Money Poured Into Cleantech in 2021; Poised to Do the Same in ’22 – Funding Trends Insight from Obvious Ventures, Norton Rose Fulbright, Stonepeak Infra Partners & More

Asset owners and funds poured money into cleantech and sustainability-related projects and funds last year. And they’re poised to do the same this year, even as humans continue to pour carbon into the atmosphere.

The large amount of dollars pouring into the space was already known; BloombergNEF confirmed it this week with new numbers showing that “global investment in the energy transition” hit $755 billion last year, an all-time record.

BNEF’s new report, Energy Transition Investment Trends 2022, shows that investment climbed in almost every sector last year, including renewable energy, energy storage, transportation, electrified heat, nuclear, hydrogen and sustainable materials.

BNEF also logged an additional $165 billion in climate-tech corporate finance, which the report defines as “new equity financing raised by companies in the climate-tech space, either from public markets or private investors.”

“There has never been more capital available to companies tackling the hardest aspects of the climate challenge,” says Claire Curry, head of technology and innovation at BNEF, in an announcement. “It is true that we have solutions ready to deploy today, but there is still the need for continued innovation. All forms of corporate finance will play an important role in helping develop and scale climate-tech in the coming decade.”

Industry practitioners say much the same.

Last year, “The cavalry showed up,” says Andrew Beebe, managing director of venture capital firm Obvious Ventures. “At every stage, in every category, we now have the financial support necessary to build truly game-changing companies around the technology the world needs now.

Here’s a quick look back at some of the most noteworthy developments last year, and a look ahead to what 2022 might bring.

Energy Storage

One major development in 2021 was the growth in energy storage, in terms of both deployment and investment. Battery storage is, of course, crucial to the expansion of solar and wind generation, and its growth bodes well for the continued growth of renewable energy.

The tone for the year was set in the first quarter when independent power producer sPower, a unit of AES Clean Energy, announced what was hailed as a “landmark” debt financing deal for a 400MWh battery storage project in California. The $154 million deal showed that large-scale battery facilities can indeed attract significant project finance investments, experts said, and also underscored the advances being made in standalone battery storage technology.

“Storage has seen more rapid growth than anyone expected even two or three years ago,” Keith Martin, partner and co-head of projects at Norton Rose Fulbright, tells CleanTechIQ That growth has been intense: battery storage companies logged a combined $11.4 billion in corporate funding via 73 deals in the first nine months of 2021, according to Mercom Capital Group. That was up from just $3.5 billion and 35 deals in the same period of 2020.

Venture capital funding for battery storage companies, meanwhile, totaled $5.5 billion via 59 deals through the third quarter — up significantly from the $1.2 billion raised through 21 deals in the first nine months of the previous year.

That means nearly $17 billion funding through September of last year – which was “the highest ever amount of funding received by battery storage companies in a nine-month period,” according to the Mercom report.

Among other activity last year, clean energy investment platform CleanCapital struck a financing partnership in June with energy storage firm Stem, through which Stem will be CleanCapital’s preferred storage provider. The partnership will have a focus on mid-market commercial energy storage and on small utility front-of-meter projects of up to 30 MW nationwide.

Other companies benefitting from the surge in funding included long duration battery startup Form Energy, which raised $240 million in a Series D funding round; stand-alone battery storage developer Nexamp, which also raised $240 million in equity as well as $440 million in debt financing; utility-scale battery developer FlexGen Power Systems, which raised $150 million in equity funding; and Sila Nanotechnologies, which makes lighter and higher-density batteries for renewable power projects as well as electric vehicles and smart phones, and which raised $590 million in a Series F funding round .

Interest was broad as well as deep; investors in these companies ranged from industrials like ArcelorMittal, Caterpillar Ventures, Chevron and GE Ventures to asset managers and asset owners such as TPG Rise Climate Fund, Temasek, Breakthrough Energy Ventures, Apollo Global Management and Canada Pension Plan Investment Board.

Electric Vehicles

Electric vehicle sales also soared worldwide in 2021. BloombergNEF estimated in November that passenger EV sales would hit 5.6 million for the year, up 80% year on year. With more and more automakers announcing plans to shift their focus to EVs in the near term, the industry is clearly bullish on their future.

“The EV movement is officially reaching top speeds,” Beebe says. “With 10% of global new sales being EVs, we are seeing the mainstream take notice and take action.”

Investors certainly took notice and action last year. Tesla’s share price, while volatile, continued the meteoric climb it started in early 2020. Electric truck manufacturer Rivian Automotive went public in August, and while its shares haven’t soared like Tesla, it still raised some $12 billion in the offering, after earlier in the year raising billions more from existing investors like Amazon and Ford. And numerous other EV industry companies raised money or went public, often through reverse mergers.

Indeed, a lot of money found its way to companies working on building out EV charging infrastructure in the US and globally. Among the many such companies raising money from venture investors were Blink Charging, EVgo, Volta and 7 Generation Capital.

That will continue in 2022, thanks in part to the $1.2 trillion infrastructure bill that President Biden signed in November, which includes $7.5 billion in federal spending on EV charging infrastructure. The money will be distributed to state and local governments, which are expected to contract with private developers to install and maintain the EV charging stations.

“A mass deployment of electric vehicle (EV) chargers will require creative third-party financing and innovation from utilities, Jigar Shah said at a conference this month. Shah is the director of the U.S. Department of Energy’s Loan Programs Office, as well as the cofounder and former president of Generate Capital.

Indeed, for this year, D.J. Gribbin, senior operating partner at Stonepeak Infrastructure Partners, says the “intersection between transportation infrastructure, technology, and energy” will be of particular interest.

The Biden administration’s policy goals, and money from the infrastructure bill as well as other pending legislation, “will encourage those who help electrify the vehicle fleet, which includes providing vehicles, consumer-friendly charging, making changes to the grid, and using vehicles as storage,” Gribbin says. “Investors who understand the overlap between these industries will have significant opportunities in the coming year.”

Beebe agrees, saying, “The entire automotive industry will re-orient away from combustion.” In fact, he thinks electrification will go beyond passenger vehicles to encompass pretty much anything that currently uses fossil fuels to move. “If it had an engine, it will now have a motor instead. From marine to snowmobiles to jets, everyone will go electric,” he says.

Sustainable Funds and Sustainable Debt

Asset owners showed a voracious appetite for sustainability investments in 2021, and asset managers of all stripes responded by launching a wide array of funds to feed that appetite. The biggest came from Brookfield Asset Management, whose new energy transition fund held a first close of $7 billion in July The firm had planned to close the fund at $12.5 billion, but it’s now on target for a final close of $15 billion in the first quarter, CEO Bruce Flatt said at a conference in December.

That amount “could have been more,” he added. “It gives you an indication of the interest in transition investing. One of the great investment areas for the next 25 years will be the investment into the transition of energy.”

Indeed, Brookfield was joined by numerous other large climate- or sustainability -focused investment vehicles over the course of the year. In the summer, for instance, TPG held a first close of $5.4 billion for its TPG Rise Climate Fund; the firm – which went public in an IPO earlier this month – set a hard target of $7 billion for the fund, with a goal of final close by year-end, though nothing has been announced as of yet.

In July, Macquarie Asset Management said it had raised $6.9 billion for a North American infrastructure fund, well above the $5 billion the firm had targeted. The fund will target investments including energy, waste management and transportation. Funding came from a range of institutional investors, including KLP, Norway’s largest pension manager

That same month, private equity manager Carlyle Group launched a new company, Copia Power, that will develop renewable power generation and storage projects. Carlyle said its funds would invest up to $700 million into Copia, which would have the ability to back more than $6 billion worth of projects.

Among the many, many other new funds last year: Insurance giant Aflac’s asset management arm committed $2 billion to launch a debt platform with Denham Sustainable Infrastructure. Cleantech veteran Chris Sacca’s climate-centric firm Lowercarbon Capital raised $800 million to invest in both start-ups and later-stage firms.

BlackRock and Temasek teamed up to form Decarbonization Partners, an entity that will invest in zero- and low-carbon companies. The two invested a combined $600 million and planned to raise another $400 million in third-party capital for the venture.

Not to be outdone, Bill GatesBreakthrough Energy in June launched a program called Catalyst, aiming to raise $3 billion to invest in direct air capture, green hydrogen long-duration energy storage and sustainable aviation fuel. It had raised about $1.5 billion by year-end.

All this money will keep flowing. Just this month, private equity giant Blackstone announced a new sustainable credit strategy that will aim to invest $100 billion into low-carbon businesses over the next decade.

The new strategy will back clean-energy project developers as well as supplies, Robert Horn, senior managing director at Blackstone Credit and leader of the new strategy, tells the Wall Street Journal. He anticipates investing between $50 million and $1 billion per deal, using a range of instruments including sustainability-linked loans.

Sustainable debt has also been a growing area of interest for investors and companies alike. BloombergNEF said sustainable debt issuance surged to $1.6 trillion last year, more than double what it was the year before.

Activity was plentiful. The European Union sold its first-ever green bond in October, while the British Columbia Investment Management Corp. said it would invest $5 billion or more in green bonds, to take just two examples.

And two private equity firms, EQT and Carlyle, each announced large moves into sustainable debt. EQT issued a €500 million ($561 million) sustainability-linked bond, while Carlyle secured an ESG-linked credit facility worth €2.3 billion ($2.58 billion) for its European private equity and real estate platform.

Food and Ag and Nature-Based Solutions

Food and agriculture saw increasing attention from investors last year as well. In July, Equilibrium Capital closed its second Controlled Environment Agriculture fund with more than $1 billion in assets, double its original target. And in November, JP Morgan Asset Management and Credit Suisse jointly launched a Sustainable Nutrition Fund with more than $250 million; it will target companies that work to reduce the carbon intensity of the food system.

Food and ag is likely to see even more dollars this year. “Agriculture’s on deck,” Beebe says. “Ag is the next big industry to see serious decarbonization pressure, and solutions are showing up.”

Similarly, nature-based climate solutions also saw significant attention last year. For example, the Canada Pension Plan Investment Board said it would invest an initial $20 million in nature-based solutions within the voluntary carbon market.

And APG said it wants to significantly increase its investments in forestry and agricultural land over the next few years; it currently has €1.8 billion and wants to boost that to between €3 billion and €5 billion. Among its moves last year was taking part in the acquisition of a production forest covering 80,000 hectares in Chile, alongside pension fund British Columbia Investment Management, Corp.  This investment will allow APG to contribute to the preservation of biodiversity and the realization of the Sustainable Development Goals (SDGs) of the United Nations, it says.

Looking Ahead to ‘22

Challenges this year will include supply chain issues, which led to delays in financing for some renewable energy and other sustainability-linked projects last year. That’ll probably continue to some degree.

“The issues are unlikely to sort themselves out fully in 2022,” Martin says. “Companies are already reporting some 2022 projects will be delayed into 2023.”

Experts are also keeping an eye on Capitol Hill, where federal legislation could have a major impact on the industry – depending on what gets passed. The Build Back Better bill, which passed the House but faces major challenges in the Senate, is a key focus.

Its passage into law would likely lead to more renewable energy installation, more electric vehicle sales, and more carbon capture and storage. The House version also includes a tax credit for standalone energy storage, one for making clean hydrogen, and a 30% tax credit for microgrid developers.

Such legislation could “turbo-charge activity in a variety of areas,” depending on what is in the final legislation, Martin notes. The energy storage tax credit, coming on the heels of last year’s growth in the sector, would be massive, he adds.

“A tax credit for standalone storage would provide a huge boost to a sector that is already growing rapidly.”

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