According to the latest figures from the Cleantech Group, Canada’s position in the Global Cleantech Innovation Index has risen from 7th in 2014 to 2nd in 2021. Backed by strong government funding and an innovative startup ecosystem, a growing number of Canadian cleantech companies have started to develop viable commercial products across various sectors such as mining, electricity grid management and consumer electronics in recent years. At a time when major economies are looking to reduce their GHG emissions and begin the recovery from Covid-19, Canada’s cleantech sector could play a significant role in the transition to a low-carbon economy and help stimulate growth. According to a new Clean Energy Canada report, cleantech jobs are projected to grow almost 50% by 2030, and in the global market where cleantech products continue to see demand, the export-oriented nature of the industry could allow Canada to position itself competitively in tomorrow’s economy.
Despite the potential for growth and impact on the Canadian economy, the ongoing Covid-19 pandemic has had a negative impact on the cleantech sector. Last November, Foresight reported that the industry has been experiencing difficulties in deal flow and financing opportunities, resulting in job losses and risk to Canada’s global competitiveness in cleantech. To address these challenges, the federal government recently invested more than $55 million to spur investments and jobs in zero-emissions products to complement the measures put in place last year. But for Canada to take advantage of the opportunities in the cleantech space, leading experts highlight further efforts that bridge the funding gaps, boost commercialisation, and address the needs of the corporate sector could help cleantech solutions to scale in the coming years.
Greater private-public collaboration can bridge the funding gaps
Investment in Canadian cleantech companies has generally followed the ups and downs faced by the sector over the last two decades. In the early 2000s, the cleantech sector saw a surge of investment, but despite billions being poured into the sector, many startups struggled to take off and ended up failing. As a result, funding in the cleantech sector slowed, which also impacted investment in Canadian cleantech companies as its share of total VC investment declined from 21% in 2013 to 6% in 2016. In recent years, investment has started to pick up again, with Canadian cleantech firms raising $407 million from domestic venture capital providers in 2019, up from just $133 million in 2015. However, past cleantech failures, the capital-intensive nature of technology and long investment periods still create risk for private investors to fund low-carbon solutions. A recent report by Globe Capital also noted the difficulties faced by Canadian cleantech companies – who have proven or even commercial-scale technologies – in accessing debt financing from banks that require positive earnings before income taxes, depreciation and amortisation (EBITDA) to qualify for loans.
For Canada’s cleantech companies to scale up and develop globally competitive products, reducing the funding challenges will be necessary. As the market for clean energy is picking up and accessing private capital outside Canada is reported to be easier for cleantech companies, this may allow low-carbon solutions to develop overseas and create barriers to entry in foreign markets. In order to bridge the critical gaps in funding for cleantech, Lance Laking, Managing Director at MaRS Investment Accelerator Fund, stated, “break-through clean technologies, require patient capital, and can often be risky for private investors, given the capital intensive nature of these businesses. But some of this can be addressed should a third party, such as a government organisation or a potential corporate buyer, be willing to shoulder a portion of the risk at an early stage, the additional capital provides the company with additional runway – and this could incentivise more private and institutional investors to co-invest, or provide debt for cleantech startups.” In addition to this, Laking noted that for private investors to evaluate the risk associated with cleantech more thoroughly, “having more industry insights, such as the reports and data into the applications of clean technologies, would bode well in the due diligence process and help investors decide with more certainty whether or not to move forward on potential investments.”
Government procurement can pave the way for cleantech to scale up and export
Around the world, the renewed focus by countries to develop a carbon-neutral global economy is expected to create more demand for clean technologies in the coming years. For Canadian cleantech companies, meeting this global demand provides a unique opportunity not only to scale up and take an active approach in reducing GHG emissions but also to drive innovation and create new jobs that can support a sustainable recovery from the Covid-19 pandemic. A recent survey from MaRS Discovery District found that Canadian cleantech companies already generate a majority of their revenue (62%) from outside Canada. However, 4% of those cleantech companies with existing revenues above $5 million accounted for 68% of the sector’s revenues, highlighting the need for smaller firms to scale up and expand their footprint in foreign markets. But to venture overseas, Jane Kearns, VP, Growth Services at MaRS, said in an interview that “international customers generally want to see adoption at home, they want tech companies to be able to point to reference companies that showcase the viability of their product to potential buyers outside Canada.”
To help address this issue, Kearns added that “having the government procure more locally produced cleantech solutions – within WTO rules, openly and transparently could play a crucial role in supporting the early commercialisation of technology by providing a reference point so that companies can leverage it in highlighting their domestic uptake to potential customers overseas.” Based on recent IEC research on a group of 259 cleantech high-growth startups, total federal procurement over 11 years (2009–2020) represents just 3.6% of these companies’ overall 2019 revenues and just 4.4% of their 2019 exports. Other countries, such as the United States, have started to support their domestic producers through a “buy clean” program, although certain exceptions are made for Canada. Thus, the best way for Canadian cleantech companies to compete would require developing low-carbon solutions that can gain traction in these markets; demonstrating success in the domestic market through government procurement could be a critical stepping stone that can help scale up and drive exports in the coming years.
Cleantech companies should look to showcase long-term value for businesses
In recent years, corporate sustainability has become a significant issue in Canada, with many companies pledging net-zero emissions by the year 2050. But for the corporate sector to meet these goals, integrating and leveraging new cleantech technologies will be crucial in reducing their emissions and adapting to the new climate accountability requirements being implemented in Canada. For the cleantech sector, these public and private measures are expected to provide a significant opportunity to scale up and address the sustainability challenges faced in the economy. However, the track record of the corporate sector using cleantech solutions remains low in Canada. A recent survey found that, on average, only 1 in 10 enterprises used cleantech goods and services in Canada. The low figure highlights a key area of improvement that will require the cleantech sector to develop products that better serve the needs of businesses in the coming years. One cleantech company that has seen strong growth in integrating its cloud AI solution into the corporate sector with traction across 16 countries is BrainBox AI. In an interview, Sam Ramadori, President of BrainBox AI, stated that “by using AI and cloud computing [in BrainBox AI’s case], the team has been able to create a valuable solution for customers that helps reduce their energy costs and GHG emissions, which in turn, allows them to achieve their corporate sustainability goals without trade-offs in adopting cleantech.”
As businesses seek solutions to improve their operations and competitiveness in today’s economy, Ramadori noted that showcasing early success can play an essential role in building relationships with customers and scaling up as a cleantech company. In the case of BrainBox AI, Ramadori added that their “technology looks to save costs for building owners within 12 months and develops broader efficiencies, which allows for optimising energy usage and making real-time adjustments to consume energy from greener sources.” Therefore, given the scale-up challenges faced by the cleantech sector at large, a key takeaway for the cleantech industry, as the next phase of growth, would be to develop solutions that help boost the competitiveness of their corporate partners and create long-term solutions that facilitates them to transition towards a net-zero economy.