We present a transcript of a conversation conducted by Julia Cydejko with Tomasz Tomasiak as part of the Polityka Insight and Forum Energii podcast. The episode is titled Poland’s Industrial Opportunity | Clean Technologies
Julia Cydejko, Polityka Insight: Investing — as in any sector — involves risk. How would you describe this risk in relation to clean technologies, which are very diverse? We have innovative technologies here, such as energy storage, but also technologies or sectors that are well established or that we inherited from previous decades or even the previous century, such as rail transport. Would you put them all in the same basket from an investor’s perspective?
Tomasz Tomasiak, ARP TFI: Definitely not. When it comes to investment issues, they should be viewed from different perspectives. I recently met with Professor Tchorek, who is developing the so-called technological readiness scale at the University of Warsaw. It is a very useful tool that shows where a given technology stands. From a financial perspective, it determines the instruments that should be applied to a specific technology.
When meeting with students or company managers, I see that today everyone is looking for money in banks, but I find it hard to understand why. After all, there are investment funds, and there are funds with different risk profiles, so the first issue seems to be diagnosing where we are with a specific technology.
Mature technologies, established on the market and tested against several parameters, can approach a bank with a proposal. Underdeveloped technologies — depending on the stage they are at — can go to appropriately specialized units. In the aforementioned study at the University of Warsaw, 50 experts analyzed around 39 hydrogen technologies. In such a case, we already have a kind of overview of these technologies. And when we have very advanced technologies, we can confidently go to a bank, while in the case of less developed ones we look for money either in investment funds or — at a very early research stage — in grants.
At the Polish Green Fund, we deal with projects that are at the point of commercialization and already mature, so we invest where our money will already generate real value. We invest where production can be increased or where production is already mature. Of course, where possible, we bring in a bank as well.
The Americans illustrated this beautifully in the form of three “valleys of death” in the technological development of installations. The first is when the product is still in the development process — it must win customers, convince decision-makers…
JC: …but also the production chain. Carbon capture and storage technology comes to mind, because if we are to meet the targets set for 2030, not to mention climate neutrality, we will have to develop CCUS. And in this case — as I understand it — this first stage of technological risk is already present?
TT: Yes, in this area the technologies are already mature, but not yet commercialized. And this is precisely the first valley over which we need to build bridges, where I see a role for the state in the form of subsidies or research grants.
The second so-called “valley of death,” over which another bridge must be built, is the valley of commercialization. This is the moment when the product must attract a broader group of customers, but it is not yet at the stage of mass production. The Americans identified a role here for venture capital and seed capital funds, meaning instruments intended for earlier stages of development. Here, too, I see a role for the state and, to some extent, private capital.
At the next stage, these products should pass through the “valley of death” related to investment profitability. This is the moment when we start producing, when production increases, and we need to look for profits in order to develop the company and the product in the long term. Here, the ability to earn money from a given product is the most important thing.
JC: You mentioned the role of the state. This is very interesting to me. How do you actually understand smart state intervention in shaping industrial policy so as to push this sector forward? Poland has a very strong industrial base and, on the one hand, we can build on it. On the other hand, industry — both in Poland and across the European Union — is struggling with very significant challenges related to energy prices and expectations regarding decarbonization. How should the state stimulate promising sectors at the national and European level?
TT: Let’s start with diagnosis. In order to stimulate effectively, we need to know where we are — whether in product development or in a given technology. We have our competitive advantages, we have our sectors, and here I agree with the thesis that we cannot be everywhere. We have limited resources and we are not as powerful a country as, for example, the United States or China, so with our resources we should focus on selected sectors.
I see two important elements. The first I call educational — not only strictly engineering and scientific, but also managerial. It is important that our decision-makers make informed, bold decisions. They should be promoted for taking action, not for refraining from it.
JC: So, encouraging risk-taking.
TT: Definitely encouraging risk-taking. It cannot be the case that where we do not make decisions, we have peace and no one bothers us, while those who do make decisions have to reckon with consequences in the future. This applies both to private business, where the so-called American style has already developed strongly, and to the state, whose role is to encourage officials to make decisions and take action. Not making a decision is also risky, because it will not bring the expected result. Unless it is deliberate and we do not make a decision for some specific reason.
The second element is diagnosis and analysis of what is happening. If we are aware of the limitations and know the level of technological development, then we know how to act. If it is at an early stage, state intervention is needed — whether in the form of scientific grants or support systems. Looking at the history of photovoltaic technology, state intervention through contracts for difference enabled it to move from the commercialization valley to becoming a market product.
JC: Since we have such a dynamic picture of the technological mix, I would add the flexibility that the state gives to promising technologies. I mean the state withdrawing from those sectors in which production and the value chain are well developed. You mentioned wind and photovoltaic technologies — I think these are examples of industries that have already achieved independence, maturity, and a sufficiently high level of competitiveness for this activity to be shifted elsewhere. This is what the Forum Energii report says — we have activities that meet clean-tech criteria where committing large amounts of funding may miss the point when assessing the potential and opportunities we have as Poland. How can this flexibility be ensured in the dialogue between investors and the state? Do we have intra-sector consultation forums that allow this?
TT: I would raise two issues here. The first is flexibility, meaning the two elements I mentioned earlier — knowledge about the stage a technology is at and the courage to make decisions. And here photovoltaics and wind are great examples of technologies that we no longer need to support. Both technologies should now be left entirely to market forces.
I understand that there are different types of investors — some of them definitely need contracts for difference to support a technology…
JC: …such as offshore wind energy.
TT: Exactly — without those contracts, it cannot develop today, and it is needed. In my view, within a few years it too will show us that it is competitive. Let me remind you that contracts for difference as state support for wind turbines were supposed to be suspended in 2020. Once they matured, we were supposed to abandon them; however, the state of decarbonization was unsatisfactory and the European Commission decided to maintain support systems until 2027.
I believe that state money should serve as financial leverage for private money, but where it is no longer needed, we should decisively end state aid and hand the technology over to market forces. We should direct state money to areas where we would like to develop. This is how it works in all countries.
JC: What does Poland have to offer investors who would like either to enter the Polish market or the clean technology sector, or to increase their presence? What advantages could determine that clean technologies will develop in the coming years?
TT: First of all, we have entrepreneurial Poles — what we have done over the last 30 years gives grounds for optimism. We have shown all of Europe that we are entrepreneurial. Perhaps a little more financial and managerial knowledge would be useful, but only as an addition, because we are already very well developed. What do we need? To create conditions and prepare sites for investors — meaning regulations, informed decisions, and infrastructure preparation. We need to move to the second stage, in which we create conditions for potential investors to invest. If someone is looking for a place for a venture — whether it is a factory or something else — we should prepare that infrastructure for them, or at least create conditions for quick connection. I am not saying from one month to the next, but within six months to a year would already be desirable. On top of that, of course, smart support policies at the earliest possible stage.
We should not be afraid that state money may be used inefficiently in the first phases of investment, that is, when we are talking about research. This can indeed be risky for private investors, because here one in ten investments succeeds. At later stages of commercialization, where we already involve private capital, one in five succeeds. Of course, they generate profits that can cover, and even earn returns on, the investments, but we must be aware of this. It cannot be the case that at these early stages we give up on investment because the state might lose money. Science and knowledge cost money. And the state should definitely invest in them.
JC: And what does this look like from your perspective at the Polish Green Fund? Which technologies are you focusing on at the moment and what is your investment outlook for the coming years?
TT: Our fund has an elevated-risk private equity profile. We are looking for ready technologies that we can scale, which means we take on risk even before banks do. We are looking for decarbonization — whether it is cleantech or the circular economy — we are ready to examine it and invest in it. What matters most to us? Local content — we see domestic advantages, above all the preparation of engineering staff and technological-managerial education, which is at a high level in Poland. We are looking for investment opportunities; of course, we are also interested in infrastructure, for example photovoltaic-plus-battery hybrids. This has innovative elements, because the battery area is not yet well understood. We do not limit ourselves; we prefer Polish entrepreneurs, and the entire cleantech sector is interesting to us.