#2 Deeptech in Perspective - New energy alternatives, key technologies shaping the Future of Sustainable and Clean Energy for a Greener World
World Directions - Where are we heading to? November 2022
Energy shift towards more clean technologies
Winter is approaching and our energy expenses are increasing…
What is going on?
Energy markets began to tighten in 2021 due to the extraordinarily rapid economic rebound after Covid-19, weather conditions, maintenance work delayed by the pandemic and, earlier decisions by oil and gas companies & exporting countries to reduce investments. Russia began withholding gas supplies to Europe in 2021, months ahead its invation of Ukraine in February 2022. However, the situation escalated dramatically following Russia’s invasion. The United States and the EU imposed a series of sanctions on Russia and many European countries declared their intention to phase out Russian gas imports completely. Meanwhile, Russia has increasingly curtailed or even turned off its export pipelines.
What does it mean?
Russia is by far the world’s largest exporter of fossil fuels, and a particularly important supplier to Europe. In 2021, a quarter of all energy consumed in the EU came from Russia. Since its invasion, the price of natural gas reached record highs and, as a result, so did electricity and oil prices (the latter at highest levels since 2018). EU reduced its 83% imports of natural gas to compensate the situation by a sharp increase in imports of Liquified Natural Gas (LNG) particularly from the US. Other suppliers of gas (apart from Russia) to the EU are Norway (over 22% of imports in the first half of 2022) and Algeria (over 10% in the first half of 2022). LNG accounted for over 25% in the first half of 2022 - mainly from the US, Qatar and Nigeria.
Why does it matter?
💸For markets: slowing down economic growth, a new opportunity for clean energy?
High prices, rising costs, economic uncertainty, energy security concerns and climate imperatives amount to a powerful cocktail of factors investing in a new global energy shift. In order to relieve pressure on consumers, get the world on a net zero pathway and, to reduce reliance on Russia, governments, companies and investors are raising their investment in all parts of the energy sector, especially in renewables and grids. The current crisis is accelerating the rollout of cleaner, sustainable renewable energy such as wind and solar. The crisis has also underscored the importance of investing in robust gas and power network infrastructure to better integrate regional markets (e.g. EU’s RePowerEU May 2022 and, US Inflation Reduction Act August 2022). In fact, a greater supply of clean energy sources and technologies can protect consumers and mitigate some of the upward pressure on fuel and gas prices in the coming years.
🧑🏿🤝🧑🏻For society: cover yourself and tighten your belt.
Higher energy prices have contributed to painfully high inflation, pushed families into poverty, forced some factories to curtail output or even shut down, and slowed economic growth to the point that some countries are heading towards severe recession. Europe, whose gas supply is uniquely vulnerable because of its historic reliance on Russia, could face gas rationing in the next winters, while many emerging economies are seeing sharply higher energy import bills and fuel shortages. A full cessation of Russian pipeline gas supplies to the European Union combined with a return of Chinese LNG imports to their 2021 levels would lead to a shortfall of gas in Europe during the summer of 2023, the period when gas storage sites need to be refilled.
🔮What’s next? Faster deployment of renewables, heat pumps and energy efficiency measures!
A more rapid deployment of renewables, heat pumps and energy efficiency measures can mitigate the risk of a worsening energy and gas crisis. However, this would require immediate action from governments. The IEA will present a roadmap for securing Europe's gas balance for next winter showing what is needed to ensure storage sites are filled to 95% capacity by the beginning of the 2023-2024 heating season and to structurally reduce gas consumption during the winter. A further push to accelerate structural changes and reduce gas consumption is essential not only for Europe’s clean energy transitions but also for its energy security and the wellbeing of its citizens and industries.
The current market context requires greater attention to deeptech instruments and measures that could facilitate investment in a clean energy transition.
TOP 6 future clean energy trends to look at
(1) Renewable power: is at the heart of the positive trend. Even though costs have risen in recent months, clean technologies such as wind and solar remain the cheapest option for new power generation in many countries. Deeptech innovations such as renewables, grids and storage now account for more than 80% of total power sector investment (i.e. Enpal, Freyr Energy, Epishine).
(2) Improved efficiency: is another major growth area driven by higher fuel prices and government incentives. A relevant increase in deeptech projects for buildings efficiency led the way in 2021. Many countries like Japan, China and some in Europe are putting increasing emphasis on high energy performance standards for new construction. The spike in fuel prices is prompting increasing interest in technologies such as electric heat pumps. However, continued government support is needed to shape consumer and corporate demands (i.e. Urban Volt, Ubiquitous Energy).
(3) Mobility electrification: is a key contributor to rising clean end-use spending by consumers. Sales of deeptech projects like Electric Vehicles (EVs) doubled in 2021 and are strongly rising in 2022. One uncertainty is whether automakers can keep up with orders given supply chain issues and the global semiconductor shortage. Electrification includes not only cars, but also sales of electric two and three wheelers (i.e. Holoride, Five AI).
There are signs of Deeptech where investment remains small but growth rates are high:
(4) Battery energy storage: is hitting new records and is expected to more than double. The pipeline of these deeptech projects is immense with China targeting non-hydro energy capacity by 2025 and the US having big grid-scale projects planned or under construction (i.e. Volt Storage, Emmesh).
(5) Low-emissions hydrogen: its momentum has been reinforced by Russia’s invasion of Ukraine especially in Europe. Deeptech clean hydrogen focused companies are raising more money than ever before and the value of a portfolio leading firm in this space has quadrupled since the end of 2019. Annual investment in low-carbon hydrogen stands at around half a billion dollars and estimation of investment totals around 600 billion dollars needed by 2030 (i.e. Keyou, Hydra energy).
(6) CO2 capture: new projects were announced in 2021 which the aim to capture CO2 from a range of applications including hydrogen and biofuel production. Investment has also risen to almost 2 billion dollars in 2021 and signifcant amounts of private capital are starting to flow into deeptech companies with costly technologies to remove CO2 from the air and store or use it (i.e. RepAir, Carbominer).
The momentum behind early stage deeptech companies is being maintained by rising public funding support for energy innovation. Deeptech startups in both, Europe and US, have raised record funds in particular for promising energy storage, hydrogen and renewable energy innovations.