Follow the green way

DUBLIN'S GREEN CLUSTER:Dublin may be coming late to the party, and we have plenty of EU competition, but current efforts to attract eco-investment might just save our future economy

AS DUBLIN WAS welcomed into the Global Cleantech Cluster Association (GCCA) this week, 10 Irish firms showcased their green technologies to a panel of judges from the private equity and cleantech venture capital world. With $3.5 billion (€2.5 billion) invested in the sector to date, they represent established players such as BASF and Deutsche Bank.

It is all part of an initiative to create a “green cluster” in Dublin called the Green Way – an tSlí Ghlas – which, it is hoped, will provide a much-needed boost to Ireland’s green business sector.

Like Copenhagen, which became a GCCA member a year ago, the Irish cluster aims to create 1,000 new jobs over the next five years. Reaching a critical mass is likely to be a painstaking challenge however, and that is also true of a parallel effort also under way on the banks of the Liffey, where plans are afoot to establish a “Green IFSC” – billed as a global centre of excellence for carbon management and related asset finance and financial innovation here.

Let’s imagine you’re the chief executive of a Chinese firm looking to sell your clean technology products throughout Europe, and to develop new ones for this expanding sector. It’s your job to choose the location for your new European headquarters and RD functions: where are you going to go?

Might you overlook the merits of existing cleantech clusters near Graz in southeast Austria, Stockholm and Copenhagen, all of which are in the GCCA’s top 10 – and come to north Dublin? Or would you head straight for the world’s most successful cleantech cluster, Austria’s Eco World Styria?

Although some of its member companies’ roots go back as far as the 1970s and the cluster began to evolve in the late 1990s, the Austrian cluster was officially opened in 2005, building on a business culture similar to Germany’s Mittelstand companies.

Also known as “Europe’s greentech valley”, it is home to more than 150 cleantech firms whose total annual revenue amounts to €2.7 billion. About 15,000 people are employed by these companies, 12 of which are world leaders in their field. Building on the region’s numerous specialised research centres and tradition of engineering, they are especially strong in biomass, solar energy and wastewater treatment.

The member companies created 2,000 jobs in 2008 and have 22 per cent annual growth, aided by a high investment in RD averaging over 4 per cent. By 2015, Eco World Styria aims to employ 20,000 people and increase the number of world-leading member companies to 20.

Backed by foreign trade commissioners from a chamber of commerce with a keen interest in cleantech, the cluster has strong export ties to Russia and the US, and has forged strong links to China. It is the first European institution to achieve “consultant” status to Tianjin, a region that is home to 150 Forbes 500-listed companies.

In this context, Dublin may be coming late to the party, but we are only a year behind Copenhagen’s cluster in the home nation of wind energy giant Vestas. Ireland can also point to similar success with a cluster in another sector. The medical devices cluster in Galway boasts the second highest concentration of medical devices companies in the world, after Minnesota in the US. In 2009, it was estimated that the sector employed 26,000 people here, accounting for annual goods and intellectual property (IP) exports of €6 billion.

While we are playing catch-up in the cleantech sector however, we can only imagine where an tSlí Ghlas may have led us had it started five years ago. Back then we could have invested a significant amount of public money in the project, alongside private funds.

A fraction of the tens of billions that we will never see again thanks to Nama and the banks might have been spent on an ultra-green, technologically and architecturally advanced development: the headquarters of an tSlí Ghlas might have been the envy of the world.

Had we also invested in, and reformed, our skills and education policies with similar world-class aims in mind, they would now be bearing fruit. The first graduates would perhaps now be working in something like a smaller version of the Masdar development currently being built in oil-rich Abu Dhabi. Instead, as we know to our cost, we are losing some of our most talented people to emigration.

As things are, an tSlí Ghlas is working with just €375,000 of initial funding. Founding organisations, committee members and others are giving their time for free.

Copenhagen’s cluster has a budget of €20 million over the next five years, and Dublin hopes to raise a similar amount. The Danes get €10 million of their budget from EU grants, €5 million in local authority funding and the remainder from founding partners such as Vestas, Siemens Denmark and Dong Energy.

An tSlí Ghlas hopes, in addition to the 1,000 jobs target, to attract 25 foreign companies to the cluster; create 30 new RD links between member companies and universities; forge links with 15 other cleantech clusters; attract at least 200 members to join the initiative; host at least 200 networking or showcasing events, with a cleantech fund backing at least 25 start-ups.

“We are trying to activate the existing assets, capabilities, facilities, companies and citizens who are already here and provide a joined up vision and a strategic approach. We are an engine to help economic advancement,” says committee member and Dublin Airport Authority (DAA) head of strategy Ronan Furlong.

It is hoped that this “joined-up” opportunity will be attractive to multinational companies and indigenous start-ups – for a variety of reasons.

The DAA, Dublin City Corporation and Fingal County Council have substantial green procurement budgets. The latter two can provide access to data for the purposes of developing “smart city” applications. They also provide opportunities to develop and test municipal waste, power, water and transport solutions on a city-wide scale. IBM, with a large smart city RD operation in north Dublin, is likely to join an tSlí Ghlas.

Dublin Airport, DIT, DCU and two major residential communities – Ballymun, with the additional social regeneration vision of Ballymun Regeneration, and Swords – could act as “living labs”. By virtue of their size, they would allow innovators in LED lighting or electric car fleets to scale up their products or services.

Companies keen to develop biomass-powered combined heat and power energy plants adjacent to the airport could help cut its carbon footprint.

“Aviation is coming under the EU emissions trading scheme (ETS) in 2012, meaning airlines will have to buy carbon credits and increase their efforts to reduce carbon emissions” says Furlong.

“Aer Lingus and Ryanair are based here so that could represent a further opportunity to link up with an tSlí Ghlas and help them to do that, perhaps by establishing an aviation carbon competence centre, working alongside the Green IFSC’s carbon management aspirations.”

Recently there were reports that both airlines were in talks with a sustainable aviation biofuel company about establishing a Dublin operation, and an tSlí Ghlas looked at providing land and logistics capabilities.

Fingal County Council’s new county plan should see part of the DAA’s land rezoned for a substantial office, exhibition or conference centre and RD development, or perhaps a landmark international cleantech services centre that could be a future asset to an tSlí Ghlas.

The site could be offered to significant potential foreign direct investors who could custom-design a headquarters to the highest green building standards, join an tSlí Ghlas and employ a large workforce within a stone’s throw of an airport with pre-immigration clearance to the US.

An tSlí Ghlas has also been in talks with a Chinese LED lighting manufacturer. “They could commercialise on the airport campus, and then collaborate further with the member universities and local authorities. Success here could then make a case [for selling] elsewhere in Europe,” says Furlong.

“This would be on the proviso that they establish a manufacturing operation or European headquarters here. They could then work on further RD opportunities and that would help the IDA attract other Chinese companies.”

The project has already established a partnership with the EEA Group, a Chinafocused cleantech fund and asset manager with over $1.75 billion under management and advice, which is keen to bring Chinese cleantech companies to Ireland to establish EU headquarters.

DCU and DIT already have links with eight Chinese universities, while the DAA and DIT, in collaboration with the University of Houston, Texas have established an Energy Product Innovation Centre (EPIC), a custom-designed RD facility that is also easily accessible to visiting clients and researchers.

“We would fully anticipate the future involvement of other potential members in the Dublin area as we move forward, including companies like Microsoft, Trinity College, UCD and several other universities and local authorities,” says Furlong.

Next month an tSlí Ghlas hopes to appoint a chief executive who will foster new links and attract new members. They will be able to point to the 10 showcased Irish companies, a Green Start programme for mentoring and training cleantech entrepreneurs, and the EPIC facility – as well as old reliables such as our corporation tax, favourable IP regime and RD tax breaks – as reasons to locate in Dublin.

In the meantime, more than two years after the idea was first conceived, and notwithstanding our bruised and battered economic reputation, the Green IFSC’s development committee argues that Dublin’s position as a global leader in aviation lease financing and other financial back office functions makes it an ideal location for finance and innovation in the management and settlement of both voluntary and certified carbon credits.

In addition to some private funding raised, the outgoing government provided for €6.8 million in seed funding for the Green IFSC project over three years.

“Opportunities currently exist in the underdeveloped area of structured products such as environmental or climate bonds, which could help finance renewable energy and clean technology projects, building on Dublin’s pool of talent and skills in asset finance,” says Bank of Ireland head of natural resources risk management Paul Harris, a member of the Green IFSC steering committee.

“Because of the vast scale of investment required, there are myriad financing opportunities. Green derivatives, incorporating carbon credits into financing schemes for everything from retrofitting buildings to large energy infrastructure projects could be created here. Ireland has a lot of entrepreneurial, inventive, technically brilliant finance, and consultancy professionals with the necessary skills to succeed in this business.”

But the Green IFSC initiative is the weakest element of Dublin’s green ambitions, according to Irishman John Rowland, a London-based investment manager with Consensus Business Group, which manages more than $500 million of cleantech investments.

“There is uncertainty around carbon credits in the UN Clean Development Mechanism post-2012,” he says. “Add the fact that the EU ETS [Emissions Trading Scheme] has been trading for years, and this seems badly timed. Dublin could set up services for local carbon markets overseas, but I’d expect they’d keep such jobs in those countries.

“The area of green bonds is ultimately moving money around several times between the government and the public. Why not just give grants? India would be the cheapest place for back office functions related to carbon management. There is no IP or competitive advantage for Ireland.”

He is more positive about an tSlí Ghlas, although its business case needs to be carefully planned. “If you boost early stage companies too early, you’ll wait a long time for them to generate sustainable cashflow. You need a mixture of later stage and early stage companies so the project can cover its costs, and to give the early stage companies time to become sustainable,” he says.

If an tSlí Ghlas develops a critical mass, it should help early stage companies to validate their products or services faster than they might be able to at present. They will either fail faster or succeed faster, and that’s a good thing. Seed capital investment – urgently needed in the cleantech sector, according to Declan Murphy, co-founder of the Ecology Foundation, a Dublin-based private green business group – would thus become less risky.

“An tSlí Ghlas will fail unless it lowers its initial focus to the direct seed funding of real projects, where experienced individuals or smaller businesses have viable proposals to bring to the world’s markets,” he says.

“Ireland’s business people need travel funds, staff funds, tech support, grants for prototypes and free office space – in short, they urgently need risk capital. With this in mind, backed by strong and progressive partners, an tSlí Ghlas can succeed.”

Shawn Lesser, chair of the international GCCA, sums up the co-operative challenge: “Building an eco-system, you need to have a lot of different parties involved who buy into the idea. It’s a puzzle and if certain pieces are missing, that’s the biggest challenge. You want everyone to benefit until you see a domino effect and it becomes self-sustaining.”

But these are not the only concerns. Ireland would have a unique selling point with which to attract a new wave of foreign multinationals to our shores – or encourage the existing ones to expand their operations here – if we could offer them guaranteed carbon-free wind energy, backed up by hydropower storage in the west of Ireland.

In theory, with the financial backing of one or more Asian sovereign wealth funds that have expressed an interest in the idea, and if planning permission can be obtained, this can be done.

After 20 years the project would be handed over to the State, according to the Spirit of Ireland project team. Admittedly, there may then be a cost to the State to replace hundreds of wind turbines whose design life would be at an end, but that’s another matter.

The significance of such a project, sources in the IDA say, is that they could approach hundreds more foreign direct investors, some already here and others they keep in touch with but who are not yet here.

Another factor to be borne in mind is that our neighbours in Scotland have taken the lead in the marine energy sector, where there is considerable potential for Irish businesses.

In this regard, an tSlí Ghlas may find itself competing with Scotland, and arguably the rest of Britain, whose continuing success in attracting manufacturers in the wind energy sector suggests that the same success may be replicated in manufacturing wave and tidal turbines.

Of course, Dublin is also competing with Copenhagen, Eco World Styria, and numerous other cleantech clusters. To some extent this initiative might magnify our weaknesses in this industry. At most, there are 200 Irish cleantech companies, compared to 4,000 in Sweden, and we file far fewer patents every year. Irish entrepreneurs – students and graduates especially – need to be more inventive, come up with more ideas and try them out, then fail, innovate and repeat the process until they succeed.

More than time, money, resources and a risk-taking attitude, that requires the right kind of education. That type of education is rarely found in a points-system factory and it takes the right teachers, with passion, knowledge and dedication.

Those teachers may take the odd risk themselves now and again. They may be mavericks in their own way, perhaps only some of the time. They won’t be the ones trudging through the curriculum. They’ll be the ones doing something a bit different, a little bit inventive to help their students learn.

“Our education system needs to focus more on the relevant skill sets – electrical and mechanical engineering, maths, physics and chemistry. Many Asian companies come from education systems that are one or two tiers above us in terms of calibre,” says Roy Horgan, director of Dublin-based solar power company SolarPrint.

“Assuming our universities can be influenced and adapt to progressive change, perhaps, if anything their involvement in an tSlí Ghlas can help to improve our education system. I would add that these issues need a champion in Government.”

Systematic root-and-branch reform in education, particularly at second level, but also in some elements of primary level, are long overdue, as is the abolition of the quangos that absorb far too much money earmarked for education.

Yet education budgets at all levels are being cut, as are university research budgets. Can we overcome this problem while sinking in our quicksand of debt and austerity?

“To date there have been 25 per cent budget cuts since the peak. Like everyone, we’re concerned that further cuts may be imminent. Cuts in education and RD budgets are creating very real difficulties,” says DCU director of research support services and Green Way committee member Dr Declan Raftery.

“We’re not getting enough incoming students with the fundamental skills in maths and science. There’s an issue about how adaptable they are to third-level learning and some are struggling due to weaknesses. We have to spend time bringing them up to speed and educate them to degree level. It’s a big task for the students and the university system.

“ [In relation] to our EU counterparts, we’re losing ground. We’re cutting budgets while they’re maintaining or increasing theirs. Every other country in the world is investing huge amounts of money into education and RD.

“This spending is for the long-term, like infrastructure and capital spending. Without it, we’ll fall off a cliff and won’t have a continuous stream of skilled people and applied research. This needs confidence, nerve and political vision beyond the four-year electoral cycle. The new Government simply cannot focus only on the short term,” he added.

While the Green IFSC might be less so, an tSlí Ghlas is critical to strengthening Ireland’s future ability to attract foreign direct investment. “Without establishing the appropriate infrastructures, collaborations, networks and economies of scale that are at the heart of our vision, Dublin and Ireland will be left behind as other cities and clusters take advantage of the next wave of foreign direct investment,” says Furlong.