Inspired Evolution is investigating concentrating solar power technology

Given the uncertain global economic environment, dire warnings about the effects of climate change and the perceived increase in shareholder activism, it is hardly surprising that sustainability investing is emerging as a key investment focus.  Sustainable investments are based on the comprehensive analysis of financial performance alongside social, economic and environmental performance.

TradeInvestSA reporter, Kruschen Govender, spoke to Christopher Clarke, an executive director and principal of Inspired Evolution Investment Management (Inspired Evolution). Inspired Evolution is a purpose-built investment holding company positioned to lead sustainability investing in emerging markets in southern Africa. Inspired Evolution's investment focus is on advancing the development and use of clean technologies and emerging natural capital markets.

How would you describe the current investment climate in South Africa?
Clearly there is a general feeling of caution. Although there are worrying global issues such as the US sub-prime mortgage crisis, we are still bullish about the renewable energy market. What we are considering are the ‘low hanging fruits’ in the domestic and regional energy sector. We expect high growth in this niche market. In the next decade we foresee a widespread rollout of renewable energy technologies in South Africa and the region. Many large companies are moving into the energy sector. However implementing any type of infrastructure project is tough.

Please comment on the environmental goods and services sector in South Africa.
Southern Africa is endowed with a wealth of environmental goods and services. Historically this is a non-monetized sector. This is a new area of investment, which South Africa is moving to define more clearly – a new economic framework with stronger legislation. The Department of Trade and Industry has created a forum which is in the infancy of defining the sector. Opportunities exist in various sub-sectors, more specifically water (purification, management, infrastructure upgrade and waste water treatment), energy (renewable energy technology, energy efficiency, co-generation and clean coal technologies) and waste management.

What does the term “sustainability investments” mean to Inspired Evolution?
We manage a new energy and environment fund. Increasing trends of “shareholder activism” have seen 15 % of global investment constitute sustainability investments. Through sustainability investments we aim to create a net benefit for society and the environment. We adopt a triple bottom line approach driven by energy needs and climate change constraints. Investors no longer invest blindly, as today there is a growing awareness of the longer-term understanding of business and its contributions and consequences. Fundamentally, how can we accelerate the development and use of cleaner technology? From a cleantech perspective, sustainability investments can’t adopt a mere country-specific strategy. From a commercial sustainability perspective we are, together with our cornerstone investors, developing a clean technology convergence model to map/transfer technologies, strategic partners, equipment manufacturers, R&D, and financing mechanisms across different territories.

Please comment on the role of private equity in financing infrastructure projects in South Africa.
Private equity is playing an increasingly important role in the financing of infrastructure projects. This is evidenced by some of the large global players such as Macquarie. The investment strategy is different. It involves a lot more government development and regulatory approvals for example. The focus differs as we concentrate more on execution or implementation risks. In this regard we believe that there are unprecedented opportunities in energy, water and waste.

In light of the current energy crisis how do you foresee the transformation of the renewable energy market in South Africa?
Clearly transformation will not occur overnight. It is naïve to believe that renewable energy will be the panacea. Renewable energy has its place. We believe in technology solutions. We fund cleaner forms of energy generation (including clean coal technology) and efficiency and we believe that the solution to the crisis lies in an integrated energy mix. The ‘greening theme’ put forward by government is very encouraging for the industry. There have been positive movements in the solar water heating sub-sector, with supporting government policy and legislation in the wings. However there is a long way to go still for South Africa in comparison to developed nations. We will be playing catch-up for the next 5-10 years, and some skeptics will argue convincingly that coal will still dominate the agenda. We agree with these sentiments but the approaches are not mutually exclusive. We see clear evidence of strong growth in other cleaner forms of energy generation and efficiency as they are coming off a lower base and in the context of the current power generation crisis and price hikes.

In your opinion which renewable energy technologies have the largest growth potential in South Africa?
In this regard we expect that solar (such as solar water heating and PV manufacturing) and commercial wind generation technologies possess the largest short to medium-term growth potential. We are also looking into concentrating solar power (CSP) technology and ocean power. However it all depends on where in value chain you play.

What role will independent power producers (IPPs) play in the provision of electricity in South Africa?
It depends largely on the speed of regulatory reform, feed-in tariffs and the risk/reward profile of power purchase agreements. But according to Frost & Sullivan’s recent research, the IPP market is projected to grow by 76% from 2007-2012.  IPPs will form an important component of South Africa’s future energy mix, especially with regard to responding to the demand from energy intensive industries (i.e. mining). This is evidenced by the current strategic diversification of large industry players from the sugar, coal and general mining groups, into the energy generation sector. We all recognize the future opportunity as global demand for energy ramps up.

Please comment on your relationships with your fund’s "strategic partners”.
We have key co-investment partners and relationships with local and international blue-chip research centres and this is key to staying ahead in a technology market. However we do not fund research and development. Our British partners have strong connections with leading blue-chip universities and via our convergence strategy, our international strategic partners provide a portal to us to import appropriate technologies for roll-out into the region. This is where we achieve our competitive advantage, through our niche local and global knowledge network.

Can you describe the types of agribusiness projects you currently fund or would consider funding? We remain unconvinced of the large biofuel opportunities, predominantly from a feedstock security and food vs fuel perspective.  But we are proceeding with cautious optimism to see how particular technologies and feedstocks pan out, as well as 2nd and 3rd generation technologies. We are more focused on the conversion of biomass to energy or on new generation environmentally-friendly products. This can be a lucrative sector, as a value-added component of agribusiness.

Inspired Evolution Investment Management - http://www.inspiredevolution.co.za/