Mr. Uday Khemka, Vice Chairman, SUN Group of Companies. In his Keynote address "The role of Cleantech investment in advancing sustainable development" presented at the 1st India Cleantech Forum ITC Hotel Mauyra Sheraton & Towers, New Delhi. India. 3rd of August 2007.

Cleantech AustralAsia presents

Mr. Uday Khemka, Vice Chairman, SUN Group of Companies. In his Keynote address "The role of Cleantech investment in advancing sustainable development" presented at the 1st India Cleantech Forum ITC Hotel Mauyra Sheraton & Towers, New Delhi. India. 3rd of August 2007.

Good Morning ladies and gentlemen. I want to thank you Sir, Ladies and Gentlemen, CII, and Cleantech AustralAsia. I thank you all very much for not only having me here, but also for your tremendous initiative in making this happen. Its very exciting, it feels like the birth of something that has tremendous importance to all of us who are passionate about this field, and I am very honored to be here with you, not only because of the very distinguished co-panelists, and participants today's, but really because, I think we are at a pivotal moment in economic history. A pivotal moment, because never before has an industry been more required, more necessary, more needed, as the cleantech innovation industry is today for sustainable development, and never before have I believed, has an industries mid term prospects, seemed more brighter, and full of opportunity.

So I am excited to be here, thank you for having me, and giving me a chance to speak, I'm going to ask for you indulgence, as I speak a little faster than I like to speak, because I want to cover a fair amount of material, and in that spirit, I am not going to be talking much about who I am, or who my organization is, suffice to say that we are an Indian conglomerate, also based in Russia, and other emerging markets around the world, and have made a commitment to invest several billion dollars into renewable energy, particularly focusing on substitutions for the problems of coal, which we could frame as a central problem. And also focusing several billion dollars, on green building.

My own personal background really began with the Rio Summit in 92, and has accelerated in various fora, including leading the climate change track at the world economic forum, in the clean energy area, in partnership with the world business council for sustainable development, as well as in the global innovation network, in Silicon valley, representing India and so forth, so a variety of different fora, which really have made me feel more than ever, that Cleantech Innovation is the central key, the lock of a series of global challenges ahead of all of us, that really offer tremendous economic opportunities.

What are those challenges? I think we are all aware, as I am in a room of distinguished practitioners, I looked through the attendance list last night and many of you are involved so, I wont be repetitive, but you all know that these challenges are various. They include..

The tremendous impact of energy prices, on a country like ours that is now importing something like 70% of our oil and Gas The issue of energy security. We've seen how that's played out in the middle east for the US. The issue of food security, which people often forget about, which is a critical issue. The issue of health security.

And perhaps, certainly one of the most important issues, certainly for the new century, is the issue of water security.

But again, I wont have time to address in detail, but I apologize for that, I am sure other speakers will touch on it.

But most of all, above all else, an issue that in India, we speak about a little bit less than what I found in other countries, and that is the impact of climate change, so forgive me if I take this to a real focus on the impact of climate change, and why that means both tremendous challenges for society but also tremendous economic opportunity for those who participate in this industry.

Why am I biased toward that subject more than any other? Because the news is much worse than we had all imagined. Many of you practitioners, you are familiar with the original IPPC report, you watched the 2003 report, you watched how Washington tried to question that through the US academies of Science, you watched then how the US Academy of Science reinforced the IPPC findings, and you have watched the recent IPPC findings, and it is all quite clear, that the scale of the problem is really unprecedented. It is moving faster than we had all imagined, and what is quite clear also, is that the IPPC report, acted as a con-census building exercise, with allot of political constraints, and were you to speak to those scientists individually, you would find them saying the situation is allot worse than we were able to put out. The other point being, that the IPPC report was only able to cover material that was substantially in the past. Compared to its moment of publication.

Since that time, the news has got much much worse. A few years ago many of us imagined that this was a serious problem, for our grand children, and then it moved to our children, and then it moved to perhaps the end of our lives, and its only recently we've woken up tot he fact that climate change is now. Its happening around us and the impacts is already being felt. In a significant way, that impact is accelerating dramatically, and we have to live with those consequences.

The second major point that was made by the IPPC, but also more eloquently by the Stern Report, has been articulated in a very interesting fashion, in a study called the Design to Win study, that looked for a comprehensive strategy for climate change mitigation, in the context of technology, and it said "Look, you have really got 3 decades, and these three decades, its not about winning the climate change war in the first 10 years, its about not loosing it. Because the installed capacity of what we put in now, in the next decade, will have such a huge impact on the carbon signature of the planet, that the point in which we have to solve the problem in 20 years from now, will create enormous economic dislocation, and societal pain. So the next 10 years are critical.

The other criticality of the next 10 years is obviously to do with the post 2012 framework. Which is, as practitioners in the field, as entrepreneurs, as capital markets players, and as investors, your all very familiar, which is very critical right now, that we don't have much time, we have four years. Two years to get the agreement negotiated, two years to get it ratified, by country parliaments, and there is risk in this. So from all points of view, this is a matter of tremendous urgency. In all this obviously the carbon price is critical. Other approaches, that say "well could you get around the carbon price being the key, are I believe, consensually, untenable , and we understand that Kyoto is not only important but needs to be taken to the next level.

There is clearly a problem here, we've seen this problem in Washington, we've seen the US as the real only powerful coalition builder in a global commons problem, not stepping up in the way we would have all liked, and it seems pretty clear from friends in the climate community in the US, that this administration really needs to play out. There are energy bills in congress, pragmatically those need to be supported, but were not going to see the kind of climate legislation happening that would be required. In the meantime, China, as we all know, in the next 18 months, if it hasn't already, will become the worlds largest carbon emitter. I mean that's a huge thing to say at this point. But it's accelerating very very rapidly. And finally India as you know, is not only number 5, but will be climbing up the charts pretty rapidly. So in this framing of the US, China, India the wonderful north south debate, forgive my slight edge of sarcasm their, goes on. Which is the north saying, were not going to do this until you do, and our country saying, were not going to do it because its unfair, and problems of equity are too insurmountable and you guys polluted, you created the problem, why should we deal with it? I tend to characterize that as three people in a boat. One huge guy who has dug a massive great hole in the bottom of the boat and the boat is sinking. And two smaller people, or five smaller people, are digging little holes. They are all talking to each other about the size of the hole and the boat is sinking. So I think we need to re frame, our way of thinking about this issue. That does not mean the issues of equity are not very very important. We do have a right to develop. And we have a critical need, a necessity, to bring hundreds of millions of people out of poverty. But there are intelligent, problem solving ways of doing that. And they all focus upon, in one way or another, technology innovation and deployment. There are other problems, the fact that no one can tell if the new frameworks are going to be within the UNFCC process, within the g8+5, within the APP, within the new US Washington 15, how's this going to play out? Will it be a cap and trade? Will it be a sector approach, these debates are going on, and compounded with the north south issue, and the leadership from Washington, its not what I would call the most encouraging picture we all could have possibly imagined.

In that context, I was depressed to read recently, that technology innovation spending, has actually declined, not only in inflation adjusted terms, but actually in nominal terms since the late 80's. From 8.5billion dollars in the late 80's, to a mere 4.5billion dollars in 2003. So why does this matter to us? Apart from the fact that we had a little inconvenience in driving over here today, because of the water, why do we care here in India? Its been framed as a northern problem. I was talking to an Indian climate change negotiator who is involved in the early part of the Kyoto process who said "listen Uday, we had the WTO process, we had far fewer resources in negotiating those frameworks, and we felt bullied, and the easiest way for us to defend our sovereign position was to talk about per capita emissions. But China, India and Brazil have so focused on that issue, that I think we have missed opportunities for pragmatic trades, which I think we are now beginning to see. But its really been perceived as not our problem. A problem imposed by the north on us. Unfortunately, the climate reality, is that it is our problem. This is not something that is being imposed to constrain our development, to constrain our countries economic growth, its is something that is going to have a profound intrinsic impact on that development path.

I ask you to think about just three effects. Its seems quite clear form the evidence, that even the DEFRA(?) study, which was already alarming, is out of date, and deeply underestimates the impacts. Just imagine three things. 1. We are familiar with de-glaciation effects. Were seeing those already happening on a dramatic scale. And we know what will happen. We are going to see a few years of flooding, and then we are going to see a tremendous contraction in our river systems. The Ganga alone, supports 400million people. If that happens you see India as a country of massive drought. I don't mean to exaggerate these effects, I really believe that this is in fact where we are ending up, so forgive me for putting an edge on this. Secondly, coastal flooding. We all experienced the Tsunami just two-three years ago. It is quite clear that the rate of Arctic and Greenland ice cap melting is faster than imagined 24 months ago, and it is quite clear that Ocean levels will rise. That will effect not just Banghaladesh in which 30-40 million people will have to relocate, think of the national security issues for our nation, but also our own coastal regions, with dramatic effect and dislocation. And finally think about the life blood of India, The Monsoon. Shifts in monsoon weather patters are difficult to predict, but they are definitely going to be happening on a dramatic scale. as they happen certain areas of the country will get much more rain, others will get less. Imagine what happens if Punjab for example, were to see a shift of the monsoon away from it. After all the southern part of Punjab is right next to the Thar dessert. What happens if Punjab ends up like Rajasthan? A billion people starve. What happens if the rain falls in places where there are no farms? That rain is wasted. And finally, think about the effects of flooding. Its really interesting, I just came in last night from a flight from London. In London everyone is talking about flooding. There's been massive flooding, the worst floods in 60 years, have just taken place in the UK. I switched on television here this morning, 20 million people had been dislocated in south Asia, with the current flooding, 1/3rd of Bangladesh is underwater as we speak today. It is topical. We have to face reality, we cant be in denial any longer.

I'm not even looking at the effects, of the spread of infectious diseases. The tremendous progress that India has made as a sovereign state in getting rid of infectious diseases, all of that could be reversed as a result of global warming. So in this, I am sorry to paint a depressing picture. So in this, I think that technology has an absolute, critical role to play, you could formulate the climate formula in just four buckets, as well as many of you know this better than I do, but someone put it very elegantly, the formula is very simple, Number of People x GDP per capita x Energy per unit of GDP x Carbon per unit of Energy. Think about that formula. Of course we can try to do something about India's population growth, but not that much. GDP per capita we want to rise, so we have no option but to focus on two things, energy efficiency, reducing energy intensity, and secondly reducing carbon intensity. This is what its all about. And in this, technology is centrally positioned. Its going to be the critical driver, of not only lowering transaction costs, but of increasing mass deployment.

So is it all as dismal as it seems? I believe its a serious challenge and we must not be complacent. But I think there is room for hope. What is that room? The first piece is that it was very badly framed, this debate. It made it seem as if climate mitigation strategies would have huge economic impacts. I think the brilliance of not only the IPPC work, but in particularly the stern report is that when you compared the actual marginal costs of climate mitigation strategies to the massive impacts, those costs were much much lower than anyone had previously imagined. So the thing now is to look pragmatically at what are these costs? And how much do they impact our growth and we may be very surprised by that answer, and I would strongly urge a Stern study for India.

Secondly, I am a business person. And it really addresses how we business people, many of you in this room, re-frame the issue, away form what's been happening in the international domain, in the treaty negotiations, because for many of us, we have begun to re frame this, not as an issue of cost and liability, but as an issue of economic opportunity. An issue of a tremendous economic opportunity, as the entire planet, reboots its energy infrastructure in the next 20 years. Just think of what an opportunity that is. In the last 24months we have seen a complete shift of consciousness happening across the planet. That has not excepted the business sector. The business sector has responded, in fact with more alacrity in many countries than the politicians. And you have seen therefore a new burst of technology and innovation. I cited the study that said technology spending had dropped, well that's reversed out. In the last 24 months, in fact the last 5 years even, we see huge amounts being invested in R&D again mainly by corporations, by the big infrastructure players, in the US, in the EU, in Japan, GE's eco-imaginations campaign would be one example, its not just hype, but also in the US venture industry, and we have some distinguished representatives of that Industry with us today, your seeing a bubbling up of a tremendous amount of energy and innovation, and new technology from fundamental science through demonstration and pilots, through deployment, and things are changing, things are moving and its very timely that we are having this conference.

Why is this happening? I think there is a change in the political environment. I'm shocked to see, how in the UK for example, you have the two major parties competing with each other, Brown and Cameron, around being more climate friendly than the other. And in the US, your seeing a tremendous shift in cities and states, like a great wave, that's washing over Washington over time. And you have seen what's happened in California as one example of that.

This is leading to enhanced market incentives, that's to say for example off take arrangements, enhanced investment incentives, tax and fiscal incentives, and even where it makes sense, straight forward regulation. But that's not the only thing, the other thing to watch is changes in customer behavior. Were seeing this happening as consciousness about this subject is changing, your seeing that happen dramatically in a variety of customer markets. One obvious example of that, is the famous and the often quoted, is the battle between the SUV and the hybrid. You have seen what's happened to Hummer sales, and you have seen what's happened to Hybrid sales. I read in the paper in the US, even Chevrolet is producing hybrid cars. So things really are changing.

So there are fundamental shifts, that allow new kinds of products and service delivery models and that creates tremendous new competitor positioning for existing incumbents, but also scope for disruptive, breakthrough technologies. Why? Its also because of course these shifts in risks and rewards are not perceived only for today, but into the future. Many of the utilities, amazingly, are asking for cap and trade in the US, I was shocked to find that. Why? Because they want predictability. And they know its coming. So would rather set it up now and create investment frameworks that work than to have uncertainty. So that's a very interesting phenomenon, the widespread perception, that the risk reward balance is going to change and shift capitalism, toward clean technology and innovation.

And finally, Yes, Kyoto has helped. Of course its helped. People in this room know that very well. China and India, are leaders in this field, and you are aware of the impact it makes, as well as the pure carbon impact it makes. Despite the many implementation difficulties that we've all seen. So these shifts in Market signals, some coming from the international market, some coming from domestic government, some coming from customer behavior, are really leading to a technology innovation revolution. We are at the birth of something new, something sustainable, something scalable. Why sustainable? Well number one. If you think, technology innovation needs two things. It needs capital, assuming customer markets are changing and all the rest of it, and it needs policy frameworks that shifts incentives around capitalism. Well the capital is massively available. Despite the sub prime woes that we've watched, and the shift of that to the debt markets, we are in a moment of historical liquidity. Unless something locks down, because of this spreading debt crisis, there is a huge amount of capital around. Secondly, policy for the reasons I've mentioned, is shifting in this direction as an inevitable secular trend. Why? Because its much cheaper for governments to shift incentives around capitalism than spend the money themselves. I was talking to someone form a multilateral development bank that it had been promised in a consortium 2billion dollars of north south transfers, the actual amount of money that they had received after very many years of effort was 17million. 2billion, 17 million. Why? Because at the end of the day, Tax payers from the north are not going to subsidize that transfer to the south. Its not going to happen. So what's the easiest way to make this happen? Its to actually get the capital markets to fund it. To get capitalism to fund it. And that means tweaking incentives and that's what's happening. It is inevitable, the question is there will be ups and downs, but it is happening at an increasing pace and scale.

we've seen in Europe, despite the over allocation problem of credits two years ago, that the European carbon market is now beginning to function successfully, and we've seen in the US there is extremely surprising pressure form the private sector to get a regulated carbon market and carbon price. And I was shocked to find US utilities leading that charge. Not all by the way. So will it be regional, will it be global? Will it be industry based? I don't know. Will we get a much better, next generation Kyoto? I passionately hope so. I'm not sure, but what I am sure about, is the carbon markets are here to stay, and that the momentum is increasing, all over the planet, not diminishing. And in conjunction with Tax and other investment incentives, this means that incentives around capitalism, are moving dramatically.

Can those incentives make a difference? Of course they can. I was talking to Jose Goldenberg, who is the father of the ethanol revolution in Brazil, and he said to me the other day, "just a few shifts in incentives, had a massive effect on the ethanol success story." But we have also seen that with renewables in Europe, we've seen that with energy efficiency deployment in china, and its even made a difference to our pretty creditable, and I congratulate Suzlon and others, renewable energy development in India.

There is no choice over time. And so long as those of us who are in this room have the commitment to be here through the ups and downs over the next few years, this is an enormous, massive economic opportunity, and there is tremendous staying power in this opportunity. I was talking to one of the top, 102 US venture firms, perhaps the number one, US venture firm the other day, Kleiner Perkins, 10 of their 23 partners are now focused on clean energy. 23 of their partners, are involved, in some way or another in clean energy. A massive shift for a company, that was focusing mainly on IT. What's going on? Funds are proliferating, new private equity firms, were going to hear more about that, and start ups are also proliferating. Is this a bubble? Of course its a bubble. There will be a short term correction, and that completely depends upon energy prices, but in the mid term, were talking about something extremely solid, and extremely sustainable.

What about India? Do we have an opportunity? It would seem so, we have all these fantastic, mechanical, chemical and electrical engineers. We have a tradition of innovation, science, fundamental research, and we have a great renewables track record. Why should this not be a good opportunity for us? Well our business group Sun, did create a venture firm, in the 90's called Westbridge(?), which is a leading venture firm in this country, and we were very excited about the prospect of focusing on IP based, product innovation. And in reality we found that it was much tougher in India than we had imagined. Much tougher because today India is not at the cutting edge of energy research, and secondly because we are far from, the principle global commercial opportunities and markets. However, that does not mean there are not tremendous opportunities.

The first is of course, is in respect to our own emerging market environment, we are familiar with the work of Prelard(?) and thinking about bottom of the pyramid opportunities, and one thing that I have not talked about shamefully is rural poverty, energy poverty in the rural areas, obviously that is one of India's central challenges, and there we have unique advantages in creating customer propositions that could then be exported to other emerging markets around the world, new models, I was talking to a company the other day that was able to deliver rural connectivity at 1/5th the price of Nokia, Ericsson or Nortel, think about that form an energy standpoint. New models, we think about micro finance, we think about what Amul(?) did, well you know that's not very far from distributed generation, distributed production, micro grids, mini grids, off grid renewables, we have unique advantages in pioneering models in that way.

Partnerships. It may be true that we are not at the cutting edge here, of the very high level energy research or commercial market access, but we do have that tremendous technology resource. And therefore the model that's applied in IT, can also apply here. Which is in collaborative research, in joint ventures, between Silicon valley startups and our own energy institutions. And I was talking to the technology and innovation heads of one of the super majors, one of the more enlightened ones, who said they are doing allot of work now mapping the IIT space.

And finally, new corporate models. And again I congratulate Suzlon, on their incredibly courageous, vertical integration, which means that they've actually managed to vertically integrate their way through M&A, back into the heart of customer markets and innovation in the west. So tremendous opportunities. Part of the traditional response to the central problem that we are all facing, which is the ubiquity of low cost coal, is improving coal thermal efficiencies, from 28%, as you all know, through super critical, ultra super critical, much much more realistic than the IGCC/CCS route for the next 5-10 years, also however, while we wait for IGCC/CCS for the right global multilateral transfer of subsidies to make that work in our country, there are technologies emerging, in silicon valley and in Europe, that improve the de-carbonisation of coal and we should be adopting them.

And then, even though we talk about coal, at a few cents per KW hour, when you actually look at the marginal price, at which many Indian states are consuming power, it is much much higher than that. And that price shield, because of the huge energy deficit, whether its 30-40 thousand MW of power deficit, or 84 thousand MW as I've variously heard, the point is that its in the tens of thousands of MW, as a result of which that we agree buying energy often in the teens, as far as price per KW hour is concerned. That allows a very broad energy mix. Natural gas, whether its through Reliance or through Cutter(?), Hydro, think about the Himalayas, Atomic, lets hope this US bill gets passed in congress and in our parliament, and of course, renewables. A massive opportunity to diversify, where technology innovation and deployment will have an important role to play.

But that's not the core, the real competition, for coal, which I frame as a central dilemma, is efficiency, its efficiency, and that's where we can compete in many many different sectors, many of you may be familiar with the McKinsey-watten(?) framework which talks about different carbon prices, well there's a whole lot of economic opportunity, at a zero carbon price, in transportation, in urban building, where there are market failures, but where there are tremendous economic win-wins.

So finally, in that context, I do think India could be a tremendous technology and innovation hub for the planet in this area. So in conclusion I would ask you to imagine, two India's, I know Arun Meyrer(?) is here somewhere and Arun a couple years ago was talking about 4 India's economically, well imagine two climate change and technology innovation India's. One India, and India fundamentally of the 19th century, and India based upon coal, and India based upon the kind of energy efficiency were living with today. And an India, that as a result, reaps the harvest of devastating climate change, for hundreds of millions of poor people in this country. Or imagine another India, which does not suffer from that massive flooding that I talked about, the de-glaciation, the drought, the famine, the spread of diseases, another India, that technologically leap frogs, think about what has been done in the India cellular industry, which today is producing its service at a much lower cost, and better efficiency than probably any other network on the planet. Well imagine that energy leapfrogging, but not just in the terms of the way we generate power, think about urban design, mass transit systems, green building, which again I congratulate CII on their center in Hyderabad and think about new business models. This is an extremely entrepreneurial country, with tremendous energy resources, and most importantly, the ability to culturally adapt and partner with the world. Its a tremendous cultural strength we have. It allows us to imagine, not a 19th Century India, but a 21st Century India, where we are not a part of the problem, like China and the US, but we are part of the solution.

In that context, I think if we make the right choice, if we step up to the plate and be great policy makers, great business people, great media people, and all the other distinguished people here today, and investors. If we make the right choices, I think that we can be proud of the economic value we create as business people, but also proud beyond that, of who we are as human beings, of what we are doing to help our country, to be proud as Indians, of what our country represents, and most importantly, to really be able to look into our kids eyes and say, "We stepped up to the plate when it mattered"..

Thank you very much.