Cleantech industries beyond wind and solar that are attracting investors
Investors have long been seeking out new trends and technologies that are on the face of revolutionizing the world, and cleantech industries are no exception. Some of the most popular niches within cleantech include wide and solar, which are widely abundant and popular in many countries. Now, in an era where investor confidence in renewable energy is at an all time high, more and more investors are leaning towards new areas of cleantech, which just might well pay them dividends in the future.
Investment in U.S. renewables dipped by 12 percent in 2020 YoY due to the anticipated tax loss of the federal wind Production Tax Credit, however, that market as a whole has attracted $167 billion in private backing since 2018, a report by ACORE found. This is a clear indication of higher confidence levels in renewables, but there is still a strong bias directed at two main asset classes, solar and wind.
Last year, solar energy accounted for 62 percent of U.S. private-sector investment in renewable energy, and wind power made up a further 31 percent. The remaining leaves little to be invested in towards other areas such as geothermal, or hydropower.
However, just because these emerging asset classes are small now doesn’t mean they will remain that way forever. With increased positive sentiment from new investors, these cleantech industries may be at the forefront of investments in the future.
Starting with Energy Storage, which recently has started to rival traditional renewables as an investment-worthy asset class. Eagerness to invest in battery storage is strongest within the U.S., which saw record levels of capital injection into the sector during 2020. In fact, 2021 installations for battery storage systems is expected to double that of 2020, with the majority of investors bullish on the asset class hedging their bets for lithium-ion batteries. In addition, new advancements in more sustainable and recyclable batteries could see more ESG-focused funds and asset managers invest into the asset class.
Next up, there is Low-carbon Hydrogen, which has historically been shunned by circles within cleantech, but has seen some light in recent years. Hydrogen projects are already seeing greater traction from investors of all kinds, with Australia being in contention to trade $90 billion of low-carbon hydrogen by 2050. Netherlands and Australia, leaders in this space, have all ramped up investment into the area, which has seen many retail and institutional investors do the same. Another catalyst for the technology is falling hydrogen costs, which could see a widespread, worldwide adoption of the technology which would really see this industry boom.
Carbon Capture and Storage (CCS), long seen as the fossil fuel industry’s excuse to keep guzzling fossil fuels, has gained a recent sheen of respect after being endorsed by representative bodies such as the International Energy Agency. However, unlike energy storage and clean hydrogen, the investment thesis for CCS is highly speculative, and depends almost solely on an uplift in global carbon pricing. Looking at net-zero roadmaps worldwide, we see CCS being mentioned in pretty much all of them, likely due to the fact that hydrocarbons are going nowhere just yet, and also that the producers of these hydrocarbons will be the first to jump ship and back CCS. However, developments in this area are tricky and expensive, making it an appealing sector perhaps only for those with the capital necessary to do it.
Geothermal Energy has long been underrepresented and underappreciated, and most people don’t even notice that geothermal systems are currently heating many high rise units in downtown Toronto right now. The thesis for this method is unbeatable: dig deep enough and you will reach an inexhaustible and virtually unlimited heat supply that could fill a majority of global energy needs. Although enhanced geothermal energy is not likely to advance without subsidies, we do know big companies like Shell and BP are looking to diversify in this space. The caveat is that digging deep underground is bound to be dangerous, and will have its own risks attached to investing in it.
Finally, we turn our attention to Electric Vehicle Charging, which has seen its fair share of startups and unicorns go public within the space in the past year alone. Just look at California’s plans to ditch all emissions based vehicles and you will see why EV charging infrastructure will be a top demand investment area in the coming years. There is an issue to be addressed with how to roll out enough EV chargers as more e-mobility options hit the road, which can be tackled through increased investment. Indeed, we have seen giants in the space such as EVgo and ChargePoint go public in reverse-takeover style SPAC deals to help raise capital to keep up with the boom in demand.
These are just a few examples of up-and-coming cleantech sectors, with many more unappreciated sectors such as biomass and waste-to-energy not covered, and many more technologies not yet even created but sure to come. Will you place your bets on any of these exciting new asset classes?
