Energy & Resources

General Atlantic has embarked on an assessment of opportunities in the Energy & Resources arena to identify and invest in technology platforms and / or business models that enable or facilitate the transformation of the global supply, demand and infrastructure around critical resources. Our strong interest in this sector stems from several factors including global focus on macro trends, greater attention to alternative energy sources and the opportunities for innovative growth companies that will continue to develop as a result. In this CEO topic, we examine some of these trends and outline the areas of our expected focus.

The economic and environmental implications of the existing critical resource supply, demand and infrastructure have been in the spotlight among developed and developing countries. The global groundswell of support to address issues and challenges is driven by the following macro trends:

Supply / Demand Imbalance
World energy consumption is expected to grow more than 50% from now until 2030, with China and India each doubling their current level of energy consumption. These major increases in consumption, driven by the growth in population and personal wealth, economic development and globalization, are now far exceeding supply constraints due to scarcity of critical resources, aging infrastructure and curtailment of build-out of new fossil fuel power plants. This dynamic could result in a serious supply shortage as early as 2015.

Reduction of Dependence on Oil
With oil prices approaching record levels (even on an inflation-adjusted basis), renewable sources of energy are becoming real – and economical – alternatives. Growing concerns about near and long term availability of adequate oil create the imperative to pursue reliable and sufficient supplies of energy that are less dependent on imports. The annual revenue opportunity for alternatives to oil and other “clean” sources of energy could reach $500 billion in 2020 and $1 trillion in 2030.

Global Warming
The International Energy Agency predicts that the average global temperature will rise 5 to 6 degrees Celsius by 2030. The threat of global warming and the need for climate change action is now felt to be imperative to proactively curb and reduce greenhouse gas (GHG) emissions. Europe has taken a leadership position in this effort by creating a mandatory cap-and-trade carbon trading system. And even in the U.S., companies are voluntarily buying carbon credits to become “carbon-neutral.”

There is a sea-change in the mindsets among governments, enterprises and consumers around the adverse environmental impact of existing energy alternatives. We may have reached a “tipping point” on the demand side of the equation among corporations and consumers to increase efficiency and reduce burden of GHG emissions. There is a corresponding increase in government policies, initiatives and incentive programs to monitor energy usage, promote renewable energy development and reduce emissions.

The direct cost of energy and resources (e.g., electricity, natural gas, gasoline and water) as well as the indirect environmental cost (e.g., carbon) will impact corporations globally and emerge as key topics of corporate boards' agendas going forward. Proactive measures will create competitive differentiation, enhance brand and customer perception as well as generate significant shareholder value.

We believe these major trends will lead to increased opportunities for innovative companies in the following areas:

The “Carbon Economy”
Markets and infrastructure around emissions measurement, management, trading and brokering of carbon and other greenhouse gases.

Demand-Side Energy Efficiency and Management Solutions
Technology solutions to alleviate the supply-side constraints and imbalances.

Supply-Side Transformation
Alternatives to the supply of critical resources, including power, fuel and water.

Thomas Friedman in his 11/7 Op-Ed piece in The New York Times describes the movement of companies to revolutionize their energy infrastructure using new forms of energy technology – much in the same way that Y2K caused many businesses to re-think their entire IT strategy. He calls this trend 'the dawn of E2K' in which companies globally will seek technology driven solutions to become more energy efficient.

We agree that 'E2K' will create tremendous opportunities and benefits for innovative companies. We expect to leverage our existing sector expertise and extend our value-added investment approach to the Energy & Resources sector. We welcome any feedback, input or introductions to companies, entrepreneurs and industry contacts. Please contact our Energy & Resources sector leader, Adrianna Ma, for additional ideas and discussion on this new area.