Bank Joint Report for the

G-20 summit in Seoul, November 2010

16 Estimates by the Global Subsidies

Initiative, 2010

17 Bloomberg New Energy Finance,

July 2010

Today, the economicsuccess of manyClean Tech compa-nies is independentof governmentalsupport.


18 © SAM 2011

2.7 THE CLEAN TECH VALUE CHAIN

The Clean Tech value chain can be grouped into

three major components: technology development,

technology deployment and technology opera-

tions. Technologies are initially developed at univer-

sities or R&D centers. Once they have been placed

with a company, their commercial development is

often financed through venture capital funding. As

these technologies become commercially viable,

development capital is needed to scale up these

businesses. At this stage of its lifecycle, a Clean

Tech company typically grows in two ways: (i) the

scale-up of a manufacturing plant or a large invest-

ment into human capital (for software develop-

ment, etc.); or (ii) a deployment of a large amount

of capital to build assets such as solar parks, wind

farms, water treatment facilities, etc. The second

type of growth requires investors with expansive

knowledge and experience in project development,

construction and project operations. The Clean

Tech value chain and associated financing stages

are illustrated and summarized in figure 9.

Figure 9: Clean Tech Value Chain

Source: SAM Private Equity

FinancingStages

Operations

TechnologyDeployment

Development Capital

Project Development

ValueChain

TechnologyDevelopment

Venture Capital

Construction

Operations ofTechnology


© SAM 2011 19


19 © SAM 2011

3 CLEAN TECH PRIVATE EQUITY MARKET


20 © SAM 2011

This section outlines how the Clean Tech private eq-

uity sector fits into the global financial universe. An

analysis of the major types of private financing

(venture capital, development capital, buyouts and

asset finance) in the Clean Tech context is followed

by an overview of the exit environment for Clean

Tech private equity financing. Lastly, this section dis-

cusses the dynamics and the history of the Clean

Tech private and project equity fund market.

The following graphs are derived from the

Bloomberg New Energy Finance and the Cleantech

Group databases, which both track the clean tech-

nology financing market globally. As the data

providers focus on different segments of the Clean

Tech sector and have different definitions of clean

technology, the graphs derived from the two data-

bases could differ in absolute numbers.

3.1 CLEAN ENERGY FUNDING SOURCES

As people continue to see the value in Clean Tech,

the amount of funds available from various sources

for the development and deployment of clean tech-

nologies is rising. Figure 10 shows investments into

clean energy, which constitute about 70 to 80% of

the total Clean Tech market. The slowdown in spend-

ing during 2009 was followed by a record year for

clean energy, and nearly USD 250 billion were spent

in 2010. The total capital invested in clean energy

since 2001 thus amounts to just over USD 1 trillion.

The majority of capital is used for asset finance, i.e.,

utility-scale deployment of clean energy technolo-

3. Clean Tech Private Equity Market

Figure 10: Funding Waterfall of Clean Energy Investments by Year

Source: Bloomberg New Energy Finance, Database as of February 2011

Cap

ital

Inve

sted

in B

illio

n U

SD

250

225

200

175

150

125

100

75

50

25

02001 2002 2003 2004 2005 2006 2007 2008 20102009

Funding Source (2001– 2010) Total Percent USD Billions

Government R&D 6.7% 70

Corporate R&D 10.1% 105

Public Markets 8.9% 92

Small Scale Projects 14.9% 154

Asset Finance 54.9% 568

Development Capital 2.4% 25

Venture Capital 2.2% 23

Total 1034

The slowdown inspending during

2009 was followedby a record year for

clean energy, andnearly USD 250 billi-

on were spent in2010.


© SAM 2011 21

gies, which has amounted to more than USD 100 bil-

lion in each of the past three years and captures 55%

of all clean energy investments since 2001. Small dis-

tributed projects, such as rooftop solar installations,

have also grown rapidly in recent years and add up to

USD 150 billion or 15% since 2001. However, as

these are mainly residential scale projects, numbers

are difficult to track and the amount stated above

may not correctly reflect their market share.

The public markets, which include capital raised in

IPOs, bounced back after disappointing in 2008 and

2009 and have attracted more than USD 90 billion

capital in the past decade. Clean Tech related invest-

ments in government and corporate R&D totaled

USD 175 billion during the same period. While cor-

porate R&D spending has remained roughly un-

changed over the past six years, government efforts

have almost quadrupled during the same period.

Lastly, at less than 5%, venture capital and private

equity investments (expansion capital as well as buy-

outs), have contributed relatively little to total

spending. However, Clean Tech in general has es-

tablished itself as a major investment theme for ven-

ture capital over the past few years, and has become

the most actively pursued VC sector in the US. Fig-

ure 11 illustrates the growing importance of Clean

Tech versus other large investment themes such as

software, biotech and medical devices.

3.2 PRIVATE CLEAN TECH FUNDING

This section discusses the major types of private fi-

nancing stages of the Clean Tech value chain and,

in particular, the temporal, regional and sector dy-

namics of each financing stage. The underlying

transaction data were sourced from Cleantech

Group for venture, expansion and private equity

transactions, and Bloomberg New Energy Finance

Figure 11: Clean Tech Share of Overall VC Investments in the US

Source: Cleantech Group

30%

25%

20%

15%

10%

5%

0%2003 2004 2005 2006 2007 2008 20102002 2009

Cleantech

Biotech

Software

Medical Devices and Equipment

Perc

enta

ge

Shar

e

Clean Tech has become the mostactively pursued VC sector in the US.


22 © SAM 2011

for asset finance. The data presented refer only to

completed deals, and financing rounds with a

known transaction amount. Additionally, only com-

panies whose core business is Clean Tech are con-

sidered here. These criteria apply to all graphs. The

regional segmentation is defined as North America

(or “NA”, which includes the United States and

Canada), Western Europe (or “WE”, which in-

cludes the EU-15 plus Norway and Switzerland) and

Rest of the World (or “ROW”)

3.2.1 Venture Capital, Expansion Capital and Private

Equity Investments

Venture capital transactions refer to investments

into early-stage, high-growth companies which of-

ten entail significant technology risks. The term ex-

pansion (or development or growth) capital, in

turn, is used to describe investments into compa-

nies that use proven technologies, already have a

significant customer base and focus on scale-up,

business and commercial risks. Lastly, private equity

investments usually refer to larger transactions, typ-

ically in connection with a change of control at a

company, such as leveraged buyouts or PIPE deals.

These types of investments have increased sharply

over the past few years, but will not be discussed

further in the following because they remain infre-

quent and do not represent a focal area of Clean

Tech specialist funds.

For the following analysis, the data set is split into

two parts. We define venture capital transactions as

financing rounds which are either seed or series A

investments, or follow-on rounds after which the

aggregate capital raised by the companies does not

exceed USD 25 million. Follow-on investments in

companies that have raised aggregate capital in ex-

cess of USD 25 million are classified as expansion

capital investments18. While this definition does not

take into account each company’s specific situa-

tion, such as revenues, customer base, etc., it is a

useful approximation of the true stage of the com-

pany and helps to understand how capital is distrib-

uted in the Clean Tech financing markets.

The number of VC-type investments in Clean Tech

companies has grown by a factor of six since 2000

(figure 12). However, in the past two years, the

amount invested has decreased from the record

high reached in 2008 (roughly 85% of the total

number of deals have a disclosed transaction value).

The past two years have been particularly challeng-

ing for fundraising and many venture capital firms

have been hesitant to provide first-round capital and

Figure 12: Clean Tech Seed and Venture Capital Investments

Source: Cleantech Group, Database as of January 2011

Region Total USD Disclosed(2000–2009) Percent Billions Deals

NA 59.9% 10.7 1770

WE 25.1% 4.5 884

ROW 15.0% 2.7 446

Total 17.9 3100

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

600

500

400

300

200

100

002000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2009

Cap

ital

Inve

sted

in B

illio

n U

SD

Nu

mb

er o

f D

eals

Number of Disclosed Deals

18 This definition and the used data source

differ from last year’s publication


© SAM 2011 23

to build their portfolio. Also, as discussed later, in-

vestments in sectors with lower capital require-

ments such as energy efficiency or green IT have in-

creased.

On the other hand, follow-on investments into

the more promising portfolio companies that see

clear traction in the market, as well as large fi-

nancing rounds for companies that roll out tech-

nologies or buy up production assets have picked

up again after a slow 2009. Expansion stage in-

vestments have grown rapidly in line with the

maturation of the Clean Tech market as a whole

(figure 13).

Overall, venture and expansion capital continue to

be dominated by North America. On average, 67%

of the amount invested since 2000 has been raised

by North American companies (figure 14). The

share of investments in Western Europe and Asia

has increased over the past few years, but still falls

significantly short of activities seen in the US and

Canada. In terms of the number of investments,

this gap is less pronounced, which is a result of

Figure 13: Clean Tech Expansion Capital Investments


Figure 14: Geographic Focus of Venture and Expansion Capital Investments


100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%2003 2004 2005 2006 2007 2008 20102000 2001 2002 2009

North America

Western Europe

Rest of World

Perc

enta

ge

of

Tota

l Am

ou

nt

Inve

sted


NA 72.5% 16.9 500

WE 17.8% 4.1 127

ROW 9.8% 2.3 56

Total 23.3 683

14

12

10

8

6

4

2

0

180

160

140

120

100

80

60

40

20

002000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2009

Cap

ital

Inve

sted

in B

illio

n U

SD

Nu

mb

er o

f D

eals


Expansion stageinvestments havegrown rapidly in linewith the maturationof the Clean Techmarket as a whole.


24 © SAM 2011

smaller average financing round sizes in WE and

ROW. As shown later, most of the Clean Tech initial

public offerings as well as mergers and acquisitions

are taking place in Asia. The more attractive exit

market in Asia will certainly direct more venture

funding into these markets in the future.

Figure 15 shows the percentage of VC and expan-

sion capital investments into different Clean Tech

sectors. Energy storage and biofuels were heavily

promoted in the past but have not taken a large

share of investments in the last few years. On the

other hand, the energy efficiency segment with its

lower capital requirements is gaining market share,

especially in terms of the number of deals. With

large investments in companies such as Better Place

and Fisker, deployment of capital in the transporta-

tion sector has increased as well. Solar remains the

sector with the highest capital requirement.

3.2.2 Asset Investments

Investments in large-scale Clean Tech assets, which

mostly relate to clean energy, have continued to take

up the largest portion of capital invested in Clean

Tech. These asset investments include the planning,

development and construction of infrastructure such

as wind or solar generation parks, waste-to-energy

or biofuel production facilities and reflect both the fi-

nancing through private equity (on average 25% of

the project) and project debt (on average 75% of the

project). Since 2000, the Bloomberg New Energy Fi-

nance database has tracked a total of USD 540 bil-

lion in over 6,200 disclosed deals. In addition, there

has been roughly the same number of transactions

with undisclosed value. The total amount invested

into assets in 2010, currently just above USD 100

million, is very likely to be adjusted upward as details

about new built assets are being published.

The deployment of clean energy technologies is a

global effort; however, emerging economies ac-

count for the largest share due to their need to

build up a modern energy and transportation infra-

structure (figure 16).

Depending on local conditions and local industry

strength, different countries show clear preferences

in terms of the technologies they are prepared to

support through strategic programs or financial in-

centives. In China, where 20% of all new assets

built since 2000 are concentrated, nearly three-

quarters of the invested capital went into wind

Figure 15: Sector Focus of Venture and Expansion Capital Investments


100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%2003 2004 2005 2006 2007 2008 20102000 2001 2002 2009

Solar

Biofuels

Energy Efficiency

Transportation

Energy Storage

Perc

enta

ge

of

Tota

l Am

ou

nt

Inve

sted

The deployment ofclean energy techno-

logies is a globaleffort; however,

emerging economiesaccount for the lar-

gest share due totheir need to build

up a modern energyand transportation

infrastructure.


© SAM 2011 25

power. Spain, which accounts for nearly 10% of all

new built assets, has heavily overweighted solar

power, while the US is more diversified across wind,

solar, biofuels and biomass and has signed very

large smart grid and metering rollout programs or

public transport deals.

Globally, about 50% of capital has been spent on

the development and construction of wind power

assets (figure 17). Wind power is one of the most

mature renewable energy technologies, whose lev-

elized cost of energy almost matches that of coal

and nuclear power plants, even in the absence of

tax rebates or feed-in tariffs19. Other widely de-

ployed clean technologies are solar (11%), biofuels

(11%), biomass (9%) and small hydro (5%). Solar

has increased its share over the past few years,

driven mainly by government incentives. The dip in

2009 was a result of an adjustment of feed-in tar-

iffs across Europe.

3.3 EXIT OPPORTUNITIES

Strategic investment by large companies, increas-

ing numbers of private equity deals by mainstream

Figure 16: Clean Energy Asset Investments

Source: Bloomberg New Energy Finance, Database as of January 2011

Figure 17: Sector Focus of Clean Energy Asset Investments

Source: Bloomberg New Energy Finance, Database as of January 2011

Perc

enta

ge

of

Tota

l Am

ou

nt

Inve

sted

Wind

Biofuels

Biomass & Waste

Small Hydro

Solar

70%

60%

50%

40%

30%

20%

10%

0%2003 2004 2005 2006 2007 2008 20102000 2001 2002 2009

19 Lazard, Levelized Cost of Energy

Analysis, June 2010


NA 27.9% 150.9 1101

WE 33.2% 179.8 1515

ROW 38.9% 210.5 3638

Total 541.1 6254

120

100

80

60

40

20

0

2500

2000

1500

1000

500

02000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2009

Cap

ital

Inve

sted

in B

illio

n U

SD

Nu

mb

er o

f D

eals



26 © SAM 2011

funds, and the premium the public is willing to pay

for Clean Tech are likely to lead to rising numbers

of successful exits, on the one hand, and to a con-

solidation of the industry, on the other. Both will

benefit Clean Tech investors.

3.3.1 IPO Activity

Substantial amounts of capital have been raised in

the 293 Clean Tech IPOs since 2005 (figure 18).

After a disappointing 2008 and 2009, the trend

picked up in 2010 both in terms of the total

amount of capital raised and the number of list-

ings, with USD 16.2 billion raised in 92 IPOs. While

the average amount raised in Clean Tech public of-

ferings amounts to roughly USD 150 million, some

deals, notably those of large utilities or their re-

newable energy subdivisions, have been much

larger and in the range of several billion USD.

Looking at the past six years, a clear shift, initially

from European to North American and later from

North American to Asian stock markets, can be

seen. In 2009 and 2010, Asian stock markets ac-

counted for more than 60% of all IPOs and an

even larger proportion of the capital raised.

ChiNext, the Shenzhen-based stock exchange, be-

came the world’s most active exchange for Clean

Tech IPOs in 2010, with more than half of last

year’s IPOs listed there. The pipeline of IPO candi-

dates remains full and 2011 is expected to become

a very successful year for Clean Tech IPOs.

Figure 18: Clean Tech IPO Activity


Figure 19: Percentage of Clean Tech IPOs Listed on Stock Exchanges Globally


Perc

enta

ge

of

Tota

l Cle

an T

ech

IPO

s

Europe

North America

South America

Australia

Asia

70%

60%

50%

40%

30%

20%

10%

0%2006 2007 2008 20102005 2009


NA 17.1% 8.2 72

WE 38.3% 18.5 67

ROW 44.6% 21.5 154

Total 48.2 293

Cap

ital

Rai

sed

in B

illio

n U

SD

18

16

14

12

10

8

6

4

2

02005 2006 2007 2008 2009 2010

100

75

50

25

0

Nu

mb

er o

f IP

Os

Number of IPOs

In 2009 and 2010,Asian stock mar-

kets accounted formore than 60%

of all IPOs and aneven larger propor-

tion of the capitalraised.


© SAM 2011 27

20 Well-to-wheel efficiency refers to

the number of kilometers driven per

mega-joule (km/MJ) of source fuel

consumed. In the example of Tesla,

the source fuel is natural gas used to

generate grid electricity

21 See also Martin Eberhard and Marc

Tarpenning (2006). The 21st Century

Electric Car.

Case Study: Tesla Motors

Tesla Motors is one of the many success stories of

the Clean Tech industry, being the only vehicle

producer that builds and sells a zero-emission

sports car in serial production and the first Amer-

ican car maker to go public since the Ford Motor

Company had its IPO in 1956.

Incorporated in Delaware in 2003 to engage in

the design, serial production and sale of electric

vehicles and advanced electric vehicle power train

components, the company soon began designing

its first vehicle, the Roadster. It is the first serial

production electric vehicle with a range of over

320 km per charge and the first electric vehicle to

use lithium-ion battery cells. Furthermore, the

Roadster’s well-to-wheel energy efficiency20 is

more than double that of Toyota’s famous hybrid

car Prius, while its CO2 emissions are one-third of

those of hybrid cars and as little as one-fourth of

those of traditional hydrogen fuel-cell cars. Both

effectively demonstrate the sustainability benefit

of high-efficiency electric vehicles21.

After several rounds of private financing, Tesla

had raised an aggregate USD 187 million, sold

937 Tesla Roadsters to customers in 18 countries

and generated more than USD 126 million in rev-

enue by the end of 2009. In August 2009, Robert

Lutz, General Motors’ Vice Chairman at the time,

stated in The New Yorker: “All the geniuses here

at General Motors kept saying lithium-ion tech-

nology is 10 years away, and Toyota agreed with

us – and boom, along comes Tesla.”

Later that year, Tesla was approved to receive

USD 465 million in interest-bearing loans from

the U.S. Department of Energy (DoE) to support

engineering and production of its power train

technology and the Model S sedan, an all-electric

family car. On June 29, 2010, Tesla Motors went

public and raised USD 226 million, providing its

investors and early supporters with substantial

returns.

As of January 2011, Tesla employed more than

500 people, had delivered more than 1,500

Roadsters in at least 30 countries and had taken

about 3,500 reservations for the Model S.

Tesla is right on track to achieve its stated goals

of increasing the number and variety of EVs

available to mainstream consumers and to act as

a catalyst for other automakers, demonstrating

that there is a business opportunity in satisfying

the growing global demand for efficient zero-

emission cars.

The company’s management has demonstrated

that the transition from a few ambitious entre-

preneurs and investors armed with nothing but a

visionary idea to a public company is perfectly

possible.


28 © SAM 2011

3.3.2 M & A Activity

Clean Tech M &A transactions22 have amounted to

USD 175 billion in 900 disclosed deals since 2005,

and the value of another 1550 deals has remained

undisclosed. About half of the M&A transactions

have been in the energy generation sector. The

largest transaction shown in figure 20, the 2006 ac-

quisition of Thames Water Utilities, the UK’s largest

water and wastewater services company, by Kemble

Water Limited, was valued at more than USD 18 bil-

lion. The graph shows a steady growth in the num-

ber of M&A transactions over the past four years,

with a CAGR of more than 40%. As the deal value

is only disclosed for about one in three transactions,

the total amount of disclosed M&A deals does not

fully reflect larger corporations’ growing interest in

Clean Tech investments and acquisitions or cooper-

ations with Clean Tech focused companies. M&A

transactions continue to offer a very attractive exit

option for private equity investments. While there is

a global market for M&A transactions, a lot of ac-

tivity is moving from Europe to the rest of the world.

3.4 THE CLEAN TECH FUND UNIVERSE

Since the first Clean Tech focused private equity

funds were formed in the 1990s, almost 300 funds

have raised over USD 44 billion of capital available

for investments. This includes funds that have had

interim and final closings. Initially, the industry was

dominated by North American venture capital

funds. But as the early technologies matured and

became ready for commercial development, a num-

ber of venture capital investors have moved up the

value chain and started to deploy more capital in

late-stage venture and early-stage development

companies. Today, a number of fund managers are

raising third- or fourth-generation funds, which are

frequently focused on growth-stage companies. At

the same time, entrepreneurial specialist firms with

strong ties to academia or industry fill some of the

venture capital spots. The fastest-growing fund

type are funds investing in environmental infra-

structure, which are often managed by teams with

extensive experience in the development of energy

or transport infrastructure. The project-related

funds shown in figure 21 invest in environmental

infrastructure projects from early development to

beginning operations, but usually do not own and

operate the assets.

The growth of project-related funds is accompa-

nied by a shift away from North America. Today, the

number of funds in the SAM database is almost

equally split between North America, Western Eu-

rope and the rest of the world (figure 22). Along

with the growing Clean Tech opportunity we are

witnessing another development: a trend away

from globally operating private equity funds toward

locally specialized funds that invest in the Nordics,

Iberia, Mexico, etc.

22 Data from Cleantech Group, which

includes mergers, acquisitions,

joint ventures, divestitures and minority

stake transactions.

Figure 20: Clean Tech M&A Activity



NA 30.0% 52.6 377

WE 43.4% 76.1 270

ROW 26.5% 46.5 259

Total 175.2 906

Dis

clo

sed

Tra

nsa

ctio

n S

ize

in B

illio

n U

SD

45

40

35

30

25

20

15

10

5

02005 2006 2007 2008 2009 2010

Number of Disclosed Deals Total Number of Deals

800

700

600

500

400

300

200

100

0

Nu

mb

er o

f D

eals

M&A transactionscontinue to offer avery attractive exitoption for private

equity investments.


© SAM 2011 29

Figure 21: Clean Tech Funds Raised Since 2000

Source: SAM Private Equity, Bloomberg New Energy Finance, Preqin, March 2011.

Figure 22: Geographic Focus of Funds in Market

Source: SAM Private Equity, Bloomberg New Energy Finance, Preqin, March 2011.

50

45

40

35

30

25

20

15

10

5

0

70

60

50

40

30

20

10

02001 2002 2003 2004 2005 2006 2007 2008 2010 20092000

Cu

mm

ula

tive

Am

ou

nt

Rai

sed

in B

illio

n U

SD

Nu

mb

er o

f Fu

nd

s Su

cces

sfu

lly C

lose

d

Number of Funds Successfully Closed

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

80

70

60

50

40

30

20

10

02000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2009

Geo

gra

ph

ic F

ocu

s Sh

are

Nu

mb

er o

f Fu

nd

s in

Mar

ket

Number of Funds in Market

WE

NA

ROW

Global

Type Total USD Disclosed(1994 –2010) Percent Billions Deals

Project Related 46.9% 20.6 92

Venture Capital 32.7% 14.3 150

Development Capital 15.4% 6.7 41

Leveraged Buyouts 5.1% 2.2 9

Total 43.9 292

In 2008 and 2009, the fundraising market lost its

momentum as institutional investors were heavily

affected by the financial crisis. In 2010, the number

of funds in the market nearly returned to pre-reces-

sion levels. Some of this recent activity is driven by

the fact that recession vintage year investments

have historically proven to deliver strong returns.

However, fundraising is still difficult, and not many

vintage year 2010 funds have successfully com-

pleted interim closings so far.


30 © SAM 2011


© SAM 2011 30


30 © SAM 2011

4 OVERVIEW OF MAJOR

CLEAN TECH SECTORS

© SAM 2011 31


SAM Private Equity has access to both SAM Re-

search and Rabobank Food and Agri Research (FAR).

These two groups are leaders in the fields of global

sustainability, food and agribusiness and Clean Tech

investing. Apart from general food and agribusiness

research, FAR provides macro research on Clean

Tech topics such as renewable energy, biomass and

energy efficiency. SAM Research focuses on the

public markets and individual company analysis for

the Clean Tech and sustainability areas. As a result,

SAM Research provides microeconomic information

on these sectors. The following five sections will

highlight the views of SAM and FAR with regard to

wind, solar photovoltaic, electric mobility, sustain-

able buildings and smart grids. These segments

have been highlighted as major investment sectors

in the Clean Tech private equity market.

SAM RESEARCH

SAM Research is a leader in sustainability research.

The research team consists of around 20 people

who cover the full spectrum of industries and pro-

vide advice to SAM’s Index business as well as to

SAM’s portfolio management team which manages

a series of leading public equity funds in the rele-

vant Clean Tech sectors and areas, such as energy,

water, materials, healthy living, and climate

change. Furthermore, thanks to SAM’s long-stand-

ing leadership in the field of sustainability research,

SAM Research has established a global network of

industry leaders and experts.

RABOBANK FOOD AND AGRI RESEARCH

Financing projects in Clean Tech have long been

part of Rabobank’s business – both as a natural ex-

tension of Rabobank’s focus on food and agricul-

tural finance activities and as a result of its strong

commitment to greening its operations. One of the

focal areas of FAR is to provide in-depth Clean Tech

research in the following sectors: biofuels, wind, so-

lar energy, carbon, geothermal, biomass and water.

Currently, FAR consists of around 80 global analysts,

including dedicated Clean Tech professionals.

4.1 WIND ENERGY

Tremendous Growth in Installed Capacity

The first reasonably reliable statistics about globally

installed wind energy capacity for electricity gener-

ation date back to the 1980s. According to the

Global Wind Energy Council (GWEC), only 239MW

of wind capacity had been installed by the end of

1984. From then on, the wind energy sector has

shown dazzling growth numbers, at a CAGR of

28%, leading to a total installed capacity of

194GW by the end of 2010. Of this, a mere 2%

was offshore. Today, GWEC estimates that 500,000

people are employed by the wind industry globally,

and FAR estimates that 10 – 12 million23 households

worldwide received electricity from the installed

wind parks in 2010. In 2010, slightly more than 2%

of global electricity production was derived from

wind energy.

Technology: Larger Turbines and More Gearless

Drive Trains

A modern wind turbine for onshore use generally

has between 1MW and 3MW nameplate capacity.

The trend is clearly moving toward larger turbines,

especially in the offshore segment where turbines

with a capacity of as much as 10MW are being

tested. A modern wind turbine consists of a foun-

dation, a tower, a nacelle (the “head” of the tur-

bine, containing its main drive train), and three up-

wind blades. The two main types of wind turbines

4. Overview of Major Clean Tech Sectors

23 Based on the estimated wind electricity

production in 2010 (406TWh) and

an average annual electricity consump-

tion per household of 3500Kwh

(Dutch situation). There are 7.3 million

households in the Netherlands.


32 © SAM 2011


can be distinguished as: those with a gearbox-

based drive train, in which the slow rotation of the

blades is converted by a gearbox into a rotation fast

enough to drive the generator, and those with a

“gearless” drive train. The latter technology cur-

rently has an approximate 10% market share. For

offshore use, turbines are generally gearbox-based

or a “hybrid” of the two technologies.

Wind Value Chain and Main Players: Highly Concen-

trated Business Overall

The pivotal companies in the global wind energy

value chain are the turbine manufacturers. Since

the 1980s, a fairly stable group of six large turbine

manufacturers has emerged: Vestas, GE, Siemens,

Gamesa, Enercon and Suzlon. However, the global

turbine shortages between 2005 and 2008 and the

fast growth of the Chinese wind energy market

have opened up the industry for new market en-

trants. In the onshore segment, the Chinese pro-

ducers Goldwind and Sinovel, and to some extent

Dongfang, have captured significant market share,

although this is still primarily based on domestic de-

liveries. New players that focus specifically on the

offshore wind turbine market have also emerged.

In the coming years, we expect consolidation in the

wind value chain as a result of the high degree of

competition (cost-driven) resulting from Chinese

producers’ efforts to expand overseas and consoli-

date in their domestic market.

Aside from the turbine manufacturers, many com-

panies produce various components for the wind

turbine industry. Several highly specialized compa-

nies operate in some of these segments, such as

gearboxes and blades, and have large market

shares. Other segments (such as bearings) are dom-

inated by non-specialized industrial players (forg-

ers). Interestingly – and to a large extent different

from other renewable energy industries – much of

the technology development in wind turbine man-

ufacturing is actually governed by the large manu-

facturers. These tend to order their parts from sub-

suppliers based on their own specifications and re-

search. Although a few companies operate in both

the onshore and offshore wind sectors, the two

value chains are to a large extent separated from

each other.

Figure 23: Onshore and Offshore Wind Value Chain

Source: FAR, February 2011

Manufacturing

Componentmanufacturing

Wind turbinemanufacturing

Wind turbineinstalling

Wind farmdevelopment

Wind farmO&M

Ownership/Electricity sales

Development/Operation/Ownership

onshoreandoffshore

onshore onshore onshore onshoreonshoreandoffshore

offshore offshore offshore offshore

© SAM 2011 33


Onshore Will Remain the Largest Segment, Yet Off-

shore Is Taking Off

The wind energy sector’s main segments are on-

shore (land-based) and offshore (sea-based). On-

shore wind is a much more mature segment than

offshore, and annual growth figures are therefore

lower than for offshore. In the onshore sector, the

fastest growth in recent years has occurred in China

and the United States, stimulated by strong govern-

ment support and – compared with, for example,

the EU – an abundance of vast areas of cheap and

available land.

Offshore wind farms started in the 1990s as a com-

plex form of onshore, yet are now rapidly developing

into a fully independent segment with a different

value chain and, to a large extent, different players

than onshore. We expect this trend to continue as

offshore wind farms move further offshore and into

deeper water, particularly in the EU, the most ad-

vanced market for offshore wind energy. This is due

to the complexities of dealing with more extreme cli-

mate and weather conditions offshore, e.g., strong

waves, corrosion from salt water, and the larger chal-

lenges in terms of operations and maintenance com-

pared to onshore wind parks. Today, the total annual

installed offshore wind power capacity is less than

3% of that of onshore wind energy.

In contrast to onshore capacity, offshore wind farm

developments are virtually dominated by the EU;

primarily in northwestern Europe by countries in-

cluding Denmark, the UK and the Netherlands. In

the EU, project developers are increasingly looking

at offshore opportunities as suitable locations for

onshore wind farms are getting scarcer in many

markets. Interestingly, China introduced ambitious

targets for offshore wind energy in 2010. Chinese

authorities aim for 30GW of installed capacity as

early as 2020, although the country has only com-

missioned a few offshore farms recently. The US

also seems ready to tap the potential of offshore

wind energy, and India, too, is slowly exploring this

market opportunity. Despite this growth potential,

we expect offshore wind energy to continue to play

a minor role compared to onshore in terms of the

installed capacity during this decade. Offshore wind

farms are likely to be located primarily in the EU,

China, and the US. The rest of the world will only

install limited offshore wind energy capacity during

this decade.

China Increasingly Takes the Lead; Growth in the EU

and the US Declines

The EU has been leading the development of wind

energy since its commercialization, yet, in recent

years, growth in the rest of the world has caught up

rapidly. While the installed capacity was more or less

split 50/50 between the EU and the rest of the world

until 2009, the EU now constitutes just below 45%

of the market. By the end of 2010, total global in-

stalled wind energy capacity amounted to 194GW,

up from about 158GW in 2009 (GWEC). This was

an increase of 23%, or almost 36GW, a volume that

almost matches the total size of the combined

Spanish and German wind capacity installed by

2010 (37.8GW). The year before, the global wind

market grew by 31% (about 37GW). Offshore in-

stalled wind capacity stood at just 1.2GW in 2008

but more than doubled over the two subsequent

years to reach 2.8GW by 2010. Offshore thus repre-

sented 1% and 1.5% of total global installed wind

capacity in 2008 and 2010, respectively.

By 2009, China was the single largest wind energy

country in the world after growing from a mar-

ginal installed base of wind energy just a few years

back (however, the EU is still the largest regional

market at 84GW capacity). In 2009 and 2010,

China also added the most capacity of any single


34 © SAM 2011


country, installing 13GW and 16.5GW in new

wind capacity, respectively, and reaching a total

capacity of 42.3GW at the end of 2010. In com-

parison, the US and the EU, traditionally the

largest and strongest growth markets, experi-

enced a slowdown in growth. In the US, capacity

increased by just 5.1GW (down 50%) while ca-

pacity in the EU rose by 9.2GW (10% less than in

2009), with Spain and Germany accounting for

roughly 1.5GW each. This decline was due both to

the effects of the financial crisis and to the ab-

sence of long-term and stable government poli-

cies in the US. Growth in the rest of the world was

negligible in comparison with the three major

markets. Nonetheless, these countries added an

aggregate 4.3GW of capacity.

Why Wind Energy?

Like all renewable energies, growth of the wind en-

ergy industry is stimulated by government support

in the major markets; however, production costs

are declining fast and continuously. In some cases,

wind energy can already compete with electricity

generated from fossil fuels. For example, on an an-

nual basis, a single, modern wind turbine produces

180 times more electricity at less than half the cost

per kWh than its equivalent 20 years ago, accord-

ing to the European Wind Energy Association

(EWEA). Next to viewing wind energy as a tool to

deal with climate change and concerns over fossil

fuels, governments around the world stimulate

wind energy because: 1) it is seen as relatively tech-

nologically advanced (especially onshore); 2) it is

relatively cheap (in comparison with other renew-

able energy and certain conventional energy

plants); and 3) it is relatively large-scale: Especially

offshore, the larger wind farms are reaching similar

scales to fossil-fuel fired plants, between 300MW

and 1GW, while the latest announcements foresee

farms with a capacity of more than 1GW.

And Why Not?

Frequently cited disadvantages of wind energy that

could inhibit its growth include its impact on its

surroundings (both visually and regarding per-

ceived noise and shade), and its discontinuous na-

ture. The former disadvantage has slowed the de-

velopment of onshore wind farms in various coun-

tries (notably the UK), while the latter causes grid

operators in many markets to be cautious of the

amount of wind energy they accept into their sys-

tems and/or to invest in grid infrastructure. Turbine

manufacturers are continuously improving their

products to cope with these disadvantages, for in-

stance by lowering noise levels, by placing turbines

on ever higher masts to catch more continuous

winds from higher air streams, and by improving

weather predictions and the turbine’s automated

reaction to these. Grid operators, for their part, are

improving their operations. Growing experience

with high wind energy loads in such places as Den-

mark, Germany and Spain has shown that levels of

around 10% wind energy in the grid are generally

workable. Furthermore, the move to offshore can

alleviate many issues as impacts on the surround-

ings are smaller and wind conditions are more con-

tinuous.

The Global Wind Market Could Exceed

700GW by 2020

According to various predictions regarding the fu-

ture size of the global wind energy sector, installed

capacity is expected to reach between 400GW and

1100GW (GWEC) in 2020. FAR expects the actual

number to rise to between 535GW and 703GW by

2020, with the share of offshore wind growing

from currently 1.5% to around 7% (40GW) in

2020 (figure 24). This figure could prove signifi-

cantly higher if China realizes its recently an-

nounced offshore wind energy target of 30GW in

installed capacity by 2020. Despite the temporary

© SAM 2011 35


slowdown in growth, which is largely due to the fi-

nancial crisis, we therefore believe that we are

years away from reaching market saturation in the

global wind energy market. In addition, repower-

ing is an expansion option in some local markets

that may be close to saturation, e.g., due to con-

straints on available (onshore) sites. This is, for ex-

ample, the case in Germany and other first-mover

markets.

Investment Opportunities

From a long-term perspective, the onshore and off-

shore wind energy segments are very interesting

for more asset-driven investments. Based on FAR’s

research, the total wind energy market could real-

istically grow by more than 500GW during this

decade. If a general cost of EUR 1.5 million/MW is

assumed for onshore and EUR 3 million/MW for

offshore, wind asset financing would need to

roughly attract EUR 838 billion globally during that

period; an average of EUR 93 billion annually.24

In terms of private equity investment opportuni-

ties, the onshore wind energy sector may be of lit-

tle to moderate interest. This is due to its relative

market maturity, its consolidated nature, and the

fact that technology development is governed by

the large players. However, there are still a few at-

tractive options to invest into early-stage project

development type of companies. The offshore sec-

tor, on the other hand, could offer broader private

equity investment opportunities given that this

segment is in its nascent stage and there is room

for new (technology) entrants. We believe that

these opportunities are mainly found in the seg-

ments of smart foundation solutions; turbine in-

stallation; logistics/transportation, and wind farm

servicing. From an overall Clean Tech private equity

investment point of view, we believe that the wind

sector plays a pivotal role. Amid the global trends

toward an increasing installation of distributed en-

ergy systems, the implementation of smart grids,

and the market re-entry of electric vehicles, wind

energy will most likely become more interlinked

with these systems in terms of power generation,

system compensation and stabilization.

4.2 SOLAR PV

Solar PV Installations Grew by a Factor of 25 in

One Decade

The photovoltaic (PV) sector has developed in leaps

during the past 180-year period. Although the PV

effect was discovered in 1839, it was not until

1950 that major research and development (R&D)

efforts were undertaken, resulting in the Sharp

Corporation’s development of the first usable pho-

tovoltaic module from silicon solar cells, which is

used in calculators, for example. From 1970 on-

ward, the first large PV companies were estab-

lished, and 10 years later the first stand-alone so-

Ag

gra

gat

e In

stal

led

Cap

acit

y in

GW

Upside Potential Onshore (FAR)Onshore

Offshore

800

700

600

500

400

300

200

100

0 2000 2010 2020F

Figure 24: Global Onshore and Offshore Installed Wind Capacity, 2000 to 2020f

Source: FAR analysis; historic data from GWEC, February 2011

24 Asset financing has been under pres-

sure since the beginning of the financial

crisis. These growth figures are based

on the assumption that financing condi-

tions will return to previous levels.


36 © SAM 2011


lar parks were installed. From 2000 onward, the

sector really took off based on the well-known

drivers of renewable energy. As a result, worldwide

cumulative installed solar PV capacity grew by a

factor of nearly 25 from 1.4 GWp (nominal peak

power) in 2000 to over 35 GWp in 2010. Despite

this growth, PV electricity still accounts for less

than 1% of global electricity generation.

Two Types of Solar PV: Wafer-based PV

and Thin-film PV

Most solar PV modules are wafer-based. However,

thin-film PV, which was first used in commercial

modules in 2002, is gaining market share. Thin-

film PV cells are manufactured by depositing semi-

conductor materials directly onto a base such as

glass, plastic or flexible foil, whereas wafer-based

PV modules are made from thin slices (wafers) of

mono- or multi-crystalline ingots. The main advan-

tage of thin-film modules compared to wafer-

based modules is their higher potential for reduc-

ing production costs. For one, production of thin-

film modules requires less raw material input. In

addition, production processes are shorter and

continuous, while batch processes are used in the

production of wafer-based modules.

Since the efficiency of thin-film PV modules is

lower than that of wafer-based PV modules (a re-

alized 5% to 11.7% efficiency against 15% to

17.5%), the use of thin-film PV modules makes

most sense in cases where there are surface restric-

tions, for example on roofs that cannot stand the

heavy weight of wafer-based PV. In addition, since

the efficiency of thin-film technology is less af-

fected by high temperatures, it is more suitable for

hot climates. Thin-film PV modules are also used in

areas where the light is of a diffused nature. Be-

sides the efficiency of a solar PV cell (both wafer-

based and thin-film), actual electricity production

depends on the level of solar irradiation and thus

differs across the globe.

China Is Home to 38% of Solar PV Production

Capacity

A clear distinction can be made between the value

chains of thin-film PV modules and wafer-based

modules (figure 25). Most thin-film PV module

producers have started their businesses over the

past 10 years and have consistently operated as

fully integrated companies serving the entire value

chain. In contrast, several business models prevail

in the wafer-based PV segment. Examples of fully

vertically integrated companies are REC Group (Re-

newable Energy Corporation), Trina Solar Energy,

Canadian Solar and SolarWorld. Partially inte-

grated companies include Suntech, Kyocera and

Sharp. Finally, a number of stand-alone players

serve just one segment of the value chain – these

include producers of pure silicon or ingots, the

Figure 25: Solar PV Value Chain

Source: FAR research, 2011

Sillicon Wafers Cells Modules

PV Systems/Solar farms

Silicon & other gasses

Modules

Wafer-based PV modules

Thin-film modules


© SAM 2011 37


glass industry for the encapsulation of the mod-

ules, and companies offering turnkey manufactur-

ing equipment (also for thin-film PV). The main rea-

son for this distinct difference lies in the evolution

of the wafer-based PV industry out of a silicon and

wafer industry that had already been in business for

decades to satisfy the needs of other industries,

such as through semiconductors for IT applications.

Photon International lists over 4,800 wafer-based PV

module manufacturers worldwide, which represents

a massive increase compared to 2005 when only a

dozen companies in Asia (Japan, China and Taiwan)

were producing PV modules. Today, China is home

to most of the production capacity (38% of global

cell production capacity), followed by Europe (18%,

mostly in Germany), Taiwan and Korea (20%) and

Japan (10%). The largest companies in 2010 in

terms of module shipments and/or cell production

include Suntech, Sharp, Trina Solar, Yingli, Q-Cells

and JA Solar. The thin-film PV segment is still devel-

oping and an increasing number of companies are

scaling up and achieving higher efficiencies. While

US-based thin-film PV producer First Solar ranked

second in terms of module shipments in 2010, other

thin-film PV players are significantly smaller.

Despite an Overall Decline in Profit Margins,

PV Is Taking Off Globally

From 2005 onwards – when growth really took off

in the PV industry – the industry was confronted

with a silicon bottleneck that hindered the fast ex-

pansion of PV production. This, in turn, made PV

production a demand-driven market with relatively

high margins for silicon and wafer producers. This

bottleneck has now been largely removed, and to-

gether with current overcapacities in PV module

production will result in a growing margin pressure

that will gradually work its way up through the

value chain. Margins are expected to decline. To-

gether with the need to ramp up capacity in order

to reduce costs, this is likely to result in a wave of

consolidation within the industry, both horizontally

and vertically. As a result, the PV industry will ma-

ture and become less fragmented.

In terms of global installments, based on FAR’s

Country Attractiveness Index for solar PV projects

Figure 26: Country Attractiveness Index for Large-Scale Solar PV Projects in 2011

Source: Rabobank, PV Country Attractiveness Index for 2011, Serious Markets Developing in Various Countries, 2011

IRR

Market Maturity

Growth Potential

Administrative

Effectiveness0 2012 14 16 18108642

Italy

Germany

South Africa

Belgium

Greece

UK

Canada (Ontario)

France

Czech Republic

Slovakia

Turkey

US (California)

Spain

Japan

India

Bulgaria

South Korea

Switzerland

China

Portugal

Australia (NSW)


38 © SAM 2011


that ranks countries based on the project’s IRR,

market maturity, growth potential and administra-

tive effectiveness, Italy, Germany and South Africa

are likely to see most newly installed PV capacity in

2011. In addition, we believe that India and China

are up-and-coming markets.

Solar PV Systems Can Be Installed in Almost Every

Form and Shape

Solar energy systems can be installed off-grid or

grid connected, and distributed or centralized. Ex-

amples of off-grid systems are stand-alone cen-

tralized systems in remote locations or distributed

solar PV modules placed on parking meters (about

8% of all cumulative installed PV capacity). The in-

stallations in the grid-connected segment are ei-

ther large-scale (15% of installed capacity) or dis-

tributed systems mounted on rooftops of house-

holds, such as Building Integrated PV (BIPV)

applications (around 77% of all grid-connected

systems). We expect growth in BIPV and roof-top

solar installations as governments have favorable

support schemes in place for this segment and a

number of companies are speeding up develop-

ments in BIPV (installation) technology. These dis-

tributed solar PV systems are likely to play an im-

portant role in the smart grid of the future.

Solar PV: Ultimate Goal to Reach Grid Parity

Although the next couple of years are likely to be

turbulent, especially for manufacturing companies

in the solar PV industry, the long-term outlook for

the industry as a whole looks bright in our view. The

growth potential is enormous, as the fundamentals

underpinning demand for solar PV power, energy

demand and energy dependency as well as climate

change concerns are not likely to change. Both the

wafer-based PV segment and the thin-film PV sec-

tor will benefit from this.

We expect the solar PV value chain to be character-

ized by a modest level of investments targeted at

capacity expansion and a high level of innovation,

aimed particularly at further improving cell effi-

ciency and production efficiency along the entire

value chain. The ultimate goals are to reduce the

costs per watt of solar PV modules and to reach

grid parity. Grid parity is expected to be reached in

Figure 27: Forecast of Cumulative Installed Global Solar PV in GW by 2015

Source: FAR research, 2011

Cu

mu

lati

ve In

stal

led

So

lar

PV in

GW

Americas

Europe

Asia

Rest of World

160

140

120

100

80

60

40

20

02010 2011f 2012f 2013f 2014f 2015f


© SAM 2011 39


an increasing number of countries during this

decade, starting in the sunniest countries with the

highest electricity prices. As a result, we expect the

PV industry to gradually become less dependent on

government subsidies. This would make the sector

much more market-driven rather than policy-

driven.

Solar PV Sector Expected to Grow Almost Nine-Fold

During This Decade

Despite the existing overcapacities in PV module pro-

duction, many players continue to scale up their pro-

duction facilities. For 2012, we anticipate around 25

GWp of PV module production compared to a de-

mand for PV modules of about 19 GWp to 21 GWp.

According to FAR, global cumulative installed capac-

ity could reach around 148 GWp by 2015 and 370

GWp by 2020. Growth of the thin-film PV sector is

assumed to be mainly determined by the pace at

which the sector can expand its production capacity

and the extent to which it can produce at a lower

cost per watt than the wafer-based PV competition.

With lower production costs, thin-film PV manufac-

turers should find plenty of opportunities to gain

market share in the PV industry. With respect to the

different solar PV installations, FAR forecasts growth

in BIPV and roof-top solar installations.


The solar PV industry offers enormous opportunity

from an asset-investment point of view. We con-

sider the distributed energy generation theme to be

an important growth area. While solar PV systems

have already experienced major increases in effi-

ciency, there is still a lot more to gain from opti-

mized system designs. This applies to the BIPV and

roof-top solar PV segments, in particular.

Based on FAR’s research, the total solar PV energy

market (installed capacity) could grow by more

than 300GW over the next decade. Assuming a

general cost of USD 4 million to USD 8 million/MW

for a solar PV system (depending on the respective

location and component costs), solar asset financ-

ing would need to attract at least USD 1.2 trillion to

USD 2.4 trillion during that period.25 The actual

growth will be impacted by the scarcity and thus

rising cost of capital as well as by changing policies

in support of solar PV in key markets showing a

trend toward reductions in subsidies referred to as

“feed-in tariff depreciation”.

In terms of technology investments, solar is still

leading Clean Tech sources for venture capital in-

vestment, driven by several large deals in 2010. Al-

though wafer-based PV is more mature than thin-

film PV technology, both still offer room for im-

provement. We believe that the private equity

opportunity lies especially in improvements on a

system level, e.g., better (micro) invertors and

cheaper power optimizers.

In addition, Concentrating PV (CPV) technology,

which uses optics to focus a large amount of light

onto a small high-efficiency solar cell, and Concen-

trated Solar Power (CSP) – after a period of rela-

tively less extensive investments and new projects –

have attracted a lot of interest.

4.3 ELECTRIC VEHICLES

Electric Mobility is Nothing New

The concept of electric vehicles (EVs) has been

around for more than a century, but failed to take

off due to the more favorable characteristics of cars

with internal combustion engines (ICE). EV technol-

ogy was not able to perform at par and there were

no supporting policies in place to overcome these

differences. Today, the development of EVs has

been revived and millions of dollars flow into R&D

and new companies active in this segment. In some

25 Asset financing has been under pressure

since the beginning of the financial

crisis. These growth figures are based on

the assumption that financing

conditions will return to previous levels.


40 © SAM 2011


cities such as Amsterdam, electric scooters, the

Segway and the electric tuk tuk have already be-

come part of the street scene.

Governments Worldwide Supporting

Electric Mobility

The main drivers for the development of electric

mobility can be observed around the world: the in-

creasing number of vehicles and thus emissions and

pollution, air quality (especially in urban areas),

volatile and high fuel prices, urbanization, con-

sumers’ increasing awareness of environmental im-

pact, and the wish for reduced oil dependency. To-

day, governments around the globe (federal to mu-

nicipal) are implementing policies to support the

development of electric mobility and to enable ini-

tiatives aimed at the large-scale adoption of EVs.

This varies from subsidies for the purchase of

(partly) electrified vehicles, e.g., in Austria, Ireland

and China, R&D aid for the electrification of the

drive train, e.g., in the Netherlands; assistance in

the development of a charging network, e.g., in

France and China; road tax exemptions for vehicles

whose CO2 emissions meet certain thresholds, e.g.,

in Germany; grants dedicated to certain companies

to develop EVs and charging networks, e.g., in the

United States, and tax rebates, e.g., no acquisition

tax in Japan.

Need for New Technologies Provides


The electrification of the drive train26 of a vehicle re-

quires several (in that form) new technologies in and

around a vehicle. Taking a full EV as an example, the

required technologies are: on-board power storage

devices (mostly batteries), charging infrastructure

and technology, software for battery management,

billing, the charging process, the electric engine and

supporting power electronics and software. These

new technologies should eventually enable EVs to

offer the same (cost) performance and user friendli-

ness as conventional vehicles do. Since the technol-

ogy is not quite there yet, we believe that this evolv-

ing automotive sector offers ample private equity

(PE) investment opportunities.

Key Investment Opportunity: Batteries

There are many different battery technologies on

the market, all having a specific chemical compo-

sition and accompanying characteristics. The

main challenge lies in developing the battery type

that enables EVs to be at par with the (cost) per-

formance and user friendliness of conventional

vehicles, and has an acceptable environmental

impact, i.e. increasing the energy density of a

battery (kWh per kilogram) to a comparable level

to that of gasoline. Although today’s technology

does not yet offer these characteristics, improve-

ments are expected, with the battery drive range

anticipated to almost double in the longer term to

around 300 kilometers. However, FAR expects

that cost declines will be marginal at around

3.5% on average per year until 2030. From a

technology point of view, we believe that lithium

ion (Li-ion) batteries have the best characteristics

for use in full EVs. More specifically, the Li-ion

batteries with iron phosphate and manganese

chemistries are likely to gain the largest share of

the market over the longer term. Other battery

chemistries are expected to be used in smaller

market segments or niche applications. Since cur-

rent battery production capacity is not sufficient

to meet future demand, many battery manufac-

turers are ramping up production capacity. For

example, battery producer Sanyo – which has

the largest market share in Li-ion batteries for

portable applications – has decided to increase its

(nickel metal hydride) production capacity for au-

tomotive use from 2 million to 3.5 million cells per

month.

26 The drive train refers to the group of

components that generate power and

deliver it to the road surface.


© SAM 2011 41


Key Investment Opportunity: Charging

Infrastructure and Technologies

As batteries of plug-in hybrid vehicles (PHEV) and

full EVs are charged via an external power source,

the charging time should ideally be similar to the

time needed to refuel the car at a gas station. In

addition, the charging network should be dense.

We believe that the onboard charging time of the

battery will not improve fundamentally over the

medium term because of physical constraints. Ac-

cording to FAR, technologies and services such as

fast charging and battery swapping will develop

slowly and are not expected to become main-

stream over the medium term. Besides, since fast

charging requires a specially designed and expen-

sive infrastructure, it is more likely to be imple-

mented off-board than onboard. Finally, we expect

that supporting software, for example for identifi-

cation and invoicing, will offer plenty PE invest-

ment opportunities as it is indispensible for suc-

cessful use.

Various Electrification Options

Electric mobility knows many forms and shapes

ranging from electric bicycles to full electric sports

cars such as the Lotus Elise. Vehicles such as the Seg-

way, electric scooters, the (mild, micro and full) hy-

brids, plug-in hybrids and range extenders (which

have a large battery and a small fuel tank dedicated

recharge the battery) are also making their way to

end users. We consider hybrid technology to be

more or less mature, although efficiency continues

to improve. Over the short term, we expect most full

EVs to be concentrated on urban environments be-

cause their low driving range is better suited to the

shorter average distances driven in urban areas,

which means that smaller and thus cheaper batter-

ies can be used. Furthermore, from an environmen-

tal point of view, the low noise and zero-emission

characteristics are particularly attractive in urban,

mostly polluted areas. If the driving range can be ex-

tended as a result of larger batteries, fast charging

technology or battery swapping, we expect the full

Figure 28: Technological Value Chain From the Perspective of the OEM

Source: FAR, 2010

Raw materials suppliers (i.e. steel and plastics)

Component suppliers (i.e. the ICE)

Existing value chain established industry

Gas station

Gas station

New value chain

Charging infrastructure

Raw material suppliers (i.e. lithium)

Battery manufacturer

Raw materials suppliers (i.e. steel and plastics)

Component suppliers (i.e. the ICE)

Raw material suppliers (i.e. per-manent magnet)

Electromotor

Raw material suppliers (i.e. semi-conductors)

Power electronics and software

Hardware and software

Original

Equipment

Manufacturers


42 © SAM 2011


EV and the PHEV to gain market share in non-urban

areas as well. The electrification of the drive train

seems to be the all-in-one solution to reach many

policy goals, and governments are actively support-

ing the industry. Due to the high battery costs, how-

ever, the price, especially for full electric vehicles, is

still too high for most consumers.

Electric Vehicle Value Chain: Several Business Models

Currently, the automotive value chain is character-

ized as an Original Equipment Manufacturer27

(OEM)-centered business “chain”. However, new

players with different types of technologies are

entering the market. This will lead to an increas-

ingly complex environment for the OEMs as they

will need to cooperate with a myriad of new

stakeholders in order to enable large-scale adop-

tion of electric driving (see figure 28). As a result,

several business models with different levels of

vertical integration can currently be observed in

the market. Next to the new technology providers,

other stakeholders such as governments, lease

companies and utilities have a very important role

to play when it comes to supporting the industry,

setting standards and regulations, offering serv-

ices and enabling battery charging, just to name a

few examples. An example of a new business

model is the US-based company Better Place that

offers a full-service solution ranging from the lease

of the battery to installation of charging points

and battery swapping stations. In addition, several

companies offer services and assets without own-

ing these (such as the Dutch company The New

Motion).

Within the EV industry the main focus therefore

does not lie on the vehicles as such, but on battery

suppliers, required components such as charging

infrastructure, service contracts, system integra-

tion, and business model innovators. In other

words, the profit-generating value-added steps

are those up- and downstream of vehicle sales.

Figure 29: EV Penetration Forecast: Policy Goals (Non-Asian Countries) and Estimates (Japan and China)

Source: FAR based on various sources, 2010

Nu

mb

er o

f V

ehic

les

in M

illio

ns

5

4

3

2

1

02015 2020 2030

France

China

Ireland

Germany

Netherlands

SpainSwitzerland

US

Japan

27 Examples of OEMs are Ford and

Toyota. New niche players like Th!nk are

also grouped under this term.


© SAM 2011 43


A Stream of New Initiatives Flooding the Market

In addition to the incorporation of new business

models, cooperation is increasing among different

players: New and existing vehicle manufacturers have

revealed that they are developing EV prototypes, bat-

tery makers have started to target the vehicle market

and companies that develop charging infrastructure

and supporting software have developed prototypes

of their products. An example is the cooperation of

Sanyo and Volkswagen who will jointly develop Li-ion

batteries for HEVs, with Sanyo spending USD 769

million on the project over the next seven years. An-

other example is the establishment of Lithium Energy

Japan by GS Yuasa, Mitsubishi Corporation and Mit-

subishi Motors Corporation which plans to produce

200,000 Li-ion cells (equivalent to the demand for

2,000 units of EVs). Other examples include Nissan,

which has launched its first all-electric car, the Nissan

Leaf, and Ford, which has announced three new elec-

tric or hybrid vehicles.

The current market size of the entire EV market (in-

cluding batteries, charging infrastructure, etc.) is

difficult to assess since a commercial-scale rollout is

still in its infancy. However, recent investments

show large interest in this upcoming market: In No-

vember 2010, BMW announced it will invest USD

751 million to set up production of its Megacity

electric-powered city car. In July 2010, Israel Corp.

and Chery Automobile Co. Ltd. announced plans to

invest USD 334 million each in their joint venture

Chery Quantum Automobile Co. Ltd. to manufac-

ture electric vehicles in China.

We believe that the EV market will experience sub-

stantial growth in the future. However, due to vari-

ous uncertainties regarding market and technolog-

ical factors, a forecast of global EV penetration

rates is challenging. Examples of these uncertain-

ties are: general global economic developments,

government policy, battery developments (costs,

availability and technological), speed of installation

of charging points, compatibility of different tech-

nologies, vehicle manufacturers’ strategies, oil price

developments and consumer acceptance. Above

all, new business models will have to be developed.

Alongside the industry’s rapid development, there is

an increasing risk of incompatible technologies and

systems being developed by different players. Look-

ing at the high costs of building a charging infra-

structure, it is in the best interest of every party to

agree on standards, and governments could play a

role here. Standardization of such things as the

charging plug, and the possibility of unlimited entry

to every charging point are necessary preconditions

for maximizing the distances driven with a full EV.


The electrification of vehicles offers a lot of invest-

ment opportunities for different investors. Aside

from new or specifically designed and tailor-made

technologies and software, new business models

are needed as well. In our view, private equity in-

vestors can tap opportunities upstream and down-

stream of vehicle sales. Companies that develop

battery technology, battery management systems,

charging technologies and software to facilitate

charging (while complying with the right standards)

as well as raw material and semi-conductor material

providers for the production of batteries and power

electronics are expected to be in the right segment

of the market. Furthermore, it is worth keeping an

eye on the development of the distributed grid de-

sign and the role that a PHEV or EV can play.

While the development of electric engines is likely

to offer attractive business potential, the invest-

ment opportunities are less straightforward in this

segment of the industry, as the large companies


44 © SAM 2011


tend to develop these engines in-house. GM, for

example, will invest USD 246 million in the design

and development of own electric engines to power

its hybrid vehicles.

4.4 SUSTAINABLE BUILDING

Background

A building has a long life, typically 50 years, from

design to recycling, and its effect on the environ-

ment is prolonged and continuous. Even though

buildings consume over 40% of global energy and

raw materials, sustainability issues in buildings have

received limited attention until recently. Interest-

ingly, many sustainable building technologies are

already available, but market barriers (behavioral,

organizational and financial) hamper their deploy-

ment. However, due to rising energy prices and en-

vironmental pressure, interest has increased sub-

stantially. As a result, we expect the sustainable

building sector to grow in the coming years, creat-

ing numerous opportunities for investors.

What Is a Sustainable Building?

A sustainable or green building can be defined as a

building that is designed, built, operated, reno-

vated, and reused or removed in an environmen-

tally conscious, energy-efficient and resource-

friendly manner. In other words, a sustainable

building causes minimal impact on the environ-

ment throughout its entire lifecycle. The so-called

“zero net energy” building is an example of a green

building; it generates as much energy as it uses.

Main Drivers: Why Do We Want Green Buildings

Anyway?

The drivers for sustainable building can be split into

three main groups:

• General concerns about climate change and the

(local) environment. These concerns are prompt-

ing legislation in support of sustainable building,

including incentives and standards, and result in

increased self-regulation of the building sector.

Other important general drivers are the wish for

energy independence or the aim to create jobs in

industrial and construction sectors.

• “Soft” issues, i.e. quality of work and life, as well

as employee productivity. Maximizing comfort

(fresh air, illumination, temperature and humidity

control, etc.) and eliminating health hazards

(e.g., air pollution, gas emissions, noise, radia-

tion, etc.) are the most important elements here.

• Market-related drivers. A key issue here is the re-

duction of energy bills and other operational

costs. In an increasing number of cases, “green”

design is seen as a way to set oneself apart from

the competition.

Main Inhibitors: Why Are Sustainable Buildings

Not Mainstream?

Compared to “normal” buildings, sustainable build-

ings often require upfront investments, while the

returns are harvested throughout the lifetime of the

property. This, combined with the fact that in many

buildings the owner and occupant /user are differ-

ent parties (in case of rentals and leases), is one of

the major inhibitors to further growth of the sector.

It is known as the “split incentive”. The user of the

building benefits from the sustainability measures

for instance, the lower energy bill while the owner

of the building has to carry the cost. Currently, in

most cases, the building developer or owner has

limited scope for recovering the higher upfront in-

vestment as a building’s sustainability is generally

not reflected in its price or rental fee. The fact that

users are unwilling to pay more for a sustainable

building demonstrates their short horizon and lack

of knowledge. Also, in many countries, existing leg-

islation (for instance legislation regulating rental

prices) hinders the recovery of higher investments.

Finally, the fragmented, conservative, and often


© SAM 2011 45


highly local character of the building sector value

chain is a major challenge for a higher penetration

of resource-efficient buildings. More ambitious leg-

islation demanding sustainability standards is there-

fore essential for the building sector to rapidly be-

come more sustainable.

With respect to private homes, the two main barri-

ers to “greener”/more environmentally friendly –

and as a side effect, more efficient houses – are

knowledge/information and financing. The level of

education seems to differ across countries, with

Scandinavian countries, for example, having very

well-informed consumers and a strong government

focus on building more energy-efficient properties,

while this may not be a priority in many other EU

countries. In terms of financing, consumers may

find it difficult to obtain loans, or they may not fully

understand the value of savings over the lifetime of

their investment.

Sustainable Building Market Volume

The global building market was valued at USD 1.45

trillion in 2008, making it one of the largest sectors

in the world. Between 2002 and 2007, the global

building sector’s annual growth figures were be-

tween 3% and 6%. However, after 2007, the fi-

nancial crisis severely impacted building activities in

many parts of the world, decreasing global growth

to around 1%. Today, the US, Japan, and China to-

gether account for 50% of global building activity,

with growth in the coming years likely to be driven

mainly by China and India.

Because “sustainable building” is a relative term,

and because the measures and technologies used to

deploy it vary widely across the globe, it is very diffi-

cult to provide an exact definition of the sector. In

the Netherlands, for instance, a high-performance

gas heater is considered the norm rather than

“green”, as it is found in over 80% of homes. In

Figure 30: Stakeholders in Sustainable Building Projects

Source: FAR based on World Business Council for Sustainable Development, 2011

(Local) Authorities

Agents

Capitalproviders

Developers Owners Users

Designers Engineers ContractorsMaterials &

equipement suppliers


46 © SAM 2011


many other regions, however, these same type

heaters would mean a huge energy efficiency im-

provement compared to old, low-performance gas

heaters, or even oil- or coal-based heating. There-

fore, it is difficult to attach a quantitative market

forecast to the global sustainable building sector.

However, industry sources suggest that although it

is still small (the US sustainable building market is es-

timated at around 4% of the total US building mar-

ket), the sustainable building sector has outgrown

the total building sector average over the past years,

and will continue to do so in the near future.

The Building Market Value Chain: Standardization

and Increasing Complexity

The building sector can be divided into a residential,

an office and a retail segment, all of which have

specific characteristics, for example in terms of en-

ergy and water use. Large geographical differences

exist with respect to such factors as the average

property size (an average home in the US is 200 m2,

while an Indian home measures on average 40 m2),

climate, income, cultural factors and household

size. A sustainable building with a high degree of

water and energy efficiency is a product of a com-

plex set of processes and relationships between

many different factors (figure 30).

Especially the larger building developers and con-

tractors (companies that often incorporate their

own designers, engineers and contractors) are

trending toward standardizing their sustainable

building efforts into building designs that fit specific

regional market conditions. This may strengthen

their own position, but it can also strengthen the

ties between these developers and specific suppliers

of sustainable materials and equipment. Smaller

building developers, designers, engineers and con-

tractors sometimes specialize in sustainable building

as a niche activity.

In addition, the building value chain is likely to be

exposed to an increasing level of technological

complexity. This is caused by trends such as the in-

tegration of renewable energy into buildings and

connections to an external power grid, and also by

increasing demands regarding smart metering,

smart appliances, and infrastructure needed for

charging electric vehicles.

Finally, authorities (governments and municipalities)

are increasingly pushing for “greening” the building

mass. In the EU, for instance, reducing energy con-

sumption (and thus CO2 emissions) in existing (and

new) buildings is a major priority during this decade.

This has led to a tightened EU Building Directive and

explicit savings targets to be met by 2020. Also in

Denmark, for instance, the government considers

the reduction of energy consumption in existing

buildings as a key national priority, given that build-

ings – although they are comparatively highly effi-

cient – are believed to account for about 40% of to-

tal energy consumption. As a result, the government

has introduced a couple of targeted temporary sub-

sidy schemes for consumers, plus mandatory energy

consumption reduction targets for utilities. Their tar-

gets, in turn, are largely realized via schemes in place

to realize energy savings in the property of their con-

sumers (these savings count in their targets). In addi-

tion, new buildings must consume at least 75% less

energy than those constructed pre-2010.

In the UK, the government has responded with the

“Green Deal”, which is part of the Energy Bill 2010.

The aim of the Green Deal is to deliver energy effi-

ciency to homes and businesses by removing some

of the barriers that are currently stalling energy ef-

ficiency in the home, e.g., the high upfront costs.

The Green Deal will offer home owners a simple

process in which a third party pays for the upfront

cost, and the home owner pays back this cost over


© SAM 2011 47

time via the (reduced) energy bill: the “pay as you

save approach”. The exact layout of this system, in-

cluding the necessary legislation, remains to be

seen as the scheme is not expected to effectively

start until 2012.


Trends toward using cleaner materials, adding en-

ergy efficiency measures, integrating renewable en-

ergy sources, and adopting intelligent energy man-

agement and decentralized energy systems will

provide a solid ground for investment opportuni-

ties, including those for private equity.

There is an array of different technologies already

available on the market which can be applied in

sustainable building design today. These have

growth potential – once the sector overcomes the

challenges related to sustainable building, or when

authorities impose specific targeted measures to

“green” the building mass, as for example in the

UK and Denmark. In addition, new technologies

are continuously being developed, for instance in

the areas of (LED) lighting, “smart” windows and

phase change materials. Sub-segments with inter-

esting developments in the near term include:

• Software and hardware for building manage-

ment systems. These systems sense, monitor, in-

tegrate and control all vital electricity use func-

tions within the building. This field is governed

by large, listed industrial conglomerates such as

GE, Philips, Bosch, and Johnson Controls.

• “Green” cement and concrete. Cement and con-

crete are essential building materials, but also

major CO2 emitters. Any improvement in the CO2

burden of these materials which leaves their

properties intact could make a big difference to

building sustainability. Many companies, large

and small, are looking into this issue from differ-

ent angles, including the use of waste and novel

materials, but also the design of less concrete-in-

tensive buildings.

• Solar cooling, including high-temperature solar

heaters. Using hot water generated by solar irra-

diation to provide cooling can be very efficient as

the hours with most solar irradiation coincide

with the demand for cooling. The technologies

are partly already available, but efficient high-

temperature solar heaters need to be developed

further. This segment is generally driven by small

companies.

• “Smart” windows, including electro chromatic

windows. These are windows that include auto-

matic shading, or change color automatically, fol-

lowing changes in irradiation or temperature.

Much of this technology is still at a (very) early

stage.

• Less “sexy” and more conventional segments

that are likely to realize growth as a result of a

stronger focus on energy-efficient or green build-

ings include ground source heat pumps and

other more energy-efficient types of heat pumps;

rooftop isolation; or “just” energy-efficient doors

and windows.

4.5 SMART GRIDS

History of the Power Grid

In 1893, Almirian Decker designed a complete

10kV, three-phase (AC) power transmission system,

laying the ground for today’s electricity power sys-

tem. For more than 100 years, the fundamentals of

the power industry have remained unchanged. The

power industry is still based on a one-directional

electricity flow from the power plant to consumers

who treat electricity as a commodity – cheap, abun-

dant and always at their disposal. Their interaction

with the utility is limited to paying monthly bills and

reporting outages. The physical power system con-

sists of a large-scale (>500MW) baseline load

power plant and smaller peak load power plants


48 © SAM 2011


linked to the transmission and distribution grids.

The overall energy losses throughout the chain ex-

ceed on average 65%, mainly due to thermal con-

version losses (57%) and transmission plus distribu-

tion losses (8%). In contrast to other industries, the

system shows a low level of automation and infor-

mation and communication technology (ICT) de-

ployment levels, coupled with relatively low infra-

structure investments. As a result, the electric

power system is perceived as an outdated, ineffi-

cient and conservative adopter of technology.

Challenges for the Power Industry

During the past century, the power grid, driven by

growing electricity demand, has expanded continu-

ously all over the world. Due to the global population

growth, urbanization and rising incomes, demand for

electricity will continue to grow in the future. To keep

pace with current global power demand, the equiva-

lent of two 1GW power plants are added to global

capacity every week. Accordingly, the value and the

amount of assets (e.g., the number of transformers,

total grid length) as well as the number of connec-

tions has expanded rapidly, making the power grid

the most complex man-made system on earth. Today,

global electric power-related assets have an esti-

mated value of USD 6 trillion to USD 8 trillion. Besides

system complexities, the power industry faces the

challenge of consumers claiming more choice, au-

thorities enforcing laws to reduce the industry’s large

CO2 footprint (today about 40% of global emissions)

and the acceleration of integration of renewable en-

ergy sources into the grid. Renewable energy poses a

challenge primarily due to its intermittent and distrib-

uted nature. The expected strong growth in the roll-

out of EVs (electric vehicles) will add to these com-

plexities. Other challenges, such as the liberalization

of energy markets (e.g., the EU) and calls for empow-

ering the consumer, are forcing utilities to redefine

their existing business models.

Figure 31: Smart Grid Impact on the Power Industry Value Chain

Source: FAR, February 2011

Distributed power, project development & financing

Centralised generation of power

Metering

Distributed power generation

Centralised power transmission

Centralised power distribution

Networked devices & appliances

Devices & appliances

Centralised power sales & marketing

Customer services

Advanced Metering Infrastructure

Sales & marketing of distributed power

Energy management services (e.g., electr. vehic.)

Load aggregation & resale


© SAM 2011 49


Smart Grid Vision

These powerful global trends have now created the

momentum needed to redesign the current electric

power system, including the underlying business

models. All relevant stakeholders – the utilities, grid

and market operators, legislators and regulators,

technology suppliers, standardization bodies and

public authorities – are starting to transform today’s

power grid into the smart grid of the digital age.

The main aim of this transformation is to leverage

ICT solutions and foster improvements along the

entire value chain from power generation to elec-

tricity consumption. ICT technology is a key enabler

in the process of constructing a more efficient, au-

tomated power system with an increased level of

utilization, security and the ability to accommodate

various energy sources (fossil and renewable). Ad-

ditionally, the new grid is going to provide con-

sumers with tools to monitor and manage energy

usage based on their specific – environmental or

price-related – preferences. There is a widespread

industry consensus that this gradual transition to-

ward a smarter grid may take decades and will re-

quire huge investments. Up to 2030, the smart

grid-related price tag for the US, for instance, is es-

timated at USD 8 billion per year, on top of a regu-

lar USD 18 billion to USD 20 billion replacement

and expansion budget.

Power Industry, Evolution of the Value Chain

Today’s value chain is based on a centralized power

generation system operated by utilities owned by

governments, private investors or local authorities.

In practice, the owners have a monopoly on pro-

ducing and distributing power (see figure 31). The

“old” consumers use whatever type of energy their

utility can provide without worrying much about

how it was generated or the consequences of their

consumption – often because they have no choice.

Within the current business models, electricity de-

livery contracts with a fixed (annual) timeline and

price are common practice.

However, as a result of the challenges mentioned –

often in combination with the liberalization of the

energy markets – the “utility centric” value chain is

increasingly coming under pressure and moving to-

ward a more “customer centric” model. As a result

of technological progress, particularly smart meter

deployment, the utilities can offer customers vari-

able pricing models which allow them to make de-

liberate choices to benefit from a lower energy bill

(e.g., by scheduling their dishwasher to the “cheap”

night hours) and environmental savings (if contract-

ing renewable energy). This change will lead to a bi-

directional information flow between customers

and utilities, and will have a profound impact on

the current value chain for all end users. Another

important new element is the integration of distrib-

uted (mainly renewable) energy sources into the

grid. In our view, this element clearly has the poten-

tial to be a game changer. Expected massive roll-

outs of wind and solar energy create a new – to a

large extent decentralized – power network with a

new ownership structure, allowing consumers (or

commercial load aggregators) to take up the role of

energy suppliers to some degree. These two exam-

ples show how the smart grid transition may re-

shape the value chain of the current power indus-

try and spark new business opportunities.

Barriers to Smart Grid Transition

Despite the fact that the leading actors, like gov-

ernments and industry bodies, show a sense of ur-

gency and push for the implementation of smarter

grids, there are a number of cultural, financial,

technological, economic, legislative, regulatory

and consumer-related barriers. From a technology

viewpoint, the lack of interoperability standards is

likely to be a serious challenge that may block large


50 © SAM 2011


ICT implementations. In addition, even though the

economics of transformations of smart grid into

more energy-efficient solutions may be sound,

funding of large-scale investments is hard to ob-

tain. Furthermore, utilities may find it difficult to

convince their main stakeholders – consumers – of

the benefits of the smart grid. Consequently, the

pace of smart grid transition and relevant market

development may take longer than desired. Ex-

emptions are China and the United States, both of

which currently provide government funding to

support smart-grid-related activities. In the US, this

is for instance provided via the Recovery and Rein-

vestment Act of 2009 (the “Economic Stimulus

Package”) from which USD 11 billion will be allo-

cated directly to building transmission projects as

well as to the DoE’s (Department of Energy) assis-

tance for planning and permitting extremely high-

voltage, long-distance, interstate transmission

links. In China, the government has allocated a

staggering USD 600 – USD 700 billion for the con-

struction of 21 UHV long-distance lines (smart “su-

per grid”) across the country, and several trials are

being undertaken in terms of ICT, metering, and so

on. On a smaller scale, utilities and other stake-

holders in many EU countries have also started in-

vestment and/or R&D programs. In the UK, for ex-

ample, transmission companies are planning grid

investments of almost USD 18 billion (GBP 5 bil-

lion) by 2020. The UK government has pledged to

replace 47 million gas and electricity meters by

smart meters by the same date, at a cost of almost

USD 14.5 billion (GBP 9 billion), and to provide

USD 49 billion (GBP 30 million) to the building of

recharging infrastructure for EVs.

Smart Grid Market Size and Main Applications

Numerous technology solutions will need to be de-

veloped and successfully deployed to support

smart grid transition in a variety of professional

and consumer applications. In contrast to con-

sumer products, professional power applications

Figure 32: Global Smart Grid Revenue by Region, 2009 – 2015F

Source: Pike Research, November 2009

Rev

enu

e in

Bill

ion

USD

Middel East/Africa

Asia Pacific

Europe

Latin America

North America

40

35

30

25

20

15

10

5

02012F 2013F 2014F 2015F2009 2010F 2011F


© SAM 2011 51

may need four to six years from inception until the

products are ready for the market. This must be

taken into account when investing into such an

opportunity.

According to a recent Pike Research report, the ex-

pected global smart grid-related sales value of rele-

vant products and services, estimated at USD 11 bil-

lion in 2009, could surge to USD 35 billion by 2015,

yielding an annual growth rate of 20% (figure 32).

The Asian Pacific region, with China as leading

country, is set to be the largest market.

In short, the following technologies are key to the

smart grid rollout: utility control systems (UCS), com-

munication infrastructure (CI), demand response

(DR), advanced metering infrastructure (AMI), grid

optimization (GO), energy storage (ES), distributed

energy (DE), energy management systems (EMS) and

electrical vehicle infrastructure (EVI). We believe that

all of these technologies will be able to generate sig-

nificant sales volumes as early as 2015. Due to their

relative maturity, however, DR, CI, UCS may be of

less interest to private equity investors. In our view,

other segments – AMI, EMS, GO, ES, DE, EV I – offer

more investment opportunities.

Advanced Metering Infrastructure (USD 4 Billion

Revenue in 2015)

Advanced Metering Infrastructure (AMI) is the first

massive smart grid application in the market today,

with large deployments in Italy, Sweden, Korea and

Japan. The smart meter, which is the heart of the

system, measures, collects and analyzes energy

consumption, linking the data to the utility’s data-

base. The challenge for utilities will be to translate

the data into business intelligence and act upon it.

The smart meter enables a two-way communica-

tion between the utility and the consumer, provid-

ing intelligence to both ends, e.g., allowing the util-

ity the opportunity to offer price incentives, report

outages, prevent energy theft or help consumers

avoid expensive energy demand peak periods. We

regard this segment as maturing yet dynamic, with

large companies like GE and Itron competing with

newcomers like Silver Spring or Gridpoint.

Energy Management Systems (USD 1.5 Billion

in 2015)

Energy management systems (EMS) target build-

ings (e.g. in homes, offices, etc.) with energy-effi-

ciency potential. The EMS runs on whatever net-

work available (e.g. Wi-Fi), connecting all large

electric loads like washing machines or air-condi-

tioning into the controller. The EMS links energy

and service providers to the consumers via the En-

ergy Information Display (EID). The EID, which

could be a separate display or a web portal, is a tool

that helps create awareness and reduce electricity

use by visualizing energy consumption (and cost)

on the level of an individual appliance. Due to its

strong consumer and retail character, the EMS is

developing rapidly, attracting startups like Tendril or

Control4, as well as blue chips like Cisco or Google,

which have successful track records in building user

interfaces to consumer products and services. FAR’s

view is that this emerging segment offers interest-

ing opportunities, particularly in the area of merg-

ers and acquisitions, with the challenge of choosing

the right targets from the fast-moving pack of start-

ups, with no one clear direction (i.e., many compet-

ing standards).

Distributed Energy (USD 2.5 Billion)

Today’s power system relies on large, centralized

generation units in the 500MW to 1GW range.

The smart grid allows for the integration of distrib-

uted energy resources (microgrids), powered by so-

lar, wind or combined heat-and-power (CHP) gen-

erators. These relatively small systems (50MW to


52 © SAM 2011


100MW) are highly flexible and can operate in var-

ious configurations – autonomously or connected

with each other or directly to the grid. This concept

is complementary to large power plants, allowing

the whole system to operate with greater energy

efficiency and cost effectiveness. Large (sustain-

able) buildings or industrial sites can be seen as lo-

cations of choice for microgrids, and in some coun-

tries, e.g., Denmark, small electricity-fired heat-

boilers are considered an instrument for the Danish

grid to absorb even larger shares of wind energy

than today. FAR categorizes this market segment as

“emerging”, with several test beds in the field set to

close knowledge gaps. Although some recognized

players like ABB or Siemens (hardware, system inte-

gration) are active in this segment, we believe there

is sufficient space for startups which provide net-

work management solutions.

Energy Storage (USD 1.6 Billion in 2015)

The largest renewable energy sources, solar and

wind, have an intermittent character, i.e., variable

availability in time. Energy storage would enable so-

lar electricity to be used at night or could store wind

energy that would otherwise go unused. A scalable

energy storage unit would significantly help im-

prove the balance between supply and demand by

storing electricity in the low demand period and

recharging during the higher priced peak demand

period. It is also an important frequency regulation

component in the micro grids. The batteries of elec-

trical vehicles are eyed as an important component

of the smart grids, providing backup power for the

grid and storage capacity for renewable energy

sources. In our view, energy storage is an emerging

segment with high potential for growth. There are

several technology solutions in the market today –

batteries, compressed air, pumped hydro, etc. –

each one tailored to the specific use case and grid

configuration. In our view, companies that may pro-

vide breakthrough in the high-energy density, low-

cost and scalable storage, will pave the way toward

massive integration of renewable energy sources.

Public companies like A123, ZBB and Panasonic as

well as startups like Cellstrom or Deeya Energy are

among those working on storage solutions.

5 ABOUT

SAM PRIVATE EQUITY


54 © SAM 2011


SAM Private Equity is a market leader in the field of

Clean Tech and sustainable private equity investing.

In July 2009, Robeco’s Clean Tech and Sustainabil-

ity Private Equity team moved from Rotterdam, The

Netherlands, to Zurich, Switzerland, to join SAM.

The move has enabled the company to bolster the

synergies between SAM’s sustainability research

and investment capabilities in listed companies and

the Private Equity Team’s expertise in investing in

non-listed companies in the growing Clean Tech

sector. Now named SAM Private Equity, the team

manages approximately USD 1 billion in Sustain-

able and Clean Tech committable assets.

5.1 SAM PRIVATE EQUITY’S INVESTMENT

CAPABILITIES

Primary Fund Investments

SAM Private Equity has been a pioneer in investing

in sustainable private equity funds and is regarded

as a leader in this field. When investing in new

funds, the team will harness its strong connections

with SAM and Rabobank’s research capabilities; its

ability to access the top sustainably focused fund

managers and strong connections within the sus-

tainable private equity community. SAM Private Eq-

uity tracks the best opportunities and has access to

the top managers.

Co-Investments

SAM Private Equity has strong relationships with the

top sustainable private equity managers globally

who provide access to high quality co-investment

opportunities. In addition, SAM Research and the

Rabobank Clean Tech Research Desk have access to

a global network of Clean Tech specialists, CEOs and

financiers who are engaged in the investment and

monitoring process. Finally, the private equity team

has experience in the Clean Tech sector and can

leverage their experience and networks to add value

to the SAM Private Equity co-investment capability.

Secondary Fund Investments

SAM Private Equity uses its in-house analytic skills

to estimate the value of a portfolio, as well as its

structuring and financing capabilities and a sourc-

ing network. The team sees attractive deal flow due

to distressed sellers, corporate investors wanting to

liquidate their holdings and SAM Private Equity’s

presence in the sustainable private equity market.

Over the past years the SAM Private Equity team

has evaluated and invested in a number of sustain-

able secondary investee funds and expects this

market to be an attractive segment in which to in-

vest in the coming years.

ESG Overlay

SAM Private Equity has been a leader in integrating

an Environment, Social and Governance (ESG)

framework into their investment process since

2004. In addition, SAM Private Equity has access to

SAM Research, a leader in integrating ESG accord-

ing to the UN PRI, and the Corporate Social Respon-

sibility departments of Robeco and Rabobank.

5. About SAM Private Equity

HISTORICAL BACKGROUND

The private equity activities of Robeco were founded

in 2000 with the goal to be a professional provider

of institutional quality private equity fund of funds

solutions, through long-term relationships. The es-

tablishment of Robeco Private Equity was followed

by the launch of its first generation of mainstream

funds of funds in 2001. These products, with a

global focus, have invested in the highest quality pri-

vate equity funds globally, in each segment of the

market: venture capital, mid market capital and

large buyout funds. In total, SAM and Robeco man-

age approximately USD 2.5 billion in committable

private equity assets out of our offices in Zurich, Rot-

terdam and New York City.


© SAM 2011 55

5.2. SAM PRIVATE EQUITY TEAM

ANDREW MUSTERS

Managing Director

Global Head of Private Equity

Andrew Musters

manages both the

Zurich-based SAM

Private Equity busi-

ness and the Rotter-

dam-based Robeco

Private Equity team.

Additionally, Mr. Musters is a member of the Allo-

cation and Advisory Committees. Mr. Musters has

been involved in private and public equity investing

for the Dutch pension plan ABP (now called APG)

prior to his current role at SAM and Robeco. Previ-

ously, Mr. Musters was a researcher of the Eind-

hoven University of Technology, focusing on math-

ematical business modeling for energy and electric

utility companies. Mr. Musters, who is the author of

a number of scientific papers, received a MSc cum

laude in industrial engineering from the Eindhoven

University of Technology with a specialization in en-

ergy and environmental technology, an MA cum

laude in economics from Tilburg University and has

followed executive education programs at the Uni-

versity of Amsterdam and INSEAD.

ROLAND PFEUTI

Senior Investment Director

Head of Private Equity Switzerland

Roland Pfeuti is re-

sponsible for manag-

ing SAM Private Eq-

uity’s overall invest-

ment strategy and is

a member of the Al-

location and Advi-

sory Committees. Mr. Pfeuti joined the team from

Bank Julius Bär where he was responsible for the

development and the management of both listed

and non-listed investment products in the energy,

infrastructure and climate sectors. Previously, he

spent six years at SAM as Head of Energy Invest-

ment Products and as a principal of SAM in the pri-

vate equity field, two years of which were in Aus-

tralia. Between 1991 and 2000 he worked for

Credit Suisse/Credit Suisse First Boston in the infra-

structure and energy sectors in New York and Lon-

don. He holds a Bachelor in economics and busi-

ness administration of the University of Applied Sci-

ences in Basel.

RHEA HAMILTON

Investment Director

Rhea Hamilton is re-

sponsible for making

investments into pri-

mary funds, co-in-

vestments and sec-

ondary funds. Ms.

Hamilton joined the

team from Royal Dutch Shell, where she was a Di-

rector and member of the management team of

Shell Hydrogen, and responsible for investments in

funds and direct investments. In this position, she

drove projects on joint venture financing, public of-

ferings, and restructuring plans (such as liquidation

and management buy-out), and was responsible

for a long-term economic analysis of a hydrogen

economy, integrated with CO2 management and

public policy. Prior to this, she was employed at

Shell Canada Ltd., where she worked in explo-

ration- and production-oriented deal teams. She

holds a geophysical engineering degree (honors)

from the University of British Columbia, Canada, an

international MBA from IESE in Barcelona, Spain,

and a diploma from the Institute of Directors (IoD)

in the UK. Ms. Hamilton has published several arti-

cles in scientific journals, as part of her scientific

work in Antarctica.


56 © SAM 2011


KEIMPE KEUNING

Investment Director

Keimpe Keuning is

responsible for mak-

ing investments into

primary funds, co-

investments and sec-

ondary funds. Mr.

Keuning joined the

team from Robeco where he was a Manager at

Corporate Development. He was responsible for

strategy and acquisitions, where he played an es-

sential role in the realization of three joint ventures

and two acquisitions for Robeco, including the in-

vestment into SAM. Previously, he worked at Fortis

Bank as Associate Director where he advised a

broad range of clients on numerous M&A and eq-

uity capital markets transactions. He began his ca-

reer at Ernst & Young as a tax adviser. Mr. Keuning

received his law degree in tax law from the Univer-

sity of Leiden. He also studied US and International

tax law at the University of Florida, and participated

in executive education at the Amsterdam Institute

of Finance and INSEAD.

CRAIG CUMMINS

Senior Associate

Craig Cummins is re-



mary funds, co-in-

vestments and sec-

ondary funds. Mr.

Cummins joined the

team in 2006 from the California State Teachers Re-

tirement System (CalSTRS), the third-largest pen-

sion fund in the US, where he worked in the US pri-

vate equity department. He was involved with clean

technology and North American investments while

employed at CalSTRS. In addition to his experience

in private equity, Mr. Cummins has performed re-

search in the field of environmental pesticide test-

ing. Mr. Cummins holds an MBA and an MS in bio-

medical engineering from the University of Califor-

nia at Davis, and a BS in biomedical engineering

from the Rensselaer Polytechnic Institute.

GERT WRIGGE

Associate

Gert Wrigge is re-



mary funds, co-in-

vestments and sec-

ondary funds. Previ-

ously, he worked for

SAM Research where he was involved in setting up a

new company assessment system and database for

the DJ Sustainability Index construction and analyzed

listed companies in the smart grid sector. He holds a

diploma in physics from the University of Freiburg

and received a PhD in physical chemistry from the

Swiss Federal Institute of Technology (ETH Zurich) in

2008, focusing on nanotechnology and optics.

CHRIS KAPTEIN

Associate

Chris Kaptein is re-



mary funds, co-in-

vestments and sec-

ondary funds. Mr.

Kaptein joined the

team in June 2010 from Robeco Hong Kong, where

was head of Advisory Business and Business Man-

ager to the CEO for Greater China and South East

Asia. At Robeco, he advised Robeco senior man-

agement on strategy, M&A and business develop-

ment and helped set up and develop regional

offices in Shanghai, Hong Kong, Singapore and Tai-

wan. Mr. Kaptein holds a MS degree in Economet-

rics from Maastricht University, a Mandarin Chinese

HSK level III certificate from Shanghai Fudan Univer-


© SAM 2011 57


sity and has passed the level III CFA exam. Mr.

Kaptein speaks Mandarin and is based in Hong

Kong.

NATHALIE GRESCH

Analyst

Nathalie Gresch is

an analyst at SAM

Private Equity and

is responsible for in-

vestments in primary

funds, co-investments

and secondary funds.

Ms. Gresch previously worked as an intern at Credit

Suisse (Private Banking), Alpha Associates (Private

Equity) and Nomura (Derivatives Sales). She holds a

BA in economics and an MA in banking and finance

from the University of St. Gallen.

ERIC TER BRAAK

Legal Director

Eric ter Braak is re-

sponsible for manag-

ing the legal activi-

ties and is a member

of the Allocation and

Advisory Commit-

tees. Prior to joining

the team, Mr. ter Braak was employed at Rabo Se-

curities N.V. (the former equity and corporate fi-

nance subsidiary of Rabobank), first in a risk man-

agement role, and later as legal counsel, advising

on equity derivatives, hedge funds and mergers

and acquisitions. After his time at Rabo Securities

N.V., Mr. ter Braak worked for Rabobank Interna-

tional, the parent company of Robeco, in a risk

management capacity for fixed income and deriva-

tive products. Mr. ter Braak holds a degree in law

from the University of Utrecht.

JEROEN AFINK

Investor Relations Director

Jeroen Afink joined

the team in No-

vember 2010 from

Robeco Rotterdam,

where he worked as

Investment Specialist

for the Global Equity

and Global Thematic Equity investment strategies.

He played a crucial role in structuring and launch-

ing thematic strategies such as Agribusiness, Infra-

structure and Consumer Trends. At Robeco, he co-

heads the Food & Agriculture strategy team that is

responsible for developing a range of agriculture

strategies across all asset classes. Before joining

Robeco, Mr. Afink worked as Portfolio Manager for

a global absolute return strategy.

Disclaimer:Sustainable Asset Management, USA ("SAM"), an investment adviser registered with the SEC under the Investment Advisers Act of 1940. The viewsexpressed in this commentary reflect those of SAM as of the date of this commentary. Any such views are subject to change at any time based on mar-ket and other conditions and SAM disclaims any responsibility to update such views. Past performance is not an indication of future results. Discussionsof market returns and trends are not intended to be a forecast of future events or returns.

This document is not an offering of securities nor is it intended to provide investment advice. It is intended for information purposes only. The viewsexpressed in this commentary reflect those of SAM as of the date of this commentary. Any such views are subject to change at any time based onmarket and other conditions and SAM and Robeco disclaim any responsibility to update such views. These views may differ from those of other port-folio managers employed by SAM or its affiliates. Past performance is not an indication of future results. Discussions of specific companies, market re-turns and trends are not intended to be a forecast of future events or returns.

Sustainable Asset Management, USA Inc. (“SAM” or the “Firm”) is an Investment Adviser registered with the Securities and Exchange Commission underthe Investment Advisers Act of 1940. SAM is a subsidiary of Robeco Groep N.V. (“Robeco”), a Dutch investment management firm headquartered inRotterdam, the Netherlands. In connection with providing investment advisory services to its clients, SAM will utilize the services of certain personnel ofSAM Group Holding AG (“AG”), and Robeco Investment Management, Inc. (“RIM”), each a wholly owned subsidiary of Robeco Group.

Copyright © 2010 SAM – all rights reserved.

SAM Sustainable Asset Management USA, Inc.909 Third Avenue · New York, NY 10022Phone +1 212 908 0188 · Fax +1 212 908 9672 [email protected] · www.robecoinvest.com

SAM Josefstrasse 218 · 8005 Zurich · SwitzerlandPhone +41 44 653 10 10 · Fax +41 44 653 10 [email protected] · www.sam-group.com

FOCUS

SAM focuses on exploiting sustainability insights to generate

attractive long-term investment returns.

METHODOLOGY

SAM is one of the market leaders when it comes to integrating financial

and sustainability insights into a structured investment process.

Our research underpins the globally recognized Dow Jones Sustainability

Indexes (DJSI).

DATABASE

SAM maintains one of the largest proprietary databases for corporate

sustainability – a database that forms an integral part of our investment

process.

EXPERIENCE

SAM has been one of the pioneers in Sustainability Investing since 1995.

PEOPLE

SAM maintains a unique, cross-disciplinary investment team combining

leading-edge financial analytical skills with in-house technology and

scientific know-how. Additionally, SAM is supported by an unparalleled

global sustainability network.

SAM is a member of Robeco, which was established in 1929 and offers a broad

range of investment products and services worldwide. Robeco is a subsidiary of

the AAA-rated* Rabobank Group. SAM was founded in 1995, is headquartered in

Zurich and employs over 100 professionals. As of March 31, 2011, SAM’s total

assets amount to EUR 11.7 billion.

Disclaimer:The views expressed in this commentary reflect those of SAM as of the date of this commentary. Any such views are subject to change at any time based on mar-ket and other conditions and SAM and Robeco disclaim any responsibility to update such views. These views may differ from those of other portfolio managersemployed by SAM or its affiliates. Past performance is not an indication of future results. Discussions of specific companies, market returns and trends are not intended to be a forecast of future events or returns.

Copyright © 2011 SAM – all rights reserved.

*This rating does not apply to managed products.

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