Investing in clean tech to reach Net Zero
Bill Gates’ latest book, How to Avoid a Climate Disaster: The Solutions We Have and the Breakthroughs We Need, was published earlier this week, and understandably sparking much comment.
Jonathan Tudor, the Clean Growth Fund’s Investment Partner, offers his take on what Bill Gates has to say against what’s happening now and what needs to happen to reach Net Zero.
Why does Bill Gates draw our attention to 51 billion and Zero? The former is the number of tonnes of greenhouse gases that the world typically adds to the atmosphere each year and the latter is where we need to get to. Gates puts forward the case that in order to achieve this, both innovation and technology need to be supported. No surprise but the Clean Growth Fund agrees.
While solar and wind is decarbonising electricity, it’s still a long road ahead to decarbonising how we live and work. Heating alone accounts for over 30% of the UK’s greenhouse gas emissions, with an average UK home emitting 2.5 tonnes of CO₂ each year, just to keep warm.
Changing from hydrocarbon-based heating to heat pumps or renewable CHP, supported by intelligent storage and control systems will undoubtedly help, but new business models will be needed to make it affordable in comparison to fossil fuel. Our homes can be great flexible sources of energy consumption, helping to balance supply and demand.
It is not just heating and electricity generation that needs to change. To make better use of renewables, the Clean Growth Fund expects to see and will invest in companies that help deliver innovative energy networks and systems that can dynamically respond to changes in demand. The UK energy system needs to better predict changes in demand, be able to store more energy and make our grids smarter and more resilient. This thesis led to our recent investments in Piclo Energy and Indra Renewables; both companies help grid resilience.
Hard to innovate industries such as steel, cement, transportation and agriculture also need the attention of the cleantech sector to reduce emissions and waste. Alternative fuels, more efficient machinery, carbon capture and storage or better still, carbon capture and use, will need to be adopted if we are to reach Bill’s second number zero. Some progress is being made but we need these industries to accelerate their efforts to reduce their emissions.
In order to drive the climate innovation pipeline, Bill asks for greater government R&D budgets and more venture capital to be available. He argues that for great ideas to be taken out of the lab, the inventors/founders need to supported.
To make this successful, investors must understand how to manage risk, grow strong businesses and support mission-driven founders. In addition, investors must understand the complexity of decarbonisation and the energy transition. More fundamentally the entire investment community is required to allocate sufficient capital across all asset classes, ensuring talent and opportunity aren’t stifled as entrepreneurs graduate from family and friends funding through to seed and beyond to series A and B.
As an early-stage venture fund, the Clean Growth Fund has been fortunate to have the support of both the UK Government (through BEIS) and CCLA, one of the UK’s largest charity fund managers. Our team has spent most of their careers in the energy/clean tech sector, understanding how the transition to Net Zero can profitably take place.
The key to reducing the 51 billion tonnes are the large corporates – the big emitters. They are already making ESG investment commitments and are now firmly part of the venture capital community: last year, they accounted for around 25% of all venture investments in the US. Their presence enables them to partner, run proof of concept trials and scale operationally: essential ingredients for success.
Despite Bill’s enthusiasm (and mine), many still believe it is hard to drive strong returns as a clean tech venture fund. MIT published report in 2016 on VC’s failings in climate investment from 2006-2011; it suggested venture investment didn’t make sense in energy. Ten years on, today’s market is unrecognisable and unbelievable.
A VentureBeat article shines a spotlight on how substantial businesses in energy can be built without the need for capital intensity. In fact, recent activity of the oil & gas majors hints at a trend: BP, Shell and Total have laid down their plans to decarbonise, collectively spending $billions acquiring new capability in electric vehicle charging (Shell acquiring Ubitricity and NewMotion, BP buying ChargeMaster, Total buying G2Mobility), residential energy storage (Shell acquiring Sonnen), electricity supply (Shell acquiring First Utility and Total, Direct Energie), virtual power plant technology (Shell’s acquisition of Limejump) and BP’s recent majority acquisition of Finite Carbon for forest carbon offsets.
These are capabilities that the oil majors need to own and scale as they embrace the energy transition; not acquisitions for incremental market share. They also appear willing to acquire them before growth and late-stage private equity investors get the chance to invest, dispelling the perception that superior returns cannot be achieved for the early-stage investors.
The Clean Growth Fund exists to deliver strong financial returns and accelerate the journey towards Net Zero: two objectives that are no longer mutually exclusive. Understanding how Governments can help the private sector, how corporates provide clean-tech founders access to millions of customers, and the benefits of technology to deliver, giving returns that won’t ‘cost the earth’.
If you would like to know more about the Clean Growth Fund, please email firstname.lastname@example.org