SDTC receives $325 million over eight years to replenish depleted SD Tech Fund

Budget 2013

The federal Budget has given Sustainable Development Technology Canada (SDTC) a new lease on life, replenishing its depleted SD Tech Fund with $325 million over eight years. The new money allows SDTC to launch a new competition for the fund, which has allocated $592 million since its launch in 2001.

For SDTC, the funding comes not a moment too soon. The organization proposed but failed to secure $550 million in funding in last year's Budget, prompting a reduction in operational costs and the risk of losing ground in Canada's bid to stake a claim in rapidly expanding global clean tech sector (R$, April 17/12). The SD Tech Fund was completely depleted last November.

"We had fully allocated the fund. There are huge opportunities for exports and the momentum had to be maintained. People (at SDTC) did not know where their employment was going (and) we had warned the community that we may not have more money," says Dr Vicky Sharpe, SDTC's president and CEO. "We listened carefully to government intentions and the need to reduce the deficit. We'll continue to find other sources of private capital in parallel with public funding."

The new funding is intended to grow the clean tech sector in Canada by generating high-paying jobs. But it's also intended to "drive innovation and improve the productivity of Canada's natural resource and manufacturing sectors", according to Budget documents. SDTC is known for strong due diligence when selecting projects with an eye on securing additional funding sources to develop clean technologies up to where the private sector is willing to invest.

With a portfolio valued at more than $2 billion, SDTC has leveraged $1.5 billion for its projects, primarily from industry. A far higher leverage factor kicks in when follow-on financing is included. But the big money is typically invested in more mature firms that have previously received SDTC assistance. Sharpe estimates that of the $2.3 billion in private capital invested in 53 of its companies, more than 50% comes from US sources.

"I understand all the money will go into the SD Tech Fund. It will be about clean tech and speaks to manufacturing and natural resources and realizing the Canadian share of the global market," says Sharpe. "We have a leverage factor of 14 or 15 but we want to improve leverage at the front end of the process which is where we are situated and which is far more challenging."

Budget documents reveal that the new funding will be disbursed to SDTC slowly — $1 million this year and $12 million in FY14-15. Sharpe explains the modest funding over the next two years is due to how the government releases funds to the agency on an as-needed basis. With no competitions in play, there's little need for large amounts of money until the lengthy process of project selection, board approvals, contract negotiations and lining up other investors is complete. Another factor is the investment chill brought on by the 2008 economic meltdown which lingers to this day.

"There has been a flight of capital, especially for early-stage where we work," she says. "Clean tech weathered the storm fairly well and there's been some consolidation. There are big opportunities in international markets (and) we have a great portfolio of solutions."

Sharpe is reluctant to discuss the details of SDTC's re-funding until she completes discussions with government officials. She acknowledges, however, that at least two measures proposed last year are still being considered — a Canadian Cleantech Accelerator Fund for development, demonstration and early-stage commercialization, and a new investment model that would replace grants with equity investments.

"I'm pretty sure there will be discussions about what kinds of vehicles are required. We may also find acceleration from other funding sources," says Sharpe.

In addition to the SD Tech Fund, SDTC also manages a $500-million NextGen Biofuels Fund. Launched in 2007, the fund has found little investment traction with less than $1 million allocated to date. Sharpe says the investment climate for large-scale demonstration projects — sidelined by the economic downturn — remains cautious and that her team continues to monitor global deal flow.

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