Members of B.C.’s clean-tech sector may still passionately wear green-tinted glasses, but a white paper released last week by the Pacific Institute for Climate Solutions (PICS) suggests that all is not rosy in what is considered to be one of B.C.’s most promising emerging sectors.
The industry’s future is hazy because of a lack of direction in the Clean Energy Act and other factors that are deterring venture capitalists from investing in clean-tech companies, according to PICS, which is a Victoria-based think tank.
Cleantech Access to Venture Capital in British Columbia concludes that high capital costs and uncertainty around when and how much revenue companies can generate in an industry known for its long development horizons are among factors keeping venture capitalists away.
Based on two rounds of interviews with venture capitalists, clean-tech executives and government officials, including BC Hydro employees, PICS suggests a number of ways to generate more investor interest in the clean-tech sector, including increasing the B.C. carbon tax and creating a commission dedicated to implementing policy in the Clean Energy Act.
The paper says that the length and delays of BC Hydro’s procurement process don’t help matters in B.C., nor do the province’s cheap electricity rates and a lack of penalties applied to dirty energy.
Report co-author and University of Victoria MBA candidate Yuri Perez Gonzalez told BIV last week that many interviewees in the report noted that the Clean Energy Act, whose ultimate goal is to reduce emissions 30% in the province by 2020, is a step in the right direction, “but that it lacks a number of details in order to qualify where it’s heading.”
“People do not know what role they have to play to really achieve those GHG emission targets proposed for 2020,” said Gonzalez.
The report also suggests that the government can play a further role in supporting the sector by becoming an early adopter of clean technologies and by increasing funding and transparency of existing clean-tech programs like the $25 million ICE fund.
And the report said funding increases should put to rest any consideration of creating a feed-in tariff in the province.
Interviewees for the report said that such a tariff – which has stimulated clean-energy sectors in many European jurisdictions, albeit sometimes for limited periods – would simply have taxpayers footing the bill for subsidies handed to renewable energy projects.
Many interviewees believed that efforts should be directed at taxing dirty energy instead.
Rolf Dekleer, vice-president of clean-tech investments at Vancouver-based venture capital firm Growthworks, agreed that given B.C.’s low energy prices, some clean-tech firms, such as those developing smaller power applications that offset household energy costs, will have a tough time gaining ground in B.C.
But he noted that most firms aren’t depending on success in B.C.
Rather, they are developing applications that are naturally geared toward larger export markets like California, where there are higher energy rates and a much deeper venture capital pool.
“We tend to think that when a company becomes a success, it will be successful worldwide rather than just in B.C.,” said Dekleer.
He added that the government’s challenge is to create an environment conducive to investment, while not picking companies or technologies as winners.
And while Growthworks is among the largest venture capital funds in Canada, it still doesn’t have the financial might to make larger investments in clean-tech companies, given the high development costs.
“Clean-tech companies need to raise tens of million dollars, so almost all investments, we make are syndicated – we’ll have up to five or six partners.”
Wal van Lierop, president and CEO of North Vancouver-based venture capital firm Chrysalix, said strong companies will find financing no matter what market they’re in.
He did note that venture capital investment in B.C. remains a little thin, particularly since Ventures West folded a couple years ago, leaving one less investment firm to syndicate with on investments in B.C.
Van Lierop said companies shouldn’t rely on the local market, but he added that government incentives and better procurement processes can help spur more demonstration and pilot projects in B.C.
Such projects, said Van Lierop, give international investors confidence because if a company’s feet are wet locally, it can be an indicator of international market readiness.