We really believe that cleantech is the single biggest investment opportunity of the 21st century. As far as market size is concerned, if you add up energy and transport sector, that’s $6 trillion worldwide. That is massive; it dwarfs sectors like IT. But that does not mean you will have hundreds of companies with billion dollar market caps immediately. The risks and hurdles are also big. The biggest hurdle is obviously that you need more capital.
There are several factors why I think cleantech is such an interesting investment opportunity. Firstly, there is a consensus in the world that climate change needs to be addressed. The debate may be around what is causing climate change, but everybody agrees that there will be a change, signs are there. Addressing that is a motivating factor which is driving investments into the sector.
The second is global policy. The tailwinds are very strong towards a carbon pricing system globally. If you look at what happened in Kyoto versus what is likely to happen in Copenhagen, there is far more possibility that something globally is going to get passed that will price carbon. This will be a very positive policy change towards cleantech.
The third is volatile fossil fuel prices. The world had seen oil prices jump to $148-150 per barrel last year, and it was $35 three months ago, and now it has doubled to $70 per barrel. That volatility is something that people have realised we cannot deal with, and we need to have some stability.
There are two factors, which are technology driven, which I think are causing a lot of innovation and investment opportunities in the space. There are advances in material sciences which are enabling innovations of magnitude that would not have been possible 10 years ago, definitely not 20-30 years ago.
The reason I bring this up is because in 1970s too there was a cleantech revolution. Oil prices had peaked at that time, and there was a lot of funding for innovation. But as soon as oil prices came back down, every thing went away. I think that is not the case today, because other factors are there, and innovation capability is far superior.
Simply speaking if you want to have a photovoltaic cell with high efficiency or a better battery, new materials are enabling it. We are not just constrained with a periodic table, we can engineer new materials.
Second, thanks to Moore’s law, the computing capability we have can simulate systems. Giving an example, if you want to build a car or an airplane today, it takes much less time and dollars. You can simulate most of the systems and test them. Earlier you had to build and then test them, which takes a lot more time and money. You can effect changes with much less capital, which also holds true for cleantech innovation.
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