July 24, 2024

The amount of money invested in energy venture capital is higher than ever, but it’s spread out over fewer startups. Venture capital must change this if it is to make a meaningful impact on the energy transition.

The Economist mentions the Climate Capitalists, who see a silver lining to the climate cloud.

These investors are able to play a vital role in closing the gap between the laboratory and the market. For example, venture capital funding allows entrepreneurs to develop their first low-carbon products and refine their business models. Some of the companies that have benefited from venture capital funding are changing the landscape of energy. Tesla was at the forefront of creating the USD 80 billion electric car market that exists today. BBOX, along with its competitors, has made off-grid solar a competitive industry. VC, or venture capital, is a vital complement to the research dollars of government and corporations.

How much of this investment actually happens? World Energy Investment 2018 already examined companies that allocate revenue to invest in energy technology startups. We have now added the results from the first half of 2019 to our updated and improved database of investors. This shows that companies are investing more in energy technology startups in 2019 than they have in any other year since the “cleantech boom” between 2005 and 2012. Corporate Venture Capital (CVC) is a subset of early-stage VC activity that comes from large companies within related sectors and not dedicated VC funds. Some of this is a later-stage investment, such as private equity or corporate acquisitions.

Investments in energy technology companies by investor sector, 2007.

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USD billion 2018

  • IEA. Licence: CC-BY-4.0Other
  • ICT and electronic devices
  • Transport
  • Batteries
  • Suppliers of energy equipment and services
  • Utility and IPPs
  • Oil and gas

These investments are not only coming from energy companies. Corporate investors are investing more money in the ICT and transport sectors.

These firms are increasingly involved in the development and deployment of energy technologies, reflecting a blurring between traditional and non-traditional energy companies. This is largely due to the new technologies expected to influence our energy future. The main beneficiaries of the USD 4 billion in deals signed by 2019 include digital sensors, batteries, and electric vehicles. Smart algorithms also feature prominently. The total is higher than in 2018 and almost three times the average of 2012-15.

Corporate venture capital is increasingly used by companies in and out of the energy sector to support a flexible, open, and innovative energy innovation strategy. We’ve previously noted that there are a number of reasons why large established companies invest in early-stage tech companies.

An investment could be made to acquire human capital or to build a relationship. This can be a less expensive and risky approach than developing the technology internally, especially when the technology landscape is uncertain, as it is in many areas of the energy sector today. This is often done with technologies outside of the core competencies of corporate investors but which could add value to their existing businesses.

The most recent data shows that corporate venture capital is a growing part of total deal value. However, it’s the riskiest and earliest stages, which is a decreasing share. In 2019, Seed, Series A, and Series B funding accounted for just 10% of the total corporate expenditure. The rest was made up of growth equity, later-stage equity, and even buyouts.

These later-stage deals include, for example:

  • Chevron and BHP’s investment into Carbon Engineering, a firm that removes atmospheric CO2.
  • Johnson Controls’ investment into Carbon Lighthouse, a service to improve energy efficiency.
  • VW, Siemens Vestas, and Vattenfall’s investments into Northvolt, a producer of batteries; Hyundai, Kia, and Porsche’s investments in Rimac Automobili – an electric sports car manufacturer; Ford and Amazon’s investment in Rivian – a maker of electric vehicles; There is also evidence that energy companies are expanding their capacity into new areas, not just by investing in innovative firms, but increasingly by acquiring those firms.

Shell acquired companies that provide virtual power plants, home batteries, and charging stations for electric vehicles in 2019. Centrica and others, such as Shell, continue to build up portfolios of consumer-facing companies with software expertise.

While traditional energy companies play a greater role in early-stage CVC transactions, corporate entities invest more in deals that are later in the process. About half of the CVC activity in 2019 for energy startups has been from the oil and natural gas, utilities, and electricity equipment sectors.

These earlier stage deals included BP’s investments in Belmont Technology (an artificial intelligence provider of oil and gas exploration), Comcast’s investments in Dandelion Energy (a geothermal provider), Total and Equinor’s investment into Level10 Energy (a renewables marketplace), NTT Docomo and Statkraft’s investment into Metron Labs (an energy analytics platform); APICORP and Equinor’s investment into Yellow Door Energy, a solar leasing company; Iberdrola’s and Equi.

Energy venture capital activity is on the rise. In the first half, 2019 saw USD 2 billion invested in early-stage energy technology venture capital deals, which is more than any other year except 2018.

Global Venture Capital Investment in Energy Technology Companies, 2007-2019

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USD (2018) billion

  • IEA. Licence: CC-BY-4.0Transport
  • Solar
  • Bioenergy
  • Other Renewables
  • Energy efficiency
  • Energy storage
  • Hydrogen
  • fuel cells

Despite the fact that the majority of energy VC deals in the past few years were driven by transportation deals, the value of non-transport sales accounted for more than half the total deal value so far in 2019. It is too early to tell if this indicates a rebalancing of sectors following a recent flurry around electric vehicles. Some of the biggest recipients of early-stage VC funding for 2019 are Hozon AutomobileEnovate motors – both Chinese developers of high-performance electric cars – Commonwealth Fusion – a designer of a nuclear fusion system with a lower cost; CalBio – producers of biogas digesters – and Faraday Grid – an inventor of innovative power grid transformers.

These numbers reveal two distinct trends that are affecting the sector.

The growing value of deals is a result of fewer but larger transactions. The number of VC investments in energy startups has not increased. Even after excluding all sales exceeding USD 50 million, average deal sizes in the first six months of 2019 were higher than any other year since 2012.

 

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