Industry Market Trends

Why is Canada's Cleantech Industry Overtaking Aerospace?

Jan 04, 2013

Checking out the future of Canadian aerospace.

A recent report shows that Canada's cleantech industry is poised to surpass its aerospace manufacturing industry over the next few years. One wonders if this is more a reflection on a robust cleantech industry or a struggling aerospace industry -- or both.

Globally the clean technology industry overall was estimated to be $1 trillion in 2010, and one generally-held estimate predicts it will grow to $3 trillion by 2020 -- Roland Berger Strategy Consultants, a global strategic consulting firm, has estimated the global cleantech market will hit $5.7 trillion by 2025.

The report, "2013 Canadian Clean Technology Industry Report," produced by Analytica Advisors, finds that even in the go-go sector of clean technology, Canada's galloping along: "The industry grew at a 19 percent CAGR from 2008 to 2010, outpacing global market growth rates. This strong growth resulted in a $9 billion industry in 2010."

CÚline Bak, President of Analytica Advisors, the consultancy which authored the report, has said that assuming current growth rates, Canadian cleantech "will become a $26 billion industry in the next five years, employing over 100,000," involving companies in areas such as bioenergy, waste water and energy efficiency.

That's better than a lot of other nations' cleantech industries are doing. A recent Reuters article noted that a report by Ernst and Young found "public cleantech companies around the world have witnessed a 41 percent drop in market capitalization and a 229 percent decline in net income this year."

The Reuters report also found that a recent Deloitte survey of 440 venture capitalists globally, showed American venture capitalists aren't crazy about cleantech: "There's a cooling down of private and public capital in the U.S. that's available to the industry... more and more western cleantech companies who are finding life quite hard."

This is most likely due to the rash of companies whicháreceivedálarge government grants (Solyndra, anyone?) only to end up going bankrupt. So much misappropriated government money skews an industry away from following conventional market forces, scaring off venture capital which can't make any safe assumptions about the industry.

While the Canadian cleantech industry hasn't overtaken aerospace yet, which generated revenue of $22.4 billion in 2011, the growth trajectory of cleantech is remarkable: A recent profile of the cleantech industry worldwide published in the Israeli publicationáHaaretzásaid in Canada, while the cleantech industry is just 1 percent of the global cleantech market, it's estimated to be worth around $11 billion and "is expected to be bigger than the national space industry within the next five years."

Aerospace Trying to Find its Footing

That sort of growth is enviable pretty much anywhere these days. But the Canadian aerospace industry, knocked off stride by the economic contraction of recent years, is still trying to find consistent footing.

According to the Montreal Gazette, while Canadian aerospace industry revenues "surged" in 2011, the final 2012 reckonings are expected to find a "correction" in 2012, with hopefully more positive news in 2015 and beyond:

"Lower sales in the first half of this year are expected to push industry revenues down 5.4 percent to $14.9 billion this year, before rising each year to reach $18.5 billion in 2017. The improved outlook in 2015 and beyond coincides with the impact of Bombardier's CSeries commercial jet... The plane is slated to enter into service a year later, followed by the more popular larger model by the end of 2014."

The Gazette also notes that Bombardier has "orders and commitments" from about a dozen customers for "352 of the 110- to 149-seat plane," that will be assembled north of Montreal "with components supplied from China, Northern Ireland and elsewhere." There are also orders such as a NetJets deal valued at about $9.6 billion and a VistaJet order for up to $7.8 billion, but all that economic goodness isn't coming online until 2014 at the earliest.

Canadian-made aircraft are generally big sellers in emerging countries, but such places are starting to build their own planes, and Bombardier in particular could lose some traditional markets, the Gazette says, adding that overall, "passenger demand has been modest at best in North America, stronger in Europe despite the recession and growing in emerging markets that will be the big buyer of aircraft for years to come.

Canadian Cleantech: An Exporter's Paradise

China is poised to be come the largest buyer of cleantech globally.

Still, considered just on its own, the Canadian cleantech industry has been impressive. The report found that the sector employed 52,600 people "directly in the firms," emphasizing the positive knock-on effect for other industries.

Bak said "over 80 percent of clean technology companies are currently exporting, and are nine times more likely to export than the average small and medium-size enterprise."

There are over 700 companies considered part of the cleantech sector located across Canada, with its 17 percent growth in revenue from 2009-2010, "compared to less than 2 percent growth in the Canadian economy overall during the same stretch. Green technology and cleantech, being such new sectors, relatively speaking, are noted for being heavy on R&D, and in Canada's case the sector is also an engine driving exports. The report found a billion dollars of R&D investments in the sector for 2011, and "$5 billion in exports, with 82 percent of firms exporting and 51 percent of firms exporting to markets outside of the U.S."

It's probably inevitable that the Canadian cleantech industry gets compared to its American counterpart, which along with China, South Korea and Germany has one of the world's leading cleantech industries. Yet while the future, at least the immediate future, of cleantech is seen to be in the east, particularly China, Canada has reason to be optimistic.

Learning to Speak Mandarin

A fine examination of the topic by industry observer Asher Schechteráin Haaretz reports that while classic cleantech industries such as wind and solar power are "fizzling" in the U.S., the sector overall suffers from its over-reliance on government handouts -- "All told, between 2009 and 2014, the federal government will have poured an estimated $150 billion into cleantech -- more than three times the amount it invested in the industry between 2004 and 2009, when George W. Bush was president."

The number of government-funded cleantech companies that failed has scared off investors. Schechter described American venture capital abandoning cleantech as a "bubble" dependent on the public trough. Other observers see it as simply the initial weeding-out process, such as the one following the Internet bubble crash in 2000, and are confident a stronger sector will emerge.

But for Canada -- or any cleantech player -- to stay on top, they should learn Mandarin. As Schechter observes, the Chinese government, intent on pursuing a massive cleantech overhaul of the country's manufacturing economy, "invests no less than $9 billion per month in renewable energy and is expected to become the world's largest solar panel and wind energy market by 2016." In fact, Schechter says, "50 percent of today's investments in green energy are made outside of the U.S. and Europe."

Barring an unforeseen catastrophic collapse in China, that's where the action is likely to be for a long time for Canadian cleantech exports.