It’s getting hot in climate-tech
Record-breaking fundraises see billions ready to deploy to scalable climate-tech solutions.
Just before summer many news outlets reported on the explosive growth of capital being raised for climate-tech funds. According to recent ClearlySo research, over $10 billion will soon be raised into private market climate-tech focused strategies. The funds spread the gamut from mainstream PE players to large hundred-million dollar corporate commitments and smaller specialist VC strategies.
Following BlackRock CEO Larry Fink’s January statement that “no issue ranks higher than climate change on our clients’ list of priorities”, BlackRock and Temasek announced in April they were partnering on a series of late-stage venture capital and early growth private equity investment funds. The joint venture, Decarbonization Partners, will focus on advancing decarbonization solutions to accelerate global efforts to achieve a net zero economy by 2050, and has raised $600 million of a $1 billion target.
In the following days Impact Alpha reported a ‘cascade of climate-tech funds taking aim at $10 trillion energy transition opportunity’. Corporates were in the spotlight this time – Bill Gates backed Breakthrough Energy Ventures, Amazon and Microsoft each have launched funds of $1 billion or more aimed at accelerating the transition to a low-carbon future.
Next up was mainstream PE investors. In July Pitchbook reported that ‘investors are raising climate tech funds at a torrid pace’ including growth-equity giant General Atlantic, which plans to raise $4 billion for a growth equity fund focused on climate technologies and TPG’s goal of $5 billion for its new Rise Climate Fund, focused on climate and clean-tech sectors.
Transport is one of the first sectors that has embraced decarbonisation.
The pace hasn’t slowed since the summer.
- Goldman Sachs’ Horizon Environment and Climate Solutions Fund nears $1 billion.
- Lowercarbon Capital raised $800m, August 2021.
- Energize Ventures raised $330 million Fund II, September 2021.
- Tikehau Capital have made the bold statement they claim to scale to $5 billion of AuM focused specifically on climate solutions by 2025 after closing T2 Energy Transition Fund at €1.1 billion this year.
- Breakthrough Energy Ventures (BEV) just announced an additional $1 billion had been raised for Breakthrough Energy Catalyst.
This latest announcement is one of the most important. Many of the emerging technologies are not commercially viable at small scales and struggle to attract mainstream private capital. BEV’s specific goal with this fund is to offer risk-capital to scale some of the world’s most difficult yet attractive clean-energy initiatives. The four target areas are Direct Air Capture (DAC), Green Hydrogen, Long-Duration Energy Storage (LDS) and Sustainable Aviation Fuel (SAF).
We are also aware of a number of climate FoFs currently being raised, primarily from UHNW investors, which will only increase the capital available to clean-tech start-ups.
What are we watching in the climate-tech funds space?
1) Long-Duration Storage (LDS)
Long Duration Energy Storage is one of the missing pieces of a grid powered by renewable energy. Gravity-based storage systems previously fell out of favour due to lithium based batteries declining costs costs, and now iron-flow batteries are in the spotlight following a record-breaking purchase of ESS’s technology by SoftBank’s renewable energy arm. Form Energy are also one to watch after a recent $240 million Series D funding round for a yet publicly undemonstrated iron-air battery technology.
2) Demand side response
Many opportunities exist in the temporal shifting (or reduction) of energy demand. This can have a direct reduction in the grid’s carbon intensity as it reduces the use of gas peaking plants at times of high energy demand. We see exciting opportunities in the combination of machine learning, artificial intelligence and internet-of-things to enable more intelligent energy consumption. In some cases, consumers are even paid to charge their EVs.
3) Nuclear energy
Nuclear fusion (not fission as currently used in nuclear powerplants today) is considered by some the ‘holy grail’ of clean energy. On a simple level, combining hydrogen atoms to produce helium waste in comparatively safe reactors seems a very green way of making energy. The challenge is the engineering feats needed – the magnetic fields and temperatures required by the reaction are extremely high. Still, progress has accelerated with an MIT superconducting magnet breaking records and ITER planning to start operations in 2025.