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The new economy: innovation

How innovative UK firms are setting a global

benchmark for low carbon technologies

in association with



The new economy—a Director special report

in association with the Carbon Trust


Foreword 2

Entrepreneurial business leaders are

shifting their perception of climate change

from risk to opportunity, says Michael Rea.

Start-ups 3

Innovative UK start-ups are already making

an impact on the global environmental

industries marketplace, but more

breakthroughs are required to create a

genuine low carbon economy.

Low carbon schemes 4

Innovation can be a small change that

helps solve a big problem. Director looks at

the various ways in which firms have

successfully reduced their carbon

emissions. Plus, the environmental

industries market is expected to be worth

$800bn by 2015—we highlight eight

major cleantech sectors.

Investment 6

Cleantech has become a defined

investment category for venture capitalists

and the UK is considered to be a hotbed

of innovative activity. But businesses must

keep identifying ways to reduce carbon

emissions, and investors must be willing to

step up and back them, if we’re to remain

change leaders.


Managing Editor Amy Duff

Writer Jessica Twentyman

Sub-editor Caroline Proud

Art Director John Poile

Designer Gary Lonergan

Picture Editor Jane Moss

Client Sales Manager Fiona O’Mahony

Production Manager Lisa Robertson

Production Controller Jim Campbell

Publishing Director Tom Nash

Group Editor Joanna Higgins

Deputy Editor Richard Cree

Chief Operating Officer Andrew Main Wilson

Published by Director Publications Ltd for the

Institute of Directors, 116 Pall Mall, London, SW1Y

5ED. Opinions expressed do not necessarily reflect

IoD policy. The IoD accepts no responsibility for

views expressed by contributors.

Editorial 020 7766 8950

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Printed by St Ives Roche. Mailed by South West Mailing Ltd.

Paper supplied by McNaughton Publishing Papers Ltd.

ISSN 0012-3242

Innovative businesses

gain marketplace


The move to a low carbon economy is not only

vital for the environment, it is also a significant

business opportunity, writes Michael Rea, chief

operating officer at the Carbon Trust

It is clear that the way we do business needs to change. Climate change is

a real threat, and the only way to prevent it is to reduce CO 2 emissions

worldwide. The UK government is committed to reducing Britain’s carbon

emissions and recently announced the Climate Change Bill, which sets legally

binding UK targets for a minimum 60 per cent reduction in carbon dioxide

emissions by 2050. Business has a pivotal role to play in achieving this.

In order for the UK to build a low carbon economy, we need to be

innovative. Business leaders should ask themselves whether new strategies

could be implemented to achieve the same results, but with reduced

carbon emissions. And we require new technologies that can generate

energy through less carbon intensive means, and enable business to use

energy more efficiently.

The UK has the potential to become a world leader in new low carbon

technologies such as wave and tidal stream power, offshore wind and third

generation photovoltaics. Innovative research needs to be supported

directly, through public and private funding. And for the most promising

ideas we need to build new businesses, bringing together the right mix of

people, assets and technologies for commercial success. We also need to

identify and remove barriers to growth to enable whole technology sectors

to move ahead with speed.

The potential commercial benefits for the UK are enormous. By meeting

our international commitments on climate change, we will be developing

new products and services that businesses and consumers are demanding

more and more. There are good returns to be made—we have seen the

low carbon sector become increasingly attractive to venture capitalists.

Making the transition to a low carbon economy will

require tough choices by government, investment

by business and changes to our consumption

patterns as consumers. We can invest now, with

minimal impact to our economy and way of

life; or we can delay and risk significantly higher

costs and devastating impacts from the effects

of climate change. This is an exciting time for

business to realise a wealth of benefits through

embedding low carbon innovation within their

core activities.

Michael Rea Chief operating officer,

the Carbon Trust


The new economy: innovation

Start-ups 3

Carbon Trust says: “In the UK we are fortunate to

have very significant wind, wave and tidal resources

on our doorstep and we can expect to see a huge

expansion in offshore wind farms and a significant

new market for marine energy generation.”

Last October, Gordon Brown announced an extra

£170m in funding for the Environmental

Transformation Fund (ETF), set up in 2006 to boost

investment in renewables and clean technologies.

This means Defra and the Department for Business,

Enterprise and Regulatory Reform (BERR) have

more than £370m to spend on commercialising

low carbon technologies over the next three years.

“The world needs major investment in

technologies that will put us on the path to a low

carbon economy,” said environment secretary

Hilary Benn. “Britain must be at the forefront of

developing and deploying this technology—whether

it be LED [light emitting diode] lighting for people’s

homes, biomass boilers for small businesses, or major

Hot chip: low



such as biomass

(left) and clean

energy (right) are

fuelling the UK’s



Green light for

green ideas

The government is pouring more money into

renewables and environmental technologies. But,

finds Jessica Twentyman, life can still be tough for

cleantech start-ups

Which are the innovative technologies

that will help us to tackle climate

change; and how can we best

encourage their development These

are the questions currently preoccupying British

scientists, policymakers and entrepreneurs.

There’s a good reason why. Climate change

presents not only huge challenges but also huge

opportunities for economic growth. In Britain, the

environmental industries sector, already worth

£25bn, is predicted to double in size over the next

decade. Globally, it is predicted to reach $800bn by

2015—the size of the entire economy of India today.

As Mark Williamson, director of innovations at the

sources of renewable electricity from wind and the

sea to reduce our dependence on fossil fuels.”

UK start-ups are already having an impact on the

marketplace. “We see lots of investment

opportunities bursting forth from a growing

community of dynamic innovators whose ideas

have the potential to make the UK a world leader

in low carbon technologies,” says Jonathan

Kestenbaum, CEO of the National Endowment for

Science, Technology and the Arts (NESTA), which

funds and supports innovative early-stage

businesses. But, he adds: “A lot more needs to be

done to encourage this community: more earlystage

funding; more private funding to balance

contributions from the public purse; and better

access to the business expertise that will take earlystage

companies to the next level.”

There’s a proliferation of local ideas and

innovations. The challenge now is to get these

exploited more widely—for the benefit of the

planet and the national economy.

Further information

The Carbon Trust

The Department for Business, Enterprise and

Regulatory Reform

The National Endowment for Science, Technology and the Arts

December 2007 DIRECTOR


Low carbon schemes

How to become a

low carbon company

The case for being a sustainable business applies across all sectors

of the economy and companies both large and small are making

the transition

The smallest changes can be enough to help

get a company’s carbon emissions under

control; the difficulty lies in knowing where

to start. Often, the turning point for a

company is investment in innovative technology.

As Bandvulc Tyres, a Devon-based manufacturer of

remoulded truck tyres discovered, this can

underpin and complement a more phased

approach to change.

As part of a three year Carbon Trust field trial to

demonstrate the potential benefits of advanced

metering for SMEs, the company invested in a

state-of-the-art system that provides managers with

vital data on energy consumption every half hour.

“That has enabled us to implement a series of

measures that have generated major cuts in energy

bills and carbon emissions,” says Patrick O’Connell,

its managing director.

The company was surprised to discover that 10

per cent of its annual energy bill (which amounted

to over £300,000 in 2005) was spent on lighting.

That revelation prompted its management team to

replace lighting throughout the company’s

Plymouth manufacturing plant with autodimming,

low-energy lighting. “We spent £30,000

on this, but saw a return on investment in under

18 months,” O’Connell adds.

The company has also insulated its tyre presses

with lagging in order to reduce gas consumption,

saving around 800,000 kilowatts per hour in the

first 12 months, annually worth £10,800, and 152

tonnes of CO 2 , for an initial cost of £20,000.

“The metering system is all part of our approach

to our environmental principles and part of our

belief that we should practise what we preach,”

says O’Connell.

Increasing numbers of companies have the same

philosophy. Suffolk brewer Adnams, for example,

has spent £10m on a new, low carbon distribution

centre and improvements to its brewing plant in

Southwold—big money for a company with an

annual turnover of £46m. It has further reduced its

carbon footprint by using less CO2 in the process

of production and creating a new, award-winning

Small step, big impact:

companies like brewer

Adnams (above) are reducing

their carbon emissions

through innovation and

environmental best practice

The magnificent eight

Which sectors of the environmental industry are the ones to watch Which ones

will make governments richer and the planet safer Director takes a look

Once regarded as a

strictly niche sector,

clean technologies

have gone mainstream, to

become the world’s fastestgrowing

area for venture capital


The money being ploughed into

European “cleantech” companies hit

a record €196m (£137m) during the

third quarter of this year, according to

recent data from investment research

firm Library House.

The company’s analysts found that

the number of cleantech investments

also increased, with 427 deals closed

during the third quarter, up from

399 deals during the second


But how do we define

clean technologies In

their new book, The

Clean Tech

Revolution: The

Next Big

Growth and

Investment Opportunity, Ron Pernick,

and Clint Wilder of US-based research

and strategy firm Clean Edge, highlight

eight major clean technology sectors:

solar power; wind power; biofuels;

green buildings; personal

transportation; the smart grid; mobile

applications; and water filtration.

These technologies, argue the

authors, will be the next big engine of

economic growth, helping the world to

tackle a raft of problems, from high

energy prices and resource shortages

to global environmental problems and

security threats.


Typically defined as

technologies that convert

sunlight into electricity and, in

some cases, thermal or

mechanical power, solar power

offers perhaps one of the

greatest commercial

opportunities with the global

market growing by between 30

per cent and 50 per cent



Biofuel (sometimes called

agrofuel) can be broadly

defined as solid, liquid, or gas

fuel, consisting of or derived

from, biomass (living and

recently dead biological

material). Already, Brazil gets

more than 30 per cent of its

automobile fuels from sugar


The new economy: innovation


beer bottle, the lightest on the market. Meanwhile,

household-name businesses are working on

innovations in partnership with suppliers and

environmental action groups. Last March, for

example, Marks & Spencer launched the world’s

first recycled plastic milk bottle, following a

development programme with Dairy Crest, Nampak

and the Waste and Resources Action Programme.

Yet according to Carbon Trust research released in

October this year, 69 per cent of directors of small

to medium-sized enterprises (SME) surveyed still say

their business has made no investment to reduce

carbon emissions while 93 per cent said their

company did not measure carbon emissions, citing

lack of expertise as the key barrier. But with 60 per

cent of UK employees now feeling it’s important to

“There are

many simple

steps that can

be taken to

get the ball


work for a company that has an active policy to

reduce its carbon emissions, and increasing pressure

on suppliers to improve their energy efficiency, the

benefits to businesses in cutting carbon seem clear.

Dr Martin Gibson, programme director at

Envirowise, the UK government-funded body that

helps companies to increase profitability and

reduce environmental impact, says there are simple

steps to get the ball rolling. Spend one hour a week

on environmental issues, he says, and you could

reap significant rewards. The key areas to focus on

are energy, water and paper use: “With small

successes under their belts in these areas,

companies will be better equipped to move on to

the more thorny issues of packaging, product

design and transportation,” he says.

cane-based ethanol, while in

the US, ethanol is nearly a fivebillion-gallon-a-year


on target to reach 7.5 billion

gallons (about five per cent of

total gasoline consumption) by

around 2010.


Since 2003, hybrid cars have

moved from the fringes of the

automotive industry to become

one of its fastest-growing

segments. Petrol-electric

hybrids are here, plug-in

hybrids will arrive in a couple of

years, and the hydrogen fuel

cell car looks like it may trump

all in a decade or two.


Wind power is the conversion

of wind energy into more useful

forms, such as electricity, using

wind turbines. Although it

currently produces just over

one per cent of worldwide

electricity use, between 1995

and 2006, global cumulative

installed wind-power capacity

expanded 15-fold, from less

than 5,000 megawatts to more

than 74,000.



Today’s green buildings, say

Pernick and Wilder, use some

30 per cent less energy than

their comparably sized nongreen

counterparts (some save

much more), and they’re

generally brighter, healthier,

and more aesthetically

pleasing. “Often built with little

or no additional up-front cost,

green offices, for instance, pay

back not only in energy savings

but also in greater employee

retention, attendance and

productivity,” they say.


A fuel cell is an electrochemical

energy conversion device that

produces electricity from

supplies of fuel and oxidant,

reacting in the presence of an

electrolyte—an especially clean

and efficient method of

meeting power needs.


The electrical grid is an

interconnected system of

power plants and power lines,

moving and delivering

electricity from power plants to

end users. Today’s grid faces

challenges in keeping pace

with the modern digital

economy and therefore has

reliability problems—but rapid

advances in technology are

leading to the development of

smart grids, capable of

precisely managing electrical

power demand,

communicating information on

operating status and needs,

and collecting information on

prices and grid conditions.


Water filtration and purification

is the process of removing

contaminants, such as

minerals, parasites and toxic

metals, from a water source,

enabling companies to clean,

and in some cases reuse, their

waste water.

December 2007 DIRECTOR

6 Investment

Awash with

clean capital

UK cleantech start-ups now attract significant

amounts of private investment. But they still

need more

It’s official: compared with the rest of Europe, the UK is a

good environment for cleantech start-ups. For one thing, UK

companies are leading in their ability to attract venture

capital investment with nearly 42 per cent of all the European

clean energy deals, followed by Germany, France and the

Nordic regions—that’s according to the Carbon Trust’s report,

Investment trends in European clean energy 2003–2006.

That cleantech is a good investment bet is increasingly

being recognised in Britain. Nviro Cleantech, which currently

funds and supports five cleantech projects, itself raised

£7.5m when it floated on the Alternative Investment Market

last August.

Cleantech companies from the UK represent a broader

spread of technologies than is

“Many venture

capitalists are still

reluctant to back


companies until

they’re more

mature and their

technologies more


seen elsewhere. According to

sustainability development

charity Forum for the Future,

energy-related segments

account for 61 per cent of total

UK investments in cleantech,

compared with 92 per cent in

Germany, and that’s because

money is also going into other

areas, including materials

recovery and recycling and

advanced materials.

All this bodes well for the UK’s

future as a global cleantech

leader, but this is no time for

complacency, warns Jonathan Kestenbaum, CEO of NESTA.

Early-stage cleantech companies in the UK are still far too

dependent on government funding, he argues: “Many venture

capitalists are still reluctant to back cleantech companies until

they’re more mature and their technologies more proven.”

Even with the UK’s solid track record in clean technologies,

Europe as a whole continues to trail the “dominant North

American market” in terms of venture capital funding for

cleantech businesses—as revealed in the Carbon Trust’s report.

As always, entrepreneurs can help themselves when it

comes to attracting investment. A Forum for the Future report,

Clean Capital, backed by the government and the City of

London, advises cleantech entrepreneurs to improve their

investment-readiness—for example, through building an

experienced management team and a viable business model,

improving their financial reporting and exploring partnership

options for R&D, manufacturing and distribution.

Library House has compiled its top 10 cleantech companies

in the UK (by total disclosed institutional investment)

especially for The new economy: innovation. To view the list,

please visit: To view the Carbon Trust’s

report Investment trends in European clean energy 2003-2006

please visit:

Solutions from a

The UK is breaking new ground in clean

technology. Here, we look at some British

companies that are leading the way in

renewables, recycling and energy efficiency

Britain is becoming a world leader in

several key areas of cleantech—thanks to the

ingenuity and innovation of a growing number of

entrepreneurial companies.

Take, for example, Embley Energy and its

“floating concrete” approach to low-cost renewable

wave energy. The Bristol-based firm, which received

an applied research grant of £150,000 from the

Carbon Trust, is looking to address a major

problem for marine energy—its cost, which far

outstrips that associated with other sources of

electricity, both conventional and alternative. It’s


The new economy: innovation


Big breakthrough: firms like Insource Energy, which converts food waste (above), and Embley

Energy, a renewable wave energy firm, are commercially promising and show what’s possible

small island

working on the prototype of Sperboy, a waveenergy

converter designed to be deployed in large

arrays eight to 12 miles offshore. The converter is a

floating structure that moves up and down on the

waves, displacing air from an inner chamber within

the buoy, which then drives turbine-generators on

top. Embley MD Michael Burrett says the Sperboy

has the potential to deliver marine energy at lower

prices thanks to its extended lifespan of more than

40 years, the innovative use of advanced laminated

concrete in its construction, and its low

maintenance requirements.

“The machine is very simple, with only one

moving part, the turbines, and they are above the

water line. This reduces the cost and, more

importantly, enhances reliability and helps

maintenance. With the devices as they are we do

not envisage having to go back to maintain them

at all,” says Burrett.

Meanwhile, Insource Energy, supported by

Carbon Trust Enterprises and Scottish and

Southern Energy, has ambitious goals to tackle the

biodegradable waste produced each year by the UK

food industry. It will provide a way for food

manufacturers and processors to convert food

waste into a sellable product, rather than sending

it to landfill, using anaerobic digestion reactors

and biomass boilers. These technologies can

convert food waste into fertiliser concentrate and

methane, which can in turn be used to produce

heat and power.

In water treatment, a small UK company, Quay

Technologies, recently hit the headlines when it was

acquired by Severn Trent Services for its microwavepowered

UV technology. The company’s system

enables the use of electrodeless bulbs, dramatically

increasing efficiency and bulb life when compared

with traditional UV lamps used in water

disinfection treatments. From now on, Severn Trent

Services will offer the Quay UV systems to the water

and wastewater treatment market under the new

brand name, MicroDynamics.

For Quay Technologies’ owners, the power of

their ideas has been confirmed in the form of a

buy-out. For other companies, payback will be

further down the line. But one thing is clear: in

the field of cleantech innovation, UK companies

seem set to loom large.

December 2007 DIRECTOR

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