Introduction
Brunswick’s latest Energy Transition webinar ‘Scaling Cleantech’ took place on 7th September, with 55 days to go before COP26 and with pressure for climate action emerging from every angle – from governments and regulators, corporates, the financial world and civil society.
The session was chaired by BloombergNEF’s Head of EMEA Dana Perkins, and panellists included Erin Hallock, bp Ventures’ Managing Partner, Dr. Christian Thiel, the CEO of EnergyNest, and Ernst Sack, a Partner at Blue Bear Capital.
Panellists unpacked the cleantech boom and provided insights on the sector’s opportunities to scale and future challenges to unlocking the energy transition. They were unanimous in their view agreeing that this is cleantech’s ‘moment’, with the industry poised to deliver the innovation required to reach net zero.
Cleantech 2.0?
Defining cleantech early on in the session helped to frame the conversation. While Cleantech 1.0, which took place in the mid-2000s, was focused primarily on renewable energy generation with large investments in wind farms and solar panels, the current surge of activity is about much more than wind and solar.
What is being branded at Cleantech 2.0 or Climate Tech encapsulates a far broader range of technologies like hydrogen, EVs, battery technology, carbon capture and sequestration, with decarbonised power providing the bedrock for many industries to decarbonise.
Panellists noted that Cleantech 2.0 seems to be different in that it includes both hardware and software, hard infrastructure and softer solutions, including AI and blockchain, as well as non-energy solutions like natural carbon sinks and plant-based alternatives to meat.
In short, Cleantech 2.0 is about the application of carbon saving technologies across all aspects of the economy. It is as much about technologies which reduce emissions as technologies which remove carbon from the atmosphere. Combined with stronger and clearer policy incentives, this is what makes investors confident that the addressable market opportunity of around $2 – 4 trillion per year is credible, a prediction which is consistent with the levels of investment the IEA says are required by 2030 under their net zero scenario.
A promising future
Panellists reflected on how Cleantech 2.0 was different and more promising for investors, business, and society at large. They cited that in the early 2010’s returns were negligible, success was minimal, and policy wasn’t clear, with cleantech unable to benefit from the unicorn phenomenon.
And while Cleantech 1.0’s challenge used to be to get technology to fundamentally work – now it was about scale. It is for this reason that cleantech investments are no longer framed as investments in alternative energy. One similarity however remains that cleantech requires talent and capital to be successful. On this, panellists took comfort from the fact that increasing numbers of former tech executives were getting behind cleantech, with more and more founding ventures in the space.
Another noteworthy development is the appetite from more traditional investors, such as infrastructure funds, to invest in earlier stage companies. Today, investment interest in cleantech is coming from venture capital, sovereign wealth funds, SPACs, tech companies and even traditional corporates, among others. The fact that the investment pool is far greater than traditional VCs has a multiplier effect on its ability to scale but also brings risks of inflated valuations to this space.
Ultimately, the panel noted that one of the biggest drivers for the paradigm shift is the cost of technology coming down thanks in part to China’s mass manufacturing, in tandem with a shift in public opinion and corporates commitments to net zero.
The panel was unanimous that we’re now experiencing a surge of appetite by investors for anything climate-related, with record breaking fundraising activity in H1 of 2021 in the climate space. Anecdotally, in August, there was a 24-hour period where investment funds announced $12 billion of funds raised focusing on climate. We have already surpassed $500 billion of investment into the energy transition in 2020, and interestingly, venture capital firms have moved beyond energy towards emerging areas for decarbonisation, such as food and water, mobility, and consumer products.
Panellists agreed that capital markets were working – pointing towards the fact that money was flowing out of ‘ex-growth’ oil and gas and going towards cleantech and towards the energy divisions of the majors looking at renewables.
Looking ahead
Looking ahead, panellists believed that increasingly the focus will shift on the sustainability and quality of supply chains as opposed to just the feasibility and affordability of products.
They also noted that the unprecedented amount of capital moving to cleantech creates challenges for founders – namely around selecting the type of investors they engage with and how they structure their partnerships.
Brunswick’s Energy Transition Tracker found that two-thirds of people polled believed that government, business, and the financial community need to put aside traditional models of investment/return and take a “moon shot” approach to cleantech, leading the panellists to reflect on the current public/private dynamics.
They raised concerns around the conflicting forces at the heart of the regulatory landscape, which are creating a bottleneck and risk hindering cleantech’s ability to materially scale – citing challenges around how energy storage is regulated, and how consumer solutions are yet to be incentivised by legislation.
Geopolitical realities were also mentioned as possible stumbling blocks. While the brunt of activity in cleantech is taking place in the Western Hemisphere, greater focus should be on China and India, whose decarbonisation will be critical to limiting global temperature increases. In the case of China, concern was raised about the dichotomy between central and local government discourse and actions.
Indeed, the bias towards America, Europe and Israel was seen as a symptom of insular thinking in the cleantech space that needs to be addressed.
Finally, emphasis was put on the need to set a strong carbon price – with concerns expressed that if it is not high enough, consumers won’t have the incentive to adopt lower-carbon technologies.