Welcome to zero. I'm Akshatrati. It's an interesting moment in the climate fight. Twenty twenty four will be a year of many big elections around the world, and the governments that end up with power will determine the pace of the energy transition no matter what politics prevail. One thing that will continue to speed up the transition is technology. But even there the picture is a little bit mixed. Right now. Last year saw record spending on clean energy,
reaching one point seven trillion dollars. That's six hundred billion dollars more than what was spent on fossil fuels, and yet it is still far short of the four point five trillion dollars in clean energy investment needed to be on track to meet climate goals. And by design, clean energy spending is front loaded with the cost of installing, say,
solar panels or wind turbines or hydrogen electoralizers. That's becoming more difficult in an environment with high interest rates, and of course those are not the only technologies the world needs. Industrial sectors like steel, cement, and plastics also need to be decarbonized. Earlier stage technologies need venture capital funding, which is also falling, but some emerging companies have found a way to successfully take their technology to the market. How
did they do it? That's the question I ask Claire Curry, Global head of Technology, Industry and Innovation at Bloomberg NEF. We also talked about investment trends in climate tech and how to find the best early stage startups. Claire, Welcome to the show. Thanks for having me. Now, one of the things that is poorly understood about the energy transition is how much climate tech and climate tech investments from early stage all the way to scaling them up matters.
And we're going to talk a lot about how exactly that works, how different types of startups have used that journey to try and make the commercial case for being around. But let's start with a basic understanding of where we stand on investments in the energy transition now. Plumageney, I've put out a report saying last year was a record investment year. One point seven trillion dollars were invested in all kinds of clean energy technologies at scale, but that
is still far from what is needed. We're about a third of the way for the energy try to be on track from night zero. If you look at that number, the one point seven trillion number. How do you think about where the energy transition is going and which of the sectors are getting that kind of money.
We'd a really pivotal moment right now in the transition. We've spent fifteen years or so scaling solar, wind, lithium, ions, so batteries, really those three things actually, and that's been amazing, huge effort, and most of that one point seven trillion went to those three areas, plus an investment in grade expansion. That's great. We need lots more of that, so keep
on building those projects. And they've really worked towards at least a path for us to see how we can clean up the power sector and at least passenger vehicle transport sector through electrification. So that's almost half of the CO two PI. We emitted about thirty seven giga tons of CO two last year, almost half of that. We have a route to decarbonize. We're far from doing it, but we know how we can do it. It's now
a scaling investment problem. It's not technology problem. I mean, in generalizing, we still have commercial transport, industry, materials and ag and food to decarbonase, and we are less certain how to do that. There are some cool technologies and we'll talk about them, but many aren't scaled, and many
are scalable but aren't gained the financing. Well, really, where we are now actually is I said, it's pivotal because last year, for the first time, we began to see the tens of billions being invested into those technologies to scale the other half of the pie. Those technologies include carbon capture, hydrogen, drop in biofuels, some nuclear, some geothermal heat pumps for electrification of buildings, and we saw I mean, for CCS it was about eleven billion was invested in
projects that are going to get built. Hydrogen was about ten billion. So we're seeing small numbers, but obviously it's a fraction of that one point seven you mentioned trillion.
Now that is the total amount of investment going in and this is of course, the tens of billions are typically to work commercial scale, but most of the technologies that will be crucial for reducing emissions from industry and from agriculture are still at an early stage. And one of the ways in which these early stage technologies get to scale is through a model that's been perfected over
the past three four decades. The venture capital model, where you have investors who are taking on a big, risky bet, typically one hundred companies and maybe ten of them will become commercial, ninety will fail. And that's been a very important part of the climate tech story. In recent years, we see investments have just been going up and up. That's starting to change now. The numbers that you have for Bloomberg and If show that things are flattening.
That's true, and that's actually not it's no reflection of the appetite in the market. There's actually more dry powder i e. Money that's been raised by climate funds that hasn't been spent yet than ever before. I think it's about fifty billion dollars. There's lots of appetite to raise money in this space. The challenge is just generally macroeconomics. As we all know, the economy has not been great
for venture capital because of interest rates. Last year the global VC market fell into has a dollars spent by thirty eight percent, Yet before it was as much again, so really it's a twenty three one huge peak. We've now seen a huge job climate tech. Therefore, you could say being steady the last two years is a success story because it now comprises a higher percentage of the
total market that it used to. But there is quite a lot of nuance in there, and it means we may continue to see it flat, which obviously is not good for startups. Don't it raise money?
And the reason why, even though venture capital itself is falling investments in early stage companies has remained flat in how you measure it at Bloomberg en EF which is venture capital and private equity money. So why is the bee part, the private dec DeepArt so important in this story.
Yeah, So the way we track the VC or startup climate tech financing world is to track deals money raised by startups. Now we classify as startup in our space, is anyone that's privately backed, so not public raising from angel and seed stage. They're very small amounts of money really right through to the whole alphabet. Right it's Series
A through to PROBYG. At what point they normally get acquired or they go public or they scale up it where they need to raise private money anymore, they're profitable. That means many of those companies at Series A, great, they're just raising VC money. Many of the companies at Series C through the g are actually attracting now what we would call growth equity. It's not classic pe that do a lot MA. It's more companies that have that want to write one hundred million dollar check sizes because
their fund is two billion dollar size. They're diferently not the VC size. We think that money is going to be increasingly important, so we track it because actually is an increasing share of the pie, particularly in Asia.
And this is a very good place to understand the journey of a startup. Right roughly, there are five stages. You can slice and dice it different ways. The first is you inventor technology, then second is pilot, the third is you demo it. You show that it can actually work at a reasonable scale, then you build what would be a first of a kind commercial plant, and then
you finally build a scaler plant. In my head, the easiest way to understand it is to think about a steel startup, for example, and invention is making grams in a lab. Pilot is making kilograms in a startup in a decent lab, but not a big lab. Demo is where you make tons of that material. In your first of a kid you're making thousands of tons, and then in a commercial scale, you're making millions of tons, so that each step is sort of a thousand times more
than what you've done in the past. And many of these startups have struggled at a very particular stage, which is going from demo to commercial. There's the first of a kind plant that needs to be built. Let us talk through a few examples of some of the companies that have achieved that.
Yeah, that it's often called the value of death, which sounds very dramatic, but many startups fail at that point. It's pretty helpful for me to mention a few reasons before you go into the examples. One is the kind of capital you need. Changes vcs might fund, as you say, your kilograms of production, they aren't big enough check sizes to fund the hundreds of millions of dollars you need to raise for your commercial so you need to suddenly attract project equity from banks or pe firms or other
investment firms, and maybe debt. Both of those are incredibly hard to attract because they don't like technology risk, they don't like first of a kind. If they do, they charge you lots of money and then your project becomes unprofitable.
They like margins, and that's quite hard to achieve. A lot of climate tech, particularly first of a kind, they like secure guaranteed revenues, and that again is tricky if your firstive a kind is making a brand new product never made before, or if you're making your product with a green price premium, among many other things. But this are some of the challenging, challenging reasons to get from demo to commercial.
And there are examples that we need to pick, and particularly maybe examples that are in these hard, harder sectors such as industry or agriculture. One that comes to mind that I've followed for some time now is Lancetech. This company is now more than ten years old. Came up at a time when there was a demand for the product it was making, and then it went through a very difficult cycle of that product not having that investment. Just talk us through its journey.
Yeah, lanc Tech is a great example, found in two thousand and five, so actually, yeah, pretty old. And I think it's the first thing. This stuff takes time. It's very rare to see a startup founded and then bang, bang bang, they get all these five steps in a few years. So yeah, it's taking them some time there. She went public I think last year, but privately backed by vcs up to then. In nutshell, they have a microbe or many microbe types that turn nasty kind of
industrial gases or waste bio mass to ethanol. When they were founded, their US market was very keen on ethanol as the future of road transportation, so that was their target market. As you said, since ethanol still exists, it's a huge market, but it's no longer the darling of the transport market future. It's pivoted. And they've done two things really well. One is most startups have to build, own operate. That's the demo to commercial value of death,
raising hundreds of millions of dollars. Landadech instead found a niche of clients willing to actually license its technology from day one pre commercial project and then pay to build the plants. That's pretty cool. They did this through seeking out. Chinese steel company were mandated to stop emitting lots of unburnt nasty processes from coal to steal from their plants. So the government managed them, you need to do this
and will shut you down. So they formed a JV paid Lancetech to license the technology to eat up their nasty off gases tenet ethanol. Lance Tech had the option to buy the ethanol and sell it on. So it's two revenue streams straight from the bat. It's the licensing of the tech and it's the ethanol revenue and de risking them need to invest in the projects.
And the bill to operate model versus a licensing model is basically a capital play. If you're building and operating, you are going to be spending hundreds of millions of dollars doing that. When you're licensing, you're actually generating revenue immediately. You're not actually putting in the money yourself, and so that allows a startup to be able to continue scaling its technology and also learning from somebody else building it out completely.
You're de risking a lot. The reason we will don't do it twofold one is it's less money. Overall, licensing revenues are going to be much less than if you own the plant and sell the output of the plant. Second, really hard to persuade a customer to license your tech if it's unproven, but lands that don't manage that. The second thing that they're doing that's really cool is they've been flexible the output product not possible for everyone, but
for chemicals companies, definitely possible. And they've proven a way of also getting companies to pay them to do the R and D, which is pretty cool. So they now have revenue from projects they've done with Lululemon and H
and M to make low carbon fibers for clothing. They've been paid by Laurel to produce new low carbon plastic packaging, so it's really cool to see they're able to get that third revenue stream from new R and D. And then they're developing as I said, I think I said about twenty different high value chemicals from the ethanol, higher profit margins and much more diversified which means lower risk.
More from the conversation after the break, Let's look at another recent darling of the investment industry, especially in climate tech. H to Green Steel last year raised billions of dollars, which is very difficult to raise a because of the environment it is in, but also just the sheer number right, climate tech companies raising billions of dollars are accountable on fingers, and so what was it about h to Green Steel?
A company that's going to try and make steel without the carbon emissions gaining that much money.
Yeah, and they already found it in twenty twenty, so they bucked the trend I mentioned earlier. Part of that is we are now saying companies scale faster too commercial because suddenly the last three years everyone's worken up to the fact climate change is here and we need to decarbonize these hardwarebate sectors. So it's right time, right place. Great backers. They have very experienced team from industry that
all helps, I think, reassure investors, and you're right. They raised almost about seven billion euros to build their first commercial project. They've done two things which is clever and I think could be replicable in steel but in other industries too. The first is they managed to convince investors that they are not technologically risky, which is fascinating because they're really a first of a kind in many of the technologies they're using, but they license they're not actually
technology inventors. They are licensing tech from many other players. Hence where they can scale so quick. And their secret source is enough expert executors who they've hired out of the industry, who say we can build a project greenfield. So from scratch that is perfectly optimized and digitalized and cutting edge equipment, which means we can make the cheapest kind of green steel out there compared to other companies
doing retrofits or other stuff. That's the first thing, and that actually attracted debt and project equity that otherwise probably wouldn't have been interested in a first of a kind. The second thing they did was sign off takes. You can de rescue project as much as you want, but
without customer demand, it's hard to get investors. And ptentially because of their network, they manage to sign off takes with Mercedes, Benz, Scannier, Ikia, loads of really big brand names who are willing to pay up to fifty percent premium for the steel because it's low carbon.
And these customers the steel component is actually a very small part of the products they typically sell, Like Mercedes Benz, steel is going to be what one two percent of the price of the car, But if that one or two percent becomes three percent doesn't really matter. But then it does matter on their carbon footprint, it doesn't matter in their marketing of the goods. And those connections were readily available to each to Green Steel because they had
backers in the battery space. They had backers from this and other startup North World, which is making batteries that has connections into the auto industry.
Yeah, exactly. That definitely helped. I think the jury is still out on how big the green premium green steel market can get. Yes, you can sell. I mean I think the Mercedes benz Off take was about fifty thousand tons, so it's not huge. So it is a drop in the ocean of all the other steel that they're buying. You're right, if you made an entire chassis of a car with green steel, it would cost about two percent
more to the consumer. If that's a very high end electric, low carbon vehicle sold to a wealthy individual, You're right, it doesn't matter. It might matter to the average person. And the real question about green materials not as green steel, green plastics, green cement. If there is this persistent premium required, does it hit a ceiling. The example always used is
fair trade coffee. Right, people love their idea of fair trade, but it hits feeling and it really hasn't grown as a market in a decade because those who can afford to pay more do, But that percentage of people isn't growing, and so will we see the same thing with green steel. Will it remained the premium of German auto makers who can afford it, or will it actually end up being embedded in all of our buildings, our bridges and so forth.
For a different topic at a different time. There's some really cool work governments are doing to try and procure green materials and make that reality true for everyone, not just rich car buyers. But it may not work well.
The theory is that, at least initially, if you can get to a place where somebody is buying the green premium, you make enough of it, you make enough plants that make it that green premium actually goes away. Now that's just theory, right, because it's fair trade. That's the case that hasn't been proven out to be true. But before we get into what are some other bets that could try and maybe crush this green premium to zero or even negative, let's talk through the third example.
So the third example is interesting area that I think people know less about than the other two, and it's the area of plastics recycling, which is both a waste problem it's also a netzerio problem. Today, plastics about ten percent of our plastics is recycle globally, so it's pitiful and almost all, basically all of that is mechanical recycling. It will only take clear like plastic bottle type things, and it will make worse quality plastics from it, like
throwaway cutlery, so it's not great. There is a whole wave of mostly startups developing this thing called chemical recycling. Basically, you can take in the stream of dirty colored, mixed wavee plastic and turn into a pseudo kind of crude oil again really, and that can then be used and upgraded into anything, and it's completely circular forever and ever. And our company we're going to talk about is Mirror Technologies.
They commissioned last year their first ever commercial plant in the UK doing exactly this process chemical recycling, and it's pretty exciting. It's twenty thousand tons per annum then make and they've been around it to an eleven so again, it's taken them quite a long time to get here.
Now as a chemist, recycling of plastics is possible. It's always been a cost problem, right, So what is it that Mirror has been able to do that? They've been able to overcome that and actually make a commercial case for their product.
Yes, recycling doesn't make money generally at this moment in time, maybe be true forever. But we're seeing low scrap plastics prices, particularly for waste plastic that literally otherwise it's going to get land filled, and so you are paying very little for your feedstock, which is take one of kind of business model excellence for climate tech startups. Second, there is a lot of policy right now in the UK and
France and the EU generally that is mandating. In the UK, the mandate is thirty percent of plastic made has to be recycled or circular economy plastic. Now that just isn't available right now to producers. They're really scrambling and that is enabled a price premium. It's not a subsidy. It's really just the government mandating has meant companies are desperate to buy this product that Mira has, which means companies like Mira. Our BNF calculations show about a thirteen percent IRA.
Now normal chemicals plants are about eight percent. So this is a better investment just without the green tag than investing in other chemicals projects.
Right, and IRR is just the rate of return, So thirteen percent for every million dollars that's invested, exactly. And these are companies now that are at that place where they have gone over the value of death, build a first of fu kind, and are starting to get to the commercial stage. But among the many things that BENF does, you also go at the very early stage of startups and you try and identify, given there are now hundreds of these coming up every year, the most promising ones,
and some of them you give awards to. Which is a list that you've announced just this week. Talk us through some of those winners.
Yeah, i'd love to so BNF pioneers this innovation competition. It's been running now since twenty ten, and every year we have about ten to twelve winners out of one hundreds of applicants, and more recently we've been picking themes for the year. There are so many interesting companies out there, but BENF wants to try and pick companies that are relevant for today's problems and really for actually tackling climate change or decarbonization before twenty thirty. It's great that there's
twenty fifty solution, but we can't wait that long. So this year we chose three challenge areas we want to relieve the bottlenecks on the grid. There's loads of issues of permitting right now to get reneaebles on the grid, there are some tech solutions. Second is decarbonizing buildings in the built environment, huge cause of emissions. We're still not
entirely sure how to get there economically. And the third is let's just try and develop a great next gen zero fuel because right now we're really struggling to know how to decarbonize aviation, shipping and tracking.
And just to give the listeners of flavor of the kinds of startups that end up winning this award, what are your favorite examples from this year's winners.
Well, yeah, so we have I think eleven winners this year, and they're all great obviously, but the ones we could talk about I think exemplify some of the themes we've already discussed. There's a couple of really great ones in the relieving grid bottlenecks challenge. Many people think that's just about permitting and policy, but there's some call tech stuff. One example that use is a hardware company example called ts Conductor, the US based, and they have basically developed
a technology. It's a carbon fiber core wrap with aluminium wrapped around it, which will triple the line capacity how much power you can push down in existing above ground power line. That's huge because one of the hugest w is building out the grid is permitting to build new wooden poles in the ground. If you can replace those wires and triple the power capacity and have line losses, that's amazing and it's a four year payback. The issue
TS Conductor has is it's expensive. We talked about that before, and utilities in the US are regulated to not spend lots of money, so they're going to struggle to sell this stuff. It's two to three times the cost and to an interesting model to do exactly that, basically try and get it deployed.
So you replace the copper cable with a cable that's made out of carbon fiber and aluminum.
So it's currently aluminum. Yeah, in the US, wires wrapped around steel core. The steel helps strengthen the aluminium starts sagging. You only to push much power of the aluminium before all the wires sag. And I'm sure you've seen sagging wires in the US very very dangerous. What the composite core does it's just ten times stronger than steel, so you can actually push plenty more current through the aluminium and it won't sag because of the carbon fiber core. It is expensive, but yeah.
Well they're also coming in at a time where copper prices are going up. The ability to get copper cables has been a real struggle for the grid industry. So that's a good example. What's another one.
So in the buildings challenge, we have some great companies. One particularly has been around for a long time, so Aero Seal. They were found in nineteen ninety six. They're actually bought by Carrier in two thousand and one, I believe, and it just went nowhere, and that can happen big companies, buyer, startup, don't know what to do with it, let it languish. The founder, the initial founder of aero sal rebought the company from Carrier in twenty ten because he could just
see it going nowhere. And since then they've managed to scale massively. They are making lots of money. They I think have now done about two hundred thousand kind of installations of their product. And that product is they basically can retrofit commercial or residential buildings or new bills to be fully sealed ie airtight almost passive house standard, which obviously reduces losses. So is it basically an energy efficiency plan.
I actually got a chance to go and visit one of the aerocal processes in the US in Massachusetts, and yeah, we just entered a random person's home and they were kind enough to let us in to see how they do it. And it's fascinating. Like you, of course have to leave the house for that period and you have to let it dry and everything, but you don't have to deconstruct the house to put it back together to try and get this insulation in place. So we do
need real good solutions for insallation. And it's really nice to see a startup that is no longer a startup. I guess it's twenty years old, coming back to life now. The final example that you have is a steel company, and this is where you take h to green steel, which is a hydrogen powered steel production, which may not go down the green premium path as one would like, but there are these other startups that are coming up with even cheaper ways of making carbon free steel.
Yeah, there's only very few ways to decarbono steel. You basically make it as you do and add carbon capture always be more expensive. You instead reduce your iron ore with hydrogen rather than natural gas, which is what Hdgreen Steel is doing. Or you could electrify the whole process. That's really tricky, not done currently at scale, but actually we've now got three BNF pioneers winners who were doing that in the past. We gave Boston Metal the award,
last year, Electra and this year Element zero. All three are forms of basically electrolysis. Element zero is interesting, still very early stage, but they promise a couple of things. It's a bit different. One is they say they're not using a membrane and they're not using carbon electrodes, so there's no direct process zero two emissions from the carbon electrodes, and the membrane is very expensive and technically kind of fussy part of the systems. They're cutting out that cost
and that risk. The second cool thing is they say that they can operate with renewable intermittent energy. So obviously if you're in a xetrified process to make in a zero, it needs to use clean power. The cheapest clean power is solar and wind, but it isn't running all the time.
So unlike other electrification processes for industry that need to be twenty four to seven really power liability, what Element zero can do is actually be off for up to four hours, which is really cool, is to do what the heat capacity of the solvent it's using.
Now, I've been particularly fascinated by these electric options, and the electrolysis part is very simply just using electricity to do the chemical reaction that was being done either by hydrogen or coal, where they basically take the oxygen atom out from the iron ore which is iron oxide. Now Electra, which is the other pioneer winner, has reached pilot stage. They are actually making tons of this material sending it out to steel makers. What stages Element zero at they're.
Still very early stage. I mean more like a lab stage. I mean they might say pilot, but definitely behind Elektra. They want to build their first commercial vicility in twenty twenty nine, So that's there at Series A, if we go back to the VC discussion, they're raised about ten million dollars in there. At Series A. They have some private wealthy individuals that also are helping fund them, but really they're a way of building their first commercial project.
And like you said, many of these startups like Element zero are very early stage. With the funding landscape changing so much, it'll be interesting to see how they survive and perhaps thrive. Thank you, Claire, thanks having me for more on decarbonizing steel. You can listen to an episode of Zero from twenty twenty two on Elektra, and you can hear more on climate investing trends on Bloomberg. Anyf's podcast Switched On links to all that in the show notes.
Thank you for listening to Zero. If you liked this episode, please take a moment to rate or view the show on Apple Podcasts and Spotify. Share this episode with a friend or with a science nerd. You can get in touch at zero pod at Bloomberg dot net. Zero's producers are Mithyle Rao, Magnus Henriksen and Somarsadi. Our theme music is composed by Wonderly Special thanks to Kira Bindrim and Jessica Nix. I'm Akshatrati back soon.