Cleantech is the next boom, says Singapore-based private equity fund – most likely to center around China
Clean technology is the new opportunity area for investors, according to Singapore-based private equity fund Novo Tellus, which has singled out the sector as one of its focus activities. And this is not just because of idealism.
‘We’re in the cleantech space not just because it is responsible investing,’ says Novo Tellus founder and managing director Wai San Loke.
‘Energy efficiency has a definite business case. Insulation, efficient lighting, more efficient air conditioning and so on – all these provide cost savings for companies in terms of cutting down electricity use. We’re already seeing commercial users making commercial decisions in these areas.’
Novo Tellus, which was registered last August and recently closed its first round of funding at $20 mn, has to date invested in two companies: medical disposables manufacturer Amsino and energy-efficient lighting company JK Yaming, both incorporated outside China but with significant China operations.
The fund intends to build both companies into international platforms over a two-to-three-year time frame, with the ultimate aim of exiting via strategic sales or IPOs.
‘I believe certain solutions today are hitting a three-year payback for areas such as lighting, chilling and heating [in temperate countries],’ says Loke.
‘Others, like smart building controls, are longer term. But the important thing is that these areas have regulation and business growth behind them. And this is part of our thesis at Novo Tellus: we expect a lot of proven technologies to be up for acquisition within the next three years. Those who have platforms to take advantage of these technologies will be winners.’
Renewable energy
As for the most hyped area of cleantech – renewable energy – he says that Novo Tellus is monitoring it but not about to pull the trigger just yet. ‘Renewable energy requires government support, but with the sovereign debt situation in Europe, we’re looking at a five-year delay in its development.’
On the other hand, he adds, Japan’s nuclear plant troubles following the recent tsunami disaster have swung many countries away from nuclear power and in the direction of other renewables such as solar and wind energy. The question is how soon grid parity – making the cost of renewable energy comparable to that of coal, oil and natural gas – can be achieved.
In the interim, he expects China to be the next centre of cleantech development now that the US is slowing down. ‘The US VCs used the IT model, which has an eight-year gestation period. But cleantech takes 15 years and has a very different development profile.
‘For example, if you are going to attach something to the public grid, you need to comply with a lot of specific regulations governing the interconnection of your system to the public domain.’
With that long gestation period, much will depend on how the policy makers in individual countries choose to address their respective cleantech sectors. And again, he says, China is the most likely to succeed in policy execution.
‘There is hubris and then there is actual execution. China is keenly aware that the economies of Taiwan, Korea and Singapore were created by the IT boom of the 1980s. Cleantech is the next wave, and China will certainly take advantage of that.’
