Speaker 1: This is Dana Perkins and you're listening to Switched on
Speaker 1: the bn EF podcast. Every year, BNF releases its Energy
Speaker 1: Transition Investment Trends Report, which is our definitive resource on
Speaker 1: global investment in the low carbon energy transition and the
Speaker 1: sectors that are central to it. Since twenty fourteen, when
Speaker 1: b and EF tracked three hundred and thirteen billion in
Speaker 1: transition investment volumes, we have seen continuous and rapid annual
Speaker 1: growth that broke through the one trillion dollar mark in
Speaker 1: twenty twenty one and reached a record one point five
Speaker 1: trillion in twenty twenty two. So how about twenty twenty three,
Speaker 1: will it be another record year for energy transition investment
Speaker 1: and which sectors saw the greatest growth and perhaps declines.
Speaker 1: To discuss the findings for the Energy Transition Investment Trends
Speaker 1: Report today, I am joined by BNF's Deputy CEO, Albert
Speaker 1: Chung and the head of Technology and Innovation Mark Daily. Together,
Speaker 1: we look at which sectors received the largest volumes of
Speaker 1: investment in twenty twenty three and whether the renw global
Speaker 1: energy industry, which has historically been the main driver, was
Speaker 1: able to hold off electric vehicles at the top of
Speaker 1: the table, we also review global clean tech supply chain
Speaker 1: investment and following booms in protection capacity, we want to
Speaker 1: know whether they've already achieved the investment required to meet
Speaker 1: twenty thirty net zero targets for battery and solar factories.
Speaker 1: And finally, we review if climate tech equity financing rebounded
Speaker 1: last year following declines in twenty twenty two, and for
Speaker 1: the first time, we review a new category debt issuance
Speaker 1: for the energy transition. To access the Energy Transition Investment
Speaker 1: Trends report, B andF subscribers can find it on BENF
Speaker 1: dot com or at benfgo on the Bloomberg terminal. If
Speaker 1: you like this podcast, make sure to subscribe, and if
Speaker 1: you want to make it discoverable by other people, give
Speaker 1: us a review on Apple Podcasts or Spotify. But right now,
Speaker 1: let's hear from Albert and Mark about the Energy transition
Speaker 1: investment trends for twenty twenty three. Mark, thank you for
Speaker 1: joining today.
Speaker 2: Thank you very much, lovely to be here.
Speaker 1: Dana and Albert, thank you for coming back on the show.
Speaker 3: Thanks for having me.
Speaker 1: So we're here talking about the energy transition investment trends
Speaker 1: for this previous year. And the first thing I really
Speaker 1: want to know is what question were we trying to
Speaker 1: answer when we look at energy Transition Investment trends? What
Speaker 1: are you hoping to find when putting that data together
Speaker 1: and having a moment to kind of take a step
Speaker 1: back and give it an annual refresh.
Speaker 3: So, Energy Transition Investment Trends is this report we do
Speaker 3: every year. We've done it every year since I've been
Speaker 3: at the firm, which is fifteen years, and the data
Speaker 3: goes back twenty years. And the question we're trying to
Speaker 3: answer is where is the money flowing in the low
Speaker 3: carbon transition? And you know, we've always had this philosophy
Speaker 3: at New Energy Finance back in the day and BNF
Speaker 3: over the last decade at a bit that if you
Speaker 3: follow the money, it tells you a lot about where
Speaker 3: the opportunities are, It tells you where the interest is,
Speaker 3: it tells you where the action is, and also tells
Speaker 3: you whether you're going fast enough. And that's we exploring
Speaker 3: the report as well.
Speaker 1: So investment is a broad term. Can you define what
Speaker 1: exactly we're looking at when we're following the money?
Speaker 2: Yeah?
Speaker 3: Sure. So in the report we track four different types
Speaker 3: of funding flows. The biggest category is what we call
Speaker 3: energy transition investment, and that's money being spent to deploy
Speaker 3: clean technology and infrastructure, so renewable energy plant, electric vehicles,
Speaker 3: and so on. Then we have clean energy supply chain investment,
Speaker 3: and that is money being spent to build factories for
Speaker 3: wind and solar equipment, hydrogen electrialized as batteries, and also
Speaker 3: mines and refineries for battery metals. So that's category two.
Speaker 3: Category three is climate tech equity raising or equity finance,
Speaker 3: and that's new equity being raised by companies in the
Speaker 3: climate and energy transition space. And then finally, the fourth area,
Speaker 3: which is new this year we haven't done before, is
Speaker 3: debt issuance for the energy transition. So that's debt being
Speaker 3: raised by companies and by governments for energy transition purposes
Speaker 3: to fund operations in clean energy or to fund investment
Speaker 3: into clean energy projects.
Speaker 1: What was the reason to add debt, It was really.
Speaker 3: The missing piece of the puzzle. The first two categories
Speaker 3: are you know, think about the energy transition investment and
Speaker 3: the clean and just supply chain investment. Those are kind
Speaker 3: of real assets being built on the ground. And the
Speaker 3: last two debt and equity are how is the money
Speaker 3: being raised to fund those things? And so we always
Speaker 3: had the equity piece, We've had that for many years,
Speaker 3: and we just wanted to add in the debt piece
Speaker 3: to really round out the whole picture.
Speaker 1: So if we're not talking about emissions in whether or
Speaker 1: not we're going at the rate of change that is
Speaker 1: required to achieve certain outcome, we're really thinking about how
Speaker 1: much money is going and how it compares to previous years.
Speaker 1: So if we're looking at this volume of money in
Speaker 1: many years in absolute terms, these are new records being set.
Speaker 1: So if we're comparing twenty twenty three to other years,
Speaker 1: would you consider it to be a good year in
Speaker 1: terms of overall investment? And I guess we can break
Speaker 1: it down into some of the different areas that you're
Speaker 1: specifically looking at.
Speaker 3: Yeah, definitely, So just looking at the energy transition investment piece,
Speaker 3: deployment of clean tech, deployment clean infrastructure. It's a really
Speaker 3: good news story. We saw one point eight trillion dollars
Speaker 3: invested in twenty twenty three. That one point eight trillion
Speaker 3: is really the headline number that we that we lead with,
Speaker 3: So if you're listening, remember that that's the number that matters.
Speaker 3: That one point eight trillion dollars is up seventeen percent
Speaker 3: since the year before, since twenty twenty two. It's almost
Speaker 3: doubled since twenty twenty which is only three years ago.
Speaker 3: So you know, it gives you an idea of the
Speaker 3: pace of change in the energy transition. And that one
Speaker 3: point it trillion is not only a record year in
Speaker 3: twenty twenty three, but it's the tenth record year in
Speaker 3: a row. So again that gives you something of an
Speaker 3: idea of the size and scale and momentum of the
Speaker 3: opportunities in the energy transition. I can say a bit
Speaker 3: about the individual sectors because within that one point eight trillion,
Speaker 3: there are ten different sectors that we track. I'm not
Speaker 3: going to talk about all of them, but the largest
Speaker 3: this year is electrified transport, and that's all of your
Speaker 3: sales of evs including two and three wheelers, cars, buses, trucks,
Speaker 3: the associated charging infrastructure for all of those as well,
Speaker 3: and a small amount of hydrogen fuel cell vehicles as
Speaker 3: well in there. That's now six hundred and thirty four billion,
Speaker 3: so it's like a third of the total energy transition spending.
Speaker 3: It jumped thirty six percent last year, which is really great.
Speaker 3: I mean, shows how fast the EV transition is going,
Speaker 3: and it overtook renewable energy. For years and years, as
Speaker 3: long as we've been doing this, renewable energy was the
Speaker 3: largest sector. Transport is now the largest sector, and I
Speaker 3: think that was really interesting. But renewable energy also had
Speaker 3: a good year. Renewbal energy is up eight percent this year.
Speaker 3: It's now I think six or twenty three billion, to
Speaker 3: be exact. And one of the kind of underreported stories
Speaker 3: within the data is that the wind sector actually had
Speaker 3: a record year of investment in twenty twenty three. Despite
Speaker 3: everything we saw around project cancelations of us offshoal wind projects,
Speaker 3: failed auctions here and there, actually the wind sector had
Speaker 3: a great year, new projects reaching final investment decisions. So
Speaker 3: really great to see that.
Speaker 2: Can I also add a point. I think the headline
Speaker 2: dollar investment numbers always paint a really positive picture. They've
Speaker 2: been increasing for so many years, But in all of
Speaker 2: these different sectors, the costs of all these assets are
Speaker 2: actually declining at the same time, so investments up every year.
Speaker 2: But that's actually each individual dollar is deploying more and
Speaker 2: more assets every year.
Speaker 3: And actually, you know, one of the other really interesting
Speaker 3: stories is that we're starting to see some of the
Speaker 3: smaller sectors start to scale up. So I'm talking about
Speaker 3: areas like hydrogen and carbon capture, which historically have been
Speaker 3: pretty small parts of this. This total hydrogen investment tripled
Speaker 3: last year to ten billion ccs investment nearly doubled, it's
Speaker 3: now eleven billion dollars, and energy storajet is now thirty
Speaker 3: six billion dollars grew seventy six percent last year. So
Speaker 3: if you look at the charts and the report, which
Speaker 3: I encourage you to do, there's a free version of
Speaker 3: a bridge version of the report you can find or
Speaker 3: or for clients, you can find it on the BNF platform.
Speaker 3: You know, some of these slivers are actually a bit
Speaker 3: too small to see because the renewables and electric vehicles
Speaker 3: and power grades are so big, but they're growing really quickly,
Speaker 3: hydrogen ccas doubling, tripling, and I think that's really encouraging
Speaker 3: for where we need to get to by twenty thirty
Speaker 3: in terms of commercializing those technologies.
Speaker 1: Now Geographically, one of the markets that's adapting things like
Speaker 1: electric vehicles and renewable energy at real scale is China,
Speaker 1: and you really can't understand the energy transition story without
Speaker 1: really taking a closer look at China. So let's do
Speaker 1: that right now. First of all, what is the role
Speaker 1: of China. What is the magnitude of their investment versus
Speaker 1: the rest of the world.
Speaker 3: So China is thirty eight percent of the energy transition
Speaker 3: investment total this year, so thirty eight percent by far
Speaker 3: the largest market, and that's because as a region, as
Speaker 3: a strategy, China has said, we want to be the
Speaker 3: leaders in renewable energy technology, when we want to be
Speaker 3: the leaders in electric vehicle technology, and there's been just
Speaker 3: very consistent support over many years to grow those industries,
Speaker 3: and so China's streets ahead of everybody else. So just
Speaker 3: to maybe talk a bit about how the ranking looks
Speaker 3: in terms of other countries, the US is in second place,
Speaker 3: and the US invested about three hundred billion dollars versus
Speaker 3: China's six hundred and seventy six billion dollars in twenty
Speaker 3: twenty three, So that sounds like a big gap. The
Speaker 3: US is less than half of China, but that gap
Speaker 3: has actually closed a little bit over the last year
Speaker 3: because we're starting to see the effects of the inflation
Speaker 3: reduction act, and so the US is kind of in
Speaker 3: catch up mode, which is kind of nice to see.
Speaker 3: And then the rest of the top ten. If you
Speaker 3: go down the list, you have Germany, UK, France, and a
Speaker 3: number of European countries. You've also got Brazil in there,
Speaker 3: You've got India in there, You've got Japan as well,
Speaker 3: and the EU. So if you take the European Union
Speaker 3: as a block of twenty seven, the EU invested three
Speaker 3: hundred and forty one billion dollars in twenty twenty three,
Speaker 3: which is a little bit ahead of the US and
Speaker 3: still quite far behind China. But I think what was
Speaker 3: really nice to see or interesting to see over the
Speaker 3: last year was that the EU, the US and UK
Speaker 3: are really starting to grow now. And between those three
Speaker 3: blocks they actually accounted for most of the growth that
Speaker 3: we saw last year. And together Europe, US and UK
Speaker 3: invested more than China did in twenty twenty three, which
Speaker 3: they hadn't done in twenty twenty two. So it gives
Speaker 3: you an idea of where the momentum is globally in
Speaker 3: the transition as well.
Speaker 2: Another interesting way to look at the data is these
Speaker 2: numbers are so big, it's it's one point eight trillion.
Speaker 2: What does that actually mean in real terms? One way
Speaker 2: that we think about this to put it in context
Speaker 2: is what percentage is this spending by market as a
Speaker 2: share of its total GDP. This actually changes the order
Speaker 2: of the ranking quite a bit. China is still the
Speaker 2: largest market as a percentage of GDP by quite a
Speaker 2: large margin, spends about three point eight percent of its
Speaker 2: GDP on energy transition. The next best market by this
Speaker 2: metric is actually the UK a two point two percent,
Speaker 2: followed by a string of other large European economies which
Speaker 2: also are around two percent. The US, despite being the
Speaker 2: second largest market, actually spends only one point one percent
Speaker 2: of its GDP on the energy transition, and this is
Speaker 2: well below the global average of one point seven percent.
Speaker 2: So looking at it from that perspective, just pus these
Speaker 2: numbers in context. And what other useful said is actually
Speaker 2: to consider this compared to another large government expenditure defense.
Speaker 2: NATO recommends that governments spend about two percent of their
Speaker 2: GDP on defense.
Speaker 1: In the US, the Inflation Reduction Act is just starting
Speaker 1: to really get steam, right because so much of investment
Speaker 1: in these assets takes time to actually get off the ground.
Speaker 1: As the Inflation Reduction Act gets underway. Do you expect
Speaker 1: that that ratio for the US change or that percentage
Speaker 1: in the US will change, or is it just such
Speaker 1: a big economy in terms of GDP that we're already
Speaker 1: seeing what we expect to see in the yearhead. I'm
Speaker 1: almost asking you to predict what you think will happen
Speaker 1: next year now, which is a bit unfair, but you know,
Speaker 1: what are your views on the Inflation Reduction Act and
Speaker 1: whether we expect to see a lot of additional growth.
Speaker 2: Yeah, I would imagine that we will absolutely see growth
Speaker 2: in the United States. A lot of the subsidies and
Speaker 2: rules that have been deployed in the Inflation Reduction Act,
Speaker 2: the actual specific rules about how they'll be applied to
Speaker 2: projects haven't been determined yet, and so final investment, to say,
Speaker 2: is waiting to happen. And these projects won't even be
Speaker 2: built until years after the final investment decision takes place,
Speaker 2: So we'll be seeing the effect of the Inflation Reduction
Speaker 2: Act for years in these numbers.
Speaker 1: So one of the things we take a look at
Speaker 1: at BNF are these energy supply banking ratios, and what
Speaker 1: we're trying to understand there is actually how much money
Speaker 1: is being invested in fossil fuels versus cleaner technology, low
Speaker 1: carbon technology, and really actually trying to set a framework
Speaker 1: for how much really needs to go into one versus
Speaker 1: the other in order for us to be paras aligned
Speaker 1: and looking at emissions. What do the energy investment trends
Speaker 1: tell us in light of this, How does it align
Speaker 1: with the work that we've already done on the different
Speaker 1: ratios that we need to see, which we know need
Speaker 1: within this current decade needs to be four dollars spent
Speaker 1: on low carbon technology for every one dollar spent on
Speaker 1: fossil fuels.
Speaker 2: Yeah, exactly.
Speaker 3: So, Danny, you're talking about some work we did over
Speaker 3: the last couple of years looking at paras aligned climate
Speaker 3: scenarios and what investment is required to achieve those scenarios.
Speaker 3: And there's a lot of variation, but we find in
Speaker 3: general that during the course of this decade, we need
Speaker 3: to be investing four times as much in clean energy
Speaker 3: supply as in fossil energy supply. So this Energy Transition
Speaker 3: Investment trans Report shines a light on like where is
Speaker 3: the money actually flowing? An arely on track for that
Speaker 3: four to one during this decade? So the answer is,
Speaker 3: we're not on track, but there are some interesting trends
Speaker 3: in here. So let me let me kind of unpick it.
Speaker 3: That one point eight trillion dollars of investment into energy transition.
Speaker 3: Investment includes both supply side and demand side. On the
Speaker 3: supply side, there's about a trillion dollars going into things
Speaker 3: like renewables and nuclear and hydrogen, so it's kind of
Speaker 3: energy supplying technologies. But the rest of it, about seven
Speaker 3: hundred and fifty billion dollars, is energy consuming technologies like
Speaker 3: electric vehicles, electric heat pumps, electric arc furnaces, to make steel,
Speaker 3: things like that that you wouldn't consider to be on
Speaker 3: the energy supply side. So first you have to unpack that. Now,
Speaker 3: if you take the total, the one point eight trillion dollars,
Speaker 3: that's far above what's currently invested into fossil fuel supply.
Speaker 3: Fossil fuel supply investment is only about one point one
Speaker 3: trillion dollars at the moment. That includes exploration and production
Speaker 3: for oil and gas, coal mining, and also uninmbated fossil
Speaker 3: fuel power generation. It's one point one trillion, But that
Speaker 3: one point one trillion fossil is more than the supply
Speaker 3: piece of the one point eight. So the supply piece
Speaker 3: of the one point eight is only one point zero trillion.
Speaker 3: So that's a long, long winded way of saying, if
Speaker 3: you just take the supply of clean energy and supply
Speaker 3: of fossil fuel energy, we think fossil fuel energy is
Speaker 3: slightly ahead. It's still slightly ahead, about seven percent ahead
Speaker 3: of clean energy supply, and that's obviously not where we
Speaker 3: need to get to when we're thinking about a four
Speaker 3: to one ratio.
Speaker 1: Since we're now here talking about one point five degrees,
Speaker 1: what do we need to do? What sort of investment
Speaker 1: do we need to see in order for it to
Speaker 1: be aligned to that emission scenario.
Speaker 3: So in the report, we look at our own net
Speaker 3: zero scenario, which is a parasaligine scenario in which the
Speaker 3: world achieves net zero by mid century. And in that scenario,
Speaker 3: the required levels of energy transition investment over the course
Speaker 3: of the rest of this decade is about four point
Speaker 3: eight trillion dollars per year. So from twenty twenty four
Speaker 3: to twenty thirty, an average of four point eight trillion
Speaker 3: dollars per year, that's almost three times the one point
Speaker 3: eight trillion dollars we saw invested in reality last year.
Speaker 3: So we're talking about an overnight rapid acceleration of energy
Speaker 3: transition investment. But remember we've seen a doubling over the
Speaker 3: last three years, so we're not standing still. And this
Speaker 3: time next year, are we going to be at four
Speaker 3: point eight? No, we're not. But I'm not going to
Speaker 3: be telling you that it needs to triple. That gap is.
Speaker 3: I'm sure it's going to get smaller and smaller. So
Speaker 3: I think whenever I present these numbers, this tripling that's required,
Speaker 3: people always go, oh my god, that's incredible. But you know,
Speaker 3: when you sit in this industry long enough, you see
Speaker 3: doublings happening, you see triplings happening, and it does leave
Speaker 3: you with a sense of you know, we can climb
Speaker 3: this mountain. It can be done.
Speaker 2: It's also worth noting that while certain markets are further
Speaker 2: ahead in terms of their energy transition spending, I don't
Speaker 2: think there's a single one of the G ten markets
Speaker 2: that are actually on track. The fact that China is
Speaker 2: spending more money, it actually needs to spend even more
Speaker 2: than regions in Europe to get on track for net zero.
Speaker 2: So basically everywhere can be doing more to get on track.
Speaker 1: On this show and actually for everybody over the last
Speaker 1: few years, I think people have been giving a lot
Speaker 1: of thought to supply chains, how things get where they
Speaker 1: need to be. How are we going to get all
Speaker 1: of this clean energy equipment in place in order for
Speaker 1: us to create these infrastructure investments. So where is the
Speaker 1: clean energy supply chain investment being invested into or actually
Speaker 1: is it being invested into enough in order to facilitate
Speaker 1: the magnitude of change that we're talking about.
Speaker 3: Thanks Dennis. So that brings us to the second part
Speaker 3: of the report, which is all around this question of
Speaker 3: clean energy supply chain investment. Let me just talk a
Speaker 3: bit about the overall numbers that we're seeing and maybe
Speaker 3: we can move on to is it enough, which is
Speaker 3: a really interesting question in its own right. So within
Speaker 3: the clean energy supply chain investment piece of this report,
Speaker 3: we're looking at factories across the supply chains of the
Speaker 3: battery sector, the solar sector, the wind sector, the hydrogen sector,
Speaker 3: you know, across all those value chains, plus also the
Speaker 3: mining and refining of key battery metal, so that's lithium, cobalt,
Speaker 3: and nickel specifically. So that's the scope of what we're
Speaker 3: looking at. There are some other parts of the energy
Speaker 3: transition that are are going to be important that we're
Speaker 3: not quite including just yet, things like copper and steel.
Speaker 3: But these are the really kind of central core pieces
Speaker 3: of equipment that we need to scale up for the
Speaker 3: energy transition. The good news is it scaling up. So
Speaker 3: from twenty twenty to twenty twenty three we saw an
Speaker 3: increase in investment from forty six billion dollars to one
Speaker 3: hundred and thirty five billion dollars, so almost a tripling
Speaker 3: of investment over the last few years into all of
Speaker 3: those pieces of factories in mining and refining that are needed.
Speaker 3: And because we have a slightly different methodology for this
Speaker 3: piece of the report, we're actually tracking expected factory commissionings
Speaker 3: and mine mind commissionings, and you can actually see a
Speaker 3: little bit more into the future for these assets. We
Speaker 3: can see what's going to happen over the next couple
Speaker 3: of years. So from one hundred and thirty five billion
Speaker 3: dollars invested in twenty twenty three, we actually expect that
Speaker 3: to reach two hundred and fifty billion dollars by twenty
Speaker 3: twenty five, which is about a two thirds increase again
Speaker 3: from what we saw last year. So the answer is
Speaker 3: it's really healthy. We're seeing really good investment into the
Speaker 3: global clean energy supply chains. And just to kind of
Speaker 3: illuminate a little bit what the main drivers are. In
Speaker 3: any given year, about eighty or ninety percent of that
Speaker 3: investment is going either into battery factories or solar factories.
Speaker 3: So batteries and solar are the vast, vast majority of that,
Speaker 3: and that's just the sheer production capacity needed to supply
Speaker 3: those very rapidly growing industries. Then hydrogen and wind make
Speaker 3: up a very small sliver, and then there's about ten
Speaker 3: to twenty percent depending on the year, that goes into
Speaker 3: the battery metals piece. So that's just kind of how
Speaker 3: to understand. It's not right or wrong, but that's just
Speaker 3: what we're seeing in terms of the investment trends.
Speaker 2: At the moment.
Speaker 1: Historically, we've seen China be a really dominant player with
Speaker 1: batteries and solar, which you point out, and you're highlighting
Speaker 1: that there's a lot of money going into supply chain
Speaker 1: specifically for these two industries. Is that a sign that
Speaker 1: we are actually seeing a bit of a pivot because
Speaker 1: one of the things that we have noticed since been
Speaker 1: brought up on this show a few times, is that
Speaker 1: supply chains are changing. There is more near shoring and
Speaker 1: on shoring, and different parts of the world are thinking
Speaker 1: about not only investing in a clean energy future, but
Speaker 1: actually thinking about how they're going to manufacture it closer
Speaker 1: to home and in some cases actually also create jobs
Speaker 1: through that. Is that having a influence on the amount
Speaker 1: of money that you're seeing going into the supply chain investment,
Speaker 1: specifically calling out batteries and solar, but really for all
Speaker 1: of the industries that we took a look at, Yeah.
Speaker 3: The picture is going to start to change now. So
Speaker 3: if you just look at the factory investment into clean
Speaker 3: energy equipment factories over the last few years, more than
Speaker 3: ninety percent of the new capacity and the new investment
Speaker 3: has been happening in mainland China. And I don't think
Speaker 3: that comes as so much of a surprise for those
Speaker 3: of us in the industry because we know that mainland
Speaker 3: China is supplying most of the solar modules and battery
Speaker 3: sales that we're using around the world. But we can
Speaker 3: see in the data, and again because of the way
Speaker 3: we do the factory investment, we can see the next
Speaker 3: couple of years and what you'll see if you take
Speaker 3: a look in the report is that by twenty twenty five,
Speaker 3: suddenly a little bit more than a third of the
Speaker 3: investment is suddenly going to other regions that are on
Speaker 3: mainland China, especially Europe and the US, and so there
Speaker 3: in the data you can see very clearly the impact
Speaker 3: of the Inflation Reduction Act, the Net Zero Industry Act,
Speaker 3: and so on. Now, I think what's important to keep
Speaker 3: an eye on here is, yes, it's great that there's investment.
Speaker 3: That's great that there's supply chain diversification. I think that
Speaker 3: leads to a more resilient industry. But this is happening
Speaker 3: at the same time as we're experiencing oversupply in the
Speaker 3: solar industry and oversupply in the battery industry as well,
Speaker 3: and that's why both of those technologies have become very
Speaker 3: very cheap over the last six to nine months, and
Speaker 3: so we're seeing this potential for overinvestment. Actually, these new
Speaker 3: factories will come online, they're coming The question is which
Speaker 3: ones are really going to be successful, which ones are
Speaker 3: really going to be competitive in an environment where we
Speaker 3: have an over supply situation, And that's something we're going
Speaker 3: to be keeping an eye.
Speaker 2: On It's also interesting because the newest factories tend to
Speaker 2: be the ones that can produce at the lowest cost,
Speaker 2: so there's no real market incentive for you not to
Speaker 2: build the newest factory. It's more of an industry problem.
Speaker 1: Is this investment volume then in supply chains going to well,
Speaker 1: first of all, accelerate the amount of projects we're actually
Speaker 1: going to end up seeing, and is it net zero aligned?
Speaker 1: Are we going to see the emissions reductions associated with it?
Speaker 1: Is it enough?
Speaker 2: Yeah?
Speaker 3: Great question. So we do the same analysis for the
Speaker 3: Cleange supply chain investment where we compare it to what's
Speaker 3: needed to get on track for net zero in aggregate.
Speaker 3: If you take the one hundred and thirty five billion dollars,
Speaker 3: it's enough, Like if we maintain that level of spending
Speaker 3: for the next few years, we'll have enough factories and
Speaker 3: minds to supply the equipment needed for net zero, which
Speaker 3: is a great I mean, that's a really nice story.
Speaker 3: We're not talking about needing to triple it as we
Speaker 3: are with the energy transition investment, so that's fantastic. But
Speaker 3: if you dig a little bit deeper, it's actually more
Speaker 3: nuanced than that. So if you just take solar for example,
Speaker 3: we actually don't need any more solar factories at all.
Speaker 3: That we could invest zero for the next few years
Speaker 3: in solar manufacturing and we'd be okay for that zero.
Speaker 3: That's the extent of the capacity that we've already.
Speaker 1: Built globally, including chain.
Speaker 3: Yeah, globally, But to Mark's earlier point, that's not what's
Speaker 3: going to happen because these industries they want to build
Speaker 3: the latest factory with the best equipment to produce the
Speaker 3: next module that has greater efficiency and lower cost per
Speaker 3: water and so on. So actually you are going to
Speaker 3: see more investment and it's going to drive older factories
Speaker 3: out of the story. If you look at other sectors
Speaker 3: like wind for example, So wind is kind of the
Speaker 3: opposite story. We need to see more investment into wind
Speaker 3: supply chain, and that need is actually quite stark, so
Speaker 3: we need to see real rapid increases there. On hydrogen,
Speaker 3: it again it's slightly a different story that looks like
Speaker 3: there's enough for a couple of years, but then it
Speaker 3: needs to ramp up from kind of twenty twenty six onwards.
Speaker 3: And then finally on battery metals, there's been this really
Speaker 3: interesting kind of ce sort effect because a few years
Speaker 3: ago everybody was worried about undersupply and battery metal prices
Speaker 3: went through the roof. The industry reacted. Now there's a
Speaker 3: load of new investment that's come into battery metal supply,
Speaker 3: there's prices coming down again, and so we actually look
Speaker 3: like we've got enough for the next couple of years.
Speaker 3: But then likely in three or four or five years time,
Speaker 3: that's going to turn around again and we're going to
Speaker 3: need more investment again. So the picture is a little
Speaker 3: bit more nuanced than that. But when I look at
Speaker 3: the aggregate data, it does seem like these industries are
Speaker 3: responsive to market signals. When there's demand, the supply comes through,
Speaker 3: and so I don't feel that worried about this kind
Speaker 3: of supply side picture.
Speaker 1: So, Mark, one of the things you spent a lot
Speaker 1: of time thinking about and brought to this report was
Speaker 1: your focus on climate tech equity fundraising. In twenty twenty two,
Speaker 1: we saw declines in climate tech equity financing, and what
Speaker 1: I I want to better understand is whether or not
Speaker 1: this improved and rebounded in twenty twenty three.
Speaker 2: Yeah, So this portion of the report is designed to
Speaker 2: see which companies in the world are actually raising financing
Speaker 2: in order to drive the energy transition. So it's more
Speaker 2: about who's raising money and what type of money they're raising,
Speaker 2: rather than what the money itself is being spent on.
Speaker 2: And it's kind of a funny story to write when
Speaker 2: you look at the first half of this report, where
Speaker 2: investment just keeps going up and up and up, and
Speaker 2: for two years in a row now we've actually said
Speaker 2: that equity financing of climate tech companies is going down.
Speaker 2: So last year we saw a twenty four percent drop
Speaker 2: to one hundred and twenty seven billion dollars, and this
Speaker 2: year we saw an even bigger thirty four percent drop
Speaker 2: to about eighty four billion dollars. So how do you
Speaker 2: square this story with what Albertsman speaking about for the
Speaker 2: first half of this podcast. Well, the reality is is
Speaker 2: that while investment keeps going up and these industries are
Speaker 2: pretty resilient because their cost competitive, the public market valuations
Speaker 2: of clean energy companies has seen a real hit this year.
Speaker 2: So the clean energy industries, they're very focused on the future.
Speaker 2: There's a lot of growth, and when interest rates go up,
Speaker 2: this means that a lot of their future revenues and
Speaker 2: future profits are being discounted at much higher rates, so
Speaker 2: you'll see that compared to the Standard and Poores Index
Speaker 2: or the NASDAK Clean Energy indexes could be down fifty
Speaker 2: or sixty percent compared to being flat over the last
Speaker 2: two years. So, yes, the industries are strong, but that
Speaker 2: doesn't necessarily translate to valuations in public markets. And when
Speaker 2: valuations in public markets decline, companies are less willing to
Speaker 2: go through IPOs, and that was really the main driver
Speaker 2: of the big drop in funding this year. It was
Speaker 2: funding raised through IPOs and reverse mergers. There's a whole
Speaker 2: other story about why people have stopped doing reverse mergers,
Speaker 2: but the bottom line is that there's less money being
Speaker 2: put into companies.
Speaker 3: There's a bit of an irony sometimes in the clean
Speaker 3: energy industry where at the times when the transition is
Speaker 3: really accelerating and going quickly, it's often because the technology
Speaker 3: costs are coming down really really quickly, and often that's
Speaker 3: because the competitive environment is really aggressive. Certainly at points
Speaker 3: in history where you've seen both the energy transition starting
Speaker 3: so quickly because the costs are coming down, but companies
Speaker 3: hurting because they're competing each other and killing each other
Speaker 3: on cost and that hurts the equity evaluations. I think
Speaker 3: that's probably partly what we saw last year as well.
Speaker 1: Coming back to China, it has a big influence on
Speaker 1: public financing in this space, what happened in twenty twenty
Speaker 1: three when it came to IPOs in China.
Speaker 2: So yeah, we track funding by market obviously, and Mainland China,
Speaker 2: like the rest of the report, is actually the biggest market.
Speaker 2: Its lead is a little bit less so than compared
Speaker 2: with other parts of the report. It raised about twenty
Speaker 2: five billion dollars this year compared to twenty one for
Speaker 2: the US, the second largest market. The China market's pretty
Speaker 2: unique in that it's the only one where the majority
Speaker 2: of funding comes from public markets rather than venture capital
Speaker 2: and private equity investors. And the real interesting story this
Speaker 2: year was that its lead actually shrunk. What's happening with
Speaker 2: funding in mainland China is that almost all of it
Speaker 2: is really really big rounds and think like three hundred
Speaker 2: million dollars plus raised by manufacturers. So we spent that
Speaker 2: whole five ten minutes talking about manufacturing and the story
Speaker 2: about over opacity, particularly in China. This has really affected
Speaker 2: the equity fundraising and we're actually hearing that there's going
Speaker 2: to be a push to stop companies raising as much
Speaker 2: money to build new solar and battery capacity to deal
Speaker 2: with this industry issue of oversupply.
Speaker 1: The Double Eyes feature on the show pretty regularly inflation
Speaker 1: and interest rates. How much of an impact do you
Speaker 1: think that actually had on the markets and how did
Speaker 1: clean tech perform in light of that?
Speaker 2: Yeah, so last year we actually we said that climate
Speaker 2: tech was a more resilient category in terms of deals
Speaker 2: happening than the broader market. So we compared all the
Speaker 2: IPOs and secretary equity offerings happening in the entire economy
Speaker 2: to what happened in climate and it was more resilient.
Speaker 2: This year, it was the opposite story. So over the
Speaker 2: course of last year is basically the climate tech industry
Speaker 2: has been brought into line with where the rest of
Speaker 2: the economy is.
Speaker 1: So the newcomer to this report is debt, and we
Speaker 1: know that debt is an incredibly important part of all
Speaker 1: of the projects that we look at and clean energy financing.
Speaker 1: Tell us a little bit about the highlights that we
Speaker 1: found when we ventured into adding debt to this report
Speaker 1: for the first time in fifteen years.
Speaker 2: Yeah, So the absolute value of money that's being raised
Speaker 2: through debt is unsurprisingly a lot more than it's being
Speaker 2: raised through equity. So we tracked about eight hundred and
Speaker 2: twenty four billion dollars this year in debt issuance for
Speaker 2: the energy transition, and the corporate debt market globally is
Speaker 2: seventeen point one trillion, so that's a pretty big share
Speaker 2: of it actually, to be honest, when we think about trends,
Speaker 2: is going up as it down, and obviously the equity
Speaker 2: market was down quite a lot this year. The debt
Speaker 2: market didn't have the same trouble, and it actually increased
Speaker 2: four percent, and this didn't seem to be a story
Speaker 2: that was particularly related to the energy transition. It's basically
Speaker 2: exactly in line with where the entire corporate debt market went.
Speaker 2: There is also one takeaway you could take from this,
Speaker 2: which is that the equity funding has fallen by quite
Speaker 2: a lot, actually a greater dollar value amount than the debt.
Speaker 2: Corporate debt issuance went up. But also what could be
Speaker 2: happening here is that the clean energy manufacturing sectors are
Speaker 2: actually just becoming much more mature, and equity financing is
Speaker 2: not your first option. You'd rather finance something through debt,
Speaker 2: it's much cheaper. So what could be happening here a
Speaker 2: little bit is that these companies are just maturing, they're
Speaker 2: becoming more bankable, and they're choosing to finance new projects
Speaker 2: or facilities and through debt issues rather than new equity raises.
Speaker 1: So even though we've been doing this report for fifteen years,
Speaker 1: we still learn new things every single year, and different
Speaker 1: things surprise us in different themes emerge. What was the
Speaker 1: most surprising thought you had when going through the research
Speaker 1: this year.
Speaker 2: I think a year ago, my perception of this whole
Speaker 2: on shoring trend was that we have this knowledge that
Speaker 2: we know that the equipment that's produced in China is cheaper.
Speaker 2: A lot of that is due to expertise, energy costs,
Speaker 2: labor costs, but also there's been a bit of a
Speaker 2: cloud around how much the government has already been supporting
Speaker 2: the clean tech manufacturing industries, and so there was a
Speaker 2: lot of commentary when the US announced subsidies for manufacturing that, oh,
Speaker 2: it's just always going to be inherently more expensive. But
Speaker 2: the reality is that we actually don't know to what
Speaker 2: extent the subsidies have been driving the cost reductions. In China.
Speaker 2: So I think this is going to be really interesting
Speaker 2: going forward to see how cost competitive European and US
Speaker 2: manufacturers can get.
Speaker 1: Is there something that stood out to you, Albert?
Speaker 3: I would go back to the story in the wind sector,
Speaker 3: which I mentioned earlier, because you know, we even got
Speaker 3: caught up in some of the moods of depression last
Speaker 3: year around the summer when projects were getting canceled and
Speaker 3: we sat around going, hey, you know, even as BNF,
Speaker 3: what can we do? Can we write some research to
Speaker 3: highlight the problems and solutions to this challenge. So at
Speaker 3: the end of the year, when we ran the numbers,
Speaker 3: we found that wind had a record year of investment.
Speaker 3: You know, it was sort of hidden in the numbers,
Speaker 3: and I just thought, Wow, things are not as bad
Speaker 3: as they seem, and there's optimism to be had out there.
Speaker 3: So that was a really positive surprise.
Speaker 1: One of the things that we do at the beginning
Speaker 1: of the year is we create these things to watch reports,
Speaker 1: and we did a series of highlighting a few of
Speaker 1: them on this show, and it was in the year ahead,
Speaker 1: what did we think was going to happen? From your standpoint,
Speaker 1: we know you're going to do this report again next year.
Speaker 1: Do you have any views on what might come out
Speaker 1: of that version When we're sitting here in a year's time.
Speaker 2: From the equity funding numbers, it wouldn't surprise me if
Speaker 2: they're lower again. People seem to be in agreement that
Speaker 2: interest rates aren't going to go any higher, but it's
Speaker 2: also not clear that they're going to be cut anytime soon,
Speaker 2: and so that's going to continue to impact it. And
Speaker 2: then this issue with manufacturing over capacity means that it's
Speaker 2: it's going to be a tough business to be in
Speaker 2: for the next few years, so I think that'll also
Speaker 2: impact the funding numbers.
Speaker 3: On the energy transition investment numbers. So before we started
Speaker 3: this year's report, about ten or twelve of us got
Speaker 3: around and tried to guess what the final number would be.
Speaker 3: So before we even turned us a single wheel on
Speaker 3: the numbers, and I guessed one point seventy five trillion,
Speaker 3: and Philamina, who is our lead analyst on the investment data,
Speaker 3: guess one point eight trillion. So between the two of
Speaker 3: us was it ended up being one point seven to seven.
Speaker 3: So we pretty much nailed it even just before we
Speaker 3: even ran any numbers. So you know, I'm going to
Speaker 3: go out on a limb now and say that next
Speaker 3: year it's going to be more than two trillion, call
Speaker 3: it two point one trillion. Let's go at two point
Speaker 3: one and see where we get to.
Speaker 1: I think we need to get Filomina in the room though,
Speaker 1: to really get to inaccurate now.
Speaker 3: Yeah, yeah, exactly. She's the oracle.
Speaker 1: Alibert Mark, thank you very much for coming on the
Speaker 1: show today, and we look forward to talking about this
Speaker 1: again next year.
Speaker 2: Thank you very much, Thank you.
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