Tony Van Bommel
Senior Managing Partner, Industrial, Clean and Energy Technology Venture Fund - BDC Capital
Part of the Spotlight on the Energy Transformation

Technological and Business Model Innovation to Disrupt Canada’s Energy Sector

Takeaways

  1. Canada’s cleantech and energy tech ecosystems are on the right track, but access to capital, rapid scale-up and Canadian adoption remain challenges.
  2. Battery packs and energy storage will transform the power industry by increasing the adoption of renewables like wind and solar in our power grids.
  3. Energy efficiency, AI and machine learning are some of the most impactful energy investment opportunities.

Action

For Canada’s cleantech and energy tech sectors to compete, we need to attract significant capital and technical talent to the space and to devise new business models that, for example, reduce the capital-intensive nature of such projects. Exporting our innovations and IP to foreign markets with the benefits returning to build strong Canadian companies is much preferred to selling our companies and IP prematurely to foreign entities that then go on to reap the commercialization benefits.


What is your assessment of Canada’s investment market for energy innovation and technology?

Entities like the Industrial, Clean and Energy (ICE) Technology Venture Fund at BDC have been investing in early stage energy companies over the past decade. That coupled with support from organizations like Sustainable Development Technology Canada (SDTC) and provincial organizations like Emissions Reduction Alberta (ERA) and Ontario Centers of Excellence (OCE) has made it possible for Canadian companies to grow and increase adoption in Canada.

I think a lot of the recent worldwide growth relates to the adoption of renewables, especially wind and solar. Since Canada has an existing well developed renewable portfolio in hydro and an abundance of fossil fuels, it goes to reason that renewables would grow faster elsewhere than they would in Canada. As technology gets better, both solar and wind become much more viable as a renewable energy source in a climate like Canada’s. The technology development for many renewable energy businesses, like solar and wind, has now moved to scalability and incremental innovation and risk becoming commodity businesses. To compete in the next phase of this innovation, we would have to move to a new higher tier of investmentin significantly larger investment amounts. This is where BDC’s Cleantech Practice can help.

“Innovation is a key factor in future profitability, which is why many large [foreign] conglomerates have made investments into the cleantech space.”

What are the main pain points? One is the length of time to commercialize cleantech opportunities. Cleantech commercialization takes significantly longer than, lets say, software that could be delivered swiftly as a service model. Generally, cleantech buyers are either large organizations, governments or co-ops, which have long sale cycles and are highly bureaucratic. Moreover, cleantech tends to take longer to install. Some of these projects take months if not years to actually build because of their capital-intensive nature. Finally, the heavy capital intensity of many of the cleantech opportunities stalls deployment. The ICE Fund tries to focus on those lower capital opportunities and to identify Canada’s international competitive advantage. Then we focus on creating internationally significant companies in those areas.


How would you describe the state of Canada’s cleantech and energy tech ecosystem, and what our global competitive advantages are?

The status of the Canadian cleantech ecosystem today is very good. We have a lot of companies at various stages but scale-up and growth are key focus areas for the Canadian Government. SDTC, EDC and BDC have all been working on scale-up programs to support the Canadian pipeline of opportunities from past investments. As a result, one of the challenges we are facing is that the early stage opportunities to fill the pipeline are a bit weak.. This is where the ICE Fund participates in the financing continuum. We also see increasing corporate investment and several incubators popping up to address the void. The conscious effort to support later stage opportunities is evidenced by the $600 million allocated to BDC’s Cleantech Practice. Those opportunities will be supported by both debt and equity to build Canadian companies that can export our technologies around the world. There is generally a lack of funding options worldwide for cleantech companies, so financial support is highly valued.

“Canada leads the G20 and is only behind three Scandinavian countries in cleantech. This shows that four small countries can achieve a significant advantage in this area.”

Coming to Canada’s competitive advantages in cleantech, one is that we have a significant engineering base upon which we have been building capital-intensive projects for many years. Secondly, Canada has made significant investment in the area for a long time. Thirdly, we have great universities that are producing world-class technologies. Fourthly, we have a rule of law with respect to patent capabilities that is only being strengthened so that we can take our technologies internationally and enforce our rights in many countries. Today, we have a stronger platform than we had in the past and other countries are respecting that.

Overall, I think Canada is very innovative and the Cleantech 100 list is one example of our global cleantech competitiveness. Moreover, the Global Cleantech Innovation Index was just released and Canada has moved up to the 4thrank overall and is at the very top in the G20. Globally, Canada is leading the G20 and overall is only behind three Scandinavian countries in cleantech and this shows that four small countries can leverage their strengths to achieve a significant advantage in this area. So I am very optimistic about our cleantech industry in general.


How must the Canadian investment ecosystem and our tech business models be adapted to accelerate innovation and scale-up?

Canada is a small country, so the natural market for many tech opportunities is much smaller than that in India, China or even the United States, which have 10 times the population to be able to absorb technology. But they also face challenges that are 10 times larger, if not more. So they need to allocate resources in international jurisdictions in a significant manner to address their concerns. For Canada to compete, we need to attract significant capital to our cleantech space and export our technology to large markets.

Innovation is a key factor in future profitability, which is why many large conglomerates have made investments into the cleantech space. Most of those are foreign because Canada has a very small footprint of large strategic investors. At the venture capital level, as innovations start to approach full commercialization, we see the influx of large strategic investors because they see it as a race. This happens with about 80% of our investments. We have co-invested with about 65 other venture partners, most of which are non-Canadian.

“Canada needs to devise business models that apply our innovation without being capital-intensive.”

Canada also needs to devise business models that apply our innovation without being capital-intensive. For example, Canadian innovators can partner with foreign manufacturers and investors. The factories will be built in the other country with its own investors, but the innovation, which will generate profits for the Canadian companies, will come from Canada. CarbonCure is a great example of this model. CarbonCure has a relatively small footprint but they have very strong intellectual property in injecting CO2into the mixing process for concrete production. Not only does it sequester CO2, but it also avoids emissions by reducing the amount of cement required. It also has significant performance advantages. So it is a win-win-win and a relatively capital efficient solution. It is currently installed in nearly 90 facilities and getting interest from many others all over the world. CarbonCure is a great Canadian technology with a business model that has established a way to deliver their solution in a low capital intensity business model.


How do you see the Canadian power sector evolving?

We have to balance public interest with economic interest. Providing power across the grid, including to communities that may not otherwise be able to receive that power, has to be balanced with open and free commerce. Innovation in distributed generation technologies will only increase the options for these remote communities as well as more urban communities, and make it a lot easier for utilities and the private sector to be able to service them. A lot of that currently falls onto the big utilities because they can spread it over a significant ratepayer base in order to provide potentially uneconomical power. Diesel generators used to be one of the few options traditionally, but innovation in distributed generation now opens up the options to include solar, wind and other types of renewables to generate local power.

“Canada has been relatively slow in adopting innovation in the electricity space and Canadian start-ups could benefit from less regulation and more innovation in our power grid.”

Battery packs and energy storage will also transform the power industry because we will be able to harvest and store solar and wind when they are available and use them at a later time. This will allow communities to use renewable energy as their main power source versus a less environmentally sensitive  solution, which will be relegated to only a backup solution. . The transition is exciting, but it will take time. Canada has been relatively slow in adopting innovation in the electricity space and Canadian start-ups could benefit from less regulation and more innovation in our power grid.


What are the biggest investment opportunities in terms of disrupting the energy sector and do you think Canada’s investments in them will be able to address our energy challenges in time?

Energy efficiency has been a great area of investment and it was the low hanging fruit of the investment area. We continue to look for opportunities in energy efficiency but we are now focusing on infusing artificial intelligence and machine learning into the energy industry. Technology that can run processes more effectively continues to weave itself into the industry and AI can be used in multiple sectors. For example, BDC had invested in a company called Bit Stew, which used AI to parse data to make real-time decisions for industrial processes resulting in energy savings and less waste. Because of our capital-light nature, we do tend to focus on software types of applications, so AI, machine learning and Internet of Things are all tremendous areas for investment in energy tech.

“We continue to look for opportunities in energy efficiency but we are now focusing on infusing artificial intelligence and machine learning into the energy industry.”

In general, I am optimistic about the future. One factor that I have to look at is the urgency of the decision balanced by the tools that I can use to manoeuver. Should you invest now for something that will be commercial in 20 years or should you invest now into steps that will be commercial next year and start making a difference sooner? It may not have the same overall immediate impact of what you may do 20 years from now, but you are making an impact today and chipping away at the urgency issue. In many instances, it will take many iterations to reach the 20-year standard, each one incrementally contributing to a great outcome. The ICE Fund at BDC is investing in the medium term – 5 to 7 years – for highly scalable opportunities, BDC Cleantech Practice is financing today’s opportunities – 0 to 3 years – and government’s investment in energy innovation should be chipping away at solving the 20-year issues and to help scale today’s commercial cleantech opportunities.  So to summarise, the ICE Fund is a tool through which investments can be made that will make a significant difference and have a multiple bottom line for the economy and the environment. Each individual transaction may be revolutionary or may be incrementally effective, combing the two results in a very significant overall portfolio impact.