Feb 03, 2011 – New Energy Update
The Middle East and North Africa (MENA) region represents several global mega-markets. One of those is the oil and gas sector. As the global biggest exporter of oil and gas, MENA is the second biggest buyer of technology products and services for oil and gas efficiency. Therefore, companies that deliver successfully to this market will have a platform market to go international.
Clients of this market- ARAMCO, Kuwait Oil Company (KOC), Abu Dhabi National Oil Company (ADNOC), Exxon, Shell- are the most prestigious clients in the world, states Ennis Rimawi, managing partner at Jordan-based Catalyst Private Equity.
“You sell to one of them and you can sell to any client in the world. That’s one area we are focused on for purely economic factors and financial basis- we’re focused on oil and gas efficiency tools in the (MENA) region”.
The second sector according to Rimawi, is water treatment: “60% of the world’s desalination is in the GCC”.
“This region is a global mega-market in the use of desalination technology and services. So for any company serving this market in the region as a value-added technology or services company, their backyard is a global mega-market and a reference base to go internationally”.
Solar energy is the third area, he adds. “Solar energy in the MENA region is a future mega-market. Fundamentally, this is because solar energy is more efficient here than most other places in the world”.
Moreover, the MENA region is used to mega projects with little local or regional value-added, in terms of engineering and R&D services.
“This is where we see opportunity in the energy and water sectors, where small and medium companies can become the large companies of energy products based in the region and serving this market”, explains Rimawi.
Referring to Texas as an example, he highlights that at least 7,000 companies are serving the oil and gas sector in the American state.
“From mom and pop shops to Halliburton, Texas was a platform market for them initially, and now they’re international multi-billion players. When we talk about the MENA region, about sustainability, job creation and diversification, we have to talk about the industrial cluster that serves these sectors”.
Commercial viability of CSP
When asked about the current commercial feasibility of CSP, Rimawi noted that PV is currently gaining a competitive edge over CSP.
“Whatever is commercially viable is attractive. PV now is becoming more attractive than CSP for power generation, close to 15-16 cents per kilowatt-hour (kWh), which is the equivalent cost to produce electricity”.
However, he notes that his company - Catalyst Private Equity - is very supportive of efficiency technologies, which cost even less per kilowatt hour. He specifically points to solar heating.
“[Solar heating] is a big untapped area in the region. In Barcelona it’s a standard, in Turkey it’s heavily used, and in the West Bank in Palestine it’s adopted- because it’s commercially viable on its own. But it’s underused in the rest of the region”.
Tayeb Al Dijani, Founder and Managing Partner of UK-based Atlas International Company, projects a similar point of view.
“In the past, PV was expensive, now the costs are going down. So even projects without subsidies can make sense, and with some proper agreements with governments it will have a lot of benefits for equity investors”.
Al Dijani adds that because of the sovereign nature of the projects, the government is the buyer of electricity and therefore there is a triple A rating in the Arab world for such projects.
Clean tech investment appeal
Is CSP perceived as an attractive market by clean tech investors? And if so, what makes the difference in attracting private equity and where do the risks and opportunities lie?
One of the biggest challenges for the clean tech sector is bridging the gap between venture capital and private equity. According to Ben Cotton, partner in the UK-based Earth Capital Partners, this needs to be bridged if clean tech is to truly claim its place. “There has to be a clearer set of definitions around the sector because the diversity is huge”, he explains.
From a VC perspective, successful investments are ideally made from the C-stage level. “We inject in all kinds of capital, personnel and contacts, with a much more active role. A lot of it has to do with the scale of the opportunity, as we have worked in international markets”, explains Karin Larsen Burns, Director of Clean Technology at Ambata Capital Partners in the USA.
A huge host of issue comes from governments financing concessions. Burns points to the United States as an example. Every state in the U.S. has come up with some form of a new structure; whether in trends, subsidies or tax breaks, in attempt to attract clean tech companies and jobs.
“We have seen clean tech investment ventures go up 28% in 2009 to take the number to around US$8.8bn,” she notes.
However, Burns stresses that the lack of a stable, predictable direction for climate change and renewable energy from Washington and the federal government has taken its toll.
A question that lingers in the renewable energy industry is how the VC model will work in the clean tech space.
Ralf Schnell, CEO of Germany’s Siemens Venture Capital points out several differences to take into consideration, such as the innovation cycle, which is much longer, the capital expenditure and the investment model. “And there is the regulatory framework which strongly affects the business case,” he adds.
As for the year ahead, according to Burns, 2011 will be another challenging for clean tech firms. “We’ll see a lot of deals, (but) few will be getting funded”.
On the other hand, she adds that “there will be teams with very clear value propositions, very compelling economics, and well-identified and accessible markets that are likely to get funded. We will also be seeing post-revenue companies and less technology risk”.