Investment To Impact: The Next Decade Of Cleantech Innovation

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By Richard Adams, Director of NREL’s Innovation & Entrepreneurship Center

This year Jeff Bezos announced a $10 billion fund for “any effort that offers a real possibility to help preserve and protect the natural world.” The news was a testament to an elevated consciousness and acknowledgement of an impending energy transition, and is a symbolic culmination of the ongoing, steady increases of mainstream investments in the cleantech industry.

Private capital can weather changing and unpredictable economic realities and is one of the most important catalysts for solving urgent societal challenges, but it is only one piece of the puzzle. As corporates across the globe become more serious about cleantech, they are also recognizing the barriers for getting impactful technology to market — and many are embracing the opportunity and challenge by partnering with outside experts in order to identify the most effective, long-term solutions.

The Cleantech Evolution

Over the last few years, major corporations have committed billions of dollars to renewable energy innovation. More than 100 global financial institutions have publicly acknowledged the need to transition away from fossil fuels. And some of the world’s largest oil and gas companies have recognized the opportunity of the energy transition, demonstrated by last year’s collective $3.4 billion investment in low carbon energy technologies.

Falling costs and a decreasing perception of risk have significantly enabled renewable energy implementation over the past decade, and led to expanding mainstream capital investing in the space. In 2018, the levelized cost of electricity from renewable power generation technologies dipped below the cost of fossil fuels in many markets, which has since propelled corporate investment in renewable energy and clean technologies even further.

It hasn’t always been that way. Initially, corporates were cautious adopters of cleantech, following the lead of riskier venture capitalists (VCs). But after major VCs fell prey to the cleantech boom and bust of the 2000s, corporations had the opportunity to pick up cleantech investments for pennies on the dollar. They have since emerged as a key cleantech investor while making incremental improvement investments, rather than betting big on a single high-risk disruptive unicorn. Even so, many corporations have struggled to make successful investments, primarily because of a lack of domain and industry expertise.

What Type Of Investments Will Have The Biggest Long-Term Impact?

Achieving the energy system of the future, where our economy is electrified and powered by renewables, requires that we scale existing, proven technologies and develop innovative new technologies that can fill the industry’s gaps. For example, while solar photovoltaic (PV) arrays continue to proliferate around the world, perovskites –– a low-cost, high efficiency, scalable solar solution –– have the potential to propel the industry to new heights.

Even with more corporate backing, the path to market for cleantech startups is an uphill battle, and as a result, the industry misses out on innovations that can help solve some of the globe’s most pressing challenges. An estimated 90–95% of startups fail due to a lack of proper financial and technical resources. “Hard” technology startups in particular fall prey to a lack of funding opportunities due to long development, testing and deployment times. And to complicate things further, cleantech startups operate in a heavily regulated environment, requiring them to navigate ever-changing restrictions, subsidies and tax incentives. Given these challenges, it is important to think about additional tactics outside of capital that can help the cleantech industry funnel corporate interest into real-world impact.

Empirical evidence suggests that large corporations may have a greater propensity to innovate than smaller companies given their large research and development budgets, and therefore are the most capable of pushing clean technologies to market. But they also struggle to keep up with the pace of innovation due to lack of domain expertise in a rapidly changing field or a lack of systematic flexibility that would support innovation. As a result, such companies have increasingly looked to establish incubators as a way to access new technology or simply benefit from strong relationships with innovators. Corporates also leverage incubators to meet specific targets — such as environmental, social and governance (ESG) goals — and tap into new interest areas like Bezos’ climate fund.

The vast majority of incubators offer direct funding for startups, whether dilutive or non-dilutive, but financial capital is just part of the story. Access to additional intellectual, technical and testing resources are crucial to helping startups cross the “Valley of Death.” Wells Fargo’s Innovation Incubator (IN²) and the Shell GameChanger Accelerator^TM Powered by NREL (GCxN) are administered by the National Renewable Energy Lab (NREL), which provides state-of-the-art facilities and world-class technical experts to expedite the early-stage startups’ paths to market. The resources and third-party technology validation of the accredited lab have successfully seen IN² graduates go on to raise a total $262 million in follow-on funding, which translates to more than $28 dollars in external follow-on funding for every $1 awarded. Additionally, both programs have worked to create and activate a combined network of 60 partners, accelerators, investors, universities and industry experts, leveraging an ecosystem set up to identify and support new ideas.

A 2019 report from NREL evaluated a variety of incubator models and found that those focused on providing access to technology development facilities and expert research capabilities produced a significantly marked increase in the success rate of the companies that participate. So far 100 percent of the companies participating in both programs not only still exist, but thrive.

Looking Ahead

Over the next decade, cleantech will continue to become a mainstream investment opportunity as deployment and adoption expand. According to experts at Bloomberg New Energy Finance, world renewables capacity investment is expected to reach about $300 billion this year. The Global Commission on the Economy and Climate estimated the global economic benefits from investments in climate solutions at $26 trillion through 2030 in its 2018 New Climate Economy report. This translates to a doubling of investments in renewable energy over the coming decade, and early data also suggests a continued demand for corporate-sponsored clean technology incubators.

But investment doesn’t always translate to impact. Capital paired with robust research and lab capabilities, as well as a strong, growing network of cleantech experts, will continue to hold the most promise for supporting cleantech startups on their journeys to market and for unlocking our energy future.