Streamlining the path to cleantech advancement
The UK is home to a flourishing cleantech ecosystem, strong innovation support and overall investment. The UK is one of the most important markets for cleantech globally, with 2022 VC investments breaking records. In this blog post, we explore the challenges and enablers to help streamline the path to cleantech advancement, including the role of corporates and the funding landscape.
Key cleantech enablers, to propel cleantech, at speed and at scale include external market and business drivers, policy and regulation and partnerships (as shown in the image below). By understanding the importance of these areas, cleantech companies could potentially accelerate their journeys, help the country get to net zero and satisfy investors. Nonetheless, securing funding and finance is crucial. Exemplas has a solid track record of helping cleantech startups obtain grant funding and investment, to get them to the next level.
Policy & Regulations
The race to decarbonise is on. Most cleantech sectors will need massive deployment and exponential growth by 2050. For this to happen climate finance needs to crowd in. A new climate finance initiative, known as the new collective quantified goal (NCQG), is due to be adopted at COP29. The key reason for its development is to address the persistent gaps in climate finance. The Independent High-Level Expert Group on Climate Finance (IHLEG) suggests that emerging markets and developing countries, excluding China, need to invest and spend close to $2.4 trillion a year by 2030 to meet climate and nature goals. That is four times the amount currently invested.
In the UK, new finance initiatives will also help accelerate the green transition. The £7.3bn National Wealth Fund aims to increase investment in national infrastructure projects, such as ports, gigafactories and hydrogen and steel projects. This initiative will provide much-needed finance to infrastructure projects. Finance is key to unlocking cleantech growth and it is expected that the total will be £27.8bn with a major contribution from the private sector. The National Wealth Fund will provide new ways of blended finance solutions with government departments that take on additional risk, to facilitate higher impact in individual deals and performance guarantees. The British Growth Partnership will also help stimulate growth.
Business Drivers
There is an enormous opportunity for corporates to co-create solutions with customers and suppliers. Corporates like BASF’s Performance Materials Division have shared their strategic roadmap toward achieving carbon neutrality by 2050 and highlight key milestones on their way to a circular economy. The World Economic Forum’s First Movers Coalition has shared the ambitions of major corporates and progress within industrial sectors. Policy drivers and the buying power of corporates are market forces driving progress. However, comprehensive planning and clear roadmaps will be needed to turn climate ambition into action.
There is also the issue of the green premium which could be hampering progress. Aviation accounts for around 3% of global GHG emissions, but this share could quadruple by 2050 without deep decarbonisation. Over twenty aviation players have committed to replacing at least 5% of conventional jet fuel demand with sustainable aviation fuels (SAF) that reduce life-cycle emissions by at least 85%. While SAF offers the sector one of the quickest pathways to decarbonisation, the volumes produced represent less than 1% of total jet fuel demand. Sustainable aviation fuel can be up to 300% more expensive than traditional jet fuel, so although commitments to move to SAF are encouraging, they do not go far enough possibly due to the high costs.
The cleantech ecosystem helps corporates connect with innovators to find the solutions they need to decarbonize, but project finance/long-term funding will be required to build out capacity and facilities to produce SAF quickly and at scale. Tax credits, loan guarantees and other tools can help reduce the green premium and drive demand for new technologies. Policies that favour a neutral stance (rather than favouring a few) towards technologies will help ensure that carbon reductions happen. Initiatives to reduce the green premium are likely to boost market adoption and accelerate the green transition.
Partnerships
Cleantech companies need to understand the importance of partnerships and strategic alliances as a route to extend their market reach and achieve scale. For example, UK-based Ceres Power has collaborated with automotive giants, Honda and Nissan to develop solid oxide fuel cell technology for future vehicles. Several cleantech companies have demonstrated scale-up indicators and have been accepted into the Innovate UK Scale-Up Programme. They will now be at a stage to form impactful partnerships. After all, a current partner could become a future acquirer.
The cleantech funding landscape
Raising investment has been challenging for many cleantech innovators. In the past, some ESG VCs would have invested in pre-revenue companies, but those VCs are now wishing to support later-stage companies with good market traction. Before several European elections that were held this year, EMEA IPO volumes increased from 31 to 47 this year (Source PwC). The value of these deals increased compared to the two quarters of the previous year. Such signs should hopefully give investors more confidence.
Equity funding slowed in the wake of interest rate increases across the developed economies, but VC investment in cleantech has been resilient. The energy and transport sectors account for a majority of cleantech investment raised over recent years. However, venture funding in harder-to-abate industries like heavy industry (e.g. cement, steel, and chemicals manufacture), as well as buildings is lagging, according to BloombergNEF.
Exemplas is seeing keen interest in cleantech from the investment community. Between April and June 2024, two cleantech/climate tech companies attracted the most investment out of all the companies that received investment in that time period. At the same time, biocatalyst technologies, industrial carbon capture innovation, logistics solutions and intelligent decarbonisation software attracted millions of pounds of VC investment.
Exemplas’s innovation support services have helped hundreds of companies reach their milestones. We can also help with setting up and implementing accelerators, training and pitching events to help many more cleantech companies help the country get to net zero faster.
Get in touch to find out how Exemplas can help achieve great outcomes for cleantech companies throughout the UK.
Written by Emma Stevens.