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Cleantech –
The Energy Opportunity
How the quest for energy efficiency creates new opportunities
for economic development in Cleantech
Dr. Florian Weig, McKinsey & Co., Inc.
Berlin, May 2010
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
The share of sectors for which energy plays a key role is particularly high
in Eastern European countries
Share on total national revenues 2008, percent
44 43
42
39 Global:
Mobility 35 Ø 40%
31 30
Buildings
Energy-intensive
industries
Industrial High Tech
IT and IT services
Power
Germany Japan Eastern Italy France Great US
Europe1 Britain
Revenues of
relevant sectors 2,380 3,210 1,720 1,420 1,460 1,360 6,320
EUR billions p.a.
Total market
revenues 5,380 7,460 4,119 3,640 4,170 4,370 21,070
EUR billions p.a.
1 Bulgaria, Czech Republic, Hungary, Poland, Romania, Russia, Slovak Republic, Ukraine
SOURCE: Global Insight; World Industry Monitor, February 2009 McKinsey & Company | 1
McKinsey's assessment of energy efficiency levers in the global
abatement cost curve
Avoided
Cost of abatement deforestation CCS, coal
EUR/t CO2e America retrofit
Solar
40
20
0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
-20 Abatement
Gt CO2e/year
-40
-60
-80 Air conditioning Clean technologies are products or
solutions that
-100 Lighting systems ▪ Lead to a step change of 50%+ in
energy efficiency vs. existing
-120 technology
▪ Are disruptive to their industry
Insulation
-140 ▪ Develop global growth clusters
improvements
-160
SOURCE: McKinsey, Vattenfall McKinsey & Company | 2
Cleantech centers of growth are developing a global market potential of
EUR 2 trillion in 2020
EUR billions p.a.
2008
Sum of all Development of selected centers of growth
centers of growth within key sectors 2020
CAGR
13% p.a. Percent
2,140 15
Mobility 29
325
87
Buildings 7
180
48
Industrial High Tech 8
105
6
IT and IT services1
45 18
500
79
Energy industry
345 13
2008 2020
1 Include energy-efficient IT, IT for energy management, smart grid, IT based traffic systems
SOURCE: McKinsey report, "Wettbewerbsfaktor Energie" McKinsey & Company | 3
Radical customer orientation and new business models key to realizing
market potential
Main levers
Adapt applica- A Design-to-value, e.g., cogeneration
tion to meet solution to reuse rejected paper
customer needs
precisely B Design-to-cost, e.g., using less costly
1
components in CHP systems for
residential customers
Mindset of radi-
cal customer
Cater business C Financing models, e.g., rate payment
and financing models for energy-efficient consumer
focus to bring
models to cus- products
energy-efficient
tomers
products to scale
D Business model transformation, e.g.,
energy contracting solutions for buildings
Raise custom- E Value-selling, e.g., clearly defining and
er awareness communicating value to the customer and
of TCO benefit2 offer alternative operating/financing models
1 Combined heat and power
2 Total cost of ownership
McKinsey & Company | 4
How is your glass? Half empty?
Following the wave is already promising
▪ Economic competitiveness: Many Cleantech
applications have short payback periods – good models
to cross the initial investment barriers are needed
▪ Jobs: In typical Cleantech industries like renewable
energies about 50% of value add is in designing and
installing the system locally
▪ Energy independence: Energy efficiency reduces
dependence from unreliable or costly supply
▪ Environmental benefit: Lower pollution levels and
higher quality of life
But…
▪ Accept technology leadership by others: US,
Germany, China all have quite a headstart
SOURCE: McKinsey McKinsey & Company | 5
How is your glass? Half full!
Surfing the wave leads to real opportunity
▪ Still emerging opportunities: Most Cleantech markets
have no established industry structure and are expanding
constantly; no single technology or business model
winning so far
▪ ECA advantage 1: High energy dependency of ECA
industries makes them the perfect breeding and testing
ground for many Cleantech applications
▪ ECA advantage 2: Strong R&D and engineering culture
providing a strong innovation base
▪ ECA advantage 3: Established partners in many of the
Cleantech industries to quickly access know-how
What is your strategic posture?
Where is your Cleantech master plan?
SOURCE: McKinsey McKinsey & Company | 6
Start to think about
your Cleantech
opportunity today…
Thank you!
McKinsey & Company | 7
Energy plays a key role in 40% of the global economy
2008 worldwide revenues, EUR billions
100% = 36,500
7,650 Mobility
100% = 90,750
7,440 Buildings
Energy-intensive
60% 40% 9,830
industries
1,710 Industrial High Tech
1,110 IT and IT services
8,760 Energy industry
SOURCE: Global Insight; World Industry Monitor, February 2009; McKinsey report, "Wettbewerbsfaktor Energie" McKinsey & Company | 8
The energy crisis and climate change are forcing politicians and industry
to act on energy efficiency
Energy efficiency discussion driven by 3 underlying issues
High energy ▪ Energy prices volatile, but increasing in long term,
prices in e.g., by 2.5 - 3.5% p.a. for German industry
long term ▪ Driver: sharply increasing demand for primary
fuels, especially in developing regions
Concentration ▪ Indigenous local resources being depleted, e.g.,
of supply EU gas supply will shrink by 15 - 20% by 2020
▪ Remaining resources increasingly under political
control of exporting countries
Climate policy ▪ Challenging national targets for energy efficiency,
objectives e.g., in Germany and the US
▪ EU CO2 trading schemes will likely be extended to
more industries; long-term CO2 prices climbing
"Double energy efficiency by
2020 compared to 1990 levels"
German Federal Government
McKinsey & Company | 9
Our definition of clean technologies – Cleantech – and respective
centers of growth
Example – automobile drive technology
Increase in energy Automobiles sold
Automobiles efficiency above Millions CAGR
Definition with historical average 2008 2020 Percent
We focus on clean technologies/
products/solutions that … Standard com-
< 50% 55 22 -7
▪ … can improve energy effi- bustion engines
ciency (or decrease GHG
emissions) by at least 50%
beyond historic trajectory Optimized com-
2 42 29
bustion engines
▪ … are thus disruptive
> 50%
▪ … develop into centers of
growth with average growth Hybrid or elec-
1 13 24
rates of 13% p.a. tronic motors
Centers of growth
SOURCE: McKinsey report, "Wettbewerbsfaktor Energie" McKinsey & Company | 10
Already in 2008, over EUR 100 billion investments flowed into the
Cleantech sector across all asset classes worldwide
Global Cleantech
investment flows1
EUR billions2
Private equity
Government R&D
4.1
Venture capital 5.8
43% p.a. 6.0
Public markets
100.7 6.7
Corporate R&D 7.7 55.1 Asset finance
15.3
24.2 Small-scale
projects
2004 2008
1 Excluding M&A and MBO deals
2 USD converted to EUR with exchange rate of 0.71 EUR/USD
SOURCE: World Economic Forum report, "Green Investing 2009" McKinsey & Company | 11
C Innovative financing models – Berlin Energy Agency
aligns investment and benefits for building retrofitting
Project approach
Berlin Energy Agency
▪ Acts as project manager
▪ Berlin Energy ▪ Pools buildings and
Agency manages negotiates contracts
retrofits of large
buildings
▪ Example projects ▪ Guarantees energy savings
include schools, of > 25%
offices, hospitals, ▪ Assures financing of retrofit Energy systems
and residential Building owner company, e.g.,
buildings ▪ Pays 80 - 97% of achieved equipment supplier
▪ Public-private energy savings until retrofit
partnership of city is paid back (8 - 12 years)
of Berlin, Vattenfall Key benefits
and KfW (Federal
Promotional Bank) ▪ No up-front investments ▪ New business
▪ Program already ▪ Professional retrofit generated through
plan leveraging full endorsement of Berlin
transferred to Energy Agency
several ECA cities savings potential
▪ Positive cash flow from ▪ Additional revenues if
energy savings from retrofit measure more
day 1 effective than planned
SOURCE: Berlin Energy Agency McKinsey & Company | 12
D Energy contracting models can bridge high up-front costs
Energy contracting example, Siemens Building Technologies
Both customer and contractor benefit from energy savings … … creating a win-win situation
Energy and
Contractor
operational costs
▪ Makes investment for
Baseline costs energy-saving measures
▪ Receives payment within
Customer guaranteed amortization
savings period
Guaranteed savings
Reduced costs due to performance-based solutions
Customer
▪ Does not need to pay for
up-front investment
▪ Does not assume any risk
▪ Benefits from any upsides
of energy savings
Program Time (years)
Contracting model transformed business from selling
mere equipment to selling energy efficiency service
SOURCE: Siemens Building Technologies McKinsey & Company | 13
