The Future Is Green: Cleantech's Role in a Sustainable Tomorrow

Last year saw a significant increase in energy prices due to the Russian invasion of Ukraine, with oil, gas, and electricity reaching their highest levels in 10 or more years. As a result, households in Switzerland expect to see energy bills rise by an average of 27%, in 2023, although this will vary by location.

According to the Swiss Federal Statistical Office, in November 2022, the price of gas for home heating averaged CHF 3’526 for 20’000 kWh. That compares with CHF 2’128 for the previous November and just 1’882 francs for the same month in 2021.

With the pressing need for a greener world, clean technology, or “cleantech,” has become more important than ever. Cleantech refers to a range of environmentally-friendly technologies, including wind, solar, hydrogen, carbon fiber, and more.

The Paris Agreement, signed, in December 2015, has spurred the growth of climate technology start-ups. Over 120 nations, comprising nearly 50% of worldwide GDP, have already set a net-zero target for 2050 emissions, or plan to do so. Cleantech start-ups are now targeting various industries, including energy, transportation, construction, food production and distribution, and various industrial processes.

This is a significant shift from Clean Tech 1.0 (2006-11), which only focused on the energy sector. Venture capital (VC) investors lost nearly half of the USD 25 billion they had invested in the cleantech start-ups during that period, leading to a slowdown in industry expansion. This time, established companies and start-ups are seeking to decarbonize not just energy production, but every economic and business sector. This is both through the advent of environmentally-friendly technology and efficiency improvements to existing technology.

While it is estimated that existing technology can reduce up to 65% of emissions, substantial further innovation is required for the remaining 35%. Moonshot believes that requirement will provide savvy investors with many opportunities for exceptional growth.

Many have seized on this already. Between 2013 and 2019, investment in climate technology grew five times faster than overall venture capital growth, despite comprising only 6% of the total VC investment assets at the end of that period.

So much for the recent past; what does the future hold for cleantech?

Cleantech industry analysis

PitchBook, a leading data provider on private equity and venture capital, forecasts that climate technology will become a USD 1.4 trillion market over the next 5 years, with a compound annual growth rate of 8.8%, sufficient to whet the appetite of any self-respecting investor. In Switzerland, cleantech stands out as one of the most attractive sectors to invest in, with the amount invested almost quadrupling to CHF 826.9 million in 2022 compared with CHF 208.5 million in 2021, according to the latest Swiss Venture Capital Report.

Worldwide investment in low-carbon and clean energy increased by a total of USD 1.1 trillion in 2022. That is pretty similar to the total investment in fossil fuels, according to a BloombergNEF report.

Worldwide investment in the energy transition by sector
from 2004 to 2022 (in USD billion)
Source: BloombergNEF

Businesses are expected to seek substantial capital over the next three decades in climate change transition strategies and to reduce their carbon footprint (cleantech and climate tech). This means that the demand for climate transition capital will remain high, pushing the sector’s development forward.

Target addressable market for asset managers in net-zero capital deployment
over the next 30 years
Source: Boston Consulting Group

In the first quarter of 2022, there were 273 VC funding rounds for climate tech, amounting to USD 9 billion. This was lower than the average of USD 11.2 billion per quarter in 2021, but stronger than the average of USD 5.5 billion per quarter in 2020 and USD 3.7 billion per quarter in 2019.

Although the first quarter of 2022 saw less investment than the average quarterly rate in 2021, it was still strong, despite the uncertainty generated by the revival of inflation and the continuing rise in interest rates.

Investment returns from cleantech will probably end up a little squeezed in Q2-Q4 due to the lower market valuations ensuing from that uncertainty. However, the attack on Ukraine and calls for energy independence in Europe are likely to speed up long-term investment in the gamut of energy cleantech: including hydrogen, solar, batteries, nuclear, and wind. That positive longer-term outlook is what matters most for investors.

A recent Moonshot survey found that 62% of respondents recognize green energy as the most promising investment opportunity of 2023, confirming the positive outlook for the sector.

There are compelling arguments underlying that expectation.

Factors and trends driving cleantech investment

1. Savings for households

In 2022, gas prices, including natural gas, reached new heights due to post-pandemic demand and Russia’s invasion of Ukraine.

Though prices have returned to their pre-war levels since then, economic volatility is likely to keep them from significantly dropping in the near future.

Europe natural gas price as of March 2023
Source: Trading Economics

However, investments in zero-emission energy, new technologies, and vehicle electrification could offset this weakness. According to the Center for American Progress, these investments could save households an average of USD 500 per year on energy costs.

2. Industrial decarbonization will accelerate

Industries such as steelmaking, chemicals, construction, and marine transport have been working for up to 20 years to reduce their emissions, but still remain hard-to-decarbonize industries. According to The Brookings Institution, “steel, cement and chemicals are the top three emitting industries and are among the most difficult to decarbonize.”

They face growing demand from stakeholders like governments, customers, investors, and the media to accelerate the transition to net-zero. Green hydrogen in steel making and less carbon-intensive, stronger, and more efficient concrete show promise and need to be encouraged. As Charlie Munger, vice-chair of Berkshire Hathaway, Inc., and close associate of the legendary Warren Buffett once observed, “Show me the incentive and I'll show you the outcome”.

Although the transition pathway for sectors like shipping remains unclear, there is likely to be growing pressure and active responses to cleantech innovation and momentum among these industries in 2023.

3. Solar photovoltaic will continue to shine

Already the cheapest and easiest form of electricity generation across much of the world, solar photovoltaic (PV) technology is poised to go from strength to strength in 2023. For the first time, it is projected to attain an installed generation capacity of more than 200 gigawatts before the year is out, with Chinese demand as the primary driver.

Global PV installation estimate and forecast as of January 2022
Source: BloombergNEF

The biggest factor behind this growth is the increased scale and declining cost of the technology. In more recent times, growth has been helped by receding costs from the resolution of supply-chain issues with polysilicon deliveries. Prices for this crucial PV panel material have fallen dramatically since last October. They are expected to continue falling, thereby significantly reducing the cost of a typical PV panel.

Cost of polysilicon and 210 mm solar modules
Source: CleanTechnica

The US Inflation Reduction Act passed in August 2022 is also a significant boost for the PV industry, as it extended the sunset year for Investment Tax Credits from 2024 to 2032. This extension, along with falling prices for crucial PV materials, is expected to lead to enhanced growth in the industry. As a result, PV energy is expected to be used almost anywhere generation capacity is needed, from neighborhood rooftops to mining and processing centers in the desert.

Only one question remains: How can the investor gain access to this opportunity?

How to invest in cleantech

From the beginning, Moonshot has been on a mission to be part of the solution to climate change. Our aim is to invest in companies that are making a tangible difference in the fight against climate change.

That difference should be about more than just their bottom line. We seek out innovative businesses that are breaking new ground and developing new technologies, leading to greater sustainability and a brighter future.

It’s high time to take advantage of the major trends in cleantech, as BlackRock estimates that the next billion-dollar companies will be in clean energy, while Bloomberg has forecast that environmental, social, and governance (ESG) assets under management will reach USD 53 trillion by 2025.

Therefore, in order to continue our – and engage your – support for these environmental endeavors, we have launched the Mother Cleantech Portfolio. It is the natural next step in our broadening range of ESG investments.

We have already invested in companies such as Synhelion, a unique venture harnessing the natural power of solar energy to transform carbon dioxide into synthetic fuel. Now, our holdings are being expanded with investment in an entire suite of similarly innovative companies.

Conclusion

At Moonshot, we are proud to be part of the solution to the energy transition challenge. We strive to leave a positive legacy for future generations of investors and for the world’s people.

2023 is the time, we believe, it became more essential to keep an eye on the growing cleantech industry, which is building a better future for all.

At Moonshot, we won’t miss an opportunity to jump on this game-changing train. And we invite everyone to join us.