CleanTech as a diversifier amid market turmoil

2020 and 2021 were years of strong investment into clean tech and ESG in general. Years of ignored warnings about climate change finally came to fruition with Mark Carney famously quoting in June 2021 ‘’Addressing climate change is an amazing commercial opportunity. It is about turning an existential risk into the greatest opportunity in our time. The opportunity is unprecedented’’.

In monetary terms the inward investment into clean tech has had prolonged growth for a decade. In 2021, global investment in the low-carbon energy transition totalled $755 billion, up from $595 billion in 2020 and just $264 billion in 2011. This figure includes investment in projects, such as renewables, storage, charging infrastructure, hydrogen production, nuclear, recycling and CCS projects – as well as end-user purchases of low- carbon energy devices, such as small-scale solar systems, heat pumps and zero-emission vehicles. The largest sector in 2021 was renewable energy, which attracted $366 billion for new projects and small-scale systems but the electrified transport sector grew the fastest and hit $273 billion (up 77%).*

However, with inflation surging, a substantial tech downturn and the general markets being routed – how does clean tech look now as a sector?

Firstly, looking at ESG funds, according to Bloomberg Global Equity, funds are down 14.8% this year against 11.7% for ESG funds. Of course, ESG funds are not clean tech specific or climate change funds, but they provide a reference point towards how funds with more of an environmental angle might be performing. They are of course affected by the market turmoil but have outperformed the general equity market globally and in Europe.

Looking at clean tech specifically. Firstly, clean tech spans several industry verticals, including renewable energy generation, energy storage, energy efficiency, transportation, air and environment, clean industry, water and agriculture.

Clean tech is a mega-trend with very powerful drivers behind it. It Is one of the shaping factors of our time and nothing has changed here. Climate change doesn’t care about inflation or indeed war. The climate crisis has hit unprecedented levels and is here to say. There is massive momentum behind capital in this sector. To get on track for net zero, investment must triple to 2025, then double to 2030.**

From a business and market point of view the other main point of difference behind what may be termed clean tech now and in previous cycles is that renewables are now proven to be far cheaper than fossil fuels – a trend that has been exacerbated by the massive hike in oil, and gas prices this year. The case for the push to renewables has never looked stronger both from an efficiency standpoint and an energy security point of view. The prevailing sense is that clean tech may prosper against the gas price shock.

Let’s look at some specific examples of clean tech growth. RenewableUK’s latest EnergyPulse market intelligence data report shows that the global pipeline of offshore wind projects has almost doubled over the past twelve months, from 429 gigawatts of capacity a year ago to 846GW today. The pipeline includes projects at every stage of development: operational, under construction, consented or planned. The growth is literally staggering.

China has the biggest offshore wind project pipeline at 98GW, the UK is in second place at 91GW (up from 55GW a year ago) and the USA is third with 80GW. Germany is fourth at 57GW. Other countries with major pipelines include Brazil, Sweden, Ireland, Vietnam and South Korea.

If we look at the associated growth in the nascent battery energy storage market this is expected to grow from $4.4bn in 2022 to $15.1bn in 2027 (27% CAGR).*** But these examples are reflected in the whole sector whether renewables, transport or industry.

The point here is that clean tech is very different from other business sectors. There are hard and fast net zero targets that have to be met with increasing ambition being shown from countries and corporates alike. These targets require exponential rates of investment. Whilst investment can be scaled back in ‘normal’ business sectors, in climate tech it cannot, if anything the momentum is the other way. In war defence stocks tend to perform well….in essence we are in a war against climate change and the defence stocks are clean tech stocks. The final point is that investors need to work a little harder in climate tech as the industry is still relatively early stage and a lot of the opportunity remains in the venture capital space.

Sources:

*Bloomberg NEF ‘Energy Transition Investment Trends’.

** Bloomberg NEF ‘Energy Transition Investment Trends’

***markets&markets.com