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Can Southeast Asian Cleantech Start-ups Save the World?

The clean technology sector operates at high risk and even higher ambitions, precisely because it needs to. Here’s what you need to know.

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BY Cristina Morales - 23 Jun 2017

PHOTO CREDIT: Getty Images

It’s been long established that we need to clean up our act. There are over 7 billion people on the planet, and projections say that the world’s population will surge up to 9.6 billion by 2050; 11 billion by 2100. In Asia alone, urban populations are increasing by 44 million people every year, radically escalating the demand for more energy, food, and clean air and water.

These figures, coupled with the push to reverse the effects of climate change, have propelled organizations around the world to develop sustainable solutions.

Start-ups on hard mode

According to this ADB report, start-ups—due to their track record for disruptive innovation—play a critical role in driving the cleantech industry. “Entrepreneurs and start-ups are driving disruptive innovation and the growth of clean technology,” it reads. “They develop the technologies, business models, products, and services required to deploy and finance cost-effective cleantech solutions at scale.”

The thing is, cleantech start-ups face more challenges than the typical tech start-up. The cleantech industry has a history of boom and bust, which is why these challenges cannot be ignored. “Cleantech is not as easy as more traditional tech,” says Ron Mahabir, founder and managing director of Asia Cleantech Capital, an early-stage investment firm focused on clean energy, sustainable transportation, and energy efficiency. “The idea of clean and sustainable food, water, energy, and the environment as an investment thesis sounds genius. But the reality of dealing with utilities, governments, and infrastructure businesses was sobering,” he continues, referring to cleantech’s shaky beginnings circa 2005.

Here are just some of the challenges that cleantech start-ups have to face, according to the region’s experts:

1. Cleantech involves high cost and high risk

Zymeratics, a Malaysian biotech start-up, is dedicated to manufacturing enzymes locally to reduce the country’s dependence on imports and eventually reduce the production cost of enzyme-related industries. Its founder, Hidayah Shahidan, says that the high cost of initiating a cleantech start-up is a pressing challenge. “Initiating a cleantech start-up involves high costs, high risks, but big returns,” he says. “Starting a cleantech company generally needs expensive equipment to meet current market standards.”

2. Cleantech needs to be EXTRA disruptive

Though start-ups, in general, are known to be disruptive, the cleantech sector’s very nature challenges its start-ups to rehaul infrastructures and create new markets. The Manila-based start-up CleverHeat aims to develop refrigeration technologies that are more accessible to food producers (farmers and fishermen), thus contributing to food security by changing agricultural practices. One of its co-founders, Brian Tan Seng, cites challenging the status quo as their primary hurdle. “Changing minds and gaining social acceptance is a unique challenge to clean tech start-ups,” says Seng. “People and businesses are used to the convenience of keeping the status quo.”

3. Cleantech is highly specialized

Transkinect, a Singapore start-up that harnesses the kinetic energy from speed bumps and converts them into electricity, has struggled with finding the right talent to develop their technology. “Singapore has a small market and a shortage in talented manpower in this renewable energy sector,” says projects manager Joanne Law. “To overcome these challenges, we need to go overseas and take a more global approach.”

John Highberger of the Singapore-based start-up EcoWorth has similar views on the specialized nature of clean technology, saying that the sector’s complexity is something that makes it more labor-intensive than other start-ups. “In most cases, the technology is highly complex and must be incorporated within a value chain of other technologies or systems to satisfy customer or regulatory requirements.”

Southeast Asian cleantech start-ups and their potential

Mahabir says that these aforementioned challenges are why many investors are focusing on “lighter” start-ups focused on software and services, “letting the bigger players fund the larger infrastructure investments.” However, he argues that now is, in fact, “a really good time” to invest in the sector.

Here’s why:

1. Cleantech costs have significantly dropped

“Clean power generation is taking off globally, given the significant drop in costs post-global financial crisis,” Mahabir says, pointing out that since the cleantech boom circa 2005, the price of solar PV modules, wind turbines, large-scale batteries, and other clean energy infrastructure costs have dropped “precipitously”.

2. Cleantech’s complexity makes competition difficult

“Even in cases where the core technology is relatively simple, the application of the technology is highly complex and difficult to replicate by competition,” Highberger says. “We have also worked with boutique investment firms who are interested in cleantech start-ups due to the portability of the underlying technologies into other industries. For example, EcoWorth tech’s Carbon Fibre Aerogel is an advanced material that could have a wide range of applications beyond waste water management.”

3. The potential returns for cleantech start-ups are great

Highberger acknowledges that it takes longer for cleantech start-ups to deliver returns on investment, but says that “healthy financial returns over a long period of time and IP protection” have caught the interest of investors.

Shahidan echoes these sentiments, saying that “the returns for cleantech start-ups are great, especially for technology that can stay relevant for years, like in biotech.” Because Zymeratics has managed to secure funding from the public and private sector, his start-up is now focusing on growing the company and the market share.

4. The promise of Southeast Asian clean technology is undeniable

The increased awareness for the need of clean technology has caused the general public to start demanding for eco-friendly solutions, and Southeast Asia is stepping up to the challenge. “More Southeast Asian countries have been maturing their innovation and entrepreneurial capabilities, and have become more deliberate in institutionalizing innovation processes,” says Highberger. “We continue to see an increased focus by government to support technology development and commercialization in cleantech.”

Southeast Asia’s market is particularly promising because of the region’s continuous growth. “While we [in the West] are still slowly recovering from the cleantech wreck, much of Asia continues to grow and require more energy and resources,” says Mahabir. “Southeast Asia in particular does have better prospects as compared to Europe, Japan, and the US, who are faced with aging populations, massive debt problems, and suffocating levels of bureaucracy. In terms of adoption, emerging markets are embracing renewable energy at a faster pace than developed markets. It doesn’t make sense to install old, fossil fuel-based infrastructure when more sustainable, less resource-intensive technology is available.”

5. It’s not a question of if, but when

The need for more sustainable resources may not feel like an immediate concern, but as experts have established, if we don’t make significant efforts to reverse current trends, it’s only a matter of time before we start feeling the consequences.

The ADB says that by 2025, 750 million people in Asia will be at risk from flooding. By 2030, agriculture will need to produce 100% more in developing countries. Already, 80% of Asia’s air pollution can be attributed to transport, and by 2035, it is estimated that the continent will have more than 1 billion vehicles. And by 2050, it is projected that 88% of Asia will experience water scarcity.

Mahabir sums up our situation succinctly: “Like it or not, cleantech is a sector we cannot ignore for all our sakes. We are all in this together.”