European green energy companies often fail to finance

LONDON – When Jacob Bittner was seven years old, he left Russia for Germany with his parents and sister. Twenty-eight years later, he was bent on solving a pesky green energy problem that could help Germany end its dependence on energy imported from Russia, or elsewhere.

The problem: How do we provide wind and solar energy 24 hours a day, seven days a week, even if the sun isn’t shining or the wind isn’t blowing.

The company he co-founded in Munich in 2016, VoltStorage, has found some success selling solar storage battery packs to homeowners in Europe. The company is now developing much larger batteries—each about the size of a shipping container—based on a chemical process that can store and discharge electricity over days, not just hours like today’s more popular battery technology.

These ambitions to overcome the unreliable nature of renewable energy fit perfectly with Europe’s goals to reduce dependence on fossil fuels. But Mr. Bitner’s company faces a frustrating reality that threatens to undermine Europe’s plans and poses a broader challenge in the global fight against climate change: a lack of money to finish the job.

Mr. Bitner said VoltStorage “significantly” needs more money to develop its new battery technology. In 2020 and 2021, the company raised 11 million euros, or 12 million dollars. Now, it is trying to raise up to an additional 40 million euros by this summer.

“Although we have great early stage investors from Germany and Europe who continue to support us, it is very difficult to raise the tickets we need at the moment,” Bitner said, referring to individual investments.

Europe offers a preview of the rest of the world. The European Union has strict targets for reducing greenhouse gas emissions, and there is broad political support for tackling climate change. The union pumped public money into grants to develop new technology.

But after getting initial startup money or grant funding, companies are struggling to raise money for the kind of innovative, large-scale projects needed to complete the transition from carbon-neutral energy sources. The financing gap means Europeans face the prospect of falling short of ambitious climate goals or further energy shortages and rising costs.

Experts said solutions are available if a payment is given. Nearly half of the emissions reductions to meet net-zero targets by 2050 will come from current technologies in their infancy, according to the International Energy Agency. In theory, there is plenty of capital available globally for the multibillion-dollar mission to fund this transition to greener energy.

The war in Ukraine made the energy transition in Europe more urgent. The European Union has said it will cut imported Russian natural gas by two thirds this year and by the end of the decade. While some of this supply will be offset by imports from other countries, such as the United States and Qatar, expanding domestic renewable energy capacity is a mainstay of this plan.

But attracting investors to projects that try to bypass mature technologies such as solar and wind is difficult. Venture capitalists, who were once green energy pioneers, are more and more fascinated by cryptocurrency and startups that deliver groceries and beer in a matter of minutes. Many investors are put off by capital-intensive investments. Governments have further muddied the waters with inconsistent policies that undermine their bold pledges to cut carbon emissions.

Tony Fadell, who has spent most of his career trying to turn emerging technologies into mainstream products as an Apple CEO and founder of Nest, said that even as the world faces the risks of climate change, money is trickling into less urgent developments in cryptocurrency, which The metaverse and digital art collections sold are called NFTs. Last year, venture capitalists invested $11.9 billion in renewable energy globally, compared to $30.1 billion in cryptocurrencies and blockchain, according to PitchBook.

Of the $106 billion that venture capitalists invested in European startups last year, only 4 percent went to energy investments, according to PitchBook.

“We need to be realistic,” said Mr Fadel, who now lives in Paris and has proposed energy policy ideas to the French government. Too many people invest in things that won’t fix our existential problems. They only invest in quick money.”

The green tech boom has never helped burn off the industry before. About 15 years ago, green startups were seen as the next big thing in Silicon Valley. A leading venture capital firm, Kleiner Perkins Caufield & Byers, has made former Vice President Al Gore a partner and has pledged that clean energy will eventually make up at least a third of its total investment. Instead, Kleiner has become a cautionary tale about the risks of investing in energy-related companies as the company lost early support to social media companies like Facebook and Twitter.

There is evidence that these old fears are receding. Two years ago, 360 Capital, a venture capital firm based in Paris and Milan that deals in early stage investment, introduced a fund dedicated to investing in clean energy and sustainability companies. The company now plans to open the fund to more investors, expanding it to 150 million euros from 30 million euros.

There are a growing number of funds dedicated to energy investments. But even so, there is a tendency for companies in them to be software developers, and they are considered less risky than builders of large-scale energy projects. Four of the seven companies supported by the new 360 Capital Fund are artificial intelligence companies and a software provider.

The situation has completely changed since the company’s first major green energy investment in 2008, said Fausto Boni, the company’s founder. “We see a lot of money potentially entering this sector and many of the problems that we had 15 years ago are on the way to overcome,” he said. But he added that the availability of larger investments needed to help companies expand into Europe was still lagging behind.

Breakthrough Energy Catalyst, backed by Bill Gates, is trying to bridge the gap. It was formed in late 2021 to help move promising technology from development to commercial use. In Europe, it is a $1 billion initiative with the European Commission and the European Investment Bank to support four types of technologies — long-term energy storage, clean hydrogen, sustainable jet fuel and direct air capture for carbon dioxide — that it believes need to expand rapidly.

In Europe, there are “significant difficulties in the expansion phase,” said Anne Mettler, vice president for Europe at Breakthrough Energy and former director general at the European Commission. She said there is money for start-ups but when companies become reasonably successful and a little bigger, they are often acquired by US or Chinese companies. This leaves fewer independent companies in Europe focused on the energy problems they have set out to solve.

Companies that build complex — and often expensive — devices, such as Mr. Bitner’s long-term energy-storage batteries, have particular difficulty finding investors willing to take the risk. After a few investment rounds, the companies are too big for early stage investors but too small to attract institutional investors who are looking for safer places to store large amounts of cash.

“If you look at typical climate technologies, like wind, solar, and even lithium-ion batteries, it took more than four decades to go from early research and development to large-scale commercialization and cost competitiveness,” Ms. Mettler said, referring to research and development. “Four decades – we obviously don’t have it.”

There are some signs of improvement, including more money focusing on clean energy or sustainability and more companies securing larger investment rounds. But there is a sense of frustration as European investors, companies and governments agree that innovation and adoption of new technology must happen much more quickly to significantly reduce carbon emissions by 2030.

“You will not find a place in the world more in line with what is required of Europe,” Mettler said. “It’s not because of a lack of ambition or vision – it’s tough.”

But investors say government policy can help them more. Despite climate pledges, regulations and laws in place have not created strong enough incentives to invest in new technologies.

Mr. Boni, founder of 360 Capital, said industries such as steel and concrete should be forced to adopt environmentally friendly production methods.

For energy storage, hydrogen, nuclear and other large projects, the government should speed up permitting, cut taxes and provide similar funds, according to Mr. Fadel, who has put his personal fortune in Future Shape, which supports startups that address societal challenges.

“There are very few investors willing to put in all the effort to put up $200 million or $300 million,” said Mr. Fadel. “We need to know that the government is on our side.”

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