TODAY’S STUDY: WHO MAKES THE MOST NEW ENERGY AND WHY

Clean Economy, Living Planet; The Race to the Top of Global Clean Energy Technology Manufacturing

Arnoud van der Slot and Ward van den Berg, June 7, 2012 (World Wildlife Fund)

Executive Summary

For four years, WWF1 and Roland Berger have tracked developments in the global clean energy technology (cleantech) sector and ranked countries according to their cleantech sales. This third CLEAN ECONOMY, LIVING PLANET report compares regions and countries on the basis of their sales value in the cleantech manufacturing chain, covering manufacturing inputs such as silicon and specialized machinery, intermediate products such as solar cells, and final products such as wind turbines, heat pumps and biofuels. Individual technology sales are aggregated to produce country rankings, market share analysis and growth rates.

Cleantech offers attractive market opportunities for countries and companies alike. Today, clean energy technology manufacturing is a fast-growing global industry, similar in size to the consumer electronics industry. In 2011, the value of cleantech manufacturing almost doubled over 2008, reaching EUR 198 billion. While the period between 2008 and 2010 saw growth of 31% per year, the sector is maturing, and growth became more stable at 10% in 2011.

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This is still well above global GDP growth. The pace of growth has slowed in part because of lower economic growth in key regions, and also because of significant cost declines in both solar and wind that reduced sales value.2 The strongest growth was observed in the energy efficiency market (+22%) and the solar PV market (+11%).

Although growth has slowed, the cleantech sector will continue to outgrow other sectors. By 2015, it will rival the oil and gas equipment market, when the market size is forecast to be between EUR 240 and 290 billion. WWF advocates a 100% renewable energy future by 2050.3 Countries, companies and consumers working on this goal will adopt cleantech on a large scale and over a prolonged period. This warrants long-term growth and further raises the attractiveness of the market.

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Countries and companies are already benefiting from the shift to renewable energy and increased energy efficiency. China, the European Union and the United States are the main cleantech regions. China is the cleantech winner, and its sales grew EUR 13 billion to EUR 57 billion in 2011, as shown in figure 1. The US was also able to grow its sales, though its sales as a share of its national economy are still significantly lower than those of China and the EU. In contrast to the other two regions, sales in the EU actually declined.

China is the largest cleantech country in absolute terms. China is successful not only because of its lower labor and capital costs, but also because of its stable government policies, strong applied R&D and well-developed supply chain. As a result, China overtook the EU as the number one cleantech manufacturing region in absolute terms.

Other major cleantech regions have not been able to capture these opportunities in the same way as China did. Despite growing at 17%, the US is still far behind China and the EU. It has a strong position mainly in biofuels and does not seem to be interested in advancing in other segments. While the US has a good federal policy for biofuels, it lacks similar incentives for other cleantech segments, and incentives at the state level differ from one state to the next.

European countries were not able to benefi t from the growth, either, and their cleantech sales even declined. The Netherlands saw a decline of 14%, cleantech sales in France fell 30%, and in Spain, sales dropped 9%. Denmark and Germany are exceptions, with steadier sales. Because of these two countries, the EU still has a strong position in wind. The fi nancial crisis that continues to affect Europe has monopolized the attention of governments, made all investors more risk averse than in past years, and has directly impacted on cleantech investment levels. We expect European countries thus affected to refocus their attention on the strategic growth opportunities in the cleantech sector as they recover from the financial crisis.

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Figure 2A shows the performance of all countries in the absolute country ranking, which measures the sales from manufacturing cleantech. China is the clear leader, showing remarkable growth of 29% per year. The US holds second place in the absolute ranking, with sales of EUR 37 billion. Germany is number three, and South Korea, Taiwan and India are runners-up.

Our country ranking in figure 2B shows which economies focus most strongly on cleantech manufacturing. This ranking measures sales as a proportion of the countries’ total economies. In these terms, Denmark remains the global cleantech leader. Though a comparatively small country, Denmark is home to large companies in this sector. China holds second place and is closing in on Denmark.

With substantial market growth expectations, our new 2011 ranking by no means illustrates a settled cleantech manufacturing race. The race is just beginning. All countries can learn from the best practices of successful countries.

Successful countries share a coherent, long-term and comprehensive approach that includes all stakeholders. The best practices of Denmark, China, Germany, the US and South Korea demonstrate a strong approach on three levels. First, on a foundational level, government, R&D institutes and fi nancial institutions shape the right conditions for the cleantech industry to develop and grow. On the second level, cleantech adopters (customers) create market demand for cleantech products. Finally, on the third level, the cleantech industry must develop into an efficient, innovative industry and optimize its supply chain:

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Foundation:

• A coherent and stable policy environment has to include both energy and industry policy – A good example is runner-up South Korea, which has identified cleantech as the next engine for growth by focusing on R&D and manufacturing incentives, as well as targets for renewable energy use and energy efficiency

• A focus on R&D from basic research to applied demonstration projects results in better cleantech products – Since the 1970s, Denmark and Germany have invested substantial amounts in and put a strong focus on demonstration projects, thereby creating a leading position in the wind industry

• Availability of sufficient capital fosters the development and use of cleantech – For example, Chinese companies have good access to capital, and in the US, a thriving venture capital industry supports cleantech companies

Cleantech adopters

• Cleantech adopters create a domestic market for cleantech companies – In Denmark and Germany, local communities invested in wind turbines, and in the US, large companies purchased cleantech products, thereby creating a domestic market

Supply chain

• Large companies and a strong supply chain drive cleantech sales growth – Chinese companies have grown their operations substantially and benefit from their economies of scale. A focus on vertical integration enables Chinese companies to manufacture more efficiently.

To assess the strengths and weaknesses of each major region in developing and accelerating the growth of the cleantech sector, Roland Berger surveyed more than 60 cleantech companies worldwide. Based on company responses and additional analysis of regional developments, we developed recommendations for the EU and the US on improving the business climate for cleantech manufacturers, as well as the additional steps China can take to stay ahead:

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The European Union member states can

• Develop a strategic vision for the cleantech sector that provides a stable basis for long-term policies – Ending frequent changes in policies and sticking to a clear and strategic vision will give market participants the security to invest

• Make more capital available to cleantech companies and cleantech adopters – More venture capital would enable European startup companies to bring their innovations to the market. In addition, expanding the financing options of cleantech adopters would support the growth of cleantech companies

The United States can

• Develop a stable policy support system for cleantech products at the national level and align policies across states – Replacing short-term programs with a more comprehensive, long-term approach would create more stable demand and offer companies greater investment security

• Create a more stable cleantech R&D budget to increase innovation and drive down costs – Long-term R&D roadmaps should be matched with long-term R&D budgets that enable research institutes to conduct their research and achieve their objectives

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And finally China can

• Increase funding of basic R&D – The Chinese government should allocate more resources to basic research, as well as raise the attractiveness of basic research jobs to attract the brightest talent

• Build awareness and cleantech acceptance among companies and consumers – An increase in local demand for cleantech products will help grow the cleantech sector. Current business practices may be need to be adjusted to enable the inclusion of cleantech products

Each country has the opportunity to increase its cleantech sales value and capture a share of the 21st century industries. The global cleantech market is predicted to grow between EUR 40 and 90 billion by 2015. We have calculated the stakes of each region. These stakes are based on the differences between the 2015 sales value in the base case and best case. In the base case, countries do not implement the recommendations, and in the best case, they do implement these recommendations. The difference in value between the base and best cases for the EU, or the European stake in the cleantech market, is between EUR 19 and 31 billion. The US stake in the cleantech market is between EUR 23 and 28 billion. China has the highest stake, between EUR 30 and 80 billion.

These stakes show the great economic opportunities of the cleantech sector. Long-term opportunities are even greater, when the 100% renewable energy future is made a reality.

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