Choosing to incorporate clean technology into a business hasn’t yet become an automatic consideration for business owners. Part of the challenge for them is the perceived cost premium that introducing such technologies includes. At this year’s Green Business / PricewaterhouseCoopers Executive Roundtable, one of the topics that industry experts discussed were strategies that could help Canadian cleantech companies reframe the cost-benefit of introducing novel technologies, making clear the economically smart investment they are.

A central frustration facing cleantech companies is a customer base that is impatient for returns. Albert Behr, President and CEO of Behr and Associates, describes a typical customer as one that wants fast returns with minimal disruption.

“This is what we’ve found they’re looking for,” Behr explains. “If you can knock 30 per cent off their costs, without tearing apart their building, putting up scaffolding or nonsense like that, they are listening. Ultimately, they say that any investment better have a payback period within two years.”

Meeting such demands, however, may not be feasible. Rather than attempting to accommodate the desire for fast returns, Philip Ling, VP of Technology for Powersmiths, believes that customers have to be persuaded that a ten-year return on investment (ROI) is more desirable than it may seem at first glance.
 
“Some customers are looking for a one year payback as a threshold,” says Ling. “That is a 100 per cent ROI. But meanwhile they don't deliver that kind of return to their shareholders on an ongoing basis. Even a 5-year payback is an attractive 20 per cent return that is hard to beat on an ongoing basis. If customers are going to receive 40 years of savings from a technology, quarter after quarter—that is 160 quarters worth of embedded savings, yet they are going to make the decision based on whether it pays for itself in a year or two - that is a barrier to making meaningful reductions on energy and environmental costs."
 
Ling stresses the importance of convincing customers to take the long view. “Moving from upfront cost to lifecycle cost is huge, especially when talking about energy conservation technologies or lower carbon footprint technologies. You are making a decision that lowers operating cost and financial burden for what could be a generation.’”
 
It is not an easy case to make. People naturally place greater value on short-term returns, even if long-term returns plainly entail greater savings. Ling sums up the impatient attitude that cleantech companies, and the green movement generally, have to face: “We reward based on what gets delivered in the next quarter or next year, even though we know the future will come and piper will eventually have to be paid."


But offering attractive monetary ROIs is not necessarily the only sales incentive for cleantech, argues Angella Hughes, CEO of wastewater treatment company Xogen Technologies. Recently, Hughes met with a Canadian food products producer who is strongly considering moving operations to the U.S. because of constraints on effluent discharge into the municipal sewer. Normally, says Hughes, she would advertise her wastewater technology by stressing an appealing financial ROI. In this case, however, she pinpoints a more attractive reason for the food products manufacturer to consider Xogen – the cost of doing business.
 
“I said to him, ‘If you had no constraints on wastewater discharge—because our technology would eliminate them—then what would be the impact on your business?’ He said, ‘Well, we could produce more cheese.’ All of a sudden, we are having a different conversation. Now he is thinking he does not have to produce in the U.S., he could produce in Canada for the Canadian and international market. We are going to give him a different capability than he had before.”

Tony Verrelli, CEO of Cleanfield Energy, a small wind turbine developer, agrees with Hughes on the point that ROIs may be becoming a less significant measure of a technology’s value.

“We are moving away from a focus on return on investment and instead discussing the internal rate of return,” Verrelli says. The internal rate of return (IRR) is a rate of return used in capital budgeting to measure and compare the profitability of investments. Usually, the higher a project's internal rate of return, the more likely it is that a company will want to pursue it.

“By doing that, the numbers look really positive. Incorporating the value of carbon offsets has been useful as well; a lot of U.S. cleantech companies have been doing this, we’ve started to do the same, and the numbers look very positive. In 10 or 15 years, there may not be a big monetary ROI payback, but the internal rate of return in 15 years could be 12-15 per cent, so you start to see some good numbers. That is what a lot of people are starting to package. You see a lot of that on utility-scale models.”

Verrelli also points to the brand value of cleantech as an important selling point. “There is a whole branding aspect to small wind that is very valuable. Having a little turbine on the rooftop—corporations will pay for that kind of exposure.”

It is a challenge to change customer perceptions of what a product is and how it can benefit a company. However, as we move to a new era in which cleantech will play a pivotal role, it is the right time to determine how better to explain the value of clean tech to customers. The sales call, like so much else in this changing marketplace, is not necessarily going to the same as the one you had just a few short years ago.

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