1CLEANTECH AND RENEWABLES CLUSTERS IN CANADA
Canada is one of the world’s leaders in the production and use of renewable energy. In 2012, renewable energy represented 17 per cent of Canada’s total energy supply. This was a dramatic increase from a decade earlier. Wind and solar energy are some of the fastest-growing sources of electricity in Canada yet Canada has also started to produce energy from both biomass and tidal sources.34
In addition to supplying Canadians with electricity, renewables play an important role in our trade with the U.S. Several provinces are net exporters of hydro-generated electricity to the U.S.
2INNOVATION IN THE CLEANTECH AND RENEWABLES INDUSTRY
Canada’s renewable electricity generating capacity has increased greatly since 2002 and continues to increase as the sector continues to innovate. Collaborative work by all levels of government on both policies and programs has helped to drive and support this innovation.
3PAST STUDIES OF CLEANTECH AND RENEWABLES INNOVATION
Innovation PEI (2016): This organization’s website focuses on the goals of wind power in P.E.I. At the moment, more than 30 per cent of P.E.I.’s electricity is supplied by “a combination of provincially owned and private wind developments.”
The site, which represents an organization with members of government, post-secondary institutions and industry leaders, states that P.E.I. has always been at the forefront of wind energy development. P.E.I. is, according to the authors, attempting to diversify in the green energy field by not just focusing on the next generation of wind developments but also by investigating hydro and biomass and biofuel opportunities. In addition to exploring different types of green energy, P.E.I. is focusing on “attracting new renewable energy research and development and commercialization activity.”
MaRS Advanced Energy Centre (2014): The Canadian Energy Innovation Summit report focuses on themes and ideas that emerged from a summit hosted by the Government of Ontario and the MaRS Discovery District.
This report starts with a focus on how Canada can become “a global leader in energy innovation” with demand-driven innovation that allows for rapid action, a tolerance for risk and the ability to learn from failure. They note that many of the energy innovations are in high-tech sectors that could help the traditional Canadian energy sector diversify. This diversification could help create new jobs and reduce Canada’s sensitivity to traditional energy costs.
The first of the five ideas that emerged was to encourage greater collaboration in Canada to identify common goals and interests for the country’s natural energy assets. The second was to create more private-public partnerships to allow the private sector to play a larger role in technology innovation. The third idea was to encourage energy innovation already being developed in Canada and export it worldwide. The fourth idea was to ensure that Canadian clean technology companies could access risk capital and early stage financing. The final idea was to emphasize the social and economic benefits that are linked to clean
Natural Resources Canada (2013): The Canada – A Global Leader in Renewable Energy report focuses on the need for all jurisdictions in Canada to continue both collaborating and sharing information on renewable energy. It also noted the importance of the federal government sharing information from its research, development and demonstration projects. The final recommendation was to investigate opportunities to share information on policies and best practices through Canada’s participation in the activities of the Renewable Energy Technology Deployment technology collaboration program of the International Energy Agency (IEA-RETD).
4WHAT OUR ROUNDTABLE TOLD US
The day after our extractives roundtable in Calgary, we headed west to Vancouver’s TELUS Gardens and met with some leaders in the cleantech and renewables sector. Here is what we heard:
Funding gaps: One participant felt that government financing programs were quite useful for the early stages of product development, but not for obtaining financing for commercialization. He said that “Sustainable Development Technology Canada is terrific for early stage innovation,” and cited government support through the Scientific Research and Experimental Development Tax Incentive, the National Research Council Canada, the Industrial Research Assistance Program, and others. “There’s a lot of baked-in support before it gets to commercialization. There is help from the public sector to get across the ‘valley of death.’” he said. Then he added, “But when you get to the first market entrant, there is not a lot of debt financing or private capital. These companies are light on assets, so banks won’t lend to them. So companies, even if they do make it across the ‘valley of death,’ do not have the necessary assets or financing to commercialize.”
Another roundtable member cited investor hesitancy to invest in companies that make physical goods, stating “most angel investors invest in digital, not ‘stuff.’ There is a belief that if you produce things, produce hardware, the Chinese will just beat you to it, so these companies do not get the angel funds that tech companies do.”
Finally, a roundtable member suggested that the flow-through shares model used in the extractive industry be extended to cleantech.
Political risk: Several roundtable participants cited political risk, particularly with uncertain or changing regulations. One cited uncertainty around the future of bioenergy regulations as scaring away investment. Another said government regulatory clauses stating that programs, such as EcoENERGY, are “subject to change” frighten away international investors despite the fact they are rarely used. Finally, one roundtable participant believed companies were simply playing wait-and-see, stating “new climate and energy policies in government across Canada will take a while to become real, so the private sector is sitting back, particularly in the energy space. Policy uncertainty matters.”
Need to pick winners: As with many of our other roundtables, some members felt that government policies covered too many areas, and instead should be focused on a few key priorities. One participant forcefully argued for the need for large-scale reform, stating: “We need to make some big changes to the innovation ecosystem. We need to rip the Band-Aid off. We have been trying the same strategies for 20 years. The Canadian market is too small for mass adoption, so we need to look at other markets. We need more winners abroad. We need to be more ‘American.’”
Another suggested the use of innovation councils to pick winners on technologies.
A third cited the U.S. Defense Advanced Research Projects Agency (DARPA) as providing funding in priority areas that align with U.S. goals and noted that Canada lacked an equivalent. However, one member cautioned that if the government is picking winners, they are leaving people out: “There is a lot of opportunity for creativity if more people get at a shot at it. If the government picks winners, who gets left out?”
Regulation as a driver of innovation: Several of our roundtable members noted that strong regulations could both make society better off and spur the need for innovation. As one put it, “Being able to tie innovation to broader societal problems works. We need to get more traction with that.” Another added that “if we had stronger water-quality regulations, we would have more innovation in Canada. Water-treatment technologies are being sold down south, but, largely, not here.”
The importance of government procurement: Some roundtable participants suggested that governments should place a greater emphasis on innovation during the procurement process. One member gave a way of doing so, stating, “When government writes RPFs (request for proposals), they can embed ‘innovation.’
“They can give points to early stage demonstrations or points for first customers. Using the government’s infrastructure funds, they can incent innovation; they can find a mechanism. As well, the innovation process is a full life-cycle, so if governments are willing to fund something up front, they should be willing to fund it the entire way.”
In so doing, the government should not ignore the value of adopting innovative technologies not developed in Canada, with a participant noting, “It is frustrating that what is interesting to the government is only stuff that was developed here. While we all understand there is pressure to create jobs here, ‘CanCon’ requirements in funding rounds often ignore the benefits of global knowledge. We could be tapping into expertise from around the world.”
Need for coherence and collaboration: A common theme of this roundtable was the need for policy coherence and “systems thinking.” One member suggested that higher education could be a catalyst for this: “In Canada, we’re big, we’re provincial. What about what other countries are doing? What about the Swedish model? There, universities specialize in different areas. Think of the Horizon 2020 programs in Europe. There’s knowledge-sharing in their various innovation clusters. Canada is not part of these clusters. We may indirectly make use of them, but we don’t have a plan.”
Another added, “Systems thinking is essential. Distributive energy is a good model for Canada. It allows us to become global experts because it involves more than one system. There’s a strong digital aspect to the grid, too. But it’s hard to commercialize; it needs partners, but this is a place where the government can play a role.” Finally, one member noted that coherence would require alignment of provincial policies and priorities, stating, “Energy is not a federal responsibility. So instead we need maybe a systems- approach that’s regionally focused, but aligned.”
Final thoughts: Although Calgary’s extractives cluster and Vancouver’s cleantech and renewables cluster would appear to have little in common, many of the same themes emerged. In both roundtables, we heard that outcomes-based regulations could drive innovation. We heard about gaps in funding and about the barriers to commercialization. Finally, we heard about the need for governments to “pick winners” and avoid spreading themselves too thinly. Perhaps the two clusters are not so different after all.
WHY DO WE FALTER AT THE ADOPTION PHASE? THAT’S IMPORTANT FOR GOVERNMENT TO CONSIDER.
34 The ideas in this section are based on Natural Resources Canada’s 2013 report, A Global Leader in Renewable Energy.