Four reasons to invest in emerging cleantech markets

Want to make money in the cleantech business? Look past North America, Europe and Asia to emerging markets in India, the Middle East and Africa.

That's what Ambata Capital Partners managing partner Michael Philipp had to say last week at the seventh annual Renewable Energy Finance Forum–Wall Street at New York City's Waldorf Astoria Hotel.

"They're waking up faster than most people here in the U.S. think," Philipp said. "I think that's where a lot of opportunity lies."

According to Philipp, emerging markets are hungry for technology from the U.S., Europe and Asia. Why? For one, it's projected that the world's population will surpass nine billion by 2050 -- and competition for the world's resources will be "tremendous," he said.

"The demand for power and higher standards of living is going to drive the power demands of the developing world," Philipp said. "The demand side is set. That's not going to change."

To prove his point, Philipp said that $95 billion of new clean energy investment in 2010 will be deployed outside the U.S. and Europe. That's 45 percent of the total, he said.

"None of the other countries has emerged like China has," he added, noting that the country has grown its investment by eight times since 2004 to take in 25 percent of the global total for cleantech investment.

Who else is ripe for investment? Nations in the Middle East, Africa and India are also poised for rapid expansion.

"It may be tricky to get on a plane and simply fly away, [but] at least you're not banging your head against the wall with people who don't necessarily want to see that change happen," Philipp said. "They'll welcome you with open arms, they'll welcome your new technology."

Philipp outlined four trends he says are a reason cleantech investors should look to emerging markets:

1. Population growth, thanks to an increasing number of urban megacenters that are increasingly going green -- that means energy-efficient. The vast majority of megacities in 2025 will be in emerging markets. The rub: cities occupy 2 percent of global landmass but produce 70 percent of global CO2 emissions.
2. Infrastructure leapfrog. That is, emerging markets aren't weighed down by legacy infrastructure, so they can build out newer systems faster that the developed world. "In a five year period, they can go from nothing to something," he said.
3. Power equals prosperity. "Everybody in the developing world knows that power [from energy] is key in going further," he said. More than 1.6 billion people -- that's 25 percent of the world -- have no access to electricity, and at least that have only limited access. "That's going to change over the next 20, 25 years."
4. Resource potential. "A lot of the renewable resources exist in the developing world," Philipp said. Some of the best, in fact: solar, biomass and geothermal resources are available on five major continents. And the use of geothermal with other renewables allows nations to go green fast. "You can very quickly get to 100 percent renewable energy for your country," he said.

There are challenges, however: as with any emerging market, a more risky political and regulatory environment is in play, versus mere regulations and price structure hurdles here in the U.S. and Europe.

Philipp also outlined why local governments are interested in cleantech.

• Tech transfer means jobs. "If you can come set up manufacturing, set up sales and marketing, that's very attractive," he said. "They would rather you not write you a big check to finance a new plant in California, they'd rather write you a a big check to finance plant in Saudi Arabia."
• Population growth and rising affluence means more demand.
• Development opportunities for distributed and utility-scale generation.
• Governments seek advice and collaboration from savvy, established firms. "A lot of times we start with more of a consulting role and then transform into a more active role," he said.
• A growing importance of MFIs/DFIs, or multilateral and developmental finance institutions. "Renewable power is clearly something they're trying to support and also very active in lending," he said.

"If you're focused on emerging markets, you have the demand side and the supply side of capital," he said.

Philipp also discussed the potential of the Middle East, and said GCC nations -- Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Bahrain and Oman among them -- are more interested in financing projects in the developing world rather than the developed world.

"I think the biggest opportunity for renewables is in Saudi Arabia," he said. "That sounds insane, but what they've realized is, there's a limited amount of oil that Saudi Arabia is allowed to produce. They need to diversify, their population is booming. Saudi Arabia is growing and it has energy needs."

Saudi Arabia is looking to solar and geothermal power, Philipp said. Why? Because they'd rather sell their oil to the U.S. and other nations at $80 a barrel instead of use it at $2.99 a barrel.

"They're now looking at renewables to grow their economy without using oil," he said.

Philipp also discussed Africa, which he said has great potential for "Brazilian-scale" sugar ethanol. Using Kenya as an example, Philipp said several nations are "desperate" for power capacity and use "dirty diesel" despite an imperative to put in 10,000 megawatts of new power by 2030.

"They have probably 5,000 megawatts of geothermal potential there," he said. "I think they'll be some pretty interesting developments in Kenya in the next six to 12 months."

The entire country runs on 1,000 megawatts now, he said -- less than what was used on a sweltering day in New York City yesterday.

In a final example, Philipp discussed Papua New Guinea, located in the Pacific Ocean between Indonesia and Australia. He said the small nation -- it has 7 million people -- has great resources for hydro power, geothermal and biomass and seeks to stop cutting down trees and firing coal for power.

"The country all the way up through the prime minister is very committed to [renewables]," he said. "They would like to be 100 percent on renewables and use all the gas to sell and as a currency going forward. PNG will look more like Qatar moving forward."

Philipp noted ExxonMobil's new $15 billion liquefied natural gas project in the area as evidence that the nation was moving aggressively toward clean energy.

"It's not the first place that people would think of as a developing, dynamic country," he said. "But they need new choices. They've got the money, they've got the demand, and they are openly looking for renewable solutions to their power issues."

This post was originally published on Smartplanet.com