As we end the year, we wanted to highlight the most important sustainable investment trends we wrote about in 2017. Also included in this roundup are key industry developments we picked up over the past month. These trends are creating create opportunities for corporates, financiers and project developers focused on clean tech and resource efficiency and we expect them to continue with strong momentum in 2018. Wishing you a happy and prosperous 2018!
China Leading on Clean Energy Deployment
China, the world’s biggest greenhouse gas emitter, is focusing on combatting climate change with a number of new initiatives in 2017. Earlier this year, it committed to investing $360 billion in renewable energy annually through 2020 and keep energy consumption within 5 billion tonnes of standard coal equivalent by 2020.
It also announced plans to launch the world’s largest carbon trading market to regulate emissions from its power-sector, although no hard timeline was issued.
China’s Belt and Road Initiative has been a boon for renewable energy projects, with investments in such projects exceeding expectations last year. Economies linked to the Belt and Road program saw $7.7B in power generation investments in 2016, more than double the total from a year before. Hydropower and other renewable energy program received 48% of that $7.7B, with thermal power receiving the second-most at 21%
The Chinese government says it will eventually ban the sales of vehicles powered by fossil fuels and is expected to be the leading player in batteries, electric vehicles and EV charging infrastructure. It announced plans to build 800,000 EV charging points in 2017 to meet increasing demand.
Its embracing new clean technologies through investments and partnerships with startups globally and is leading in green financing. China is set to become the world’s largest issuer of green bonds in 2017, issuing $25 billion worth of green bonds that support projects that fight pollution including clean energy, clean transport, resource conservation and recycling, pollution prevention and control, and energy efficiency.
The Electric Vehicle Market Accelerates
Automakers and governments are increasing their efforts to pave the way for more electric vehicles, and governments and private companies are also working to rapidly build out an infrastructure of charging stations. All this, plus the ongoing rapid fall in battery prices, is increasing enthusiasm for electric vehicles.
In addition to China, other nations are also banning, or considering banning, the sale of gasoline- and diesel-fueled vehicles over the next few decades including Britain, India, Norway, France and Germany.
Automakers are preparing for a new reality in which electricity replaces fossil fuels on a growing number of the world’s roads and making major investments in EVs. The largest announced investment, made in September, is Volkswagon’s promise to spend up to $84B in order to bring 300 electric vehicle models to market by 2030.
Tesla stole the headlines in mid-November when it unveiled its much-anticipated electric semi truck. DHL, Wal-Mart and trucking firm J.B. Hunt are among the companies that have placed orders, even as questions remain about the trucks’ range and battery size.
All this activity has market watchers upping their forecasts for the growth of the EV market. JPMorgan is very bullish, with its analyst forecasting that electric cars will account for 35% of the global market by 2025 and 48% by 2030.
Expanding the charging station infrastructure will be crucial to gaining widespread adoption of EVs, experts say. Indeed, after price, “range anxiety” is the main concern that consumers have when they consider an electric vehicle. In fact, more than $80 billion is expected to be spent on global EV charging infrastructure over the next eight years, says Navigant.
Corporates investing in EV charging infrastructure include:
– Royal Dutch Shell acquired NewMotion, a major electric vehicle charging provider in Europe, in October.
– Enel acquired U.S.-based eMotorWerks, an intelligent EV charging station manufacturer and operator of the JuiceNet EV charging network, in October.
– EV charging firm ChargePoint raised $43 million in Series G venture funding in June, led by Siemens, to bolster its roll-out in Europe.
– Engie acquired EV-Box, which has deployed more than 40,000 charging stations across 20 countries, in March.
See CleanTechIQ reports: EVs Pick Up Steam Driven By Governments & Car Makers and Commercial Vehicles Increasingly Go Electric.
Increasing Demand by Traditional Capital Driving Fundraising Activity
In a major demonstration of institutional asset owners’ commitment to action on climate change, the New York State Common Retirement Fund joined the Portfolio Decarbonization Coalition (PDC) in February, a group of nearly 30 institutional investors who have pledged to decarbonize their portfolios. “Climate change is one of the greatest risks to our pension fund’s portfolio,” says Thomas DiNapoli, New York state comptroller and trustee of the $185B pension fund. “We’re reviewing and adjusting our investments to reduce that risk and take advantage of the growing opportunities of a lower carbon future.”
Institutional investors are backing new funds and projects:
– Private equity firm TPG raised $2B for its new impact investing fund, well above its $1.5B target. That makes the Rise Fund the largest impact investment fund. The fund invests in sustainable agriculture, clean tech and sustainable infrastructure in addition to classic “impact sectors” of financial inclusion, education and healthcare. Institutional investors in Rise include the New York State Common Retirement Fund, the Washington State Investment Board and Swedish pension fund Andra AP-fonden. Bank of America also invested, and UBS raised money for the fund through its high-net-worth advisors.
– Clean energy and resource innovation financing firm Generate Capital completed a $200M fundraising round that will let the company expand its investments in battery storage and other distributed energy projects. The funding round was led by the $53B Alaska Permanent Fund, which was joined by other institutional investors and previous Generate backers.
– The Dubai Green Fund raised $650M to invest in sustainability projects. The fund, a unit of the Dubai Electricity and Water Authority, intends to raise about $26B overall. It was created in 2016 and makes low-interest loans to clean energy companies, and also makes direct investments in cleantech and related projects. The fund’s main investors are the Investment Corporation of Dubai and a program run by Dubai’s sovereign wealth fund, though officials say they’re seeing interest from investors in Europe and Asia, including a state-owned bank in China.
– Climate Investor One, a pooled infrastructure fund developed by FMO & Phoenix Infraworks, raised $412M for financing renewable energy projects in emerging markets. The fund’s investors include institutional investors – Directorate-General for International Cooperation, Atradius Dutch State Business, De Nederlandse Waterschapsbank (NWB Bank), Aegon Asset Management, KLP, Sanlam Investment Holdings, Borough of Windsor and the Local Government Pension Fund in the UK.
– Bain Capital Double Impact Fund, which invests in middle market companies that create positive social impact in areas including water, energy and agriculture, received investments from Los Angeles City Employees’ Retirement System (LACERS) and the Los Angeles Fire and Police Pension fund in January.
– In June, Westport, Connecticut-based True Green Capital Management, an infrastructure asset management firm with more than $500M under management, raised $350M for commercial and industrial (C&I) solar project investments. The fund saw strong demand from LPs, including institutional investors and family offices, says Managing Partner Panos Ninios.
And major global institutional investors make future commitments:
– In November, Zurich Investments raised its impact investing target to $5B to more than double the original commitment, seeking to avoid 5 million tons of CO2e emissions and improving lives of 5 million people per year. Zurich is exploring a variety of asset classes in its impact investment portfolio with a key focus on green bonds and private equity.
– In October, Caisse de dépôt et placement du Québec (CDPQ), Canada’s second-largest public pension plan, pledged to consider climate in all investments, sectors and asset classes to achieve a 25% reduction in its carbon footprint per dollar invested by 2025. And by 2020, it will increase its low carbon investments by 50%, representing more than $6.4B in new investment over 3-years.
– In July, Netherlands government pension fund Stichting Pensioenfonds ABP said it is doubling its allocation to sustainability investments and targeting $68B investment opportunities linked to 13 of the United Nations’ 17 Sustainable Development Goals (SDGs) by 2020.
And institutional investors from around the world are showing strong interest in India’s solar sector, which the country has targeted for $100B of investment over the next five years. Big pension plans investing in the sector include Canada Pension Plan Investment Board(CPPIB), Caisse de dépôt et placement du Québec (CDPQ), and the Ontario Teacher’s Pension Plan (OTPP). CDPQ plans to invest in India’s solar sector with solar PV developer Azure Power.
Growing Financing & Deployment of Energy Storage & Microgrids
With battery prices falling 35% over the past year, driven by a rise in electric vehicle manufacturing, and expected to drop another 77% by 2018, the rapid adoption of batteries is expected to continue. With proper regulatory support, U.S. energy storage capacity could nearly double to more than 140 gigawatt-hours in coming years, says Morgan Stanley.
Behind-the-meter battery growth, the fastest growing segment, is being driven by its ability to reduce energy costs as well as growing demand for resiliency by commercial and industrial customers, as businesses are increasingly willing to pay for a source of backup power if the grid goes down during severe weather events.
The development of new financing models, including shared savings and leases, is enabling more corporations to take advantage of behind-the-meter energy storage solutions.
A good example of C&I activity is the 2017 deal between Macquarie Capital and CIT Group to finance 50 MW of behind-the- meter storage systems being deployed in Southern California, purportedly the largest battery project to get bank funding to date.
Developers and consumers are showing increasing interest in microgrids, those small networks of electricity users that are usually connected to the larger grid, but that can typically fully separate from that larger grid during emergencies. Widespread damage caused by recent extreme storms, such as in Puerto Rico and Houston, have spurred private companies to step in and build battery-connected microgrids to generate power for critical infrastructure. Recent examples include battery developers Sonnen and Tesla that are deploying batteries coupled with solar PV to restore power to hospitals, medical clinics and emergency shelters in Puerto Rico.
Large industrial corporates developed new microgrid offerings this year including ABB, which launched a new modular microgrid solution that combines solar power and battery storage for the small C&I market and for remote villages and Schneider Electric, which launched an innovative “Microgrid as a Service” (MaaS) business model, which adds resiliency to corporate customers with no upfront costs.
Integrating rooftop solar with energy storage is another major driver of battery adoption, with more solar installers integrating storage into their projects. And more and more state governments are issuing energy storage mandates, which are implemented through each state’s utilities.
Institutional investors are showing growing interest in these types of projects. In 2017, private equity fund SUSI Partners and specialty financier Generate Capital raised capital from big institutional investors to finance the deployment of distributed energy storage and microgrids.
Key developers that announced successful behind-the-meter energy storage and solar+storage projects in 2017 include Sunverge, Demand Energy, Stem Inc and Vivint Solar.
Big Banks Commit to Clean Energy, Sustainable Financing
Major new initiatives launched in 2017, such as the UN-backed framework Principles for Positive Impact Finance, signed by 19 global banks, which are meant to channel more money toward low-carbon projects.
And the FSB’s Task Force on Climate-Related Financial Disclosures, which recommends that organizations provide climate-related financial disclosures in their main annual financial filings, are being piloted by 15 leading banks including Rabobank, BBVA, BNP Paribas, Société Générale ANZ, Barclays, Bradesco, Citi, Itaú, National Australia Bank, Royal Bank of Canada, Santander, Standard Chartered, TD Bank Group and UBS.
In 2016, Goldman Sachs and Citigroup both committed $100B+ to clean energy financing and investments by 2025.
New financing initiatives by big banks announced this year include:
– The UN Environment Program and Rabobank have formed a $1B fund that will offer loans and grants to companies that invest in sustainable agriculture.
– HSBC said it will make available up to $100 billion to finance low-carbon projects around the world; it will also stop financing coal mines.
– In July, JPMorgan committed to funding low-carbon projects, promising $200B in financing for such projects.
– TD Bank Group set a target of $78B in low-carbon lending, financing, asset management and other programs by 2030 in December.
This month, Amalgamated Bank announced that it will acquire New Resource Bancorp, which specializes in renewable and alternative energy, green building, organic food, and green products and services. Amalgamated Bank created a “sustainability banking” division in 2016.
And major financial institutions are cutting fossil fuel financing:
– The World Bank Group will no longer finance upstream oil and gas, after 2019. And will meet its target of 28% of its lending going to climate action by 2020.
– French insurer AXA announced it would pull $2.8B from the coal industry, shed all investment in oil sands and no longer insure new projects in either sector.
– Dutch lender ING said it would cut its exposure to coal power to zero by 2025.
– France’s largest bank, BNP Paribas said it would no longer finance shale and oil-sands projects.
Big Food & Agriculture Investments
Money is flowing into companies that specialize in indoor, vertical farms, often located in warehouses or other urban locations. Such farms are expected to grow in coming years as a surge in urban population leads to demand for more crops that are produced close to the consumer. Money is coming from funds, banks, corporates, sovereigns and more, and investors are based all around the world.
Two significant urban farming capital raises in 2017 include:
– Plenty, an indoor vertical farm company, raised a $200M Series B round in July, bringing its total funding to $226 million since founding in 2014.
– AeroFarms raised a $40M in Series D funding from investors including Ikea. Founded in 2004, AeroFarms has now raised a total of $97M.
See our report Indoor Vertical Farms Yield Growing Investor Interest .
As interest in Food & Agriculture investing rises, big Food & Ag corporates are launching venture funds that are making investments in areas such as alternative protein, biotech, health food brands, innovative packaging, food waste/recycling and digital farming. These investments are driven by the realization that global food production need to increase by 70 percent by 2050 in order to keep up with a global population expected to reach 10 billion.
New corporate strategic venture funds include eighteen94 capital (Kellogg), ACRE Venture Partners (Campbell Soup), Tyson Ventures (Tyson Foods), 301 Inc. (General Mills), Danone Manifesto Ventures (Danone) and Cultivate Ventures (Hain Celestial.)
Sizeable recent fundings include Ginko Bioworks, which raised $275M in Series C venture funding this month to build out a production facility for its genetically engineered microbes for customers in the flavor, fragrance and food industries. It also set up a $100M joint venture with Bayer that focuses on developing the plant microbiome to improve its ability to make nitrogen fertilizer for crops while reducing the need for chemicals.
And alternative protein developer Beyond Meat raised $55M in a Series G venture funding this month from Tyson Foods and Cleveland Avenue. General Mills invested in Beyond Meat’s 2016 Series F funding round.
Major Corporates Making Additional Commitments to Fight Climate Change
Large corporations have taken a leadership role in procuring renewable energy around the globe. In fact, almost half of the Fortune 500 have a target for either sustainability or renewable energy.
An ever-expanding list of governments — national, state and local — and large corporations are committing to fight climate change through various means, including using 100% renewable energy or meeting the goals of the Paris climate accords regardless of the Trump administration’s stance. Here’s some of the recent activity on this front:
– Companies operating in a wide range of sectors have joined together in EV100, agreeing to shift their transportation fleets away from gas- and diesel-powered engines and toward electric vehicles. More than half the cars on the road belong to corporations, the alliance says, which means these efforts could have a huge impact. Among the list of participating companies are Ikea, DHL, HP and Unilever.
– Another group of corporations is RE100, which now boasts 110 companies pledging to use 100% renewable power by 2020. New joiners include Citibank, JPMorgan Chase, Kellogg Company, Estee Lauder and DBS Bank.
– The U.S. Climate Alliance has grown and now includes 14 states plus Puerto Rico, each committing to reduce their greenhouse gas emissions; North Carolina is the latest to join. The group says it is on track “to meet and possibly exceed their portion of U.S. commitment under the Paris Agreement.” Co-chairs are Gov. Andrew Cuomo of New York, Gov. Jerry Brown of California, Gov. Jay Inslee of Washington, and former U.S. Secretary of State John Kerry.
– Also growing is the Under2 Coalition, a group of governments from around the world that are committed to combating climate change. New signatories include Atlanta, Boulder, Pittsburgh, Orlando and the Marshal Islands, bringing membership to 188 jurisdictions, representing 39 countries across six continents.
– Apple issued a $1B green bond in June to finance renewable energy and energy efficiency projects at its facilities and for using recycled materials. The issuance was “meant to show that businesses are still committed to the goals of the 194-nation accord” Apple said.
– In October, Google announced that it will run on 100% renewable energy by 2018, having purchased 3GW of renewable energy capacity.
And traditional energy corporates are making investments in clean technology, including:
– French electric utility Engie continued its investments in renewable energy with the October acquisition of Fenix International, a U.S.-based start-up that focuses on off-grid residential solar in Africa. In 2015, Fenix closed a $12.6 billion Series B funding round, raising money from Engie, Schneider Electric, and Orange France Telecom. Engie’s other recent acquisitions have included behind-the-meter smart energy storage firm Green Charge Networks and electric vehicle charging company EV-Box.
– German utility E.ON is taking a stake in smart metering software start-up Cuculus. The start-up’s IoT platform automates and coordinates solar PV systems, battery storage systems and electric vehicles.
– The venture capital fund of oil giant Royal Dutch Shell has opened its first office in China and will hire three local investment staffers as it makes more non-fossil fuel investments.
– In September, French utility Total acquired GreenFlex, a French energy efficiency company that combines data and equipment management and financing to help clients manage their energy consumption.
– The Oil and Gas Climate Initiative, a group whose members include BP, Saudi Aramco, Shell and Total, has invested in Achates Power, a company that says it has a “radically improved” internal combustion engine that’s more fuel-efficient and also reduces greenhouse gas emissions, all at a lower cost.
– In January, Engie, Royal Dutch Shell, Toyota and 10 other energy, auto and industrial companies banded together in January to push for the development of hydrogen fuel cells. The new Hydrogen Council is “determined to position hydrogen among the key solutions of the energy transition,” the group says in the announcement of its formation.
Don’t forget to sign up for CleanTechIQ’s upcoming webinar on January 10th at 10AM ET, Top IP Issues Global Companies Face When Pursuing U.S. Clean Energy Projects. It will feature the CEO’s of N-SIDE, a developer of advanced analytics software for industrial applications and Highview Power Storage, a developer of battery storage systems for utility and distributed systems.