The pandemic has, if nothing else, demonstrated how much more needs to be done in the battle against climate change. Despite the worldwide economic slowdown and travel ban resulting from coronavirus, global carbon dioxide emissions reduced by just 6% (approximately 2.3bn tonnes) in 2020.
But both governments and industry are responding to the challenge, however, with a renewed sense of urgency and collaborative spirit. The US hosted a climate summit on this year’s Earth Day (on 22 April), announcing its plans to cut emissions to 50% below 2005 levels by no later than 2030. This followed an EU agreement for member states to achieve carbon neutrality by 2050. Many other countries have followed suit and doubled down on their commitments. The 26th UN Climate Change Conference of Parties (COP26), to be hosted by the UK in Glasgow this November will no doubt provide further momentum and collaboration for these initiatives.
In the UK this year, ambitious UK government targets and measures announced in the Budget have once again heightened the focus on the development and successful deployment of sustainable energy, resource and environmental solutions. This follows the much delayed National Infrastructure Strategy (see our previous insight article).
The Cleantech juggernaut (presumably an EV) is clearly gaining momentum, but what exactly is it and where is it going?
What is ‘Cleantech’?
‘Cleantech’, often used interchangeably with the term ‘Greentech’, has its origins in the venture capital investment community. Rising energy and commodity prices, increased consumer awareness of sustainability and environmental issues, and the start of the Kyoto Protocol-based carbon trading mechanisms began to attract significant amounts of capital and awareness.
By 2006, encouraged by financial and capital markets successes in the solar, wind, and ethanol industries, mainstream institutional investors began allocating investment into venture funds in the environmental, alternative and renewable energy sectors and adopted ‘cleantech’ as their preferred description of those assets. However, as with any ‘gold rush’, during the ensuing period 2006-2011 many cleantech investors suffered substantial losses and their appetite diminished, but with the increasing emphasis on climate change, the USA re-entering the 2015 Paris Agreement and global government commitments to decarbonisation, it’s obvious that cleantech is clearly the future, so investor enthusiasm has been rekindled.
So while the term Cleantech may have emerged from the financial industry (rather than the actual technologies or sectors in which that industry invested) more recently it’s become an umbrella term encompassing technology, and business sectors which include clean energy, environmental, and sustainable or green, products and services and high growth industries such as solar, wind and biofuels.
For the finance industry however ‘Cleantech’ remains not so much ‘Green’ but is still considered to be new technology and related business models that offer competitive returns for investors while coincidentally providing solutions to global challenges. This coincides with the increasing focus within the institutional investor community on ESG considerations, which has driven a shift in focus away from the traditional carbon-based economy and contributed to Global Clean Energy being amongst the fastest growing asset classes in public markets during 2020.
Cleantech encompasses a huge range of products, services, and processes, all intended to provide superior (or at least comparable) performance at lower costs, while reducing or eliminating ecological impact by improving the productive and responsible use of natural resources.
Cleantech industry segments
Cleantech potentially incorporates many industry sectors, but it’s generally agreed that the most obvious Cleantech segments are:
- Energy Generation/Storage/Transmission/Supply
- Energy Infrastructure and efficiency
- Water & Wastewater (Bluetech)
- Recycling & Waste
The benefits of Cleantech in these segments can be either to provide superior performance at lower costs or to conserve energy and resources, protect the environment, or eliminate harmful waste while maintaining comparable productivity levels with previous ‘dirtytech’ processes or technology.
Although some of these industrial segments may seem very different, they all share the potential to use new, innovative technology to create products and services that compete effectively on price and performance, while reducing the impact on the environment.
The power to disrupt
Cleantech has enormous power to not only improve, but also to disrupt existing sectors according to Shoosmiths Sector Head of Technology James Klein. Clean technologies including wind, solar and hydrogen as well as water efficiency (blue tech) not only promise environmental benefits but also present challenges to those not agile enough to get in on the ground floor or adapt.
For example, it’s suggested that 12% of aviation fuel could come from algae by 2030. Shoosmiths has some experience here, recently advising Algenuity Limited on the negotiation of a joint development agreement with Unilever in order to develop and market plant-based food ingredients based on Algenuity’s Chlorella vulgaris platform. Algae fuel releases only a fifth of the carbon emissions of fossil fuels and could be made in efficient coastal ponds – perhaps in the new Freeport locations? Production costs would still need to come down substantially to make this technology financially attractive. As James points out:
“The key objective of greentech is to protect the environment and to preserve our natural resources and this will continue to play a key part in our processes and methods used for recycling, producing clean water and clean air or how we consume energy”.
Government policy is a key driver in Cleantech uptake
Renewables (solar photovoltaic, clean hydrogen and wind) all require effective energy storage solutions as well as energy efficiency measures to deliver whole system change. James Wood-Robertson, Shoosmiths Sector Head of Infrastructure & Energy says government policy is a key driver (although sometimes also the obstacle) here:
“The government’s long-awaited Energy White Paper committing to the creation of up to 220,000 jobs over the next decade in major power generation, carbon capture storage and hydrogen projects as well as a net zero Hydrogen Fund and the retrofit of homes and buildings for greater energy efficiency was welcomed. But disappointingly little was fleshed out or even mentioned in the Chancellor’s Budget.”
However, with governments globally needing to set agendas for the rebuild following the Covid Pandemic and likely looking for opportunities to create economic stimulus, it seems reasonable to speculate that government support for Cleantech solutions will be a policy feature both here in the UK and in other significant global markets during the coming decade.
The automotive sector
Government policy is an important driver too for Cleantech in the automotive sector. Robin Webb, Shoosmiths Mobility Sector Head, believes that government investment into EV charging infrastructure, UK battery and hydrogen production together with the ban on the sale of conventionally powered vehicles in the UK by 2030 will have a significant impact on technology development and routes to market. It needs to be remembered that the Brexit deal means that by 2024 50% of an electric car’s components must be built in the UK or European Union in order for the vehicle to avoid attracting tariffs. As around 50% of the value of an EV vehicle is the battery pack it’s clear that battery gigafactories are going to play a central part in the future of automotive manufacturing in the UK. Securing investment in those gigafactories and the supply chains that support electrification is therefore an imperative for government and motor manufacturers alike.
It is widely recognised that an exponential increase in the UK’s EV charging infrastructure will be required to support the anticipated growth in EV usage in the next decade. The EV ChargePoint market should, necessarily, continue to see a surge of investment from BP, Shell and other major suppliers, while Tesla continues to develop their proprietary SuperCharger network. Many local and regional network ChargePoint providers could emerge and it seems likely that the market for on-street EV-charging will continue to see considerable growth in the coming years. While hydrogen fuel cell technology is something that Asian car makers have been investing in for years, the focus of European and UK investment at the moment is on HGVs and public transport vehicles. The technology and hydrogen infrastructure will need to improve to become a more attractive consumer option.
Power generation and storage
James Wood-Robertson maintains that power generation and storage is another sector where technological innovation plays an equally vital role. For example, zinc-air batteries, currently used in non-rechargeable form in hearing aids, hold the promise of being relatively cheap but with a high energy density. Zinc is also 100 times more plentiful than lithium and is recyclable. Similarly, wave and tidal energy resources require an engineering rather than a technological breakthrough if they are to achieve the hope of meeting some of the UK’s electricity needs cost-effectively.
While Cleantech solutions focused on industrial applications will continue to have the greatest impact on the global transition towards renewable energy sources, the UK market for domestic energy supply provides some examples of how technological innovation is helping to drive the transition towards renewable energy usage, while benefitting consumers and disrupting what had historically been a utility market dominated by a small number of larger suppliers.
Many industry commentators note that technological innovation has enhanced the availability of dynamic pricing solutions for consumers, supported by the growth of smart meter technologies which enable households to install and integrate renewable energy generation and storage, thereby paving the way towards dynamic management of energy supply through smart grids.
However, this innovation has also helped to drive a period of continuing consolidation as the largest incumbent domestic energy suppliers cede market share to fast growing challenger brands. Octopus Energy, Ovo and Bulb, which have become major suppliers in their own right, continue to attract customers from the traditional suppliers and opportunistically acquire customer books from their smaller competitors.
Arguably these technological and data-driven solutions by challenger brands have revolutionised what had, traditionally, been a relatively conservative space in the market, to the benefit of consumers. The ability to scale rapidly and acquire customers is key to supplier viability, so more consolidation is to be expected. The rapidly growing challenger brands will likely continue to selectively acquire customer books from the significant number of smaller suppliers who have not been able to achieve the scale necessary to thrive in this market.
The impact of Brexit and Covid
James Wood-Robertson suggests that Covid may have had an unexpectedly positive impact in highlighting the urgency of investment and adoption of Cleantech such as Carbon Capture and Storage (CCS). The International Energy Agency noted recently that, while the Covid-19 crisis triggered the largest annual drop in global energy-related carbon dioxide emissions since the Second World War, global emissions rebounded strongly and rose above 2019 levels in December – some 60 million tonnes higher in December 2020 than they were in the same month a year earlier:
“A pick-up in economic activity pushed energy demand higher, indicating that still not enough is being done to accelerate clean energy transitions worldwide. We’ve all noted some of the ‘positive’ side effects of Covid lockdowns – noticing nature more, improved air quality etc - so perhaps seeing what was possible may help move investment in and adoption of Cleantech up the agenda”
James Klein also warns that Covid could have an impact on Cleantech, particularly Cleantech start-ups, which tend to be the genuine innovators:
“One possible outcome of the pandemic could be the rolling back much of the Cleantech progress we have made - manufacturers reverting to plastic once again for ‘sanitary’ reasons - and the danger is that when we come through this, we fall back onto what we know. The industries which are notoriously bad at adopting early-stage technologies should seize this opportunity to jump start their decarbonisation.”