Cleantech 4.0: Robust ideas and competitive deployment for real environmental benefits

What are Canada’s top innovation and cleantech priorities right now?

SDTC has a very specific definition for innovation and it is about positioning a cohort of ideas and Canadian-led companies to be ready to scale, to be profitable, to export on a world stage.

SDTC has been in business for 17 years and I would say for the first 14 or 15 years, we were primarily seeding start-ups. In cleantech, there are often large capital investments in some of the sectors we focus on. However, it takes time for the management teams to gain expertise not just in their technology but also in finance, management and markets. Therefore, in today’s age of start-ups, innovation really means to scale up. It means scaling up deployment of technologies, world-class managerial talent, exporting processes, and products and services that Canada’s economy will be built upon. It is in the next 10 to 30 years during which we will go through this evolution.

“Innovation […] is about positioning a cohort of ideas and Canadian-led companies to be ready to scale, to be profitable, to export on a world stage.”

There have been different phases in cleantech. Cleantech 1.0 was about environmentalism. It focused on trying to change people’s mindsets and think about the mutual alignment between environmental and economic prosperity. Cleantech 2.0 revolved more around the economics of adopting these technologies. Since cleantech was more expensive than traditional technology, people would have to pay a premium to “save the world”. It led to the conclusion that in the process of tackling big sustainability challenges, if the technology does not deploy, it does not matter; in a broader economic sense, it has to be cost competitive. So Cleantech 3.0 combined both approaches and promotes scaling up innovative solutions. In the future, Cleantech 4.0 will focus on robust ideas and sets of people that are able to deploy these technologies at a competitive cost and in a competitive way to deliver real environmental benefits.

Why is now the right time for Canada to strengthen its leadership position of the global cleantech industry? What should we focus on to become more competitive?

Now is the time because we have a cohort of amazing cleantech companies that are on the verge of scaling up. The second piece is that we are in a time when the cost of data has come down, making it possible to collect and analyze data to solve problems in ways we have never been able to before. Finally, we are not thinking of clean technology as a sector anymore. Instead we are thinking about transforming every sector with cleantech.

China, through its entrepreneurs and state-owned enterprises, is pouring resources into technologies that will solve its local air quality and climate change issues. It has the view that it is building the next generation of its economy. Ten years ago, you might have been stunned that solar panels would be cheaper than cost competitive alternatives. Now they are, because of the investments put into R&D and scaling up. Second generation energy technologies are always cost competitive and they change the market. That is evident in solar PV today, and this will be seen in electric vehicles in the next 5 to 10 years. We are at an inflection point in many sectors, and the future is going to be exciting and different. It will be a place where the smartest, the best and the most experienced entrepreneurs will be needed to get into cleantech to pave the way into the future.

“The cost of data has come down, making it possible to collect and analyze data to solve problems in ways we have never been able to before.”

Canada is quite competitive in some key areas. However, it is important to create economies of scale out of the technologies that we have always been good at. For example, Canada is good at converting biomass into products, energy, ethanol, and other things. With biomass hubs in Sarnia, Edmonton and the Ottawa-Montreal region, there is significant innovation in that area. So I think it is pretty clear that Canada is leading.

Secondly, Canada should prioritize entering areas in which it has unique advantages. Canada is a leader in genomics and material science. So, we must apply our expertise in genomics to forestry, as well as our knowledge of materials science to electricity. The incumbent industries are joining hands with emerging areas, and creating a platform for global export.

“We are not thinking of clean technology as a sector anymore. Instead we are thinking about transforming every sector with cleantech.”

On the other hand, we did a research study in 2016 with Cycle Capital that examined where Canadians are publishing research and patenting in 15 verticals of clean technology. The study revealed that Canada is leading in research in many cleantech spaces – electric vehicles, batteries, biomass, agriculture, and others. But, we are lagging behind in transforming that research into patents. Moreover, the study showed that industrial owners of patents were clustered around either really small companies or multinationals located in Canada. To have a really robust export ecosystem, Canada needs a cleantech industry in which small, medium and large companies can thrive. It needs close collaboration with industry, government stakeholders and the investment community. Canada is just starting to see the emerging strength of the midsized group, which will lead the world in certain spaces.

How effective is Canada at supporting the deployment of cleantech?

In budget 2017, the Government of Canada recognized that scale up is a challenge and represents a second “valley of death” for financing.

Public and private money has been focused in this area for the last couple of years to help companies scale up to thrive domestically and globally in the marketplace. For instance, provincial funding through carbon pricing and other mechanisms have increased, as well as investments in innovation, SDTC used to be the only player, but the financing has expanded tenfold.

“To have a really robust export ecosystem, Canada needs a cleantech industry in which small, medium and large companies can thrive. It needs close collaboration with industry, government stakeholders and the investment community.”

However, unlike the United States, which has a deep pool of experts who know how to scale companies, Canada does not. Scaling up is a completely different ballgame. There is a completely different group of individuals a company must know; it is not VCs anymore, it is private equity financiers, for instance. Canada needs a systemic and deliberate approach by all of the key stakeholders between start-up, scale up and customer to successfully deploy cleantech.

What is SDTC’s mandate and how do you pick the projects and entrepreneurs that you fund?

SDTC’s mandate is to help entrepreneurs develop their most innovative technologies and support them to deploy those technologies.

To get support from SDTC, entrepreneurs are required to have a technology that is novel and that can deliver a transformative result related to both environmental and economic benefit. To judge economic benefits, SDTC looks at where market entry might be and whether the entrepreneur has a value chain association that might be able to help form partnerships. We also consider the entrepreneur’s intellectual property strategy and the management team. The last thing we look for is the capacity to deliver the project that is proposed to us. These are, of course, the minimum requirements.

“Canada needs a systemic and deliberate approach by all of the key stakeholders between start-up, scale up and customer to successfully deploy cleantech.”

SDTC funds about a third of any idea that matches what we are looking for. Usually that is $3-5 million on average, so that means the total project can be $9-15 million. That is a lot of capital for a small company to deploy, so the entrepreneur needs to have a certain level of sophistication.

How confident are you that Canada will succeed in the cleantech transformation and be a significant player in the global market?

I have worked on this my entire career and I have never been more positive than I am today. Firstly, the financiers are thinking about how the entire cleantech sector could scale up. Secondly, we have a critical mass of firms that are thinking differently and are quite strong and healthy in their management capacity. Thirdly, the speed of innovation is being augmented through data science and low cost analytics. Technologies that can monitor down to the tail pipe in real time are affordable now, so when we go down the wrong path and try something that did not quite work, we should be able to fix it much faster than we were able to before. Cleantech will not be a binary path wherein tens of millions of dollars will need to be put into some technology just to be able to hope that it is economic and environmental at the end of the day. Now, we should be able to simulate, monitor, test and go back to the drawing board when we need to try again. Canada has the money, the data and a critical mass of people running companies that can take us where we have probably never been before.

“We are at an inflection point in many sectors, and the future is going to be exciting and different. It will be a place where the smartest, the best and the most experienced entrepreneurs will be needed to get into cleantech to pave the way into the future.”