Cleantech Market Update: H1 2021 in Review

- July 22nd, 2021

What happened in the cleantech space in the first half of 2021? INN looks at trends and what’s ahead for the sector.

Click here to read the previous cleantech market update.

The green energy transition has gathered pace in the past year, and as governments continue to announce measures to fight climate change, investor interest in cleantech has increased.

Cleantech spans several industry verticals, including renewable energy generation, energy storage, energy efficiency, transportation, air and environment, clean industry, water and agriculture.

With the second half of 2021 now in full swing, the Investing News Network (INN) spoke to a number of experts in the cleantech field to discuss their outlook for the market. Here’s what they had to say.

 

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Cleantech market update: Key trends

Following an uncertain 2020 that saw the cleantech sector gain traction and stocks perform strongly, attention from investors was set on the COVID-19 recovery path.

Overall, the cleantech space continued to perform well, almost above expectations, in the first half of 2021, Yuan-sheng Yu of Lux Research told INN.

“There is a clear shift in the industry that is prioritizing investments into the space,” he said. “Whether that is purely through the installation of renewable energy capacity or in early stage technologies.”

One of the highlights of the first six months of the year came from the US administration joining other major world economies by making a carbon-neutral pledge and prioritizing clean energy in its post-COVID-19 recovery plans.

“I would not say there were any major surprises as the momentum continues to grow for the cleantech space globally,” the expert added.

Energy storage

On the energy storage front, the special purpose acquisition company (SPAC) craze continued, with Solid Power announcing plans to go public via a $650 million SPAC, as well as ESS.

“This is obviously not at the size of the QuantumScape (NYSE:QS) SPAC of $3.3 billion last September, but shows the growing interest from investors in energy storage companies,” Yu said.

In terms of regional growth in energy storage, it is clear that China and Europe will lead the charge over the next 10 to 15 years in terms of capacity installation, likely making up 50 percent of the global market share, according to Lux Research.

A key trend in energy storage, and specifically battery storage, is the rising interest in battery recycling.

“The industry is looking at how to deal with the coming capacity of retired batteries in electric vehicles and stationary storage applications in the upcoming years,” Yu said.

IHS Markit has also continued to see very strong growth in demand for grid storage, driven by an increasing range of applications that batteries can compete in.

“Their flexibility to provide a wide range of these services, paired with significant decreases in costs over recent years, are making them an increasingly competitive solution,” Sam Wilkinson, director of clean energy technology at IHS Markit, said. “However, we are starting to see signs of tight supply, and potentially some project delays, as a result of demand from the automotive (electric vehicle) sector growing quickly.”

Renewable energy

Speaking with INN about the key trends seen in cleantech in 2021 so far, Edurne Zoco, executive director of clean energy technology at IHS Markit, said the solar sector was not impacted so much by COVID-19.

“But the reopening of economies in Europe and the US has aggravated the container scarcity and increased freight costs by four times, impacting delivery times and postponing projects,” she said.

Zoco also pointed out that prices for materials such as steel, semiconductor components and raw materials like copper have risen substantially as construction activity increases globally following the reopening of economies.

“New growth areas such as offshore wind, floating solar and increased adoption of energy storage with renewables or as standalone in the grid continued to be drivers of increased penetration of renewables,” she said. “We have also seen some major announcements around carbon capture, (both) related and non-related to hydrogen projects.”

IHS Markit maintains its forecast of year-on-year growth in solar installations, but believes annual growth will be lower than previously anticipated. Some projects and deadlines are moving to 2022, indicating that next year could be another record period for global solar installations.

Looking over to the global onshore wind supply chain, it has mostly returned to normalcy with little to no lingering effects of COVID-19-induced disruptions, according to IHS Markit.

“Despite the pandemic, 2020 was a record-high year for onshore wind additions globally, signaling an accelerated recovery of the supply chains to deliver this capacity last year,” Indra Mukherjee, senior analyst at IHS Markit, said. “Since the 2020 additions were driven by subsidy expiry and phase-downs in Mainland China and the US, respectively, we do not expect activity to be as high in 2021.”

Mainland China, which accounted for over 60 percent of onshore wind additions last year, could potentially see activity levels halving this year as the subsidy removal has challenged the economic viability of projects, IHS data shows.

“Similarly, an 80 percent PTC year coupled with spilled-over capacity from 2020 will keep the US market buzzing, but likely not at the levels observed last year,” Mukherjee said.

In the rest of the world, she added, additions are expected to increase in 2021, driven by: previously planned projects getting executed, like in Brazil and the Nordics; installation rushes driven by subsidy expiration, for example in Vietnam; and ongoing resolution of market bottlenecks, such as those in India.

Meanwhile, the global offshore wind industry is expected to set a record with more than 10 gigawatts (GW) of new capacity.

“That’s nearly twice as much as last year, driven by the installation boom in Mainland China, where developers are rushing to commission projects before the current feed-in tariffs expire at the end of 2021,” Andrei Utkin, principal analyst of clean energy technology at IHS Markit, said. “Capacity tenders are also burgeoning this year, with over 20 GW worth of capacity to be auctioned in the key markets of Europe, the US, Japan and Taiwan.”

For Yu, one key trend worth noting is the increased investment in other forms of renewable energy, such as geothermal. Three geothermal startups, Eavor ($40 million), Fervo Energy ($28 million) and Dandelion ($30 million), each raised significant funds in the first half of the year.

“Actually, the three startups raised more venture capital funding in the first half of this year than all geothermal startups combined in the last decade,” he said. “This really shows the attention that renewable energy is getting.”

For the rest of the year, Yu is expecting more of the same. “Outside of a handful of undeserving startups getting overvalued by generic investors, we expect to see corporate/strategic investors continue to inject capital (and rightfully so) into promising startups on the verge of commercialization,” he said.

Hydrogen

For Yu, the market is still on the upswing of hype for hydrogen.

“There is still quite a bit the industry needs to figure out when it comes to hydrogen — how to produce it, where to produce it, how to transport/store it and what applications to use it in,” he said. “But hydrogen continues to grow as a national strategy — led by governments and policymakers — which is a significantly different ballgame compared to corporations trying to drive the technology forward.”

For the expert, the key catalyst to keep an eye out for is international collaborations.

“Lux believes that hydrogen and the hydrogen economy cannot be developed by a single company or country, and must require international collaboration,” he said. “This is highlighted by the memorandum of understanding between the Netherlands’ Port of Rotterdam and the Ministry of Energy of Chile for green hydrogen.”

Cleantech market update: What’s ahead

Looking at the overall cleantech space and what could be in store for the industry, Yu sees three distinct pillars — each of which has its own set of priorities and level of hype and enthusiasm.

“You have the more traditional clean energy technologies (solar, wind) that will continue to see growing investments and capacity buildouts,” he said.

As an example, he pointed to BP’s (LSE:BP,NYSE:BP) recent acquisition of 9 GW of solar projects in the US, and corporations such as Kellogg (NYSE:K) signing on for 360 gigawatt hours annually for wind power.

 

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“In the second pillar there is ‘the emerging technologies’ and the growing ecosystem of innovative technologies that are poised to usher in the ‘next generation’ of clean energy, so to speak,” he said. “This ranges from numerous large-scale green hydrogen projects being announced, such as the 25 GW project in Oman, and numerous announcements across the world of building out green hydrogen supply chains for production, transport and consumption.”

Additionally, there are venture capitalist investments into startups, which are now reaching the same levels of the original cleantech boom over a decade ago.

“There are several figures out there, but the ecosystem has raised over $4 billion in venture capitalist funding this year already — to put that into comparison, the previous highs were around $1.2 billion in 2010, 2011 and $1.5 billion in 2020,” Yu said. “This is a significant trend because cleantech requires capital, unlike other industries such as software, to truly scale.”

The third pillar would be general hype around all things sustainability, according to the expert.

“Of course, sustainability is a much broader (and sometimes vague) umbrella that many consider cleantech to fall under,” he said. “But the momentum around sustainability has continued to only grow over the first half of the year, and we are unlikely to see an end to it anytime soon.”

For investors interested in the cleantech space, Yu said it really comes down to patience.

“Aside from project financing for solar and wind farms, many of the cleantech technologies under development will require patient capital and long development timelines,” he said.

Another key point for the expert is understanding that the energy industry is a slow-moving space. “Meaning that investors must surround themselves with expertise not just on the technical side, but also a clear understanding of the industry and the policies that dictate the direction of the space,” he said.

In addition, investors need to be honest with themselves about returns. “When compared to investing into other areas, such as software, the multi-100-percent return on investment within just a few years is going to be very unlikely in cleantech,” he said.

Lastly, investors must play an active role in follow-up investments. “What we mean by this is that for cleantech, the path to commercialization will hinge entirely on the entrant of a corporate/strategic investor to not only bring follow-up capital to some of the earlier investments, but also to deploy its expertise and infrastructure to scale the technologies,” he said.

For Zoco, there has been an increased focus on supply chains from the investor community, developers and governments. “Different countries are increasingly trying to establish domestic manufacturing of numerous materials/goods, such as semiconductor chip manufacturing and solar module production or battery supply chain,” she said.

In addition, investors should pay attention to the infrastructure hurdles that could hamper the growth of offshore wind in coming years.

In terms of trends for the year, the IHS Markit team pointed to increased focus on hydrogen and carbon sequestration. “We are seeing lots of activities and announcements of new projects,” Zoco said.

Another major area of focus at the moment is offshore wind, particularly in the US. “In the current high-cost material, component and freight environment, we also anticipate a bigger growth rate of distributed generation projects due to less impact of higher costs vs. large-ground projects,” she added.

Don’t forget to follow us @INN_Technology or real time updates!

Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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