cleantech growth journey from product development to global market leadership - ceo retreat...

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Co-host:

Growing beyond:the cleantech growth journeyfrom product development to

global market leadershipCEO retreat report

Cleantech matters


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2 Cleantech CEO retreat report The cleantech growth journeyCo-hosted by Ernst & Young and Bloomberg New Energy Finance

Contents

ParticipantsPage 2

AgendaPage 2 & 3

Executive summaryPage 4

SunPowers journeyPage 8

CapitaPage 10

Partnerships and alliancesPage 12

PolicyPage 14

Selling to large corporationsPage 18

Growing beyondPage 21

Open forumPage 24

Innovation, disruptiontransformation

Page 27


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1Cleantech CEO retreat report The cleantech growth journey

Foreword

From start-ups to large corporations and nation

governments, organizations worldwide are

embracing cleantech as a means of growth,efficiency and competitive advantage. As

resource constraints continue to challenge the

global economy, the cleantech industry has the

opportunity to transform markets dramatically

in the next five years. Already, major businesse

are transitioning to adopt clean energy strateg

and make major long-term capital investments

alter and diversify their energy mix.

However, the cleantech story is not only one o

continuous growth. Expansion and contraction

have led companies to make significant

structural decisions on capital allocation,competitive alignments and sales channels.

Maturing cleantech companies must also

address new financial, political and regulatory

challenges.

To explore the most important business issues

for cleantech companies and their CEOs,

Ernst & Young LLP and Bloomberg New Energ

Finance (BNEF) convened the first annual

Cleantech Growth Journey retreat in Napa,

California, in September 2011.

Cleantech is often viewed from a vertical

perspective, focusing only on the issues of asingle sector, such as wind or solar energy.

But this retreat focused on the issues that

are relevant to all cleantech sectors at

the CEO and operating executive level

capital, partnerships, policy, selling to large

corporations and growing beyond borders.

Nearly 50 CEOs attended and another 20

industry, finance and policy thought leaders

contributed to the dialogue, sharing their lesso

learned, challenges overcome and best practic

Our report highlights the key perspectives

arising from this dynamic discussion. It

identifies important cleantech business

challenges and provides strategic insights and

a view of emerging trends. We hope that its

findings will prove to be a valuable contributio

to the ongoing conversation among cleantech

stakeholders on how to achieve the next stage

of industry growth.

2004 2005 2006 2007 2008 2009 2010 2011

$52

$76

$113

$151

$180 $186

$243

$260

US$

billion

Global newinvestment inclean energy

200411

Source: Bloomberg New Energy Finance

Gil Forer Michael Liebreich

Global Cleantech Leader CEO

Ernst & Young Bloomberg New Energy Finance


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2

DayoneKeynote: Tom Werner, President and

CEO, SunPower

CEO session: capital

In the cleantech growth journey, capital

is king.

What are the lessons learned in

raising, investing, preserving and

optimizing capital?

What are emerging new financing

mechanisms?

What is the concept behind the chief

capital officer role and how does it apply in

the cleantech marketplace?

Moderator: Matthew Sapp, Assurance Partner,

Cleantech Leader West Region,

Ernst & Young LLP

Panelists: Jack Hidary, Chairman, Samba Energy

Rick Needham, Director of Green Business

Operations and Strategy, Google

CEO session: partnerships and alliances

As growing companies encounter larger and

larger incumbent competition and complex

systems, partnerships and alliances may

become essential.

What do large corporations expect from

cleantech partnerships and alliances?

How can partnerships endure beyond the

first year?

What are the lessons learned from the

various partnerships in the cleantech

marketplace (new rules, new models)?

What are the key ingredients of

partnership readiness?

TIER Inc.

raig Husa, CEO

ABB

Allen Burchett, Region Function Manager,

trategic Initiatives

Agile Energy Inc.

Glen Davis, CEO

Algaeventure Systems

oss Youngs CEO

Areva Solar

om Bartolomei, Chief Commercial Officer

Bloo Solar

arry Bawden, CFO and Co-Founder

Bloomberg New Energy Finance

than Zindler, Head of Policy Analysis

Brazil Opportunities

arlos Miranda, CEO

Chevron Energy Solutionsames Davis, President

Cisco Systems

im Richardson, Sales Business Development

Manager

Codexis

Alan Shaw, CEO

Covington and Burling

Andy Jack, Partner

Dupont Innovalight

onrad Burke, General Manager

Evercore Partnersaul Deninger, Senior Managing Director

First Wind

aul Gaynor, CEO

Google

Kojo Ako-Asare, Corporate Finance Manager

Google

ick Needham, Director of Green Business

Operations and Strategy

Green Star LED

aul Duran, President & CEO

Harvard Business School

ucia Tian, The Forum for Growth and

nnovation

Harvest Power Inc.

aul Sellew, CEO

BM

Allan Schurr, Vice President, Strategy &

Development, Global Energy & Utilities

ce Energy Inc.

rank Ramirez, CEO

adoo Power

Ken Pearson, President

Lincoln Renewable Energy

Richard Gruber, Senior Vice President

Mendel Biotechnology Inc.

Neal Gutterson, President & CEO

MicroPower Global Group

Max Lewinsohn, Chairman & CEO

MontecoScott Monteith, President & CEO

Phononic Devices Inc./NC

Anthony Atti, President & CEO

Potter Drilling Inc.

Jared Potter, President & CEO

PowerGenix Systems Inc.

Dan Squiller, CEO

Princeton Energy Group

Steve Taber, CEO

Procter & Gamble

Steve Meller, Chief Innovation Catalyst

Rennovia

Robert Wedinger, President & CEO

Samba Energy

Jack Hidary, Chairman

Smith Electric

Bryan Hansel, President & CEO

SolarOne Solutions Inc.

Moneer Azzam, President & CEO

Solfocus

Mark Crowley, CEO

Standard Solar Inc.

Tony Clifford, CEO

Suniva Inc.

John Baumstark, Chairman & CEO

SunPower

Tom Werner, President and CEO

Suntech Power Holdings

Andrew Beebe, Chief Commercial Officer

USRG Renewable Finance

Ed Feo, Managing Partner

Washington Council Ernst & YoungTim Urban, Renewable Energy and Climate

Change Practice Leader

Wilson Solarpower Corporation

Doug Zingale, CEO

WITricity

Eric Giler, CEO

Xogen Technologies Inc.

Angella Hughes, President & CEO

Xtreme Power

Carlos Coe, Founder & CEO

Participants


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Agenda

The cleantech growth journey:

from product development to

global market leadership

Moderator: Paul Deninger, Senior Managing

Director, Evercore Partners

Panelists: Paul Gaynor, CEO, First Wind; Alan

Shaw, President & CEO, Codexis; Allen Burchett,Region Function Manager, Strategic Initiatives,

ABB; Allan Schurr, VP Strategy & Development,

Global Energy & Utilities, IBM

CEO session: the role of

government policy

With diminishing government financial

support for cleantech in key markets,

policy-makers and CEOs alike are now trying

to devise policy measures that are more

effective in growing a more stable market.

How can the industry guide policy-makerstoward a longer-term vision?

What are the lessons learned from local,

state and federal programs and also from

other nations?

What are the top short-term policy actions

that the United States can take to support

the cleantech industry?

Moderator: Gil Forer, Global Cleantech Leader,

Ernst & Young

Panelists: Ethan Zindler, Head of Policy Analysis,

Bloomberg New Energy Finance; Timothy Urban,

Partner, Washington Council Ernst & Young

Keynote speaker: Tom Werner, President & CEO, SunPower Corporation

Moderator: Scott Sarazen, Global Markets

Leader, Global Cleantech Center,

Ernst & Young

Panelists: Andrew Beebe, Chief CommercialOfficer, Suntech Power; Carlos Miranda, CEO, BR

Opportunities; Mark Crowley, CEO, SolFocus; Ste

Meller, Chief Innovation Catalyst, Procter & Gamb

Open CEO forum

CEO interaction to discuss the most pressin

topics and share insights for the cleantech

journey ahead

Disruption, innovation, transformation

what are the possibilities for disruption

in cleantech?Lucia Tian, The Forum for Growth and

Innovation, Harvard Business School

DaytwoCEO session: selling to large corporations

For many cleantech growth companies,

selling to large corporations is the

paramount goal.

How do you penetrate large corporations

and utilities?

What are the key success factors in

winning contracts?

How can you find common interests to

arrive at win-win propositions?

Moderator: Jay Spencer, Americas Cleantech

Director, Ernst & Young LLP

Panelists: Tom Bartolomei, Chief Commercial

Officer, Areva Solar; Conrad Burke, CEO,

Innovalight (Dupont Innovalight); Jim Davis,

President, Chevron Energy Solutions

CEO session: growing beyond competing

for growth in a global world

As cleantech companies reach their

fullest fruition and compete with industry

incumbents in the global energy,

information and water systems, their growth

agenda expands beyond borders.

What are the success factors in working in

emerging markets?

How is it possible to continuously

drive and accelerate efficient

multinational innovation?

What are lessons learned in managing

talent across continents and leveraging a

multinational workforce?


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4 Cleantech CEO retreat report The cleantech growth journey

Executivesummary

>>Cleantech companies have the

potential to challenge incumbent

giants in the worlds largest

integrated energy, information and

water systems.

During the two days of the Cleantech GrowthJourney, cleantech executives and industry

leaders explored the following themes:

capital raising, strategic partnerships and

alliances and growing beyond the home

market. All of these concerns cut across

cleantech industry verticals and are critical

to address in strategies for the journey

ahead. Some of the key takeaways from the

cleantech CEO discussions follow.

Capital raising new financing structures

and processes needed

Capital raising and capital structuring

are primary challenges for the industry.

Even with a historic industry growth rate

averaging almost 30% per year, cleantech

companies will require financing on a much

greater scale given the billions of dollarsneeded for continued growth.

Many cleantech companies involved

in renewable energy generation and

manufacturing become asset-heavy as they

mature and shift from raising capital through

relatively fast, simple venture-capital deals

to raising it through time-consuming,

complex and highly customized structured-

financing deals. To maintain the pace of

growth, the cleantech industry must developfinancing vehicles that allow cleantech

financing transactions to scale up quickly

in both size and volume without a similar

scale-up in transaction costs.

Strategic partnerships a key ingredient

Strategic partnerships and alliances enable

the cleantech industry to grow. With nearly

650 joint ventures and an estimated

US$8 billion in value since 2004, these

partnerships provide cleantech companies

critical insulation from the vicissitudes of

the public markets, as well as providingsales channels, distribution networks and

capital for asset expansion. Partnerships

with established companies also provide

important market validation for new

technologies.

Participants found parallels with

the pattern of partnership growth

between biotech companies and large

pharmaceutical companies when the

number, interconnectedness and geographic

distribution of partnerships grew dramatically

At the same time, managing expectationsaround such partnerships is essential to

the cleantech CEO for future growth, given

that the nature, objectives and values of

such partnerships can change over time.

Partnerships involve significant hard

negotiations on the part of CEOs, but also

soft skills such as constant communication,

managing expectations and building a

network of relationships.

Government policy find a unified

message, look to the end of subsidiesAs cleantech companies grow beyond their

home markets, CEOs have to navigate

through a complex maze of government

policies around the world. Additionally,

the industry is now playing defense a

situation cleantech CEOs are not accustomed

to, given previous high-growth expectations

and political support. In the wake of the globa

financial crisis, the golden age of government

support is over, participants said.

Graphic recording of CEO retreat Welcome discussion, drawn by Paula Hansen of Grove Consultants International


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Two predominant global issues now definethe cleantech policy environment: fiscal

austerity across regions and changes in

energy mix in the wake of the Fukushima

nuclear disaster. The competitive dynamic

within sectors will likely be tempered as

subsidies diminish, partnerships materialize

across the energy landscape, and clean

energy becomes more mainstream. Winning

over policy-makers now means a more

collaborative agenda and a unified message

among cleantech industry players.

As the industry moves away from relianceon government support, executives and

thought leaders find that developing

transitional capital sources for small and

medium-sized companies and having strong

due diligence processes will be key priorities

for bridging the short-term capital gaps.

In the long term, the industry expects a

phaseout of policy incentives with a defined

end date. CEOs agreed that having an end

date to subsidies will actually add much-

needed certainty and clarity to business

planning, as well as spur greater industry

competitiveness.

Selling to large corporations networking,

customization and reliability are key

Selling to large corporations is essential

for cleantech companies on the road

ahead. Larger corporations create product

demand and have the capital to buy entire

companies. A larger corporation also offers

value intangibles, such as leverage with

policy-makers, access to emerging markets,

new distribution channels and, above

all, integration within a larger energy orindustrial ecosystem.

Gaining access or closing a large deal

is difficult, but CEOs pointed out that

networking across the value chain,

customization for the client and

demonstrating the reliability of the product

were all successful best practices that gained

entry into a sale.

Large corporations continue to look forsuccessful innovative technologies, but

would rather have the ability to influence

the technology in the early stages, dictate

deployment or have a distinct role in the

distribution.

Growing beyond the home market a risk

mitigation strategy, discipline required

Cross-boundary transactions and

agreements will become commonplace as

the cleantech industry sees more alignment

and integration across the value chain.

Growing beyond the home market and

competing at the global level have always

presented opportunities, but now, entering

different markets also offers risk mitigation.

For CEOs, entering new markets calls for a

step-by-step approach that often requires

dedication and discipline.

The ability to grow beyond borders and

niches means partnering with local

companies and complementing each others

capabilities, whether for access to local

policy-makers or for overseas finance.

Counter to conventional thinking, growing in

a global market may not always mean scale

and commoditization of a product. Rather,

CEOs indicated, product customization,

integration across divisions and

re-verticalization were necessary strategies

to grow beyond.

Innovation, disruption, transformation

different for cleantech

The concepts of innovation, disruption andtransformation mean different things to the

cleantech industry than to other industries.

Innovation is bound by the requirements

of electrical reliability, fuel consistency and

water quality all of which are societal

expectations that are inherently unforgiving

of failures.

Cleantech transformation may have a longterm horizon, but the change that will occu

will be integrated into the largest economic

markets and have massive potential for

economic growth. The greatest disruption

that can take place in cleantech will not be

through one technological breakthrough,

but rather through the changing of many

conventional mindsets. The real change

will happen when incumbent industries

and systems wholly integrate cleantech

strategies as a new business model for

resource efficiency and growth. //

This white paper analyzes

the themes and captures

the unique CEO insights

of the Cleantech Growth

Journey. It includes insight

derived from discussion,

debate and panel sessions

and analysis performed

before and after the event,

and includes quotations

from participating cleantec

CEOs, who remain

anonymous under the

Chatham House Rule.


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Cleantech CEO retreat report The cleantech growth journey

GrowingbeyondHigh performers take charge of their own destiny. They have a laser-sharp focus on

executing against the four drivers of competitive success customer reach, operational

agility, cost competitiveness and stakeholder confidence. And they strike the right

balance in their approach to each of these four drivers in relation to the others

strategically and tactically. These are the key findings of the Ernst & Young Growing

Beyond report.

Ernst & Young commissioned the Economist Intelligence Unit (EIU) to survey the C-suite,

board directors and senior managers in large organizations. The survey included 646

executives and was conducted in September 2011. It was complemented by a more

detailed investigation of 300 Ernst & Young clients, undertaken through interviews with

Ernst & Young professinals globally.

It explores how these companies are improving performance in relation to the growth

drivers and how this is propelling them to enter new markets, develop new products and

adopt new approaches to talent management.

The report finds that the approach that high performers (top 30% EBITDA and

revenue growth) have taken to the four key drivers has been highly distinctive.

High performers are:

More successful than others in identifying and responding to opportunities

to maximize their potential market

Optimizing their ability to respond to these opportunities

Striking the right balance between price and cost to sustain growth

Building the support they need from their stakeholders to enable them

to respond to opportunities

Focus on keysegments

Broaden product/service offer

Prioritizemarkets

Enhancereporting

Anticipateregulatory compliance

Reinforcebrand

Identify andexplain risks

Accelerate speedof response

Improvecollaboration

Informpricing process

Optimizecapital

Masterinnovation

work/deliveryplatforms

Pass on costpressure

Sustain costreduction

Re-engage withinternal talent

Highperformers

Customer

reach

Cost

competitiveness

Stakeholder

Operational

agility

6


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SunPowersjourney

Highlights of the keynote

presentation by SunPower

CEO Tom Werner

The solar energy market has undergone

significant change over the past two

years from a supply-focused and capacity-

generating market to a demand-driven one.

Few companies have been able to lead in

this market, and the objective is now to

drive down costs on a kilowatt basis and yet

achieve higher module efficiency.

SunPower, based in San Jose, California,

is a leading solar company specializing in

high-efficiency, high-reliability solar

modules that has maneuvred through

this period of growth and transition. In his

keynote address, SunPowers CEO,

Tom Werner, provided an insightful and

in-depth explanation of the complex drivers

and dynamics that guided SunPowers

business strategy and growth from the time

the company went public in 2005 to its 60%

acquisition by Total SA in 2011. Werneraddressed the current market conditions

for solar, his view of grid parity and the

challenging considerations going forward

to achieve the scale necessary for moving

beyond the growth phase.

>> Eighty-five percent three-year CAGR

and then approximately 5% CAGR

the next few years. You see gross

overshoot of supply, you see prices

plummeting, and the question is,

how do you survive in that market

for the next few years?

SunPowers growth has been typical

of leading solar companies tripling

revenue-growth rates in the last three

years and raising more than US$1 billion

in investment capital, as well as acquiring

five other cleantech companies. As the

solar market matures and becomes more

cost-competitive, SunPowers direction is

now shifting toward aligning with major

energy partners, focusing on costs and

targeting new markets.

In the past few years, the solar industry

enjoyed a record 85% per annum revenue-

growth rate. Its growth was so fast that

the market focused on volume and scale

simply to add capacity as fast as possible.

Now, with capacity over-supply, market

projections indicate that solar may stay

at single-digit revenue growth. With this

correction in mind, how are companies

gearing up to change? And for how long willthese market conditions persist? Despite

volatility and policy support easing, Werner

sees long-term opportunity for solar and

revenue projections to improve again

particularly as coal retirement takes place

and global energy demand increases. The

size of the global energy market remains

impressive, and to capture a sizable piece of

that market, the solar sectors strategy will

need to adapt accordingly. The next growth

phase means operating in energy markets

with much more scope, as Werner indicated:

Weve spent US$2 billion in six years. Thisis big. This is the scale of the energy market.

Youre not going to go public if youre going

to make stuff with US$100 million. Its big

scale energy is big scale.

Lowering costs, maintaining efficiency

and differentiating products

Werner stated that cost competitiveness,

product differentiation and expansion of

the corporate balance sheet are three core

strategies SunPower currently focuses on

to continue in the punitive market. The

industry now must keep moving to improve

on two dimensions: the efficiency of the

solar module and cost.

As the overall solar market matures and

diversifies into different technologies,

SunPower is in a leadership position because

of its high-efficiency, high-reliability product,

which offers product differentiation among

competitors. Therefore, the company

now aims to achieve lower costs through

redesigning its manufacturing process and

vertically re-integrating its business line.

SunPower expects that a company-wide

restructuring program will accelerate

operating cost reduction by as much as

10% in 2012 and improve overall operating

efficiency. In addition, the company has

re-prioritized its capital expenditure and

research and development projects to focus

on cost reduction and optimizing cash flow.


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Strengthening the balance sheet

The company is moving toward the

production and development of large-scale

solar power projects. Achieving capacity

at a scale that utilities will buy offers thecompany long-term balance sheet strength.

Having a gigawatt of booked power

projects that are secured through purchase

agreements gives SunPower a key bridge to

the future, Werner noted.

Growing to the level of utility-scale production,

however, requires major capital investments.

In mid-2011, Total SA acquired 60% of

SunPower. Werner discussed the negotiation

of the acquisition and how the partnership

provided SunPower the necessary capital and

direction for the next stage of growth.

As the fifth largest global energy company,

Total will continue to provide SunPower

significant leverage to compete among energy

incumbents. The acquisition has bolstered the

companys financial strength, augmented its

balance sheets, opened up its cash flow and

allowed Werner the luxury of looking ahead

10 years out. Werner indicated that the long-

term nature of the relationship has allowed

SunPower to pursue its strategy to integrate

vertically, develop R&D and win new markets.

New focus on balance of systems

In the past, modules have been the focus

of innovation and the recipient of R&D

investment while the balance of systems

(BOS) costs remained in the background.Now BOS is a major factor in bringing down

the levelized cost of solar. The BOS costs

the cabling, mounting, electronics and

installation have become more than the

cost of the module itself.

SunPower is incorporating different

innovations to improve and expand its BOS

by preassembling utility-scale PV systems

in the factory. By designing a ready-made

standardized power block, the company

takes skilled labor out of the field and moves

it to the factory floor. Other innovations

at the BOS level include improvements in

assembly, solar tracking and diversifying

distribution. According to Werner, most PV

companies have dozens of PhDs working on

the cost of the module. Most PV companies

have zero PhDs working on balance of

systems. Thats going to change the

people that do the mundane assembling

work theyre going to become really

important in PV.

>> In five years, were going to look

back, and the way we constructed

large-scale PV systems is [going to

be] incredibly primitive.

Grid parity and scaling up

In markets such as California, the utility

and the producer of solar electricity are

not rewarded for generating solar-based

electricity above a specific level. Solar

companies in the next stage will continue t

be lowering costs to reach grid parity

costs comparable to conventionally

generated energy. But Werner notes that

pricing relative to a grid that is dynamic

and changing will be challenging for the

industry collectively. We have a lot of wor

to do in the industry. I would call grid parity

necessary, but not sufficient, Werner said

The scale necessary to reach grid parity

will depend on the type of user (retail or

wholesale), the jurisdiction or even the

quantity of sunshine the region has. Grid

policy and rate structures will have to

change with the solar market, and impetus

to change policy on a large scale must com

not only from the solar sector but from the

incumbent energy providers themselves. //

Graphic recording of CEO retreat keynote speech by Tom Werner, CEO of SunPower, drawn by Paula Hansen of Grove Consultants International


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CapitalModerator: Matthew Sapp, Assurance Partner,

Cleantech Leader West Region,

Ernst & Young LLP

Panelists: Jack Hidary, Chairman,

Samba Energy

Rick Needham, Director of Green

Business Operations and Strategy,

Google

Key issues in raising capital

Having themselves raised more than US$2 billion in nearly 150 investment rounds

for their current companies, the 50 CEOs and executives at the retreat agreed that

continuing to raise capital is the single greatest priority for cleantech CEOs.

Early-stage and angel investing remains challenging, but building a robust angel

network or facilitating research and development investment can be instrumental

to the industry.

Given strong policy signals, China can be a key financier to invest in major infrastructure

development over the next five years.

Governments now have a role to play in facilitating capital but also facilitating

the creation of industry standards and streamlining incentives to lower costs to

the consumer.

Capital must evolve to the needs of the cleantech company from early-stage,

capital-light financing to complex, large, asset-heavy or project-finance deals.

Financing structures need to reach scale, and moving away from singular customized

deals allows for lower transactions fees, as well as diversifi

cation.

expensive than developing a software idea orlaunching a website.

Time to look beyond venture capital

Delegates had questions as to the long-

term utility of venture capital in an energy

game dominated by large, asset-heavy

companies. Many companies just emerging

from a laboratory are viewed initially as a

capital-light investment for early funders,

but as they mature, they require much

more money than a start-up information

technology company; they also requireinvestment in complex fixed assets and a

patient approach to returns. The time frame

for traditional VC investors coming out of the

IT sector is 12 to 18 months, while the time

horizon for cleantech is much longer and

commercialization could take decades.

The valley of debt

One participant noted that cleantech

companies typically receive a lot of equity

investment in the early stages, but then

they must raise a significant amount of debt

as they begin developing capital-intensive

assets. Thus, it is important to look beyond

venture capital to partnerships and joint

ventures with larger multinational companies

that have significant cash on hand for longer-

term deployment and can readily reduce the

cost of capital to finance a project.

Capital raising new financing structures

and processes needed

Capital raising and capital structuring

are primary challenges for the industry.

Even with a historic industry growth rate

averaging almost 30% per year, cleantech

companies will require financing on a much

greater scale given the billions of dollars

needed for continued growth.

Cleantech companies become asset-heavy

as they mature and shift from raising capital

through relatively fast, simple venture-

capital deals to raising it through time-

consuming, complex and highly customized

>> The companies participating in the

retreat had raised more than

US$2 billion in nearly 150

investment rounds.

The challenging investment landscape

points to one of the highest priorities for

the cleantech CEO: continuing to raise

enough capital to support expansion and

commercialization. Those attending theretreat had raised more than US$2 billion

in nearly 150 investment rounds for their

current companies. Their depth, history and

networks in capital raising provided them

with valuable insights into financing needs,

development of new financing structures

and preservation and optimization of capital.

Lack of early-stage financing

One of the primary financing challenges

noted by the retreat participants was the

increasing scarcity of early-stage capital.

While private equity and venture capital (VC)

funding has been recovering over the last few

years, in cleantech, there has been a shift

in the nature of what is being invested in.

Venture capital investors are now finding more

capital-efficient businesses or are investing

in follow-on rounds to support the later-stage

companies that they funded between 2004

and 2006.

As a result, early-stage financiers and angel

investors have become some of the most

sought-afterfinancing sources. One industry

veteran noted that the biggest gap in funding

was the lack of a robust, sector-specific angel

network. In addition, early-stage investing in

cleantech companies at least in renewables

requires far more capital than in other

industries. A pilot project to demonstrate a

new solar or battery technology is much more


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structured-financing deals. To maintain

the pace of growth, the cleantech industry

must develop financing vehicles that allow

cleantech financing transactions to scale up

quickly in both size and volume without asimilar scale-up in transaction costs.

Participants expect that the most successful

financing in the cleantech industrys next

phase will not be the creation of specific

new vehicles for financing but rather the

development of a whole asset class that

allows investors to diversify across a pool of

projects or combine many smaller projects.

Participants pointed to different structures,

such as REITs, asset-backed securitization or

alignment with traditional energy sources in

infrastructure and development funds.

>> Cleantech financing can begin in

venture capital and end with term

lending.

Governments facilitation role

With the scaling back of government

financial support for cleantech in developed

markets, and in the US in particular, the role

of government will likely shift to investment

facilitation convening or coordinating

companies and investors.

Governments also can streamline incentives or

improve standards to reduce costs and facilitate

investment. As an example, the US has more

than 3,000 different solar incentives in different

counties, states, cities and utility jurisdictions,which results in higher systems costs overall.

Coordinating and streamlining the incentive

programs could substantially reduce installation

and development costs and transactions fees.

China as cleantech financier

China, in contrast, is set to continue making

substantial investments in cleantech. As a

result of its Twelfth Five-Year Plan, China is set

to commit up to US$200 billion per year to

critical infrastructure development, including

renewables, energy efficiency and water. Chinasinvestment in cleantech manufacturing has

changed the competitive landscape in the solar

and wind sectors as Chinese companies have

become the dominant players because of their

low cost structures. China is now targeting seven

emerging strategic industries for development,

five of which are cleantech-related. Chinas

investments may well drive the same kind of

market disruption in new areas, such as electric

vehicles and water desalinization. //

Growing

beyondKey questions for management

Have you engaged in a competitive

review of pricing strategies?

How confident are you that you have

full visibility of your cost base and key

value drivers?

How are you ensuring sufficient capit

is available at a reasonable cost to

deliver your growth strategy? Whatalternative sources of capital are you

exploring?

How effective is cash flow forecasting

and cash reporting? Do any

measurement tools and performance

indicators need to be enhanced? Are

the forecasting models in place as

useful as they could be?

11

Graphic recording of CEO retreat Capital discussion, drawn by Paula Hansen of Grove Consultants International


14/32


Partnershipsand alliancesModerator: Paul Deninger, Senior Managing

Director, Evercore Partners

Panelists: Paul Gaynor, CEO, First Wind

Alan Shaw, President & CEO, Codexis

Allen Burchett, Region FunctionManager, Strategic Initiatives, ABB

Allan Schurr, VP Strategy &

Development, Global Energy &

Utilities, IBM

Key expectations of partnerships and alliances

Alliances and partnerships have transformed the industry and will continue to be the

cornerstone of the way the cleantech CEO will manage in the next stage of growth. Globally, cleantech companies have undertaken nearly 650 joint ventures with an

estimated value of US$8 billion.

Partnerships have provided cleantech companies insulation from the broader public

markets, as well as providing critical sales channels, distribution networks and capital

for asset expansion.

Alliances may change over time, and CEOs must manage the expectations of all the

participants, but especially the larger counterparties. Maintaining the engagement of

the original project champion is essential.

Partnerships involve significant hard negotiations on the part of CEOs, but also soft

skills, such as constant communication, managing expectations and building a network

of relationships.

One of the greatest achievements andstrengths of the cleantech industry is the

experience and breadth of partnerships

and alliances that CEOs have built since its

inception. Alliances and partnerships have

transformed the industry and will continue

to be the stepping stone to the next stage

of company growth. Cleantech companies

have formed nearly 650 joint ventures, with

an estimated US$8 billion in total value,

since 2004, according to Bloomberg New

Energy Finance.

Partnerships with larger corporations offera number of benefits to emerging cleantech

companies sales channels, distribution

networks and capital for asset expansion.

They also offer relief from the short-term

volatility of market forces. As one bioenergy

CEO said, JVs with larger companies provide

insulation from being whipped around

by the sentiments of the public markets.

And, particularly for cleantech companies,

partnerships can also facilitate the creation

of industry standards, enable guarantee

arrangements and provide credentials in

nascent markets.

Wind

Solar

Biofuels

Services & support

Biomass & waste

Energy storage

Advanced transport

Other

Total = 647

22%

19%

11%10%

9%

9%

5%

4%

11%

Clean energyjoint ventures20042011

Source: Bloomberg New Energy Finance; announced and completed joint ventures

20042011; excludes canceled or postponed transactions.


15/32


>> US$8.0b Total estimatedvalue of clean energy joint ventures

>> If you go through a really stickypatch, with all the work youve put

in, do you think the partnership

would survive, or would it fall apart?

At the same time, cleantech CEOs noted that

partnerships are not without their perils.

Partnerships often fail due to the inherent

mismatches of expectation between small

and large firms. Start-up cleantech firms

and their corporate partners may have

divergent expectations in many areas,

such as time to market for product; level of

corporate commitment to the product or

project; and style of communication within

companies. Corporate agendas can change

and leave pure-play cleantech companies

as a minnow to a whale, according to one

CEO. As a result, it is essential to maintain

the engagement of the original projectchampion to ensure consistent internal

sponsorship.

While risks of failure may often be personal

for the founders of small firms, they

are merely rounding errors within large

corporations. Thus, one CEOs suggestion

to partner with mid-sized companies that

are still small enough to be nimble, but have

developed a value chain we can partner with.

Executives discussed many best practices

for making a partnership succeed, including

hard contractual obligations such as dilutionoptions, but mainly found that soft skills

were necessary.

CEOs said that they had to communicate

continuously, open up the financials and be

tenacious through the slow decision-makin

process. As one executive put it, the

decision-making process can take months[for a large company]; in our company, it

takes a couple of hours. So the big problem

is [figuring out] how many times is enough

communication. Three times a week? You

constantly have to keep them on track, and

if you start losing them, that could have

serious consequences. //

Graphic recording of CEO retreat Alliances and partnership discussion, drawn by Paula Hansen of Grove Consultants International


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PolicyModerator: Gil Forer, Global Cleantech Leader,

Ernst & Young

Panelists: Ethan Zindler, Head of Policy

Analysis, Bloomberg New Energy

Finance

Timothy Urban, Partner, Washington

Council Ernst & Young

Key policy expectations

Cleantech CEOs will have to navigate through complex and difficult networks of

government policies around the world, and they generally agree that the age of

government support is over.

The industry is now playing defense a situation CEOs are not accustomed to, given

previous high-growth expectations and political support.

Two predominant global issues now define the policy environment fiscal

austerity across regions and changes in energy mix resulting from the Fukushima

nuclear disaster.

The competitive dynamic within sectors will likely be tempered as subsidies diminish,

partnerships materialize across the energy landscape and clean energy becomes more

mainstream.

Winning over policy-makers now means a more collaborative policy agenda and

consistent messages across the industry.

The policy landscape for the cleantech

industry has changed significantly in the past

two to three years. The CEOs of expanding

cleantech companies must navigate through

not only their own countries complex

systems of tariffs and grant programs but

also those of target foreign markets, all in an

environment of increasing scrutiny on trade

and export regulations.

Two predominant global issues now definethe policy environment fiscal austerity

and changes in energy mix resulting from

the Fukushima nuclear disaster. Across the

board, CEOs agreed that the future policy

environment will be difficult as government

support continues to diminish around the

world and companies must survive without

reliance on subsidies.

CEOs also cite lessons learned related to

the reliance on government subsidies and

feed-in tariffs (FiTs), which have been a

cornerstone of cleantech public policy but

have also led to volatility in sectors like solar

and wind as the private sector overshoots

or undershoots government objectives.

Governments, policy-makers and CEOs alike

are now trying to formulate policy measures

that are more cost-effective and provide for

more stable growth.

Fiscal austerity

Fiscal austerity measures will define the

next stage of cleantech policy for European

countries and the United States. In the past,

CEOs had a simple strategy to follow: add

generating capacity anywhere there was

strong fiscal support from government.

Therefore, markets rose and fell depending

on the annual attractiveness of a particular

FiT or grant. Now that most governments

in developed markets have pulled back,the cleantech industry must adopt a more

sophisticated approach of lobbying and

engaging with governments to pursue long-

term objectives and develop on-the-ground

relationships.

Policy-makers and CEOs alike are looking

for new policy mechanisms that cannot be

perceived as wasteful to attract financing

for cleaner energy sources. As one policy

panelist indicated, policy-makers are

designing new policies that get the most

bang for the taxpayer or rate payer dollar.

South American countries, for example, are

finding that reverse auctions are attractive

for spurring wind development and meeting

renewable energy capacity targets because

the tender offer process for a project

allows dramatic price reductions through

competitive bidding. In Brazil, the latest

reverse auction led to major cost reductions

for the regulator with wind projects

beating out natural gas projects in

some cases.

Around the world, there are lessons learnedabout overreaching on policy, and CEOs

agreed that collectively, the industry must

start to better manage expectations on what

public policy can support or deliver.

Changing energy mixes post-Fukushima

The political climate post-Fukushima also

has changed the landscape for clean

energy companies. Japan, Germany and

Switzerland are moving away from nuclear

power. However, the gigawatts of capacity

required to take its place in these countries

energy mix is considerable, with attendant

cost and political implications.

As a result of Fukushima, the nuclear

component of a countrys energy mix is

no longer a known strategy replacing

nuclear baseload has become an important

unknown for policy-makers. CEOs will

have to keep an eye on the myriad political

sensitivities at play among safety, reliability,

price and environmental issues.


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The policy

landscape forthe cleantechindustry has

changedsignificantly.

15


18/32


Playing defense in the United States

CEOs agreed that the industry has entered

a tough period in the United States. Little

legislative progress on important cleantech

issues, such as the extension of the creditfor wind and solar under the US Treasurys

1603 Program, can be expected in the near

term, in view of the congressional deadlock

on debt and tax policy and the presidential

elections in 2012. Overall, CEOs agreed that

the US cleantech industry is diversifying to

different markets or overseas to move away

from the reliance on subsidies.

In addition, the effect of having a few

cleantech companies in the political spotlight

go from darlings to scapegoats has had an

effect on the entire industry. Altogether, the

bankruptcies of a few solar companies have

affected the policy perception of the wind,

biofuels and efficiency markets as well.

To counter the negative political perception,

cleantech companies must emphasize the

benefits of cleantech industry development

beyond manufacturing. CEOs are now

pointing to innovation, new intellectual

property and installation as generators of

economic growth and jobs. As one policy

panelist noted, saving manufacturing

jobs in the US is important, but the reality

is that installation is 10 times the size of

manufacturing 10 times. We can easily getto 250,000 jobs in installation in the United

States, but will not get to that number in

manufacturing jobs.

There is no single enemy. Conventional oil

and gas or coal are all part of an integrated

energy system that renewable energy

companies must work within. Winning over

moderate politicians means conveying a

more positive message and putting together

a more collaborative policy agenda. As

the cleantech industry moves toward a

defensive policy agenda, the ability to

work together and collaborate on a unified

front that delivers more unified messages to

policy-makers will be essential.

There are unprecedented opportunities for

new renewable generation build-out in the

US with the retirement of aging coal fleets

and a changing energy mix in many states

if political consensus can be marshaled in

favor of cleaner energy systems.

The impact of China

The Chinese solar industry has benefited

from national policy support and financing

by the China Development Bank; as a result,

China has become the top manufacturer andexporter of solar modules. However, more

than 80% of Chinese solar exports are to the

European market, which is quickly becoming

oversupplied due to declining demand as

a result of austerity measures. Panelists

suggested that China would likely implement

policies to soak up excess supply through

domestic consumption and new export

markets.

Some participants said that competition

with China in solar is a non-starter and

that Chinas strength in manufacturing

should not become a political issue. Lower-

cost products from China have led to solar

adoption and growth in new markets. Chinas

manufacturing strength has also led non-

Chinese companies to specialize and focus

on different competitive advantages like

design, technology, new materials, quality

and reliability. //

Graphic recording of CEO retreat Policy discussion, drawn by Paula Hansen of Grove Consultants International


19/32


GrowingbeyondFocusing on government and

policy risk

The risk in entering a new market should

not be underestimated. As we found in

our previous research, the rapid-growthcountries are markets that have seen

the greatest increase in competitive

intensity since the crisis. This is driven

by the arrival of many international

players in complex markets that

already had large and robust domestic

incumbents.

Respondents generally seem confident

in their ability to compete with other

players. However, they have a concern

about shifts in government policy,

hostility to foreign investment and thelack of effectiveness or stability in local

regulation and governance all issues

that are outside their control. It is

interesting to note that high performers,

in particular, place significant emphasis

on the importance of a supportive

attitude from government.

17


20/32


Selling to largecorporationsModerator: Jay Spencer, Americas Cleantech

Leader, Ernst & Young LLP

Panelists: Tom Bartolomei, Chief Commercial

Officer, Areva Solar

Conrad Burke, CEO, DupontInnovalight

Jim Davis, President, Chevron

Energy Solutions

Key aspects of selling to large corporations

Selling to large corporations is essential to reaching the next stage of cleantech

industry development. Large corporations create product demand and have the capitalto buy entire companies.

The larger corporations also offer non-financial benefits, such as leverage with policy-

makers, access to emerging markets, new distribution channels, market validation

of new technologies and above all, integration within a larger energy or industrial

ecosystem.

Gaining access or closing a large deal is difficult, but CEOs pointed out that networking

across the value chain, customization for the client and demonstrating the reliability of

the product were all successful best practices that gained entry into a sale.

Large corporations continue to look for successful innovative technologies but

would rather have the ability to influence the technology in the early stages, dictate

deployment or have a distinct role in the distribution.

The cleantech industry offers products and

services that vary tremendously across

sectors. Yet CEOs found common ground in

the challenges and success factors in selling

to large corporations.

Cleantech executives characterized selling to

large corporations as an art form rather than

a clear business strategy. Penetrating new

markets where large incumbent companies

dominate is not easy, and executiveswho were able to do so had considerable

experience, networks and access points.

Thefinancial position of large corporations

makes them essential sales targets for

cleantech companies. Larger corporations

create an essential demand for products

and, at the same time, have the capital to

buy entire companies. According to BNEF,

the 3,000 largest public corporations in the

world hold more than US$2 trillion in cash

on their balance sheets, of which nearly half

is held by potential strategic acquirers.

In addition, the larger corporation also

represents non-financial intangibles, such

as leverage with policy-makers, access

to emerging markets, new distributionchannels, market validation of new

technologies and, above all, integration

within a larger energy ecosystem.

Executives pointed out some important

lessons learned in selling to large

corporations.

>> When Im trying to do a US$500million deal with US$1 million in the

bank and a handshake and saying,

Dont worry, Ill be there in three

years, its not going to happen.

Demonstrate long-term reliability

To penetrate a larger conventional market,

CEOs have found success in closing a

deal by emphasizing the long-term nature

of the business and the reliability of the

product. One executive noted that providing

performance guarantees has now becomemore critical, and structuring a project-

finance deal may include warrants or

established guarantees. Large corporations

need their cleantech ventures to succeed

before deploying a technology across

the board. Executives also noted that

demonstration does not only mean a reliable

initial project, but establishing data and

records and sound accountability.

Evolve to the needs of the customer

Companies traditionally follow the design-manufacture-distribute model, but as the

cleantech industry matures, companies

are evolving to focus just on licensing,

installation, financing, distribution or point-

of-sale services, depending on the market

opportunity. Finding the right business to

complement a larger corporate partners

strengths is important. In the case of an

energy-efficiency service provider, accessing

the vast federal buildings market meant

the company specialized in the supply side

of a joint venture while the larger, more

experienced and networked partner focused

on distribution and the demand side.

Open innovation

CEOs found it critical to open up their

technology design to corporate partners

and collaborate with them on particular

technologies through joint ventures.


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Collaborating with larger partners in the

design stage allows the technology to be

better integrated with the needs of larger

corporations and their clients and reduces

costs for both parties. In the eyes of largercorporations, a cleantech firms flexibility

to reconfigure a particular business model

or technology is important, given that the

larger firm must deal with the demands

of the larger market, including multiple

customers and regulators.

Network

CEOs agreed that the initial access point is

most difficult. Executives must constantly

network to get the word out, talk up a

particular technology and gather the rightrecommendations to gain the initial access

point. One executive suggested getting

credentials with recognized external third

parties as an effective means to get on the

radar of larger companies. And another

participant suggested networking up and

down the value chain to sell to utilities

from the project financiers to the NGOs

contesting a particular development.

GrowingbeyondHigh performers use incremental innovation to capture the wallets of current

customers, in terms of share and price premium, by:

Seeking to get further up the value

curve and secure better prices for their

efforts, both through capturing more

value in product design and through

increased marketing to establish and

protect a brand premium

Increasing product ranges

significantly some 30% have

increased their product range by morethan 20% in the past two years

Focusing on current customers and

employees as primary sources of

innovation approaching innovation

closer to the target market and,

increasingly, in rapid-growth markets

themselves

Following a more formal innovation

process, but with greater clarity on

go/no go criteria and with launch and

review built into the development proces

Achieving competitive advantage by

having business management oversee t

innovation process

Taking their stakeholders with them by

sharing more detail on the potential oftheir innovations and the progress they

are making with them

Graphic recording of CEO retreat Selling to large corporations discussion, drawn by Paula Hansen of Grove Consultants International


22/32


All underscored the need to know and

cultivate your internal champions at a large

corporation. Executives noted that following

another large corporations successful

venture partners resulted in a better

understanding of the corporate culture and

reputation of the larger entity.

>> Were constantly baiting the hook to

suit the fish.

Each entry point is different

Participants underscored that multinational

corporations have many entry points,

some of which may have differing cultural

attitudes to the deployment of a new

technology. One executive noted that

customers in an emerging market may be

open to fast deployment if there is a critical

need for a particular technology, whereas in

the US, several pilot projects would likely be

necessary.

Know the process

When selling to a large corporation, the

CEOs agreed, the pace is always slower

than the innovator would like because of

the procurement systems and processes

in place at big companies. A CEO should

understand its larger partners processes

and manage expectations accordingly. Most

often, a sale is a step-by-step engagement

with constantly changing expectations on

both sides. //


23/32


Growing beyond:competing for growthin a global world

Moderator: Scott Sarazen, Global Markets

Leader, Ernst & Young

Panelists: Andrew Beebe, Chief Commercial

Officer, Suntech Power

Carlos Miranda, CEO, BR

Opportunities

Mark Crowley, CEO, SolFocus

Steve Meller, Chief Innovation

Catalyst, Procter & Gamble

Key actions to compete for growth

Growing beyond the home market may allow cost competitiveness, manufacturing

capabilities, access to a wider customer base or policy incentives, but each CEO needs

to have clear objectives when entering a new market.

Companies must have dedication and a disciplined approach to providing a high-quality

product, but also adapt or localize the product and business model for new markets.

Adapting to local markets also may mean restructuring, undoing vertical integration or

changing the nature of the product or partnerships.

The approach to innovation must be bidirectional, one in which innovation flows not just

from developed markets to emerging markets but also the reverse.

Todays challenging economic environment

has forced cleantech companies to look

beyond their national borders for the next

stage of growth. For cleantech CEOs across

the spectrum, from start-ups to large

corporations, growing beyond the home

market and diversifying across a range

of countries present the single largest

opportunity for growth today.

Cross-border partnerships and alliancesbetween cleantech companies will only

become stronger in the cleantech space.

Cleantech CEOs say that penetrating

different markets or migration across

many nations has allowed their companies

to benefit from tax incentives and subsidies.

Growing beyond the home market is not

just opportunistic, however; it is also

an important risk mitigation strategy.

Diversifying across many markets allows

a company to better balance risks and

rewards.

Benefits to both sides

Whether driven by cost competitiveness,

manufacturing capabilities, a bigger

customer base, R&D or better policy

incentives, each company needs clear

objectives for what it hopes to gain from

the new market. As one of the CEOs stated,

Make sure you are putting the right

emphasis on the right market so that you

are maximizing your growth.

Panel executives noted that cross-border

relationships with large companies in a new

market can have meaningful influence at

a policy and regulatory level. Technology

demonstration and experimentation mayhappen faster or differently in a new count

due to local needs or demands. Going glob

has allowed companies large and small to

experiment and find opportunities to offer

unique solutions that they normally would

not have in the home market.

From an emerging market companys

point of view, a partnership with a US

or European company may also mean

better understanding and knowledge of

financial markets, such as private equity

financing, exits or accessing lines of capita

Partnerships enable companies on both

sides to collaborate and trade experience

and knowledge to overcome challenges an

volatility from the capital markets.

Balance and integrate

The balancing act of having different parts

of the value chain in different countries

means that CEOs must now achieve some

level of integration between different

divisions in different markets. Participants

saw a new trend toward integration of thesupply chain, re-verticalization or ensuring

that the manufacturing process overseas

was effectively linked with development

and engineering. Companies have found

themselves decentralizing operations only

have to vertically re-integrate after enterin

new markets.

>> If you havent laid that groundwork

or you havent spent the years doin

the little projects supporting the

infrastructure, it is very difficult

to run in as an unknown and be

a participant or even remotely

competitive.

Understand local

For cleantech companies targeting new

markets, there is no one-size-fits-all

approach since each market has different

local needs and specifications. Adopting


24/32


Key

questions Which market(s) will be the most

important in the short, mid and long

term, and how do your investment

plans prioritize these markets?

Do you have the right processes,

information systems and experience

to assess market opportunities and

implement strategies?

Do you understand your optimum

geographic footprint in light of shifting

risks, opportunities, regulation and

levels of government intervention in

different regions?

What alternative business

combinations, market-entry strategies

and channels are you considering to

further market reach while managing

risk and without over-extending

capital?

an appropriate business model or entry

strategy is crucial. Hiring a local team is a

popular strategy for many as it enables them

to exploit the local knowledge of culture,

language, risk environment and growthopportunities. To lessen their risk portfolios,

many choose to co-invest with a local

partner. To the contrary, other companies

said that it was worthwhile to build strong

internal teams within the company to better

understand how the business may fit or

how to apply a particular innovation to new

markets. Across the board, participants

agreed that new market entry is a slow,

step-by-step process.

22

Graphic recording of CEO retreat Growing beyond discussion, drawn by Paula Hansen of Grove Consultants International

Bidirectional innovation

Participants emphasized that the approach

to innovation must be bidirectional, one

in which innovation flows not just from

developed markets to emerging marketsbut also the reverse. The innovation

welling up from emerging markets should

be recognized and applied across the

organization. //


25/32


GrowingbeyondHigh performers have an active but

focused approach to market expansion,

including:

Approaching their markets through

a deep understanding of their target

customers

Going beyond the figures to develop

a deeper understanding of the real

nature of the new market and their

target segment and innovating their

products and processes accordingly

Being flexible in their approach to

market entry, but with a focus on

speed of activation and integration

into wider operations

Moving pricing, production and

decision-making as close to target

markets as possible

Paying greater attention to how they

fill technical and operational roles in

their new operations

Communicating more openly and

frequently with stakeholders abouttheir new market strategy

Although India and China stand out

as targets, clear regional approaches

emerge with regard to cross-border

opportunities and the next generation

of rapid-growth opportunities (there is

no new global BRIC)

23


26/32


Open forum

CEO open forum insights

Even if the road leads to success for a particular innovator, CEOs caution that success

may be ephemeral because the cleantech journey means continuously reinventing,

solving problems and recognizing the unexpected turning points.

The growth journey of the biotech sector is an example to cleantech, especially since

biotech also experienced tough early years but weathered difficult times by aligning

and partnering with larger pharmaceutical companies. As policy support wanes, CEOs

recognize that the cleantech industry can strengthen through partnerships with larger

established companies or structure deals much as biotech has done.

Financing for small and medium-sized companies is going to be more difficult, so

compartmentalizing and leveraging value off an existing technology may mean setting

up royalties, licenses, subsidiaries or partnerships focused on a particular technology

that is then deployed elsewhere in a project owned by someone else.

Across the board, CEOs recognize that a step-by-step long-term approach means

careful due diligence, careful timing and more strategic thinking as they move into new

markets or find new partners.

Political winds may not change given the current economic austerity around the world,

but crafting a unified message and delivering a long-term plan to policy-makers can

lead to a more collaborative dynamic politically and will add much-needed certainty to

CEOs future plans.

Overall, the cleantech industry continues

to see growth across the different sector

verticals, and while the growth curve will not

be replicated as in prior years, CEOs see a

different but positive road ahead. The open

forum session allowed the executives to

come together to discuss top-of-mind issues

with peers and brainstorm on potential

solutions. Some of the discussion highlights

are summarized below.

>> There is one thing that everyone in

this room probably relates to. When

you are an innovator and want to

bring a solution or a technology to

market, you have to solve multiple

problems and you have to solve

problems you never planned on or

never wanted to solve.

Managing success

Even if a company realizes success in its core

business, it still needs to be nimble to address

an unexpected issue or manage the results

of its success. One executive observed that

you are now trying to manage all of the

information that comes with success and

deciding what to do with it.

An initial success creates the need to keep

communicating and reassuring JV partners orcounterparties who might not continue to trust

the business strategy as the core business

evolves into addressing something else.

Continued success in the market may also

mean aligning with other parties with which

you would not have in the past perhaps

even a previous competitor.

Many cleantech CEOs noted that theywere initially so focused on realizing their

innovation and providing solutions to

problems that they were not prepared for

the new set of problems or challenges that

came with success.

On the opposite side, in the event of

an unsuccessful venture, unexpected

opportunities arose that shaped the

evolution of the product.

Be on the lookout for unexpected valueCEOs agreed that, at some point, the

business model evolves and there is a turning

point where the unexpected solution may be

more valuable than the initial innovation. One

CEO cited the example of color television.

While RCA first commercialized the color TV,

NBC, the first company to broadcast in color,

ultimately became the more valuable asset.

CEOs agreed that the cleantech journey

means continuously reinventing, solving

problems and recognizing the unexpected

turning points.

Look to biotech

Throughout the retreat, thought leaders

returned to the growth and success of the

biotech sector as an example of industry

development with lessons for cleantech.

Cleantech and biotech share many

characteristics yet also have essential

differences that executives thought were

useful in mapping the future ahead.

>> Having worked across telecom,

software, energy, etc., biotech isthe industry that feels most similar

to cleantech in that it is a highly

innovative industry but unlike

the early stages of software and

telecom, it has very high capital

demands.


27/32


Both industries are capital-intensive, have

a long product-development pipeline and

operate under substantial regulatory

oversight. Both industries emphasize

similar objectives, such as reliability, scaleto gain market share and lower costs, and

effectiveness or efficiency of output. Most

importantly, both sectors also often use

collaboration between small and large firms

to drive products to markets.

The biotech industry has had the ability to

form partnerships and attract capital for

more than 30 years but also experienced

early days of risk taking and failures of the

capital markets similar to the cleantech

industry in recent years.

The partnerships between largepharmaceutical conglomerates and

start-up biotechs drove the development

and maturation of the biotech industry,

participants noted. Biotechs reliance on

partnerships with very large, well-capitalized

companies with a global reach was a way to

accelerate its growth in real economic terms

without external policy support.

The cleantech industry is moving toward

adopting deal structures very similar to

those found in biotech, characterized by a

step-by-step approach to financing driven

by the achievement of product developmentmilestones. CEOs pointed to an industry

maturation curve in cleantech that tracks

to biotech especially with regard to

challenges in raising capital, structuring

deals and exits.

Yet differences also exist between the two

industries. While reliability and reaching

scale are key objectives for both industries,

CEOs explained that it continues to be a lot

more complex to explain to investors the

product pipeline for a blockbuster drug than

for an electron delivered. And while large

pharmaceuticals constantly need a robust

product pipeline that provides demand for

biotech products, the incumbent fossil fuel

companies dont have the same need for a

pipeline of renewable resources at least

not yet.

Addressing transitional capital and

balance sheet problems

CEOs discussed in great depth the

challenges related to capital raising, but

homed in particularly on the challengesin financing small or midsize companies,

especially when the industry is facing highl

risk-averse investor sentiment. CEOs agree

that having a larger partner was essential t

solving the capital balance sheet problems

for medium-sized companies, especially

in a transitional stage. For example, many

cleantech companies are on the brink of

commercialization or need to expand towa

the installation segment of the business.

Partnerships at this stage of commercial

development essentially mean lowering

the cost of capital. Instead of raising capita

at a high cost, a company could license or

leverage the technology for a particular

project that a larger partner owns and

develops, with those revenues accruing to

royalties paid on the technology.

Graphic recording of CEO retreat Open forum discussion, drawn by Paula Hansen of Grove Consultants International


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Due diligence

As the industry collaborates with new

players across a wide spectrum of

industries, having the right due diligence

process will become one of the most

important strategies for a cleantech

company. The due diligence process can

be very costly, and executives suggested

having trade organizations take a role in

establishing dialogue across industries,

as well as meeting with external parties

that can help in the process, such as banks

and other support networks. In addition,

conducting due diligence early in the

process is much more valuable, especially

for entering new markets.

A sound due diligence process also leads

to more proactive partnerships and better

timing in entering a market. Throughout the

retreat, executives echoed the sentiment

that being in a market at the right place was

not as important as at the right time. Timing

and the longer-term pace of transactions

will be defining characteristics of the next

stage for cleantech companies. Therefore,

executives see an important role for

stronger due diligence of new partners, sales

opportunities and new markets.

Embracing the end of policy supports

CEOs found that a move away from reliance

on government support was inevitable.

They embraced the certainty of having an

agreed-upon end date when the industry

and its verticals must be able to stand

alone. It would be difficult, but having an

understanding and policy certainty about the

sunsetting of government provisions would

mean better resource planning and capital

allocation. For the wind and solar sectors,

executives agreed that they were in striking

distance of being able to stand alone.

Executives also concluded that more

government expenditure is not the policy

objective but that a coordinated effort by

government to integrate clean energy is

more useful. State-level priorities, nationalsecurity priorities, global warming and

economic competitiveness all are factors

that influence policy-makers. But a unified

message of integration with larger energy

ecosystems from across industries may be

the one factor that brings parties across the

aisle to the same table. //


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Summary points Innovation is challenging for the cleantech industry given the requirements

for electrical reliability, fuel consistency and water quality which are societal

expectations governed by systems that are inherently unforgiving of failures.

Cleantech is a long-term game. Companies require fixed assets and capital investment;

they also require long build times and contractual guarantees for output or product in

order to attract financing.

The greatest disruption that takes place in cleantech will not be through one

technology breakthrough, but rather through the changing of conventional mindsets.

The real change happens when incumbent industries and systems wholly integrate

cleantech strategies as a new business model for resource efficiency and growth.

Innovation,disruption,transformationFacilitator: Lucia Tian Tian, Harvard Business

School

Cleantech is a challenging case for the usual

discussions of business innovation and in

particular, ideas of disruption. Software

companies can disrupt an industry in a

matter of months or years, augmenting or

completely replacing incumbents. Product

launches can be done asset-light and even

without an addressable market and just as

importantly, failures can happen at low cost.

>> Disruption is a nice word forbusiness plans, but its not a nice

word for electric utilities.

>> You need a system to disrupt

a system.

Cleantechs innovation challenge is in many

ways greater: electrical reliability, fuel

consistency and water quality are all societal

expectations their delivery systems are

therefore inherently unforgiving of failures.

Almost all cleantech companies require

fixed assets and capital investment; they

also require long build times and contractual

guarantees for output or product in order to

attract financing. Cleantechs target marketstend to be heavily regulated and intolerant

of service or quality disruptions, favoring

powerful incumbent companies that are

themselves favored by regulators. Inserting

innovations into complex integrated systems,

therefore, requires an integrated approach.

As one delegate stated, disruption is a nice

word for business plans, but its not a nice

word for electric utilities.

Thinkingthrough aninnovation

frameworkLucia Tian, The Forum for Growth andInnovation, Harvard Business School

Many innovative cleantech companies

are at a stage in which access to capita

is crucial for survival and growth. Often

they turn to large companies like BP

and IBM for strategic partnerships or

acquisitions that allow them access to a

larger balance sheet.

What can innovation theory tell us abouwhether these partnerships are likely to

succeed? What can we do to ensure the

success?

Many innovations fail because the

capabilities of the organization are

not well matched to the pursuit of a

particular innovation. What do we mea

by capability? Specifically, we mean

three interlinked factors that determine

what an organization can and cannot

accomplish: resources, processes and

priorities (RPP).

Resources are visible and measurabl

things like people, equipment,

information and cash; these tend to b

flexible and portable in their usage.

Processes are the patterns of

interaction, communication and

decision-maki

cleantech growth journey from product development to global market leadership - ceo retreat...

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