eu cleantech

annual briefing

yn21

Looking back on 2021,
looking forward to 2022.

Welcome to your Quarterly EU Cleantech Briefing

Jules Besnainou

Executive Director

2021 was an all-round record year for EU cleantech. With €11 billion of venture capital invested in start-and scale-ups developing climate solutions, the EU is now rivalling China for investment amounts and has all but erased its scale-up capital gap. EU clean technology developers are now actively sought by large corporates looking to deliver on their net-zero commitments, international investors in search of sustainable investment, and conscientious consumers. Despite these positive signals, the EU’s future climate and industrial leadership is far from being set in stone, and investment could easily slow down this year if sufficient progress is not made on key areas:
‍
Increased demand for, and large-scale deployments of demonstrated clean technologies throughout the region. Corporate off-takers’ leadership can help drive down the green premium. This would be helped by an effective price on carbon.
An EU policy framework that accelerates innovation: as it stands, the rules are written for large incumbents, not the next generation of industrial leaders. The latest sign is the inclusion of gas in the EU Taxonomy, which will reduce the capital flows allocated to technologies replacing gas. HarmonisingEU markets is also crucial.

Renewed focus on sustainable finance: the EU must develop the right funding tools and ecosystem to scale innovation and help institutional investors participate, to make up for insufficient public equity markets.

We hope this Briefing provides the information you need to assess the progress of EU cleantech and take up new climate challenges in 2022. You can count on Cleantech for Europe to relay more and more voices of innovation this year, and push for ambitious policy to secure the EU’s future climate and industrial leadership.

Executive Summary

01

EU Cleantech VC investment shatters records

>

Increased growth equity shows the EU is getting serious about scaling up

EU share of global Cleantech VC now nearing the EU’s global economic weight

02

E-mobility, hydrogen and heavy industry make up the larger rounds

>

Energy storage and EV charging attracted the largest EU investments in 2021

Hydrogen and heavy industry decarbonisation also received significant investment

Second-hand marketplaces of electronics and garments are scaling up fast

Innovative renewables are making a comeback, with new technologies unlocking potential

03

A shot at climate and industrial leadership. Will we seize it?

>

EU policy took the right direction in 2021, with strong climate proposals in the Fit for 55

But progress is being slowed by incumbent industrial interests and fear of social backlash

In 2022, key debates on carbon pricing, renewable energy and sustainable finance will impact the scale-up agenda –for better or worse

04

Looking forward to 2022

>

Macro themes that will impact cleantech

Sectors to watch

Second-hand marketplaces of electronics and garments are scaling up fast

Policy: what’s on the 2022 agenda?

eu cleantech investment
‍shatters records

Venture capital funding for EU cleantech more than doubled in a year, on the back of increased maturity of cleantech solutions, inreased commitments from corporate off-takers and consumer appetite for cleantech solutions

Lower deal volume than 2020, funds concentrated on a smaller number of companies

eu cleantech investment
‍now on par with EU’s global economic weight

Until 2021, EU cleantech suffered from a large scale-up funding gap, attracting only 7% of global growth equity funding, compared to 54% for North America and 5% for the UK alone

This gap seems to be closing, with increased growth equity going to EU companies, thanks to megadeals in batteries and the electrification of mobility

In 2021, the EU attracted close to 14% of overall global cleantech VC, closer to its share of global GDP

Two of the top ten global deals by investment amount went to EU companies

The EU is the region showing fastest year-on-year growth

comparing the eu
to global peers

The US remains the undisputed leader in financing cleantech, both in terms of number of deals and amounts invested

China has become a hub for large-scale deployment of cleantech, and is showing a strong development of electric vehicles. It boasts the largest deal average, at €139 million

The UK attracts more cleantech VC than any EU Member State, benefitting from a dense network of venture capital firms investing at both early and growth stages

eu companies
‍‍still have limited access to public markets

EU cleantech innovators are increasingly targeted by larger corporates for acquisitions

Acquisition prices are still much lower than North American counterparts, but trending upwards thanks to high demand for decarbonisation

EU companies are still unable to raise significant money from IPOs or SPACs. Less than 7% of global cleantech IPO proceeds were netted by EU companies in 2021

This inability to raise public funding is also limiting institutional investors’ investment into cleantech, as most of their mandates are for publicly-traded equities

four member states
‍‍cross the €1 billion threshold, more join the race

For the first time in 2021, annual cleantech VC investment exceeded €1 billion in four EU Member States

Thanks to a few megadeals (Northvolt, Polestar, Einride, H2 Green Steel), Sweden is the undisputed 2021 EU cleantech investment leader, both in terms of amounts invested, and investment per capita

Germany, France and the Netherlands are the next three heavyweights in terms of amounts invested in cleantech start-ups over theyear

Per capita data reveal a more distributed picture, where Lithuania, Ireland, Estonia, Finland, Croatia and Denmark are all seeing sizeable investment in the sector. This reinforces our belief that cleantech is an opportunity for all Member States

top cleantech vc deals of the year
‍‍EU and worldwide

Early-Stage investments

(Seed and series A)

the new funds and top exits of the year
‍EU

investor news

€150m

Climentum Capital’s inaugural fund, aimed at reducing CO2 emissions and accelerating Europe’s green transition, reached first close at €150 million

€410m

Kiko Ventures announced a €410 million evergreen cleantech venture platform

€150m

Demeter and Cycle Capital announced the first close of their Circular Innovation Fund, a €150 million fund aimed at scaling circular solutions

$145m

TiLT Capital Partners announced first close of its Fund I at €145, backed by the European Investment Bank, the European Investment Fund and BpiFrance

$600m

McWin partners launched the McWin Food Ecosystem Fund, a €250 million strategy focusing on the agtech industry

IN FOCUS:
‍the need for a European grid strategy

The dual climate and energy crisis is putting pressure on the EU to accelerate the transition of its energy system, from one reliant on imported fuels to one running on renewable energy

The European Commission just proposed to raise renewables targets from 40% to 45% by 2030

The grid of the future needs to accommodate more flexible assets while supporting increased levels of electrification. It can do so with a mix of grid capacity build-up, seconded by a wide deployment of innovative grid technologies, like grid flexibility, aggregation, vehicle-to-grid, nowcasting, etc.

EU DSOs forecast an annual investment increase of 50-70% over the next ten years to adapt

The graph below shows VC investments in grid and networks innovation is already very high in North America, but lagging in the EU. To catch up, the EU should come up with a clear strategy for how to integrate new grid technologies into grid improvement plans.

eu innovator profile

Sympower operates an automated demand-response platform to optimise the energy consumption of its customers while contributing to grid stability.

Founded in 2015 and headquartered in Amsterdam, Netherlands

Raised €5.2 million Series B round led by Kees Koolen with participation from Rubio Impact Ventures, PDENH, Enfuro Ventures and Casper Peeters

Funding will be used to enter new European markets, including Greece and Czechia

Demand response facilitates the integration of variable renewable electricity by regulating consumption to compensate for discontinuous generation patterns

Discover Sympower

>

eu policy update

REPowerEU Plan

What is it?

On 18 May, the Commission published its REPowerEU plan outlining the EU’s path to energy independence from Russian fossil fuels by 2027.
Key measures include:

96% of REPowerEU investments by 2030 intended for non-fossil fuel infrastructure

New targets of 45% of renewable energy and 75% of renewable hydrogen by 2030

Investments to update power grids

Fast-track permitting of renewable energy projects

EU-wide scheme of carbon contracts for difference to support renewable hydrogen

Reference to several key clean technologies to support the transition such as energy storage, hydrogen pathways for industry, geothermal

Potential impact on cleantech

Cleantech named as an EU strategic priority: the plan leverages a combination of measures allocating public funds earmarked for COVID recovery to Horizon Europe, the sale of emission credits under the EU ETS and the roll-out of carbon contracts for difference to scale clean technologies

Increased demand for renewables: strong impetus for the massive deployment of wind, solar and heatpumps

Look out for

Lack of operationalisation strategies: absence of concrete deployment strategies for technologies like energy storage

Inefficient energy targets: national targets to reduce energy use remain indicative. National binding targets could enhance regulatory investment security to tap into the full energy savings potential of Member States

Buildings renovation: need for more specific instruments such as Mortgage Portfolio Standards to support renovations

Taxonomy Complementary Delegated Act

What is it?

On 2 February, the Commission released the Complementary Climate Delegated Act (CDA). The CDA puts forward specific technical screening criteria under which activities in gas and nuclear sectors can qualify as green investments under the Taxonomy Regulation.

The European Commission included these activities in order to facilitate the transition towards a “predominantly renewable-based future”.

While nuclear energy is a zero-emission energy source, gas is not. Methane emissions from gas activities have much greater impact on climate change than CO2 emissions.

On 14 June, the European Parliament Committees in charge of scrutinising the CDA rejected it. Despite this pushback, on 6 July, the European Parliament plenary greenlighted the CDA, which will enter into force on 1 January 2023. Austria and Luxembourg have announced their intention to take legal action over the CDA as it conflicts with many EU environmental laws.

Potential impact on cleantech

Derailing the EU’s climate trajectory: Additional gas capacity will result in large amounts of locked-in GHG emissions

Undermining the EU’s energy independence agenda: With most of the gas in the EU coming from Russia, further investment in gas will only result in greater dependence on an energy source that has proven to be extraordinarily volatile

Jeopardising the EU’s cleantech leadership: Inclusion of gas will divert capital allocation from clean technologies. Increased competition for funding with gas could encourage clean technologies to migrate to other jurisdictions, thus harming the EU’s green industrial leadership

Disincentivising institutional investors from investing in cleantech: Until now, the Taxonomy has been considered the green global standard. Including gas in the eligible activities will cause confusion on what constitutes a green investment and will limit investors’ ability to align their portfolios and investments with net zero targets

A new European Innovation Agenda

What is it?

On 5 July, the Commission unveiled its innovation roadmap, which sets forth both legislative and non-legislative actions to position the EU as a global innovation leader.
Key measures include:

Developing regional deep-tech innovation valleys across the EU in sectors such as AI, blockchain, quantum and cleantech

Training at least 1m people in cleantech and deeptech skills over the next three years

Tracking the uptake of innovative solutions and services in public procurement

Easing the listing process for start-ups and tackling the tax bias in favour of debt funding

Putting in place test beds to trial innovations in the hydrogen economy

Potential impact on cleantech

Regulatory clarity around innovation: putting forward concrete definitions related to startups, scale-ups and deeptech innovation will make the EU’s regulatory framework fit for clean energy innovation

Increased access to funding: reducing the cost of listings and making equity more attractive will channel more private money into cleantech

A new impetus for renewable hydrogen: establishing innovation test beds for renewable hydrogen under Horizon Europe will ramp up demand for green hydrogen solutions

Look out for

Administrative Delays: the agenda foresees a strengthened role for the European Innovation Council, which recently went under fire for delaying grant payments to start-ups

Fragmentation of the EU innovation ecosystem: connection to global ecosystems is key to the success of regional innovation valleys