Race for new energy markets: Emerging powers lead the way

By Frank Brandmaier Jan 17, 2011, 11:57 GMT

Washington - Mohsen Khalil still remembers the deep skepticism of his bosses when he first suggested building up mobile phone networks in the world's poorest countries.

'I was one of the crazy people here who promoted it when I was an investment officer - against the beliefs of my supervisors,' said Khalil, then director of information and communication technologies at the International Finance Corporation (IFC).

Khalil would soon be proven right. Mobile telephones have since swept all corners of the globe, from Africa to Asia and Latin America.

It is a ringing success that Khalil believes can be repeated - this time with the worldwide spread of environmentally friendly technologies.

The IFC, which as an investment arm of the World Bank looks for opportunities to make money in the world's poorest countries, is throwing itself behind the trend. The IFC recently set up its own subdivision, the Climate Business Group, to be headed by Khalil.

Within just three years, the IFC is planning to double its stake in climate-friendly projects to 20 per cent of its total investments, which last year amounted to 18 billion dollars around the world.

'Massive investment is needed in renewable energy in the coming decades to provide for the needs of the emerging economies,' said IFC head Lars Thunell. The IFC's investment team is convinced: 'The transition to a cleaner energy path is one of the great business opportunities of our times.'

According to the World Bank, 1.5 billion people - 20 per cent of the global population - are forced to live without electricity.

That means 'increased use of renewable energy is in poor countries' direct interest,' according to an IFC report on the topic. 'It can provide clean, cheap, and reliable access to electricity.'

The IFC has been investing in water and solar power plants, large and small, in Asia and Africa, as well as wind farms in Mexico, the largest in Latin America, and local biomass power plants in India.

The first step is to drive down the costs for green technologies to get off the ground in poor countries - similar to the initial hurdles with mobile phones. Once that happens, 'then the market is huge,' Khalil said.

But the process also requires the creators of green technology to think outside the box, to think not only of industrial-scale production but of smaller, consumer-driven energy options that can be used in poor countries.

'Those countries and companies that see those segments of the population and those parts of the world as a market, and start to think about solutions, are going to be the winners,' Khalil said.

Globally, competitors have already arrived at the starting line. China, the world's biggest emitter of greenhouse gases, is leading the push.

'The Green Race between countries is on,' said Bjorn Stigson, chair of the World Business Council for Sustainable Development, a global association of about 200 companies. 'In China, as in other Asian countries, we see a growing awareness of the business opportunities in green growth.'

Stigson said China controls about 50 per cent of the worldwide market for solar panels by the end of 2009. Three years ago it owned only 3 per cent.

The emerging Asian giant also doubled its wind energy capacity between 2008 and 2009. China has set an ambitious goal of boosting renewable energy production to 15 per cent of its total energy use by 2020, up from 9 per cent in 2009.

The rush of emerging economies into the market for green energy is hard to overlook.

China passed the United States in November for first place in a ranking by Ernst & Young of the top 30 most attractive countries for investing in renewable energy. Germany came in third, together with India.

Four new countries made it onto the list in November: South Korea, Romania, Egypt and Mexico - all emerging economies.

Of China, Ben Warren, chief advisor on climate and energy for Ernst & Young, told the online site RenewableEnergyWorld.com: 'Cleantech, including renewable energy, represents a significant part of the country's future economic growth plans.'

By contrast, alarm bells are ringing in the United States.

'The longer we in the United States wait, the farther ahead China will be, and it will be harder for us to catch up,' Commerce Secretary Gary Locke has said.

'If we don't get our act together, we're going to be watching the capital, the businesses and the good-paying jobs end up someplace else. And in 10 to 15 years from now, we're going to be saying, 'how did Shanghai become the Silicon Valley of clean energy?'' Locke said.

That the United States is falling behind is clear from the Ernst & Young report. Reasons cited include a deadlocked political debate, the economic crisis, and low petrol prices.

Khalil is hardly surprised by the steady gallop of emerging countries. While technological breakthroughs might still be coming out of wealthy countries, many of those technologies are likely to be used in developing countries dependent on new energy.

Countries with common problems 'obviously will be better positioned,' he said. 'You need to be investing, or have a presence on the ground, to understand the nature of the problems.'

Despite the trend, Khalil recognizes that many IFC investors will still need some persuading. Many renewable investments will have heavy start-up costs before they yield profits.

'That's really a challenge,' he said, but stood by the three-year timeline for doubling climate investments. 'The momentum is there.'