At the 2015 UN climate conference that delivered the Paris Agreement, Bill Gates announced that a coalition of 28 high-net-worth investors from ten countries had committed to establishing the Breakthrough Energy initiative, a group of initiatives aimed at accelerating innovation in clean energy and other technologies to achieve net-zero emissions. The following year, a group of investors collectively worth $170bn committed to a $1bn fund “focused on fighting climate change by investing in clean energy innovation“. In the years since, Breakthrough Energy Ventures’ (BEV) two funds have invested in a variety of start-up companies attempting to commercialise new climate-focused concepts such as nuclear fusion, large-capacity batteries and microbe-generated biofuels.
Energy Monitor caught up with Carmichael Roberts, who co-leads BEV’s investment committee, to discuss what 2023 has in store for the world’s energy transition and how BEV intends to help advance it.
How would you describe 2022 from the perspective of the world’s energy transition?
The past year was an important one, full of policy and investment milestones that have given the energy transition a real momentum that we are optimistic will continue. Notably, renewable energy [generation] surpassed coal power [in the US] for the first time in over six decades. The passage of the Inflation Reduction Act (IRA) may be the single most important piece of climate legislation in American history. Through its new and expanded tax credits, as well as a long-term approach, the IRA ensures that critical climate solutions have sustained support to develop into new industries. In 2023, we will start to see the early impact of this legislation take hold in terms of increased investment and adoption of climate technologies.
What were the highlights from your own investment portfolio; how much did you invest over the year?
We [BEV] invest across five grand challenges: electricity, transportation, agriculture, manufacturing and buildings. These are the broad areas of activity that contribute most to greenhouse gas emissions (GHG) and where we can have an outsized impact. We have $2bn in committed capital and as of the end of 2022, our portfolio exceeds 100 companies.
Can you explain your approach to investing and the different types of financial instruments you use?
Breakthrough Energy is dedicated to accelerating the clean energy transition and helping the world reach net-zero emissions, so our venture team invests in companies whose solutions have the potential, at scale, to reduce emissions by at least half a gigatonne every year. We also take a hard look at where emissions come from so we can try to fill critical gaps in climate technology. We invest in companies at all stages of development and capital formation, and we uniquely provide flexible and patient capital with a 20-year horizon. We're seeking true breakthroughs in these sectors [we invest in], and to get there we also bring to bear our unique combination of technical, operational, market and policy expertise. It’s important that we continue to invest in new ideas and innovation but also help scale the companies and technologies that are [already] ready for commercialisation.
What will be the key drivers of the net-zero transition in 2023? Do you think the inflationary, energy security and supply chain constraints will persist or start to tail off over the course of the year?
Despite the groundswell of interest and investment in climate tech, we know that reaching net zero by 2050 is going to be an incredible challenge. We also need to acknowledge that climate change is already impacting our communities. That’s why we’re also looking to invest in adaptation and not just mitigation solutions.
Here in the US, the IRA will mitigate the risks for climate tech, giving a big boost to US-based manufacturing, allowing entrepreneurs the opportunity to scale here, and increasing the level of confidence amongst investors. These incentives take a lot of risk off the table for entrepreneurs and those looking to adopt new technology.
In Europe, I think the heightened importance of energy security will accelerate the continent’s move towards clean energy and allow some critical climate technologies to deploy much faster than they otherwise might have. We will hopefully see that pick up steam in 2023 as countries prepare for a more challenging winter [in 2023–24] caused by a more complete closing of Russian gas supplies.
Which clean technologies and companies should we be looking out for in 2023?
I think you’ll see a lot more activity in reducing methane emissions. Historically, methane has been seen as a secondary priority to CO2 because it doesn’t stay in the atmosphere as long, but methane makes up 20% of GHG emissions and is 25 times more potent. If we focus on methane now, we can have a significant impact on near-term climate warming. I’d watch this space.
What are Breakthrough Energy Ventures’ objectives for 2023?
We are at a unique moment of opportunity as many climate technologies that have been under development over the past few years are becoming ready for deployment. It’s critically important that we help our later-stage companies become commercially successful. That might mean helping companies understand the opportunities presented by the IRA or opening doors to corporate partners. We need to be part of the scale-up process and get these technologies to market faster as we enter the moment when that acceleration is possible.
While we believe the IRA incentives will help new climate tech attract capital, we know that it’s been an increasingly challenging environment to raise venture money. So we are also focused on supporting our portfolio through that [fund-raising] process and building strong syndicates.
You said you are looking to invest in the climate adaptation space – can you provide some examples of the types of companies and technologies you will be investing in?
We’re at the beginning of forming our adaptation investing strategy, so we’ll have more to say in the future, but two areas where we see a need for investment are port resilience and water. For example, we’re exploring how to make ports more resilient to the extreme weather that accompanies climate change. There’s a considerable amount of technology that needs to be developed to harden port infrastructure against the impacts of global warming, whether that’s active mooring systems, cranes that operate in high wind conditions or others.
Another area is water availability. One of our existing investments, SOURCE, is a good example of a company solving for water in an innovative way, but we’ll also likely need new approaches to desalination, and that’s one area we’ll be exploring.
It’s important to point out that the best mitigation technologies also serve adaptation needs, and another current portfolio company, Vantem, is a great example. Vantem’s factory-built homes are both energy efficient, helping to mitigate the climate impact of buildings, and climate-resilient, with the ability to withstand category five-hurricane winds, category eight-magnitude earthquakes, and fire temperatures up to 3,000°F.
Can you expand on your plans for a “later-stage fund” to help clean-tech start-ups begin building plants and scaling up their technologies?
As I mentioned, we’re at an important moment in the climate tech industry when a lot of companies and their technologies are reaching a new level of maturity, so the intent of a later-stage fund is to really support their scale-up. We want to get these technologies to market as soon as possible, and that’s going to require new forms of support and investment such as helping drive activities like demonstration projects that require significant capital. Most of the investment will go through our current portfolio but not all. We cannot meet net-zero goals without scaling the bets we’ve made.