Non-traditional energy companies lead a record year for corporate investment in energy start-ups
More money than ever is going to energy venture capital deals, but spread across fewer start-ups. This needs to change if venture capital is to have a significant impact on energy transitions.
Among the many takeaways from the UN Climate Action Summit earlier this week was the need for capital to be reallocated to clean energy solutions around the world – The Economist talks of the Climate Capitalists who see the golden lining in the climate cloud.
These investors can play a crucial role in bridging the gap between lab and market, for example via venture capital (VC) funding that enables entrepreneurs to commercialise their first low-carbon products and hone their business models. Among the companies that have had a boost from venture funding, some are reshaping the energy landscape. Tesla has been at the vanguard of creating today’s USD 80 billion market for electric cars. BBOX and its peers have turned off-grid renewables into a highly competitive sector. Risk-taking capital like VC is an essential complement to government and corporate research dollars.
But how much of this investment is actually happening? World Energy Investment 2019 has already looked at companies that are allocating revenue to investments in energy technology start-ups. Now that we have added the results for the first half of 2019 to our improved and updated database of investors, we see that companies have already invested a record level in energy technology start-ups in 2019, more than in any year since the “cleantech boom” from 2005 to 2012. Some of this is Corporate Venture Capital (CVC), which is the subset of early-stage VC activity that comes directly from large companies in related sectors, and not from dedicated VC funds or financiers. Some of it is later-stage investing, such as corporate-led private equity or acquisitions.
Importantly, these investments in energy technology start-ups are not just coming from energy companies. More money is flowing from corporate investors from the transport and information and communication technology (ICT) sectors in particular.
The growing presence of these firms in the development of energy technologies reflects a blurring of the boundaries between “traditional” and “non-traditional” energy companies, largely driven by the types of new technologies that are expected to shape our energy future. Digital sensors, batteries, electric vehicles and smart algorithms are among the main recipients of the more than USD 4 billion of deals in 2019. This is more than all of 2018 and nearly three times more than the average over 2012-15, before the current uptick began.
Companies inside and outside the energy sector are increasingly using corporate venture capital investments as part of a flexible and more open energy innovation strategy. As we’ve noted previously, there are several reasons large established companies provide capital to early-stage technology companies.
For example, the purpose of an investment might be to learn about a technology, acquire human capital, or build a relationship with the owner of the technology. This approach can cost less and involve less risk than developing a technology in-house, especially if the technology landscape is uncertain, as it is today in many parts of the energy system. This approach is often used with technologies that are outside the core competence of the corporate investor but that could potentially add significant value to existing businesses.
However, the most recent data reveals that the earliest, and riskiest stages of corporate venture capital represent a declining share of the total deal value. In fact, Seed, Series A and Series B funding was just 10% of in 2019, with the rest made up of growth equity, late-stage equity and even buy-outs.
Examples of these later stage deals include: Chevron and BHP’s investment in Carbon Engineering, an atmospheric CO2 removal firm; Johnson Controls’ investment in Carbon Lighthouse, a smart energy efficiency service; Suncor’s investment in Enerkem, a waste-to-biofuel company; VW, Siemens, Vestas and Vattenfall’s investments in Northvolt, a battery producer; Hyundai, Kia and Porsche’s investments in Rimac Automobili, an electric sports car company; Ford and Amazon’s investment in Rivian, a maker of electric vehicles; Daimler and Amperex’s investments in Sila Nanotechnologies, a battery materials company; and BP’s investment in Solidia, a low-carbon concrete developer. In addition, there evidence that major energy companies are building capacity in new areas not only by taking stakes in innovative firms but also, increasingly, by acquiring them. In 2019, Shell acquired virtual power plant, home battery and electric vehicle charging companies. Others, like Centrica, continue to build portfolios of consumer-facing companies with software expertise.
While corporate entities are investing mostly in later-stage deals overall, traditional energy companies are playing a larger role in riskier early-stage CVC deals. Roughly half of CVC activity for energy start-ups in 2019 has come from the oil and gas, utilities and electricity equipment sectors.
Examples of these earlier stage deals include: BP’s investment in Belmont Technology, an artificial intelligence provider for oil and gas exploration; Comcast’s investment in Dandelion Energy, a geothermal provider; Eni’s investment in Form Energy, a long-duration electricity storage developer; Total and Equinor’s investment in Level10 Energy, a renewables marketplace; NTT Docomo and Statkraft’s investment in Metron Labs, an energy analytics platform; APICORP and Equinor’s investment in Yellow Door energy, a solar leasing firm; Iberdrola’s investment in Wallbox, a smart electric car charger; and Tepco’s investment in Zenobe Energy, a UK battery storage firm.
Corporate activity in energy venture investing is taking place against the backdrop of rising energy VC activity in general. At USD 2 billion, more money went into early-stage venture capital deals for energy technology companies in the first half of 2019 than the first six months of any previous year, except 2018.
While the growth in energy VC activity in recent years has been driven by transport deals, non-transport deals have made up more than half of the deal value in 2019 so far. This may indicate a rebalancing between sectors after a flurry of recent activity around electric vehicles in particular, but it remains too early to say. Some of the major recipients of early-stage VC funding in 2019 include: Hozon Automobile and Enovate Motors, Chinese developers of performance electric cars; Commonwealth Fusion; a lower-cost nuclear fusion system designer; CalBio, producers of new biogas digesters; and Faraday Grid, an inventor of novel power grid transformers.
There are two trends behind these numbers that reveal a changing sector.
First, the growing deal value represents fewer, larger deals. The number of VC deals for energy start-ups is not rising. Yet, even excluding all outlier deals of more than USD 50 million, the average deal size in the first half of 2019 was higher than for any year since 2012.
Second, the geographical rebalancing of the energy VC market continues. As recently as 2013, 80% of the money went to energy start-ups in North America. Yet over the last three years, Chinese companies have represented over 50% of deal value as well as most very large deals, some of which have been as large as USD 1 billion.
In the first half of 2019, there have been fewer deals in China, but Europe is on track to claim its highest share of the market yet. If we exclude deals over USD 50 million, one-third of the 2019 deal value went to companies in Europe, also representing one third of the deals by number.
Overall, VC and corporate investment in energy technology start-ups have returned to growth, and the types of technologies they are supporting are broadly aligned with clean energy transition goals. Both types of investment serve energy innovation and bring private capital in support of pressing global challenges. The IEA will continue to monitor these trends as useful indicators of where companies and markets are placing bets on future technology value.
However, VC deals still remain a small element in the context of total R&D spending. We estimate total public research and development (R&D) spending by governments to be at least three times larger than the VC market, and private sector spending on R&D may be three or more times larger again. Furthermore, certain types of technologies are underserved by the type of capital that is mobilised by VC. These notably include capital-intensive hardware for renewables and large-scale low-carbon technologies, such as carbon capture. The risks for investors in technologies that have long lead times and uncertain markets are higher. As if to illustrate this point, Faraday Grid, a top fundraiser as recently as January 2019, entered administration in August. Boosting economic growth and transforming the energy sector through low-carbon innovation will require governments and the private sector to strengthen the interface between policy, research funding and VC investment.
Seeing Japan – Indonesia Collaboration in Energy Transition Cooperation
Holding the G7 presidency, Japan is increasingly active in establishing relations with several countries. One of them is Indonesia. The relations that have existed so far between Indonesia and Japan are widely visible on the surface. One of them is in the energy transition sector. Indonesia is in need of a large investment to achieve net zero emissions in 2060. An investment of more than 500 million US dollars is needed to make this happen. This is indicated by the great effort to reduce energy that uses fossil fuels (coal, oil and gas) in people’s lives. Including efforts from Japan to cooperate with Indonesia or vice versa in achieving net zero emissions.
Abundant Natural Resources: A Privilege for Indonesia
The abundance of natural resources owned by Indonesia is an important point for the continuation of cooperation between Japan and Indonesia. Natural resources such as hydrogen, geothermal are important values to be further developed into renewable energy. This is a breath of fresh air for Indonesia, which is trying to achieve net zero emissions by 2060.
Replacing fossil fuels such as coal, oil and gas to renewable energy requires extra effort, Indonesia which is rich in energy resources requires a lot of money in terms of exploration of natural resources. renewable energy resources, such as hydrogen, geothermal. renewable in Indonesia. One of them is through a funding scheme through the Asian Zero Emission Community (AZEC). Through this funding, Japan, which is known to be very generous in helping developing countries in terms of energy, is expected to be able to bring change to the renewable energy transition in a country rich in energy resources, Indonesia. This transition certainly requires a short and gradual process.
State Electricity Company of Indonesia abbreviated as PLN, states that dependence on new coal will decrease in 2030. This is due to the presence of power plants from renewable energies such as geothermal, solar, hydrogen and nuclear and wind (Kompas, 2023).
Japan’s Investment to Indonesia
Indonesia, with all its abundance of energy resources, is considered capable of developing an energy transition. The development of electricity from geothermal, water and biomass are the main sector. This was conveyed by the Government of Japan through Deputy for International Affairs, Ministry of Economy and Industrial Development of Japan Izuru Kobayashi. He stated that his party was ready to assist Indonesia in achieving net zero emissions in 2060 with an environmentally friendly funding and technology assistance scheme.
The above was also supported by another Japanese party, namely from Sumitomo Mitsui Banking Corporation (SMBC). Quoting from IJ Global, SMBC has financial assistance to Asia Pacific countries for clean energy projects through Mitsubishi UFJ Financial Group of US$1.5 billion, Sumitomo Mitsui Financial Group of US$1.2 billion, and Mizuho Financial Group of US$1.2 billion. 1 billion US dollars. In Indonesia alone, as of September 2022, SMBC had invested US$221 million.
Various forms of support by Japan as donors and companions for Indonesia to develop renewable energy should be appreciated. According to the author opinion, this is a challenge for the Government of Indonesia and all of stakeholders inside, to create an investment environment that is safe, good and useful for Indonesia’s future. The use of fossil fuels such as coal for power generation needs to be slowly substituted using renewable energy. The Jokowi administration’s policy of subsidizing electric vehicles for the public can be an entry point for the continuation of Indonesia-Japan collaboration in realizing the energy transition.
The Maneuvering Of Gas Commodities As Securitization Of Russia’s Geopolitical Position
Authors: Luky Yusgiantoro and Tri Bagus Prabowo
In 2012, the Yakutia-Khabarovsk-Vladivostok gas pipeline project was redeveloped under The Power of Siberia (News Ykt, 2012). Putin legalized Gazprom (contractors: Gazprom Transgaz Tomsk). The idea named “Power of Siberia” represents the power of gas pipelines to shape and influence Russia’s geopolitical and geoeconomic situation. A new identity will be launched, conveying the Yakutia-Khabarovsk-Vladivostok gas pipeline and gaining international prominence. The Power of Siberia project is an integrated form of GTS (Gas Transmission System) that will bring the Irkutsk gas region in the fertile eastern part of Russia to the Far East and China. The pipeline location is located in the “Far East,” incredibly close to the border with China, and generally in the Asia-Pacific region. Initially, this gas pipeline was built to facilitate gas trade with China and reduce China’s dependence on coal (Pipeline Journal, 2022). What is the value of this project for both countries to become global concerns?
Furthermore, they have the ability or range to carry gas communications for approximately 4000 km. Due to its geographical proximity and shared economic interests, China is Russia’s most progressive partner in terms of a multifaceted regional and international strategy. Russia and China are known as close partners. The aftermath of Russia’s political alliance was to regain global power, status, and influence lost after the collapse of the Union of Soviet Socialist Republics in 1991, which was the driving force behind the end of the Cold War (Oualaalou, 2021 ). Russia has articulated a vision of rebuilding its global reputation using energy, military might, intelligence, and diplomacy. Russia wants to play a crucial role in the global multipolar system because the West rejects Russia’s vision for a new geopolitical order. They saw many important events related to Russia’s moves in the international order, including its response to the actions of the North Atlantic Treaty Organization (NATO) to try to dominate the nations of the world. The former Soviet Union (East), the failures in the Middle East, the annexation of Crimea, and one of Moscow’s recent invasions of Ukraine mark the military as a turning point in Russian geopolitical politics, especially during the Putin era. Russia has three strategic initiative points, including the ability to deploy and interconnect the means (intelligence, diplomacy, military, cyber, and energy) to gain influence and extend Russia’s global footprint. There is.
Moreover, the Fallacies and Western Ties strategy contradicts America First foreign policy tenets (unipolar) and impulsive decisions as a security threat. Russia wants to maintain its lack of regional interests in certain Baltic states (those still under Russian control) and the Balkans (Cooley, 2017). The Balkans (Albania, Bulgaria, Bosnia and Herzegovina, Croatia, Kosovo, Montenegro, North Macedonia, Romania, Slovenia, and Serbia) have been the cornerstones of great power rivalry for centuries. NATO (North Atlantic Treaty Organization) and the EU (European Union) used the momentum of Yugoslavia’s dissolution in the 1990s to integrate the Balkans as geopolitical hotspots on the Western Front (European Policy). War analysts say the ongoing Ukraine conflict is a way for Russia to raise its stakes in the Balkans and reassert its regional influence (McBride, 2022).
In 2020, natural gas will still be the world’s third-largest primary energy requirement for the global community. Even though the COVID-19 pandemic began in 2019, demand for natural gas increased by 5.3% to 4 trillion cubic meters (TCM) in 2021 (BP, 2022). In 2021, Russia’s total natural gas production will be 701.7 billion cubic meters, the second largest globally, contributing to the strong demand in the global energy market. Russia is essential in the natural gas market (Sonnichsen, 2022). The climate crisis is the most obvious obstacle in the global gas market model. It originates from burning carbon with materials derived from fossil fuels such as oil, natural gas, and coal. However, natural gas is acceptable during the energy transition as it burns the least carbon dioxide (CO2) and pollutants of these three substances (EIA, 2022). It is easier than supplying a gas infrastructure that does not provide infrastructure. Operationally, it is optimal. Talks about climate protection, the climate crisis, and the energy transition are being shaped by Western countries as a way of highlighting Europe’s dependence on gas from Russia, which is geographically accessible and still has gas in other gas reserves. The decision to stop sourcing natural gas from Russia continues to cause European controversy. The pipeline network actively built between Russia and Europe is an essential aspect of why this relationship is used as a tool for Russia to apply pressure—on territorial Europe. Europe uses a climate scenario, and Russia uses a gas-dependent scenario. Efficiency and effectiveness will not be achieved if Europe suddenly has to look for other reserves or switch entirely to this energy mix. Then, with Russia’s eloquence in exploiting the situation and the status quo, natural gas pipelines were used as a form of Russian energy diplomacy to dominate its (European) neighbors. Recognizing that the Western natural gas market is no longer preconditioned, moving target consumers to the Asia-Pacific region is one of the most effective energy plans for Russia’s fossil fuel expansion.
Siberia’s first electricity will cost 770 billion rubles, and the investment in gas production will cost 430 billion rubles. The 1,400 mm natural gas pipeline capacity will increase to 61 billion cubic meters (2.2 trillion cubic feet) of natural gas annually. The pipeline lets the world see natural gas as one of the fossil fuels and does not pollute the air with the carbon and other substances of the climate crisis. , through the capital Beijing and down to Shanghai. According to state media, the intermediate phase will go online in December 2020, with the final southern section expected to start delivering gas in 2025 (Cheng, 2022). Through this agreement, Russia aims to extend its power beyond Mongolia into Siberia 2 in 2030 (IEA, 2022). Conditions for Europe to get 40% of natural gas from Russian pipelines. Germany, in particular, sources about half of its natural gas from Russia (Baldwin, 2022). Despite international media reports of embargoes and sanctions, the crisis has hit Europe hard. Europe must adapt its economic policies to politically justified policies and coordinate them with each other. However, this is a geopolitical struggle, and we must ensure that the country retains its absolute superiority. Russia chooses to invest in and plan for natural gas markets in regions that require or depend on natural gas in the energy sector, i.e., Asia-Pacific via China. China, influencing the Belt and Road Initiative (BRI) plan, is reshaping the geoeconomic position of Russia’s Siberia 1 and Siberia 2 power markets (Lukin, 2021). “Geopolitics is all about leverage” is one of Thomas Friedman’s influential geopolitical maxims. If a country cannot expand its influence, it remains a loser. Nevertheless, Russia is far from this analogy, as mentioned earlier. Russia continues to secure its geopolitical position. It is the embodiment of growing confidence in the reliability of natural gas. Russia still wants to become a major player in natural gas.
Remapping the EU’s Energy Partners to Ensure Energy Security and Diversification
Energy security has been a buzz word in Brussels for a few decades but since Russia’s invasion of Ukraine, followed by sanctions, Russian gas cut-off and physical destruction of North Stream pipelines, forecasts on strained EU energy production due to drought, the stakes have gotten much higher. This was confirmed on March 10th by a joint statement by the US President Joe Biden and European Commission President Ursula von der Leyen, reiterating both parties’ determination to “build clean energy economies and industrial bases”, including clean hydrogen and continue to work together “to advance energy security and sustainability in Europe by diversifying sources, lowering energy consumption, and reducing Europe’s dependence on fossil fuels”.
Last week, the EU energy chief Kadri Simson encouraged all Member States and all companies to “stop buying Russian LNG, and not to sign any new gas contracts with Russia. The EU has pledged to quit Russian fossil fuels by 2027 and replaced around two-thirds of Russian gas last year.
In this context, the Southern Gas Corridor (SGC), delivering Azerbaijani gas through (Trans-Anatolian Pipeline) TANAP and Trans-Adriatic Pipeline (TAP) to the EU, plays a key role in current diversification efforts. The EU increased gas imports via pipelines from Azerbaijan from 8.1 bcm to 11.4 bcm last year. Only two years after its completion, the expansion of the Corridor seems to be likely as the EU and Azerbaijan stroke a deal in July 2021 to double the volume of gas delivery to 20 bcm by 2027 in addition to plans to tap into Azerbaijan’s renewables potential, such as offshore wind and green hydrogen. While encouraging Azerbaijan’s accession to the Global Methane Pledge, the deal aims at collecting natural gas that would otherwise be vented, flared, or released into the atmosphere.
With the opening of the interconnector Greece-Bulgaria (IGB), at least 11.6 bcm of gas is expected to be delivered from Azerbaijan to the EU this year. The IGB has been dubbed as a game-changer for the EU’s energy security, especially as it enabled supplies to Bulgaria and Romania. A Memorandum of Understanding on gas supplies between Azerbaijan and Hungary was also signed this year, which shows that more interconnectors will be needed in the EU if TANAP would be expanded from 16 to 32 bcm and TAP from 10 to 20 bcm.
Moreover, investments will be needed to increase gas production in existing and new gas fields (Shah Deniz, Azeri Chiraq Guneshli, Absheron, Shafaq-Asiman, Umid-Babek, etc.), especially considering growing energy demand in Azerbaijan and its neighbours. Since the Russia-Ukraine war, 10 European countries turned to Azerbaijan to increase existing supplies or to secure new supplies. To meet such growing demands, Azerbaijan is poised to increase cooperation with neighbouring states, such as Turkmenistan, which is home to 50 trillion cubic metres of gas reserves – the world’s 4th largest reserves.
Following the Azerbaijani-Turkmen decision to jointly develop the formerly disputed Dostluq gas field, a trilateral swap deal between Iran, Azerbaijan, and Turkmenistan, and the 2018 Convention on the status of the Caspian Sea by all the littoral states; Azerbaijan, Turkmenistan, and Turkey stated that they were looking “to form a coordinated and multi-option system for delivering energy resources to global markets” on December 14th last year.
These developments could be harbingers of a new Trans-Caspian Gas Pipeline (TCGP), a 180-mile under-sea pipeline that could be integrated into the SGC. Labelled as an EU Project of Common Interest, which could also be eligible for funding under the 2019 US European Energy Security and Diversification Act, this strategic under-sea pipeline project could bring an end to the EU’s energy crisis by securing a cheap source of natural gas, whose price is independent of LNG prices while counterbalancing Chinese, Russian and Iranian influence in Central Asia and beyond. On the other hand, Azerbaijan began the transit of oil from Kazakhstan this year in addition to Turkmenistan, which highlights the potential to use the Middle Corridor for hydrocarbons.
During the 9th Southern Gas Corridor Advisory Council Ministerial Meeting and 1st Green Energy Advisory Council Ministerial Meeting in Baku in February, EU Energy Commissioner Kadri Simson stated “Azerbaijan can potentially become the exporter of renewables and hydrogen to the EU”. At the end of last year Azerbaijan, Georgia, Romania, and Hungary agreed to establish a green corridor to supply the EU with around four gigawatts of electricity generated by windfarms in Azerbaijan with the support of the European Commission.
Over the last several months, Azerbaijan signed documents that will provide investments to create 22 gigawatts of renewable sources of energy, both onshore and offshore. In April 2021, the World Bank started funding the offshore wind development in Azerbaijan, which has a potential of 157 GW. In addition to the Caspian Sea, which ranks second in world for its wind energy potential, Azerbaijan has an estimated 27GW in wind and solar power onshore.The current construction of wind and solar plants in Alat (230 MW), Khizi and Absheron (240 MW) and Jabrayil (240 MW) as well as new investment plans, including in Nakhchivan Autonomous Republic, are expected to further boost renewables production in the Caspian state all by living up to its vast green potential. While the country, with a population of 10 million, accounts for only 0.15% of total global greenhouse gas emissions, it defines green growth as a key priority for 2030. The EU supports the implementation of Baku’s Paris Agreement commitments through the EU4Climate initiative.
The Russia-Ukraine war may create a window opportunity for the EU to engage in concrete actions rather than high-flying buzzwords, pushing the bloc to do more strategic and visionary planning regarding future projects linked to its energy security, such as TCGP, and finally diversify away from Russian energy sources for good. Azerbaijan has proved to be a stable partner in these challenging times, which manifested the vulnerability of certain EU states against Russian economic and political pressure due to Gazprom’s immense infiltration of their gas markets for the past several decades. Now it’s the time to play fair game by a new playbook and to remap the European energy partners while investing in a stable, predictable, affordable, and sustainable energy future for the EU.
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