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Speaker 1: This is Dana Perkins and you're listening to Switched on

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Speaker 1: the B and AF podcast, and today we're talking about

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Speaker 1: climate tech investment. During the third quarter of twenty twenty four,

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Speaker 1: climate tech companies raised over ten billion US dollars in

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Speaker 1: equity across public and private markets. So is this a

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Speaker 1: lot of money? Well, it's not insignificant, but it represents

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Speaker 1: a decline from the same period in twenty twenty three

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Speaker 1: and is a fraction of the almost forty one billion

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Speaker 1: that was raised in twenty twenty two, so zooming out.

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Speaker 1: The story is different depending upon where in the world

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Speaker 1: you are. In China, clean tech manufacturers had over capacity

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Speaker 1: in industries like solar and energy storage, so this resulted

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Speaker 1: in a collapse in funding. Meanwhile, in India there was

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Speaker 1: an increase in equity funding in Q three this year,

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Speaker 1: rising by one hundred and fifteen percent. But if globally

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Speaker 1: it looks like there is a decline, what do clean

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Speaker 1: tech investment trends tell us about the future and should

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Speaker 1: we be even comparing current numbers to previous peaks like

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Speaker 1: that scene in twenty twenty two. Well, today to answer

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Speaker 1: those questions and more, I am joined by Mark daily

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Speaker 1: Head of Technology and Innovation at BNF, and he talks

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Speaker 1: about the recent report titled Investment Radar three Q twenty

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Speaker 1: twenty four funding drop Again. BNF subscribers can access this

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Speaker 1: report at BNF go on the Bloomberg terminal, and at

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Speaker 1: BNF dot com. Now, let's talk about climate tech investment. Mark,

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Speaker 1: thank you for coming on switched on today, Thanks for

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Speaker 1: having me. We're going to talk about well equity funding

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Speaker 1: for climate tech. So these technologies that have the potential

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Speaker 1: to change the way that the energy transition is playing

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Speaker 1: out and the future of decarbonization. And in twenty twenty two,

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Speaker 1: our research showed that there was one hundred and twenty

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Speaker 1: seven billion of US dollars in companies, but that fell

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Speaker 1: in twenty twenty three to eighty four point four billion.

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Speaker 1: So thus far, if we're looking at twenty twenty four,

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Speaker 1: and I know we're bowling out three quarters in, but

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Speaker 1: we're in that last quarter, where are things trending and

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Speaker 1: where is twenty twenty four stacking up? Is it more

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Speaker 1: like twenty twenty two or is it more like twenty

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Speaker 1: twenty three.

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Speaker 2: So it's unfortunately not really like either of them. So

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Speaker 2: we've continued to see a drop off in terms of

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Speaker 2: what we say corporate equity funding for climate tech, And

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Speaker 2: that's important part of the word, because a lot of

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Speaker 2: the equity that goes into climate tech that people would

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Speaker 2: think about is project equity for solar implants. And what

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Speaker 2: we're really talking about here is companies that are issuing

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Speaker 2: stocks in order to finance their business operations and grow.

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Speaker 2: So in terms of how much of a decline are

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Speaker 2: we seeing, it's probably going to end up to be

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Speaker 2: about half of what it was last year, so at

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Speaker 2: a point of about eleven billion dollars per quarter this year.

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Speaker 2: Why is that, you might ask, I think you probably

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Speaker 2: have a lot of people in this podcast to come

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Speaker 2: on and talk about growth and things, and I have

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Speaker 2: to present this chart all the time, and it's always

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Speaker 2: a bit counterintuitive, but the reason is basically that corporate

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Speaker 2: equity funding is highly highly linked to company valuations. If

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Speaker 2: your company's were more money, and the stock market sees

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Speaker 2: it that way, then you're going to be able to

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Speaker 2: raise bigger rounds to grow your operations more quickly. And

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Speaker 2: over the past couple of years, if you look at

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Speaker 2: the stock market, and Bloomberg has covered this pretty extensively

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Speaker 2: from started twenty twenty two, the entire stock market dipped

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Speaker 2: a little bit, the SMP, the NASDAK, and clean energy

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Speaker 2: and clean transport indices. But since then the general stock

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Speaker 2: market has recovered quite a lot. But if you separate

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Speaker 2: out clean transport and clean energy, they really haven't. Part

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Speaker 2: of the reason for this is there's been a little

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Speaker 2: bit of trouble in the industry. You constantly see negative

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Speaker 2: headlines about electric vehicles and the wind industry. Personally, I

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Speaker 2: think that's a little bit overwrought compared to the reality

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Speaker 2: of the situation, but it's definitely impacting perceptions of companies,

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Speaker 2: and so that's depressed a little bit. But also interest

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Speaker 2: rates have been high. High interest rates mean that companies

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Speaker 2: that are growth stories, which is all climate companies, really

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Speaker 2: they're going to have more of their profits out there

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Speaker 2: in the future discanted at a higher rate, and so

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Speaker 2: that's depressed them. Is it all bad going forward? Not necessarily.

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Speaker 2: We've actually seen a little bit of recovery in company valuations.

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Speaker 2: But I also say to people that this number of

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Speaker 2: being big isn't good or bad. It's largely a function

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Speaker 2: of like what companies need to raise money to do,

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Speaker 2: and lots of the really mature climate tech sectors like

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Speaker 2: solar and wind and energy storage. The companies that were

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Speaker 2: raising a load of capital over the past few years

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Speaker 2: actually have built a lot of the manufacturing capacity to

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Speaker 2: sell and manufacture all the products they need to sell

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Speaker 2: to get to net zero, and so the industries have

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Speaker 2: a lot of oversupply in terms of manufacturing capacity. So

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Speaker 2: additional capital being raised is actually just making all of

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Speaker 2: these companies unprofitable because there's even more competition. And so

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Speaker 2: that's another reason that we've seen a big drop off

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Speaker 2: in funding, is because the companies that needed to raise

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Speaker 2: the money to build these really capital intensive facilities just

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Speaker 2: don't need to do it anymore.

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Speaker 1: When you're talking about equity and valuations of existing companies

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Speaker 1: and raising fur their money for new projects, this perfectly

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Speaker 1: makes sense. And what I want to know though, is

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Speaker 1: is this market largely focused around a few big players

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Speaker 1: or are we also seeing IPOs of companies and new

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Speaker 1: entrants into this listed space also tracking a lot the

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Speaker 1: same lines of what you're seeing in twenty twenty two,

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Speaker 1: twenty three, twenty four.

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Speaker 2: So really hawk eyed listeners will I don't know, maybe

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Speaker 2: have read the description and see my title at PNF

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Speaker 2: is head of Technology and Innovation, and they might be

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Speaker 2: wondering why I'm talking about IPOs. The reason for that

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Speaker 2: is because the data set that this report is built

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Speaker 2: on is a corporate equity deal tracker, and our team

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Speaker 2: has ended up doing the venture deal tracking at PENF.

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Speaker 2: The venture deal tracking is a lot of the work

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Speaker 2: in terms of tracking this sector or this kind of

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Speaker 2: group of financing because most of the deals that happen

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Speaker 2: are in private markets that are pretty small or maybe

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Speaker 2: like five to ten million dollars or even less than that.

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Speaker 2: Most of the actual funding that we're talking about here

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Speaker 2: is raised in like really really big deals, so they

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Speaker 2: can be massive growth equity or they're probably going to

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Speaker 2: be IPOs, And it's kind of that most I think

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Speaker 2: is a Pareto rule where it's like eighty percent of

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Speaker 2: the money comes from about twenty percent of the deals.

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Speaker 2: So it's a really really big spectrum of So if

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Speaker 2: there's like seed rounds in here, there's IPOs, there's secondary offerings.

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Speaker 2: We don't really have a lot of SPACs anymore, but yeah,

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Speaker 2: that's the kind of portfolio of what's in there.

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Speaker 1: Why was twenty twenty two such a big year and

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Speaker 1: why is this the year that we keep comparing everything too?

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Speaker 1: Because you're right, Mark, Like we talk so much about

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Speaker 1: charts where everything is up into the right. We're reaching

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Speaker 1: record breaking investment levels in various parts of the energy transition,

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Speaker 1: and here where we're looking at equity funding, we're seeing

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Speaker 1: potentially the second year in a row. Like it was

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Speaker 1: a peak. We're coming down off a slide. Yeah.

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Speaker 2: So actually this data set starts in twenty twenty two.

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Speaker 2: We tracked it before at PNAF, but we basically built

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Speaker 2: this data set to have a slightly different deal source.

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Speaker 2: But if we were using the old methodology, you see

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Speaker 2: actually probably twenty twenty one was the peak, and it's

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Speaker 2: actually nothing really to do with climate specifically. People will

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Speaker 2: be very familiar with the term zero interest rate phenomenon.

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Speaker 2: Virtually all private capital markets were like booming in that

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Speaker 2: time period. There's just massi amounts of enture money going

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Speaker 2: into everything simultaneously. There was a bit of a bump

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Speaker 2: in climate at the time relative to the overall capital markets,

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Speaker 2: but it really wasn't anything fundamental to climate or energy.

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Speaker 1: So you think that bump that occurred when you saw

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Speaker 1: a lot of different companies embracing ESG ratings that hadn't before,

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Speaker 1: and you saw a lot of funds being raised to

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Speaker 1: actually focus on climate or even things with a sustainability

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Speaker 1: lens that didn't previously exist around twenty twenty, that didn't

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Speaker 1: have as big of an impact, and you think that

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Speaker 1: maybe that's here to stay.

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Speaker 2: I think like funders of these things, they just have

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Speaker 2: capital and they're looking for something to deploy it into.

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Speaker 2: At the time, climate was one of the hottest topics

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Speaker 2: in capital markets. Now we actually go into this in

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Speaker 2: this quarter's report. We track what is climate as a

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Speaker 2: share of total private capital markets, and I think it

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Speaker 2: peaked in late twenty twenty two at about a quarter

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Speaker 2: of all private market funding per quarter. Now it's down

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Speaker 2: to about ten percent. And part of that is because

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Speaker 2: climate has been depressed a little bit relative to the

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Speaker 2: tech market, but it's really been the rise of generative AI.

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Speaker 2: And if you interview climate specific venture investors, they're saying that, oh,

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Speaker 2: there's actually a bit of a drop off an interest

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Speaker 2: because general venture investors, who do everything, generative AI is

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Speaker 2: not the thing that they want to invest in, and

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Speaker 2: it's a lot more attractive to the typical venture investor

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Speaker 2: because it's much more similar to mobile web than it

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Speaker 2: is a climate, which everyone knows is a pretty tough

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Speaker 2: industry to make the kind of VCS returns that people expect.

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Speaker 1: So let's have a little bit of a discussion around

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Speaker 1: the regions and things to watch around the world. So

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Speaker 1: much of our time on this show is talking about

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Speaker 1: China and the incredible amount of manufacturing capacity that they have,

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Speaker 1: and then also the US the Inflation Reduction Act has

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Speaker 1: been a big part of it. But it also makes

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Speaker 1: sense that these are traditionally the largest markets for clean

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Speaker 1: tech investment because they're also number two and number one

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Speaker 1: in global GDP respectively. So outside of these two behemoths

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Speaker 1: in the industry, what other parts of the world are

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Speaker 1: emerging is really innovators and looking at clean tech investment,

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Speaker 1: and are we seeing equity funding in other parts of

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Speaker 1: the world, You know, what should we watch?

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Speaker 2: So I would say the point I was making earlier

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Speaker 2: about manufacturing over capacity, that point actually links directly into

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Speaker 2: this topic, and that's because the huge boom in twenty

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Speaker 2: twenty two. Actually, if you look at the regional chart

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Speaker 2: breakdown of where the boom was happening, it was in

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Speaker 2: inland China and that's because the entire manufacturing supply chain

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Speaker 2: for things like solar and batteries and a lot of

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Speaker 2: electric vehicles is based in mainland China. So these are

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Speaker 2: the companies that I was talking about that don't need

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Speaker 2: to build any more manufacturing capacity. And in fact, we've

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Speaker 2: heard that, particularly in the solar industry, the government's really

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Speaker 2: discouraging people from raising additional capital to build out more

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Speaker 2: manufacturing to prevent a I don't want to say death spiral,

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Speaker 2: that's a bit over the top, but like just make

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Speaker 2: sure the companies are not driving each other out of

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Speaker 2: business and making sure that they can generate some profits.

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Speaker 2: So China's seen a huge drop off. The United States

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Speaker 2: is relatively stable. The United States market is pretty different

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Speaker 2: than China in the sense that it's a lot more

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Speaker 2: private capital oriented. It's a lot more diverse across different

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Speaker 2: areas of climate. So yes, some energy, but also things

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Speaker 2: like industry decarbonization and ag tech. But yeah, in terms

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Speaker 2: of there's not a huge amount of markets that are

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Speaker 2: big enough in order to have trends in this data set,

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Speaker 2: because there's you if one country has like one really

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Speaker 2: big deal that can give it like its biggest quarter

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Speaker 2: ever by ten x, so there's only some economies like

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Speaker 2: maybe the major European ones. Something notable that we saw

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Speaker 2: this quarter is that in India was ranked as the

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Speaker 2: second biggest market for the first time. So the reason

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Speaker 2: that this is a pretty interesting story is because it's

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Speaker 2: kind of indicative of this broader trend of the on

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Speaker 2: shoring of supply chains. People that I speak to because

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Speaker 2: I'm based in Europe, often think about it in the

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Speaker 2: European and the US context, but actually the same thing

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Speaker 2: is happening in India, and there's content requirements around solar

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Speaker 2: modules that are going to qualify for subsidies, and so

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Speaker 2: the valuation of companies in India in the solar value

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Speaker 2: chain has actually been They've performed really really well in

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Speaker 2: stock markets since they've all gone public this year, and

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Speaker 2: you can see a kind of gradual and then all

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Speaker 2: big sudden increase this quarter in funding. This quarter in India,

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Speaker 2: a climate tech company's raised bout two point four billion dollars.

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Speaker 2: In the context of China, that would be low over

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Speaker 2: the last two and a half years or three years,

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Speaker 2: but just Chinese funding is now so low that it's

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Speaker 2: kind of fallen down the ranking a little bit. So

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Speaker 2: that's in terms of regional trends, the most interesting thing

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Speaker 2: happening right now.

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Speaker 1: So, if India is really becoming a much more dominant

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Speaker 1: layer in this clean tech space, what parts of the

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Speaker 1: industry are they known for. Is it going to be

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Speaker 1: on the battery and storage and vehicles part of the

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Speaker 1: supply chain? Is going to be more on the clean

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Speaker 1: power traditional wind solar? You know, what are the industries

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Speaker 1: and the sectors actually that they're most involved.

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Speaker 2: In right now? The companies that drove a lout of

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Speaker 2: the funding that we've seen over the last few months,

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Speaker 2: it's definitely been solar. Solar manufacturing is a lot easier

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Speaker 2: to scale in a country than battery manufacturing. European companies

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Speaker 2: are struggling a lot to scale battery manufacturing. It's just

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Speaker 2: a lot more complicated. If things like scrap rates get higher,

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Speaker 2: the materials and more expensive, the equipment's more expensive, so

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Speaker 2: there's a lot more opportunity cost to being bad at

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Speaker 2: doing it. And so that's definitely the focus right now

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Speaker 2: in India.

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Speaker 1: So what are some of the reasons you think India

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Speaker 1: is experiencing such an incredible rise compared to previous years

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Speaker 1: and is really shown up on a lot of your

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Speaker 1: charts more recently.

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Speaker 2: So I think the biggest thing is the fact that

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Speaker 2: the government is pretty acting the domestic clean energy industries.

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Speaker 2: So there's tariffs unimported solar modules now a forty percent,

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Speaker 2: which is pretty expensive. So even if domestic manufacturers can't

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Speaker 2: compete with the Chinese companies, who are definitely the leaders

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Speaker 2: in this, they can still compete in India, which is

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Speaker 2: a really huge market that they can build and grow

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Speaker 2: and become better at manufacturing for. I think there's kind

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Speaker 2: of a broader lesson to learn here for people who

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Speaker 2: are looking at the energy and climate capital markets, which

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Speaker 2: is that protectionism if you believe that it's bad for

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Speaker 2: the economy and it's making decarbonization more expensive, which means

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Speaker 2: it's bad for trying to mitigate climate change, but it's

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Speaker 2: not necessarily bad for investors' returns because protectionism creates opportunity

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Speaker 2: for certain companies to make money. The thing I was

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Speaker 2: mentioning earlier about manufacturing over capacity, there's globally a huge

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Speaker 2: manufacturing over capacity for things like batteries and solar, and

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Speaker 2: we still need some additional build out in like the

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Speaker 2: next decade, but like right now it's kind of a

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Speaker 2: bit oversupplied, but that's really because of China. And so

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Speaker 2: if you're based in the US and all of a

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Speaker 2: sudden you can't buy Chinese energy equipment for whatever reason,

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Speaker 2: all of a sudden, there's now a shortage of supply,

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Speaker 2: and that's actually good if you're a manufacturer. So cynically,

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Speaker 2: I think there's actually an opportunity to make money if

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Speaker 2: you're an investor from productionist policies.

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Speaker 1: I mean, tariffs were certainly one of the topics that

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Speaker 1: were at the forefront of the recent US election, So

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Speaker 1: we would anticipate in the coming administration that you would

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Speaker 1: see an increase in tariffs on a number of things,

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Speaker 1: both in the energy transition and in other industries. So

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Speaker 1: do we expect to see them these investment and these

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Speaker 1: valuations that you're talking about, would you expect to see

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Speaker 1: a bump from that if tariffs do indeed go up

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Speaker 1: in countries like the US.

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Speaker 2: Yeah, that's a really good question. I this is the

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Speaker 2: indicator I'm watching the most from the election in terms

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Speaker 2: of like direct change in policy. Will notice quite quickly

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Speaker 2: in terms of the impact is going to have on

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Speaker 2: manufacturing companies inside the US. I'm not familiar enough with

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Speaker 2: the industrial base compared with the demand. Obviously there's going

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Speaker 2: to be unexpected changes to the demand for these technologies

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Speaker 2: in the US. Now. People think that the Inflation Production

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Speaker 2: Act is relatively protected in a narrowly split Congress, but

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Speaker 2: it's very up in the air at the moment.

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Speaker 1: Well. And so then let's talk about the other big

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Speaker 1: country in this space that we've mentioned a few times,

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Speaker 1: which is China. Their government has provided a stimulus injection

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Speaker 1: for stock valuations. So how has this impacted the stock

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Speaker 1: market when it comes to these energy transition focused companies.

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Speaker 2: Yeah, So, as I said, this whole funding market is

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Speaker 2: very linked to public market valuations of companies because obviously

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Speaker 2: that's what investors see is their like ultimate exit opportunity

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Speaker 2: and the kind of comps that they can look at.

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Speaker 2: The Transport Index in particular, notice, had a big uptick

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Speaker 2: this quarter for the first time since we started charting

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Speaker 2: it in twenty twenty two, and it's kind of an

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Speaker 2: artifact of the fact that the Chinese government just injected

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Speaker 2: huge stimulus across the entire economy, and most of the

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Speaker 2: transport's supply chain in that index is based in China.

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Speaker 2: So it's more of a generic bump from the economy

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Speaker 2: than it has anything to do with transport related companies.

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Speaker 1: So you mentioned that this is a part of what

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Speaker 1: you spend your time focused on, which is the venture

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Speaker 1: capital and private equity end of the market. So how

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Speaker 1: is climate tech placed as a share of this? Is

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Speaker 1: it growing or is there less investment in kind of

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Speaker 1: some of these really early stage, more disruptive technologies.

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Speaker 2: The share of it as the total venture capital and

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Speaker 2: private actory markets is declining a little bit. So reached

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Speaker 2: a peak of about a quarter at one point about

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Speaker 2: eighteen months ago, and now it's kind of gently declined

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Speaker 2: down to round ten percent. That's not low if you

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Speaker 2: look at energy transition spending across the whole economy and

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Speaker 2: compared to global GDP right about two percent. So obviously

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Speaker 2: the venture capital and private actory market is more forward

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Speaker 2: oriented than the rest of the economy. So it makes

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Speaker 2: sense that it's a little bit bigger if you look

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Speaker 2: at the public market size of things. It's smaller than

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Speaker 2: private capital, but it's bigger than the economy more broadly,

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Speaker 2: because again public market fundraising, it's four companies that are growing.

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Speaker 2: They're just growing in a kind of later stage than

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Speaker 2: metro capital companies. So that's at about five to seven

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Speaker 2: percent of total public market raising right now, that's a

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Speaker 2: bit flatter, that's not really declining or growing.

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Speaker 1: So just taking kind of the temperature in the room,

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Speaker 1: if you will, is your view that this is a

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Speaker 1: perfectly reasonable amount of money to be going into these spaces,

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Speaker 1: and we should not be expecting additional money to be

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Speaker 1: flowing really dramatically into the venture capital private equity space

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Speaker 1: when it comes to clean tech, because the way I'm

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Speaker 1: looking at it is so often we're talking about net

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Speaker 1: zero goals, and I look at how close we are

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Speaker 1: to twenty thirty, so we're kind of halfway through this

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Speaker 1: critical decade. And I would then anticipate that if we

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Speaker 1: accept this fundamental premise that decarbonization is something that most

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Speaker 1: countries in the world are interested in seeing come to

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Speaker 1: fruition and are therefore writing policies that would then support it,

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Speaker 1: we would see an increase in funding. Now, there's the

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Speaker 1: scaling of late stage technology like renewable energy sources, and

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Speaker 1: that is one end of the market, but there are

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Speaker 1: still parts of the emissions pie that need technology development

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Speaker 1: in order to meet them. We often refer to them

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Speaker 1: as hard to abate when we talk about them, but

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Speaker 1: it's those things as really complicated parts of things. Agriculture

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Speaker 1: is another one of them where there is a need

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Speaker 1: for technology development, And so why is this not blowing

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Speaker 1: up as big as you know, maybe I would naively

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Speaker 1: expect it to.

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Speaker 2: Yeah, So in terms of like is this the right

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Speaker 2: amount of money, or like are we going to see

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Speaker 2: it grow in future? We talked about a peek in

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Speaker 2: twenty twenty one. We're still much higher than we were

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Speaker 2: in like twenty nineteen, say, and it's still a huge

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Speaker 2: amount of money that's flowing into these companies. In terms

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Speaker 2: of if I could wave my magic wand and funnel

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Speaker 2: one hundred billion dollars into this sector every single quarter

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Speaker 2: for these harder to abate industries, I actually don't know

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Speaker 2: if that would really help us get to net zero

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Speaker 2: at all. Maybe a little bit. But the problem is

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Speaker 2: it's not venture capital, private equity, or people who invest

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Speaker 2: in IPOs. It's not their job to develop technology. And

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Speaker 2: even if they did develop the technology, if there's no

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Speaker 2: demand for the ultimate product, you're never going to be

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Speaker 2: able to bootstrap an industrial tech solution to like actually

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Speaker 2: solve the problem in the long run if people aren't

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Speaker 2: going to pay you, because there's market structures that exist

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Speaker 2: to kind of incentivize the adoption of technology. There's no

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Speaker 2: amount of venture money that can develop a product that's

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Speaker 2: going to solve climate change. And so so yeah, it's

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Speaker 2: just not the job of these financiers to do that,

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Speaker 2: and you need policy to support it. So for hard

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Speaker 2: to abate. We have some of that, particularly in the US.

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Speaker 2: The forty five V for hydrogen, the forty five Q

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Speaker 2: for carbon capture really really important and it's generating a

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Speaker 2: lot of demand for those products. Doesn't exist everywhere in

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Speaker 2: the world for things like agtech. My personal thing that

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Speaker 2: I always talking about is like, if you believe in

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Speaker 2: that we need something to decarbonize protein production like cows

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Speaker 2: and chicken, there's no support for any technology that would

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Speaker 2: decarbonize that value chain you think is something like lab

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Speaker 2: grown proteins. Not only is there no subsidies for it,

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Speaker 2: consumers don't want it, they think it's bad for their health.

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Speaker 2: So like it's on a totally different field. So I

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Speaker 2: we're so far away from venture investors needing to develop

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Speaker 2: the technology. Obviously, there are startups out there. Maybe they

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Speaker 2: will make some fundamental breakthrough that will change public perception

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Speaker 2: of it, but until that happens, I don't know that

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Speaker 2: there's going to be a huge uptick in funding for it.

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Speaker 1: So let's talk about some of the sectors very specifically.

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Speaker 1: And you had already addressed solar and the manufacturing over

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Speaker 1: capacity China and how that's really risen in India. We

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Speaker 1: often talk about batteries, but I actually want to pivot

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Speaker 1: to the clean fuel space because we hear a lot

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Speaker 1: about sustainable aviation fuels at the moment, and actually quite

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Speaker 1: recently at our summit in London, there was a panel

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Speaker 1: focused on this topic. So there were some things that

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Speaker 1: came out of that, and I want to know from you, Mark,

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Speaker 1: what is your view on well, given what you're seeing

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Speaker 1: in terms of investment in these sorts of companies, how

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Speaker 1: big of a deal is the clean fuel space?

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Speaker 2: So relative to equipment manufacturing and clean power development, it's

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Speaker 2: still small. Sound about maybe a billion dollars every half

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Speaker 2: year in the sector compared to like I'd say maybe

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Speaker 2: ten to twenty billion dollars for clean power specifically, So

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Speaker 2: it is small, but it's growing. It's one of the

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Speaker 2: areas that if you work at BNF you probably get

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Speaker 2: a lot of client inquiries about it, which I always

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Speaker 2: find is pretty funny. It's a nice leading indicator when

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Speaker 2: you get a lot of client inquiries about something. Biofuels

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Speaker 2: historically has been the biggest part of this sector, but

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Speaker 2: this year specifically, we've seen a lot of interest in

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Speaker 2: e fuels companies, which just to define it for maybe

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Speaker 2: some of listeners who don't know, E fuels are hydrocarbon

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Speaker 2: drop in fuels that have been derived from clean hydrogen

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Speaker 2: and a net zero source of CO two. So I

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Speaker 2: think the industry is I think it's controversial. I don't

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Speaker 2: know if everyone thinks it's controversial, and BNS to publish

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Speaker 2: research on this, so I encourage everyone to use the

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Speaker 2: platform and read this if they're interested in hearing more.

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Speaker 2: But e fuels over the long term are very, very

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Speaker 2: energy intensive, and I don't think they have a huge

437
00:20:33,440 --> 00:20:37,160
Speaker 2: chance of becoming cost competitive with just combusting fossil fuels

438
00:20:37,359 --> 00:20:40,280
Speaker 2: offset with direct air capture. People think, oh, direct air

439
00:20:40,320 --> 00:20:42,560
Speaker 2: capture is really expensive. How is that going to be competitive?

440
00:20:42,640 --> 00:20:44,560
Speaker 2: If an e fuel is net zero, the carbon has

441
00:20:44,600 --> 00:20:47,320
Speaker 2: to have come from something like direct air capture, and

442
00:20:47,359 --> 00:20:50,520
Speaker 2: so that's actually irrelevant to the point of the cost competitiveness.

443
00:20:50,520 --> 00:20:52,560
Speaker 2: We're going to be needing to capture carbon from somewhere,

444
00:20:52,600 --> 00:20:54,920
Speaker 2: But creating all the hydrogen that's needed for an e

445
00:20:55,000 --> 00:20:57,760
Speaker 2: fuel and then smashing it together in an electrolyizer with

446
00:20:57,880 --> 00:21:00,720
Speaker 2: CO two is really really energy intense of you lose

447
00:21:00,760 --> 00:21:02,600
Speaker 2: a lot of hydrogen in the process, so you need

448
00:21:02,640 --> 00:21:06,320
Speaker 2: a massive amount of electricity supply to actually create the

449
00:21:06,400 --> 00:21:10,160
Speaker 2: production side. So I think long term the serious competitiveness issues. Now,

450
00:21:10,200 --> 00:21:12,520
Speaker 2: speaking to people who operate in the market right now,

451
00:21:12,640 --> 00:21:15,399
Speaker 2: I'm sometimes a been too long term oriented. The reason

452
00:21:15,600 --> 00:21:17,240
Speaker 2: that we've seen a lot of amendument in the industry

453
00:21:17,359 --> 00:21:20,080
Speaker 2: is because there's a lot of strong policy that supports it.

454
00:21:20,119 --> 00:21:21,600
Speaker 2: So this goes back to the point I was saying earlier.

455
00:21:21,640 --> 00:21:24,280
Speaker 2: When there's policy to support demand for something, people will

456
00:21:24,400 --> 00:21:26,480
Speaker 2: kind of finance whatever they can and get their hands on.

457
00:21:26,680 --> 00:21:29,720
Speaker 2: Probably the strongest force in this industry right now is

458
00:21:30,000 --> 00:21:32,920
Speaker 2: the European Union has created a mandate for the use

459
00:21:32,960 --> 00:21:36,240
Speaker 2: of E sustainable aviation fuel in aircraft. It's not really

460
00:21:36,280 --> 00:21:39,000
Speaker 2: coming into force anytime soon, but people see, oh, in

461
00:21:39,000 --> 00:21:41,600
Speaker 2: ten years if I can. Airlines are starting to procure

462
00:21:41,640 --> 00:21:44,520
Speaker 2: some of it now, and I've spoken to startups who said, yeah,

463
00:21:44,560 --> 00:21:47,560
Speaker 2: it's like it's really expensive to make, but these mandates

464
00:21:47,560 --> 00:21:49,160
Speaker 2: mean that people will pay me a lot of money

465
00:21:49,200 --> 00:21:50,440
Speaker 2: to do it because there's not a lot of production

466
00:21:50,840 --> 00:21:52,879
Speaker 2: capacity right now. So some people I think might just

467
00:21:52,920 --> 00:21:55,280
Speaker 2: be doing it as a short term way to finance

468
00:21:55,600 --> 00:21:58,800
Speaker 2: other technology development. Others maybe have more long term ambitious skills.

469
00:21:58,880 --> 00:22:01,520
Speaker 2: But yeah, it's a pretty pretty exciting sector to be

470
00:22:01,560 --> 00:22:02,280
Speaker 2: tracking right now.

471
00:22:02,520 --> 00:22:05,240
Speaker 1: So just to be fair and balanced, Mark, as you've

472
00:22:05,440 --> 00:22:07,760
Speaker 1: been very clear on your stands on hydrogen and that

473
00:22:08,000 --> 00:22:10,920
Speaker 1: is a really popular topic here, do you think the

474
00:22:10,960 --> 00:22:13,639
Speaker 1: rest of our team would agree with your view on

475
00:22:13,760 --> 00:22:14,400
Speaker 1: e fiels?

476
00:22:14,800 --> 00:22:17,280
Speaker 2: So no, not every BNEF binalists would agree with my

477
00:22:17,359 --> 00:22:19,560
Speaker 2: perspective on e fuels. And I think one of the

478
00:22:19,640 --> 00:22:22,800
Speaker 2: more compelling counter arguments I have heard is that, oh,

479
00:22:22,960 --> 00:22:25,240
Speaker 2: it's cheap to produce fuel like the way we do

480
00:22:25,320 --> 00:22:28,239
Speaker 2: right now because of the portfolio of products that are

481
00:22:28,240 --> 00:22:30,800
Speaker 2: refinery creates. But if there's no longer any road fuel

482
00:22:30,880 --> 00:22:33,159
Speaker 2: to create, it would actually be very expensive to produce

483
00:22:33,320 --> 00:22:36,840
Speaker 2: just jet fuel, and so basically current refinery portfolios won't work.

484
00:22:36,880 --> 00:22:40,280
Speaker 2: And actually that makes economics relatively competitive for ethiels, so

485
00:22:40,480 --> 00:22:42,320
Speaker 2: it is still a little bit of an open question.

486
00:22:42,440 --> 00:22:44,960
Speaker 2: I'm sometimes a little bit hyperbolic in terms of the

487
00:22:45,400 --> 00:22:48,199
Speaker 2: way I phrase the lack of competitiveness. The reason I

488
00:22:48,240 --> 00:22:50,600
Speaker 2: talk about it, though, is because it is getting a

489
00:22:50,640 --> 00:22:54,160
Speaker 2: lot of policy support, and we can't just endlessly support

490
00:22:54,200 --> 00:22:56,560
Speaker 2: things with policy to try to get them off the ground,

491
00:22:56,680 --> 00:23:00,200
Speaker 2: because not everything. You can't just subsidize everything forever. Not

492
00:23:00,240 --> 00:23:02,159
Speaker 2: a huge amount of political support for doing that. So

493
00:23:02,160 --> 00:23:03,880
Speaker 2: we want to make sure we're subsizing the right things

494
00:23:03,920 --> 00:23:06,640
Speaker 2: and just actually sometimes we'll subsidize stuff in it won't work,

495
00:23:06,680 --> 00:23:09,040
Speaker 2: and that's fine, but we should constantly be asking ourselves

496
00:23:09,040 --> 00:23:12,280
Speaker 2: that about the things that we're trying to get off

497
00:23:12,280 --> 00:23:13,879
Speaker 2: the ground. And so that's why I always make this

498
00:23:13,920 --> 00:23:16,440
Speaker 2: point about it, you feels, because it's a complicated question.

499
00:23:16,640 --> 00:23:18,880
Speaker 1: So let's make a pivot to another technology that has

500
00:23:18,880 --> 00:23:21,320
Speaker 1: a critical role to play in renewables rollout. So we

501
00:23:21,400 --> 00:23:24,240
Speaker 1: often talk about the lcoees, so the levelized cost of

502
00:23:24,280 --> 00:23:27,679
Speaker 1: electricity for wind and solar and how incredibly low it is.

503
00:23:27,760 --> 00:23:30,840
Speaker 1: But then there's the intermittency question. It rears its head,

504
00:23:30,840 --> 00:23:35,240
Speaker 1: whether it's seasonal or hourly and energy storage is sitting

505
00:23:35,320 --> 00:23:37,959
Speaker 1: right there as something that we need to think about.

506
00:23:38,200 --> 00:23:41,920
Speaker 1: And you see that reflected in how battery technology has

507
00:23:41,960 --> 00:23:45,040
Speaker 1: been developed over the past few years. It's benefited vehicles,

508
00:23:45,040 --> 00:23:49,000
Speaker 1: but it's also benefited this intermittency aspect of renewables. So

509
00:23:49,200 --> 00:23:53,119
Speaker 1: energy storage is something that has been so incredibly important

510
00:23:53,160 --> 00:23:56,760
Speaker 1: to the energy transition. Is it reflected then in what

511
00:23:56,880 --> 00:23:57,600
Speaker 1: you're looking at.

512
00:23:57,760 --> 00:23:59,840
Speaker 2: Yeah, if you look at the data since twenty twenty two,

513
00:24:00,080 --> 00:24:03,560
Speaker 2: I think energy storage by itself is the biggest sector.

514
00:24:03,760 --> 00:24:07,159
Speaker 2: So it's bigger than transport, it's bigger than clean power,

515
00:24:07,280 --> 00:24:10,520
Speaker 2: both manufacturing and development. Most of it is for lithium batteries,

516
00:24:10,560 --> 00:24:12,919
Speaker 2: which are the biggest product by a mile. There's a

517
00:24:12,920 --> 00:24:15,720
Speaker 2: surprising amount for other types of batteries, so flow batteries,

518
00:24:15,760 --> 00:24:17,800
Speaker 2: thermal batteries, et cetera, and a lot of stuff m

519
00:24:17,840 --> 00:24:21,240
Speaker 2: battery recycling. I'd also say that most of the money

520
00:24:21,280 --> 00:24:24,240
Speaker 2: that's raised is to build products that don't go into

521
00:24:24,280 --> 00:24:26,520
Speaker 2: the grid, Like over ninety percent of batteries go into

522
00:24:26,560 --> 00:24:28,760
Speaker 2: cars right now, and even in a net zero scenario,

523
00:24:28,920 --> 00:24:30,720
Speaker 2: most of the batteries that we end up building go

524
00:24:30,800 --> 00:24:33,359
Speaker 2: into cars. And I'd also say that the impact of

525
00:24:33,400 --> 00:24:37,520
Speaker 2: the sector on decarbonization is lower for energy storage compared

526
00:24:37,520 --> 00:24:41,760
Speaker 2: to something like solar because manufacturing is so expensive for

527
00:24:41,800 --> 00:24:44,639
Speaker 2: lithium batteries, like the capital intensity of the equipment's bigger.

528
00:24:44,680 --> 00:24:46,240
Speaker 2: They're more expensive to make, and so you need to

529
00:24:46,280 --> 00:24:48,440
Speaker 2: raise more money to kind of get a factory off

530
00:24:48,440 --> 00:24:50,560
Speaker 2: the ground. And that's why the sector has been so big.

531
00:24:50,800 --> 00:24:54,360
Speaker 2: And this quarter, actually energy storage is down quite a lot.

532
00:24:54,440 --> 00:24:56,040
Speaker 2: The reason for that being kind of the same as

533
00:24:56,040 --> 00:24:57,880
Speaker 2: all the other equipment sectors is this is a huge

534
00:24:57,880 --> 00:25:01,640
Speaker 2: oversupply in terms of manufacturing capacity. One interesting point actually

535
00:25:01,720 --> 00:25:04,720
Speaker 2: is that like and this this probably applies across the

536
00:25:04,880 --> 00:25:09,520
Speaker 2: entire clean clean energy manufacturing sector is people think overcapacity

537
00:25:09,560 --> 00:25:12,080
Speaker 2: means you can't make money in sector. Not necessarily true.

538
00:25:12,240 --> 00:25:15,119
Speaker 2: C at L is a very big company. They control

539
00:25:15,160 --> 00:25:18,600
Speaker 2: a huge share of the entire battery market, and they

540
00:25:18,600 --> 00:25:22,280
Speaker 2: can make money manufacturing batteries. So most companies probably struggle

541
00:25:22,280 --> 00:25:24,199
Speaker 2: because it's a huge overcapacity. But the people who are

542
00:25:24,240 --> 00:25:26,480
Speaker 2: really good at it, they're the ones who are driving

543
00:25:26,520 --> 00:25:28,119
Speaker 2: a lot of the price trends, and so doesn't mean

544
00:25:28,119 --> 00:25:30,240
Speaker 2: no one's making money in the sector just because there's

545
00:25:30,280 --> 00:25:31,000
Speaker 2: over capacity.

546
00:25:31,359 --> 00:25:33,480
Speaker 1: So we talked a little bit about how there was

547
00:25:33,600 --> 00:25:36,960
Speaker 1: an increase in eyes, whether it's an ESG screen or

548
00:25:37,000 --> 00:25:39,720
Speaker 1: in new funds that were raised to really look at

549
00:25:39,720 --> 00:25:42,560
Speaker 1: some of the clean tech focused parts of the market,

550
00:25:42,600 --> 00:25:44,719
Speaker 1: and that give it gave it a bit of a boost. So,

551
00:25:44,960 --> 00:25:47,080
Speaker 1: if we're trying to think about what's going to happen

552
00:25:47,240 --> 00:25:50,120
Speaker 1: in the future and what equity funding for climate tech

553
00:25:50,200 --> 00:25:52,280
Speaker 1: is going to look like going forward, are you seeing

554
00:25:52,280 --> 00:25:54,719
Speaker 1: any signs that there are funds being raised and that

555
00:25:55,000 --> 00:26:00,560
Speaker 1: interest in this space is increasing or decreasing, or are flat.

556
00:26:00,960 --> 00:26:04,159
Speaker 2: And so I'm often asked to produce a forecast of

557
00:26:04,200 --> 00:26:07,199
Speaker 2: this number, which I always say is impossible because the

558
00:26:07,280 --> 00:26:10,600
Speaker 2: numbers are so lumpy. It's like one massive deal can

559
00:26:10,600 --> 00:26:13,159
Speaker 2: really change a quarter. So I can't say it's definitely

560
00:26:13,160 --> 00:26:14,960
Speaker 2: going to go up or down, but I can tell

561
00:26:14,960 --> 00:26:16,639
Speaker 2: you that one of the indicators that we look at

562
00:26:16,680 --> 00:26:19,320
Speaker 2: as a team internally is to check how many new

563
00:26:19,400 --> 00:26:22,920
Speaker 2: funds that are climate focused are closing every quarter. It's

564
00:26:22,960 --> 00:26:26,439
Speaker 2: not representative of the entire pool of capital available to

565
00:26:26,440 --> 00:26:29,360
Speaker 2: climate companies. There's lots of generic investors to invest, there's

566
00:26:29,359 --> 00:26:32,640
Speaker 2: lots of corporate venture funds to invest, But this kind

567
00:26:32,640 --> 00:26:35,199
Speaker 2: of metric of how many venture funds are closing. Climate

568
00:26:35,240 --> 00:26:37,560
Speaker 2: focused per quarter over the last few years is actually

569
00:26:37,560 --> 00:26:40,080
Speaker 2: reasonably flat. Some quarters it goes up by quite a

570
00:26:40,119 --> 00:26:42,280
Speaker 2: lot because there's a megafund, but there's not been a

571
00:26:42,359 --> 00:26:45,159
Speaker 2: huge drop off, So there's definitely still a lot of

572
00:26:45,200 --> 00:26:48,080
Speaker 2: capital and a lot of investors out there who are

573
00:26:48,320 --> 00:26:51,920
Speaker 2: dedicated to this vertical specifically, and so I don't see

574
00:26:51,920 --> 00:26:54,840
Speaker 2: it disappearing as a theme anytime in the next couple

575
00:26:54,880 --> 00:26:55,240
Speaker 2: of years.

576
00:26:55,400 --> 00:26:58,919
Speaker 1: It's about matching the right technologies with the right profitability

577
00:26:59,119 --> 00:27:02,520
Speaker 1: into the write investors hands. Well, Mark, thank you very

578
00:27:02,600 --> 00:27:05,040
Speaker 1: much for explaining all of these different trends and for

579
00:27:05,080 --> 00:27:05,960
Speaker 1: coming on the show today.

580
00:27:06,000 --> 00:27:06,800
Speaker 2: Thanks for having me.

581
00:27:15,560 --> 00:27:18,680
Speaker 1: Today's episode of Switched On was produced by Cam Gray

582
00:27:18,880 --> 00:27:22,560
Speaker 1: with production assistance from Kamala Shelling. Bloomberg NEIF is a

583
00:27:22,600 --> 00:27:25,720
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584
00:27:25,840 --> 00:27:28,520
Speaker 1: recording does not constitute, nor should it be construed as

585
00:27:28,560 --> 00:27:32,479
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586
00:27:32,480 --> 00:27:35,680
Speaker 1: investment or other strategy. Bloomberg ANIF should not be considered

587
00:27:35,720 --> 00:27:39,040
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588
00:27:39,119 --> 00:27:42,120
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589
00:27:42,119 --> 00:27:45,880
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