As the global energy transition accelerates, innovations in clean energy solutions are steadily creating trading opportunities.
Investment in clean energy solutions is increasing as governments and businesses race to meet ambitious decarbonization targets. The International Energy Agency (IEA) estimates that to reach net-zero emissions by 2050, annual investment in clean energy will need to more than triple by the end of this decade to around US$4 trillion per year. Masu.
Governments around the world are rising to this challenge and have launched a number of measures to encourage investment in clean energy technologies such as electric vehicles, solar power and battery solutions. In the United States, the Inflation Control Act has promised US$369 billion in subsidies to encourage investment in green technology. According to S&P Global, private equity firms will make US$100 billion worth of new renewable energy investments in the first 10 months after the law takes effect, which will qualify for tax credits over the next six years. The European Union, Australia, and Japan have since enacted similar laws to offset U.S. spending and increase funding for early-stage clean technologies.
With incentives like this on offer, it’s easy to see why investor interest in clean energy is growing. According to the IEA, global investment in clean energy reached USD 1.7 trillion in 2023, despite the uncertain macroeconomic situation.
Dealmakers have announced a slew of deals in 2023 as PE and venture capital investors seek to close the investment gap and accelerate the growth and pace of clean energy innovation.
Decarbonization of transportation drives trade
PE firms operate at the top end of the market and have invested in a wide range of clean energy solutions in the technology sector. In one of the largest such deals, in September 2023, US buyout giant KKR and British investor InfraCapital acquired UK-based EV vehicle and battery storage specialist Zenove Ltd. for a total of 11 Invested USD 1 billion. This investment will expand the number of EVs and charging networks supported by Zenove, with the company aiming to have 4,000 electric buses, trucks and commercial vehicles in service by 2026.
Decarbonizing the transport sector, which accounts for one-fifth of global carbon emissions, is central to achieving net-zero targets for countries, with the phasing out of carbon-emitting vehicles a top priority. In February 2023, the European Parliament passed a law requiring all new passenger cars and light commercial vehicles to have zero CO2 emissions.2 In September, the UK announced that it would ban new sales of internal combustion engine cars and vans in the country, also from 2035.
In the United States, there is also growing momentum to decarbonize transportation networks. In April 2023, the U.S. Environmental Protection Agency announced its most far-reaching plan to reduce vehicle emissions to date. New pollution standards set by the agency require that up to two-thirds of new cars sold in the United States be electric by 2032. To meet this standard, current EV sales levels in the US would need to increase nearly tenfold.
Transactions in the rare metals and EV battery fields are also intensifying. At the end of November 2023, US lithium refiner Stardust Power agreed to a US$490 million deal to go public through a merger with special purpose acquisition company Global Partner Acquisition Corp. II. Stardust plans to build a refinery in Oklahoma that can produce up to 50,000 tons of battery lithium per year. In late January 2024, Arizona-based Sion Power, which develops next-generation batteries for EVs, secured US$75 million in Series A funding from a group of investors led by South Korean battery manufacturer LG Energy Solutions.
Beyond refining and manufacturing, several deals involving innovative lithium battery recycling companies have also been announced in the United States in the past few months. In November 2023, Princeton New Energy raised US$16 million from a group of investors led by Taiwanese electronics group Wistron to expand its recycling technology. This follows her US$12 million grant that NuEnergy received from the US Department of Energy to commercialize its technology.
Last September, Massachusetts-based battery recycler Ascend Elements raised $542 million in Series D funding from a variety of investors, including sovereign wealth funds from Singapore and Qatar and several U.S. and European VC groups. Raised US dollars. This funding will augment the US$480 million in grants Ascend already received from the US Department of Energy.
One of the biggest energy storage deals of 2023 was announced at the end of August, with battery recycling startup Redwood Materials raising more than $1 billion in its own Series D funding round. The company plans to use the investment to strengthen its U.S.-based battery supply chain as the domestic market seeks to curb its dependence on Chinese materials. China processes 59 percent of the world’s lithium. In the US, it was only 3.5%.
Consumer renewable energy platform scales up
Solar power is another clean energy subsector favored by PE players. In March 2023, US PE firm TPG will invest US$150 million in clean energy platform Palmetto, and will use the funds to increase access to solar power for individuals and businesses across the US. Months later, Trinity Solar, a New Jersey-based family-owned residential solar, battery storage and energy services provider with operations in nine states along the East Coast, receives a growth investment from private equity firm TSG Consumer Partners. was secured.
Rising electricity costs are prompting U.S. consumers to consider residential solar power solutions. According to the U.S. Energy Information Administration, solar capacity is increasing as demand increases and is expected to increase by 84% over the next two years.
Meanwhile, in Europe, Prague-based climate technology startup Woltair announced a US$22 million funding round in June 2023, led by Canadian VC firm ArcTern Ventures. The startup is expanding its digital platform to accelerate the adoption of heat pumps and renewable energy solutions among European consumers. Woltair is expanding into Germany, where demand for heat pumps is rapidly increasing from 2022 onwards.
Enhanced battery storage
Battery energy storage systems (BESS) are central to achieving net-zero targets. By storing electricity for later use, it increases the penetration of renewable energy into the power grid and reduces the intermittent nature of renewable energy sources. According to IEA statistics, the battery storage sector will receive an estimated USD 37 billion of investment in 2023, almost double the USD 21 billion of the previous year. Meanwhile, McKinsey predicts that the global BESS market will exceed USD 120 billion by the end of 2010.
Investors are paying attention. In July 2023, Dutch infrastructure investor DIF Capital Partners announced a £200m investment in the UK’s BESS developer field. Field, also known as Virmati Energy, will use the funding to develop a 4.5 gigawatt-hour pipeline of grid-scale BESS projects across the UK and Western Europe, aiming to improve the efficiency of wind and solar power generation. is.
Earlier this year, French oil and gas giant Total Energies announced on January 23 that it had acquired German BESS company Kyon Energy in a deal valued at 90 million euros. Kyon is currently developing Europe’s largest battery storage system in Lower Saxony, Germany. On the same day, InstaGrid, a German company specializing in high-performance portable battery systems, raised US$95 million in a Series C funding round led by Teachers’ Venture Growth, part of the Ontario Teachers’ Pension Plan. announced. InstaGrid’s battery system is a sustainable alternative to traditional fossil fuel generators, and the company plans to use this latest investment to expand into the North American market.
In the US, Tokyo Gas recently targeted Texas-based BESS company Longbow in a US$216 million deal announced in December 2023. Renewable energy production is rapidly increasing in Texas, with Tokyo Gas already operating a 630MW solar power plant. Japanese companies also expect demand for BESS to increase rapidly.
Software platform expands clean energy
Despite the challenging funding environment around the world, venture capital involvement in the clean energy sector is sustained. According to European VC firm A/O, climate change technology projects accounted for about 70% of total VC investment in 2023, or US$11.8 billion. Climate change technology startups from Stockholm and London are leading the way globally, with the latter securing US$3.5 billion in VC investment in 2023, a significant increase from US$2.2 billion the previous year. This capital inflow is even more impressive given the recent decline in global VC activity, where persistently high interest rates and scarce liquidity have inhibited investment.
Venture capital is particularly interested in AI startups that offer innovative solutions in the clean energy industry. For example, San Francisco-based Verse raised US$6 million in a funding round led by US investment management firm Cotu in July 2023. Verse employs generative AI to help customers purchase and manage clean power through the Aria platform, making the process simpler and more cost-effective.
Meanwhile, Rotterdam-based AI clean energy platform Schoon Energy secured US$5.6 million in funding in October 2023 through an investment led by US tech investor Blue Bear Capital. Skoon’s software platform connects traditional fossil fuel users with clean energy solutions such as batteries, hydrogen and solar generators, giving them more choice when choosing their energy system. In addition to ongoing software development, Skoon will use the investment to expand its team and enter new markets globally.
At the end of January 2024, US-based Crux Climate raised US$18.2 million in a Series A funding round led by VC giant Andreessen Horowitz. Crux facilitates the transfer of tax credits created by the Inflation Control Act through its sustainable finance platform. Founded just a year ago, the company has already raised $27 million in funding. According to a Crux report released in mid-January, total clean energy tax credits in 2023 are estimated to reach up to US$9 billion.
Paving the way to net zero
Investment in clean energy will continue to accrue rapidly as the industry races toward achieving net-zero goals. However, the use and uptake of clean energy solutions such as solar PV, EVs, and heat pumps is spreading unevenly across countries and sectors. For example, more than half of the world’s EVs are in China, but demand and sales growth is expected to contract in the short term in Europe as consumers wait for more affordable models.
Batteries are also not currently being developed at the pace needed. Grid-scale storage capacity in developed countries lags behind net-zero targets, the IEA says, calling for a doubling of efforts in this area.
With the imperative of decarbonization and net-zero emissions mandates, investments in clean energy innovation should continue to enjoy favorable market and policy signals in 2024.
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