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Canada's clean-tech sector is facing dire circumstances, and will have to overcome major financing hurdles if it is going to provide the economic boost that the Liberal government envisions as part of its climate-change strategy, a report from a leading industry analyst says.

Analytica Advisors found that, on average, firms operating in the clean-tech sector have not been profitable since 2011, and while losses are narrowing, "most are operating in markets that are not profitable," it said in a report released Thursday.

Some leading companies in the sector are "on the ropes," as they are unable to borrow at commercial interest rates to finance operations, the consultancy said.

"Canadian firms do not have access to financing that would enable them to meet demand," Analytica Advisors principle Celine Bak said in an interview. "When they do have access to financing, the interest rates charged are significantly higher than those that other industries are paying."

She noted key financing investments announced in the recent federal budget are not due to flow in until 2019. In the meantime, she said, companies are starving for capital and "Chinese investors are circling."

Environment minister Catherine  McKenna defended the government's effort, pointing to the $2-billion commitment in the budget.

"I don't think we are going to accomplish everything overnight," she said in a call from San Francisco, where she is prospecting for trade and investment.

"There are different companies in different stages across the board," she added, noting government offers support through  agencies like Sustainable Development Technology Canada and Export Development Canada.

The big exception is renewable energy providers that are making money by selling power into provincial grids, said the 2017 Clean Tech Industry Report, the latest in an annual effort to track the performance of a sector now comprising 856 firms that employ more than 55,000 Canadians.

The Liberal government has touted the clean-tech sector as a key engine for Canada's future economic prosperity as the country shifts away from fossil-fuel consumption and production over the longer term in order to reduce greenhouse gas emissions that cause climate change. Federal and provincial governments are providing additional funding for clean-energy startups and are implementing policies – including carbon taxes – that would provide incentives for the adoption.

"We can't count on this sector as part of the positive side of the transition to a low carbon economy unless the companies get access to capital, and unless the capital comes not just from public sector but the private sector," Ms. Bak said.

She noted that shareholders continue to invest in clean-tech companies, but their patience is being tested by the lack of profits. Debt markets – including from Canada's big banks – are not open to most clean-tech startups. On a cash-flow basis, those companies are seeing a lower return on capital employed than companies in the information technology or artificial intelligence sectors. Energy-related technology tends to be capital intensive, with major barriers to entry as innovative firms take on traditional suppliers.

As a result, governments need to focus not only on venture capital but should ensure that the massive infrastructure program being rolled out takes full advantage of clean-tech innovation, that government procurement creates markets for Canadian clean-tech firms, and that regulators consider innovative technology when setting standards for industry.

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