European Green Energy Firms Often Fall Short on Financing

When Jakob Bitner was 7 years old, he left Russia for Germany with his parents and sister. Twenty-eight years later, he is hell-bent on solving a vexing green energy problem that could help Germany end its dependence on imported energy from Russia or elsewhere.

The problem: how to make wind and solar power available 24 hours a day, seven days a week, even if the sun isn’t shining or the wind isn’t blowing.

The company that Mr Bitner co-founded in Munich in 2016, VoltStorage, found some successful sales of solar storage battery packs to homeowners in Europe. Now the company is developing much larger batteries, each about the size of a shipping container, based on a chemical process that can store and discharge electricity for days, not just hours like today’s most popular battery technology.

These ambitions to overcome the unreliable nature of renewable energy dovetail nicely with Europe’s goals of reducing dependence on fossil fuels. But Mr Bitner’s company faces a frustrating reality that threatens to undermine Europe’s plans and poses a broader challenge in the global fight against climate change: a lack of money to finish the job.

VoltStorage needs “significantly” more money to develop its new battery technology, Mr Bitner said. In 2020 and 2021, the company raised 11 million euros or 12 million dollars. Now, try to raise 40 million euros more for this summer.

“Even though we had great early-stage investors from Germany and Europe who continue to support us, it becomes very difficult to raise the tickets we need right now,” Mr Bitner said, referring to the individual investments.

Europe offers a preview for the rest of the world. The European Union has aggressive targets to reduce greenhouse gas emissions and there is broad political support for tackling climate change. The bloc has invested public money in grants to develop new technology.

But after securing seed money or grant funding, companies struggle to raise funds for the kind of large-scale, innovative projects needed to complete the transition away from carbon-emitting energy sources. The financing gap means that Europeans face the possibility of missing ambitious climate targets or facing greater energy shortages and rising costs.

Solutions are available if given a financial boost, experts said. According to the International Energy Agency, almost half of the reductions in emissions to meet net-zero emissions targets by 2050 will come from technologies that are currently in their infancy. There is, in theory, a lot of capital available worldwide for the billionaire task of financing this transition to greener energy.

The war in Ukraine has made Europe’s energy transition even more urgent. The European Union has said it will cut imported Russian natural gas by two-thirds this year and completed it by the end of the decade. Although part of that supply will be made up of imports from other countries, such as the United States and Qatar, the expansion of the national renewable energy capacity is a fundamental pillar of this plan.

But attracting investors to projects that try to go beyond mature technologies like solar and wind power is difficult. Venture capitalists, once cheerleaders for green energy, are more enamoured with cryptocurrencies and startups that deliver groceries and beer in minutes. Many investors are put off by capital intensive investments. And governments have further muddied the water with inconsistent policies that generalize their bold promises to cut carbon emissions.

Tony Fadell, who spent most of his career trying to turn emerging technologies into mainstream products as an Apple executive and founder of Nest, said that even as the world faced the risks of climate change, money was flooding into less urgent developments in cryptocurrencies. . the so-called metaverse and digital art collections sold as NFTs. Last year, venture capitalists invested $11.9 billion in renewable energy globally, compared to $30.1 billion in crypto and blockchain, according to PitchBook.

Of the $106 billion invested by venture capitalists in European startups last year, just 4 per cent went into energy investments, according to PitchBook.

“We have to be realistic,” said Mr Fadell, who now lives in Paris and has proposed ideas on energy policy to the French government. “Too many people are investing in things that are not going to solve our existential problems. They are simply investing in fast money.”

It hasn’t helped that the industry has been burned before by a green tech boom. About 15 years ago, environmentally conscious startups were seen as the next big thing in Silicon Valley. One major venture capital firm, Kleiner Perkins Caufield & Byers, has named former Vice President Al Gore a partner and promised that clean energy would eventually account for at least a third of its total investments. Instead, Kleiner became a warning about the risks of investing in energy-related companies, as the company lost early support from social media companies like Facebook and Twitter.

There is evidence that these old fears are receding. Two years ago, 360 Capital, a Paris and Milan-based venture capital firm dealing with early-stage investments, launched a fund dedicated to investing in clean energy and sustainability companies. The firm now plans to open up the fund to more investors, expanding it to €150m from a €30m fund.

There is a growing number of funds dedicated to energy investments. But even then, there is a tendency for companies in them to be software developers, seen as less risky than builders of large-scale energy projects. Four of the seven companies backed by the new 360 Capital fund are AI companies and software providers.

Still, the situation has completely changed since the company’s first big investment in green energy in 2008, said Fausto Boni, the firm’s founder. “We see potentially a lot of money coming into the sector, and a lot of the problems that we had 15 years ago are on the way to being overcome,” he said. But the availability of higher investments needed to help companies expand in Europe still lags, he added.

Breakthrough Energy Catalyst, which is backed by Bill Gates, is trying to fill the void. It was formed in late 2021 to help move promising technology from development to commercial use. In Europe, it is a $1 billion initiative with the European Commission and the European Investment Bank to support four types of technologies (long-lived energy storage, clean hydrogen, sustainable aviation fuels, and direct capture of carbon dioxide in the air) that you think they should climb. quickly.

In Europe, there are “significant difficulties with the expansion phase,” said Ann Mettler, vice president for Europe at Breakthrough Energy and former director-general of the European Commission. There is money for startups, but when companies are reasonably successful and slightly larger, they are often acquired by American or Chinese companies, she said. This leaves fewer independent companies in Europe focused on the energy problems they set out to solve.

Companies that build complex, and often expensive, hardware like Mr Bitner’s batteries for long-lasting energy storage are having a hard time finding investors willing to bear the risks. After a few rounds of investment, companies are too big for early-stage investors but too small to attract institutional investors looking for safer places to park large amounts of cash.

“If you look at typical climate technologies like wind and solar and even lithium-ion batteries, it took more than four decades to go from initial R&D to full-scale commercialization and cost competitiveness,” Mrs Mettler said, referring to research and development. “Four decades, which we don’t have.”

There are some signs of improvement, including more funds focusing on clean energy or sustainability and more companies securing larger investment rounds. But there is a sense of frustration as European investors, businesses and governments agree that innovation and the adoption of new technologies must happen much faster to dramatically reduce carbon emissions by 2030.

“You will not find a place in the world that is more in tune with what is needed than Europe,” Ms Mettler said. “It’s not for lack of ambition or vision, it’s difficult.”

But investors say government policy can help them more. Despite climate promises, current regulations and laws have not created strong enough incentives to invest in new technologies.

Industries like steel and concrete have to be forced to adopt greener production methods, Mr Boni, the founder of 360 Capital, said.

For energy storage, hydrogen, nuclear power and other large-scale projects, the government must speed up permitting, reduce taxes and provide matching funds, said Mr Fadell, who has put his fortune into Future Shape, which supports startups that address societal challenges.

“Some investors are willing to bet $200 million or $300 million,” Mr Fadel said. “We need to know that the government is on our side.”