2023 was a tough year for clean energy investment. Will 2024 be better?
Feb 20, 2024
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2023 was tough for clean energy investment, with shares down, and a huge shortfall in meeting Paris Agreement goals. The challenges faced by clean energy companies in commercializing, bringing capacity online, and managing transmission constraints are discussed. Innovations in grid-enhancing technologies, sustainable aviation fuel, AI, and solid state batteries are explored, along with promoting plant-based diets for reducing emissions.
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Quick takeaways
Clean energy investment faces challenges due to rising interest rates and policy concerns, but there is optimism from the increasing number of climate tech companies and industrial investments.
Commercializing clean energy technologies requires bridging the gap between early-stage innovation and commercial deployment through strategic partnerships and financing solutions.
E-fuels show promise in decarbonizing aviation, with support from companies and partnerships indicating a strong commitment to transitioning to a low-carbon future.
Deep dives
Clean energy investment in a downturn
The podcast episode discusses the current downturn in clean energy investment, particularly in the low carbon energy sector. The decline in growth investment, venture capital funding, and infrastructure funding is attributed to rising interest rates, concerns about policy support, and a correction after earlier over-exuberance. However, there are still bright spots, such as an increase in the number of new climate tech companies and a shift towards industrial investments in areas like clean steel and metal recycling. Despite the challenges, there is recognition of the need for increased spending and a growing ecosystem of investors who understand the risks and aim to support commercialization and scale-up of clean energy technologies.
The challenge of commercializing clean energy technologies
One of the major challenges in clean energy investment is the commercialization of technologies. While early-stage investment in innovative ideas is relatively active, there is a gap when it comes to providing the capital and support needed to take these technologies from demonstration to commercial deployment. Growth capital and debt financing face challenges due to risk aversion and higher interest rates. However, there are efforts to bridge this gap, such as the involvement of private equity firms with technical expertise and strategic partnerships with industry players. The collaboration between investors, researchers, and industry is seen as crucial to overcoming the barriers and achieving the rapid scale-up of clean energy technologies.
The potential of e-fuels and the role of oil and gas companies
The podcast also explores the potential of e-fuels, particularly in the aviation sector. E-fuels, which use electrochemical processes to combine carbon dioxide and hydrogen into a low-carbon jet fuel, offer a promising solution for decarbonizing aviation. While there are challenges related to cost and efficiency compared to conventional jet fuel, the involvement of companies like OXCZU and partnerships with major airlines and oil and gas companies demonstrate a strong interest and commitment to finding viable solutions. Oil and gas companies play a crucial role in supporting the commercialization and scaling up of e-fuel technologies, acting as buyers, investors, and strategic partners in the transition towards a low-carbon future.
The Role of Strategic Partners in Clean Energy Venture Capital
Clean energy venture capital firms can benefit from strategic partners who provide equity, debt, and commercialization opportunities. Strategic partners may invest in the company and become off-takers of the product, which allows the company to refinance the project and introduce debt. However, the challenge lies in the mindset of investors who often seek quick returns and have shorter exit timelines, while clean energy ventures require longer timeframes for scale-up and returns. Clean Energy Ventures emphasizes valuation discipline, tech diligence, and realistic timeframes to achieve outsized returns.
Challenges and Solutions in Clean Energy Deployment
There are challenges in deploying clean energy technologies, such as transmission constraints, interconnect issues, and high capital costs. Governments can play a crucial role in facilitating clean energy investments through loan guarantees, grants, tax credits, and other forms of financial support. However, government interventions alone are not sufficient, and there is a need for a paradigm shift in the financial system to incentivize investment in clean technology. Additionally, utilities and energy companies can adopt grid-enhancing technologies, like LineVision, that optimize power transmission infrastructure and alleviate congestion. The use of AI and machine learning can also revolutionize solutions in various areas, including reducing emissions from contrails and enhancing energy grid management.
There are no two ways around it: 2023 was a difficult year for low-carbon energy investment, and 2024 has so far carried on in very much the same vein.
Rising interest rates, fears around future energy policy, cost inflation in some sectors, and perhaps a correction to some earlier over-exuberance, have meant that shares in clean energy companies have generally under-performed the market.
To take a couple of high-profile examples, Tesla shares have fallen about 55% from their peak in 2021, while Ørsted shares are down about 75%.
Capital flows into climate-focused funds has also fallen sharply. Morningstar data suggested that climate-focused funds attracted about $38 billion of new investor money last year, down about 75% from 2021 levels. In the private markets, on the venture capital side, the flows into clean energy also seem to have fallen, if not quite as sharply.
To examine the reasons why low-carbon energy investment is having a rough time of it at the moment, and explore some of the more positive indications in the outlook, host Ed Crooks and regular guest Amy Myers-Jaffe are joined this week by newcomer Dan Goldman, Co-Founder & Managing Partner of Clean Energy Ventures. They discuss the huge shortfall in terms of the investment needed to meet the goals of the Paris Agreement, and raise some ideas for closing the gap. And on the brighter side, they look at the healthy ecosystem of innovative companies working on new ideas that could solve the toughest problems in energy and climate.
Mobilizing capital will be the key to tackling the threat of global warming. How can we make sure the money flows where it is needed?
Plus, two specific ideas that could make big contributions to decarbonizing the energy system. Grid-enhancing technologies can help overcome transmission capacity bottlenecks that are obstacles to the deployment of renewable energy. Dan's firm Clean Energy Ventures has invested in a company called LineVision that has provides those technologies, and he and Amy explain why they are important.
And finally, as the aviation industry continues to grapple with the best ways to cut emissions, Sustainable Aviation Fuel (SAF) is a popular potential solution. The gang discuss the potential of companies like OXCCU, which is backed by Clean Energy Ventures, and the fundamental scientific challenges inherent to producing e-fuels from hydrogen and carbon dioxide. Keep an eye out for an upcoming episode with an in-depth look at SAF and OXCCU, on our sister podcast The Interchange.
