Commentary: Non-traditional energy companies lead a record year for corporate investment in energy start-ups



27 September 2019

Energy companies lead a record year for corporate investmentEnergy companies lead a record year for corporate investment

More money than ever is going to energy venture capital deals, but spread across fewer start-ups. This needs to change if venture capital is to have a significant impact on energy transitions.

Among the many takeaways from the UN Climate Action Summit earlier this week was the need for capital to be reallocated to clean energy solutions around the world – The Economist talks of the Climate Capitalists who see the golden lining in the climate cloud.

These investors can play a crucial role in bridging the gap between lab and market, for example via venture capital (VC) funding that enables entrepreneurs to commercialise their first low-carbon products and hone their business models. Among the companies that have had a boost from venture funding, some are reshaping the energy landscape. Tesla has been at the vanguard of creating today’s USD 80 billion market for electric cars. BBOX and its peers have turned off-grid renewables into a highly competitive sector. Risk-taking capital like VC is an essential complement to government and corporate research dollars.

But how much of this investment is actually happening? World Energy Investment 2019 has already looked at companies that are allocating revenue to investments in energy technology start-ups. Now that we have added the results for the first half of 2019 to our improved and updated database of investors, we see that companies have already invested a record level in energy technology start-ups in 2019, more than in any year since the “cleantech boom” from 2005 to 2012. Some of this is Corporate Venture Capital (CVC), which is the subset of early-stage VC activity that comes directly from large companies in related sectors, and not from dedicated VC funds or financiers. Some of it is later-stage investing, such as corporate-led private equity or acquisitions.

	Other	ICT and electronics	Transport	Batteries	Energy equipment & service suppliers	Utilities and IPPs	Oil & gas
Average 2007-11	0.328096437	0.210735453	0.110934725	0.032478441	0.805088115	0.367128572	0.262002288
2012	1.179947024	0.089619346	0.549764325	0	0.103262204	0.115522391	0.32019976
2013	0.603538911	0.209444877	0.096130668	0	0.142198699	0.24807617	0.193648837
2014	0.256717567	0.221287516	0.022447749	0	0.19097459	0.12681651	0.098446802
2015	0.406028158	0.264848641	0.074432364	0	0.675524916	0.196332927	0.054116382
2016	0.847233333	2.219011477	0.139339678	0.003161883	0.178623055	0.125132003	0.161974206
2017	0.482008423	1.074521079	0.824259742	0.046436791	0.093205578	0.381957837	0.534954436
2018	0.352426448	1.424508953	0.559175357	0.204903429	0.538368427	0.197897571	0.567938931
2019 YTD	1.097395357	1.018611429	0.999830119	0	0.102883524	0.126099003	0.753852932
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Note: ICT = information and communication technology. Deals types include grant, seed, series A, series B, growth equity, private investment in public equity (PIPE), coin/token offering and late-stage private equity. Unless otherwise stated, deal value is shared equally between multiple investors in a single deal. Source: Cleantech Group (2019), i3 database and IEA analysis.  

Importantly, these investments in energy technology start-ups are not just coming from energy companies. More money is flowing from corporate investors from the transport and information and communication technology (ICT) sectors in particular.

The growing presence of these firms in the development of energy technologies reflects a blurring of the boundaries between “traditional” and “non-traditional” energy companies, largely driven by the types of new technologies that are expected to shape our energy future. Digital sensors, batteries, electric vehicles and smart algorithms are among the main recipients of the more than USD 4 billion of deals in 2019. This is more than all of 2018 and nearly three times more than the average over 2012-15, before the current uptick began.

Companies inside and outside the energy sector are increasingly using corporate venture capital investments as part of a flexible and more open energy innovation strategy. As we’ve noted previously, there are several reasons large established companies provide capital to early-stage technology companies.

For example, the purpose of an investment might be to learn about a technology, acquire human capital, or build a relationship with the owner of the technology. This approach can cost less and involve less risk than developing a technology in-house, especially if the technology landscape is uncertain, as it is today in many parts of the energy system. This approach is often used with technologies that are outside the core competence of the corporate investor but that could potentially add significant value to existing businesses.

However, the most recent data reveals that the earliest, and riskiest stages of corporate venture capital represent a declining share of the total deal value. In fact, Seed, Series A and Series B funding was just 10% of total corporate spending in 2019, with the rest made up of growth equity, late-stage equity and even buy-outs.

Examples of these later stage deals include: Chevron and BHP’s investment in Carbon Engineering, an atmospheric CO2 removal firm; Johnson Controls’ investment in Carbon Lighthouse, a smart energy efficiency service; Suncor’s investment in Enerkem, a waste-to-biofuel company; VW, Siemens, Vestas and Vattenfall’s investments in Northvolt, a battery producer; Hyundai, Kia and Porsche’s investments in Rimac Automobili, an electric sports car company; Ford and Amazon’s investment in Rivian, a maker of electric vehicles; Daimler and Amperex’s investments in Sila Nanotechnologies, a battery materials company; and BP’s investment in Solidia, a low-carbon concrete developer. In addition, there evidence that major energy companies are building capacity in new areas not only by taking stakes in innovative firms but also, increasingly, by acquiring them. In 2019, Shell acquired virtual power plant, home battery and electric vehicle charging companies. Others, like Centrica, continue to build portfolios of consumer-facing companies with software expertise.

While corporate entities are investing mostly in later-stage deals overall, traditional energy companies are playing a larger role in riskier early-stage CVC deals. Roughly half of CVC activity for energy start-ups in 2019 has come from the oil and gas, utilities and electricity equipment sectors.

Examples of these earlier stage deals include: BP’s investment in Belmont Technology, an artificial intelligence provider for oil and gas exploration;  Comcast’s investment in Dandelion Energy, a geothermal provider; Eni’s investment in Form Energy, a long-duration electricity storage developer; Total and Equinor’s investment in Level10 Energy, a renewables marketplace; NTT Docomo and Statkraft’s investment in Metron Labs, an energy analytics platform; APICORP and Equinor’s investment in Yellow Door energy, a solar leasing firm; Iberdrola’s investment in Wallbox, a smart electric car charger; and Tepco’s investment in Zenobe Energy, an energy storage consultant.

Corporate activity in energy venture investing is taking place against the backdrop of rising energy VC activity in general. At USD 2 billion, more money went into early-stage venture capital deals for energy technology companies in the first half of 2019 than the first six months of any previous year, except 2018.

	Transport	Solar	Bioenergy	Other renewables	Energy efficiency	Energy storage, hydrogen, fuel cells	Other clean energy	Other energy
Avg. 2007-11	0.178922538	0.484758696	0.163924615	0.112551823	0.367341693	0.146136069	0.106140216	0.049868047
H1 2012	0.024857318	0.144703243	0.111441326	0.042521622	0.243058427	0.142813612	0.163608721	0.066057813
H2 2012	0.087386467	0.072406045	0.047191324	0.028766351	0.213599833	0.11955717	0.048950513	0.035426548
H1 2013	0.0473736	0.053966618	0.031381899	0.036800197	0.288181417	0.057319258	0.170778543	0.074408397
H2 2013 	0.073549704	0.085444904	0.054581162	0.027818476	0.226202519	0.054449345	0.070222515	0.052427547
H1 2014	0.169842816	0.150750982	0.077086254	0.041400978	0.182907243	0.067885284	0.062466004	0.090886834
H2 2014	0.2901266	0.060860183	0.007425475	0.027879712	0.35018256	0.203705665	0.032682999	0.017990905
H1 2015 	0.303866606	0.106727181	0.090314456	0.035471654	0.210591758	0.07567847	0.038629894	0.072476279
H2 2015 	0.328136893	0.15223658	0.060187969	0.012867478	0.171335574	0.095112601	0.066792644	0.097217023
H1 2016	0.47110558	0.074615463	0.011889885	0.013770602	0.172453209	0.043438832	0.03820964	0.040206178
H2 2016	2.455402888	0.130810109	0.146210359	0.020014327	0.214640046	0.060858361	0.044869317	0.090277505
H1 2017	0.655553788	0.034674691	0.023733127	0.016245058	0.160261395	0.189880583	0.045850535	0.037921658
H2 2017	1.136262478	0.107805052	0.039321012	0.026245699	0.281777342	0.132558687	0.100065911	0.059867619
H1 2018	3.573577927	0.102441251	0.00918831	0.023367551	0.288486433	0.230346835	0.143271596	0.10023101
H2 2018 	1.874483609	0.096561041	0.005095837	0.00558	0.201225126	0.137857627	0.077737844	0.102285101
H1 2019	0.911541857	0.153534838	0.063242837	0.043088277	0.354105503	0.200941161	0.269952313	0.057311165
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Note: Includes Seed, Series A, and Series B financing deals. Transport includes alternative powertrains and fuel economy but does not include shared mobility, logistics or autonomous vehicle technology. Bioenergy does not include biochemicals. Other energy includes fossil fuel extraction and use. H1 = first 6 months of the year. Source: Cleantech Group (2019), i3 database and IEA analysis. 

While the growth in energy VC activity in recent years has been driven by transport deals, non-transport deals have made up more than half of the deal value in 2019 so far. This may indicate a rebalancing between sectors after a flurry of recent activity around electric vehicles in particular, but it remains too early to say. Some of the major recipients of early-stage VC funding in 2019 include: Hozon Automobile and Enovate Motors, Chinese developers of performance electric cars; Commonwealth Fusion; a lower-cost nuclear fusion system designer; CalBio, producers of new biogas digesters; and Faraday Grid, an inventor of novel power grid transformers.

There are two trends behind these numbers that reveal a changing sector.

First, the growing deal value represents fewer, larger deals. The number of VC deals for energy start-ups is not rising. Yet, even excluding all outlier deals of more than USD 50 million, the average deal size in the first half of 2019 was higher than for any year since 2012.

Average deal size (left) and number of deals (right) for global energy VC, for deals of USD 50 million or lower

H0	Average deal size 
H1 2012	3.713589961
H2 2012	3.140789668
H1 2013	2.032927184
H2 2013	2.803026834
H1 2014	3.17359216
H2 2014	3.504729882
H1 2015	3.78601883
H2 2015	4.835173842
H1 2016	3.073854525
H2 2016	4.071679919
H1 2017	3.417225252
H2 2017	4.221691836
H1 2018	3.853189794
H2 2018	4.346986401
H1 2019	4.756151268
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h0	Number of deals
H1 2012	238
H2 2012	208
H1 2013	293
H2 2013	230
H1 2014	248
H2 2014	217
H1 2015	209
H2 2015	181
H1 2016	191
H2 2016	183
H1 2017	181
H2 2017	236
H1 2018	209
H2 2018	207
H1 2019	198
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Note: Includes Seed, Series A, and Series B financing deals with value less than USD 50 million. Energy sectors defined as above. H1 = first 6 months of the year. Source: Cleantech Group (2019), i3 database and IEA analysis.

Second, the geographical rebalancing of the energy VC market continues. As recently as 2013, 80% of the money went to energy start-ups in North America. Yet over the last three years, Chinese companies have represented over 50% of deal value as well as most very large deals, some of which have been as large as USD 1 billion.

In the first half of 2019, there have been fewer deals in China, but Europe is on track to claim its highest share of the market yet. If we exclude deals over USD 50 million, one-third of the 2019 deal value went to companies in Europe, also representing one third of the deals by number.

Overall, VC and corporate investment in energy technology start-ups have returned to growth, and the types of technologies they are supporting are broadly aligned with clean energy transition goals. Both types of investment serve energy innovation and bring private capital in support of pressing global challenges. The IEA will continue to monitor these trends as useful indicators of where companies and markets are placing bets on future technology value.

However, VC deals still remain a small element in the context of total R&D spending. We estimate total public research and development (R&D) spending by governments to be at least three times larger than the VC market, and private sector spending on R&D may be three or more times larger again. Furthermore, certain types of technologies are underserved by the type of capital that is mobilised by VC. These notably include capital-intensive hardware for renewables and large-scale low-carbon technologies, such as carbon capture. The risks for investors in technologies that have long lead times and uncertain markets are higher. As if to illustrate this point, Faraday Grid, a top fundraiser as recently as January 2019, entered administration in August. Boosting economic growth and transforming the energy sector through low-carbon innovation will require governments and the private sector to strengthen the interface between policy, research funding and VC investment.

Related commentaries have been published recently that explore other key factors shaping the value chain for energy investment and finance, including changing business strategies in the oil and gas and power sectors, and capital allocation choices between different energy sectors in energy transitions.

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