By Julian Singer, 12 May 2020
Earlier this year the New York based financial and business news website Business Insider published a study listing twenty-one clean technology start-ups that it claimed would transform the industry. It was particularly interested to know if there were any unicorns (start-ups with a valuation of $1bn or more). Specifically excluded from the study were companies that make electric vehicles or the associated infrastructure, fuels from biomass or services in localised markets.
All are funded by venture capitalists, who are said to have invested $10 billion world-wide in this industry in 2019 following $14b in 2018 and an average of $6bn in the previous seven years. The sums are large – but not as large as in healthcare, for example. To value the companies the author used the services of Pitchbook and Crunchbase, two specialists in the analysis of private capital markets. How the values were established is not clear, but presumably involved estimating how much they get if floated or sold. Of the twenty-one companies, ten are judged to be in the range $150 – 250 million, six around $500m and five unicorns at $1bn or over. Fourteen are US-based, three in Canada, two in the UK and one each in Germany and Sweden.
It is interesting to note the sectors in which these companies are operating, and what size investments have been made. The most (six) are working on lithium-ion batteries, including three with valuations of $1bn or over (Sola Nantechnologies, Northvolt and QuantumScape). Sola, as well as two other lower valuation companies, promise much faster EV charging time through the use of a silicon-based anode and other improvements (“….as fast as refuelling a gas car” says one of them, California-based Enevate). QuantumScape promises similar improvements from solid Li-ion batteries[1].
It is not surprising that so much capital is invested in batteries, as the promised improvements would give a huge boost to EVs. What is surprising is that the technologies discussed are considered near commercialisation. However the list of major investors contains an impressive number of big names, such as BMW, VW, Siemens, Bill Gates and Amperex (China’s largest battery manufacturer). In fact the companies appear to be more like the R&D arms of major engineering firms rather than the typical disruptive unicorns.
The second largest sector concerns residential energy with two companies offering smart thermostats and two offering systems to reduce consumption. Then there is Bulb, a UK-based company with branches in France, Spain and the USA which is a supplier of 100 per cent green energy. It has grown rapidly since it was founded in 2016, but even so it is hard to imagine that any of the companies in this sector could become unicorns, given the amount of competition and relatively low margins. Bulb is estimated to be worth $462m, with the others around $200m.
Three companies offer equipment to convert waste to hydrocarbons (gas, oil or jet fuel). One, Fulcrum BioEnergy, has been operating since 2007 and is valued at $1bn, with large investments from airlines such as Cathay Pacific and United as well as BP[2].
Three others are industrial companies. Solidia offers greener methods of producing cement and concrete by capturing and using much of the CO2 produced, a worthy goal given that the manufacture of these products contributes some 8 per cent of global CO2 emissions. Lanza Tech takes CO or CO2 that would otherwise be released from industrial plants and converts them into hydrocarbons using microbes and water. Phononic uses a new technology to make highly efficient refrigerators.
The solar sector consists of Oxford PV, who use perovskite materials to improve the performance of solar panels (Greenbarrel, Feb 2019); and GlassPoint Solar, who use concentrated solar energy to produce steam for industrial plants.
Finally there are two companies developing nuclear fusion. Canada-based General Fusion is estimated at $200m, while TAE Technology is valued at $2bn, which is the highest in the list. It has been at it since 1998. Between them there is an impressive array of investors including Alphabet, Goldman Sachs and Jeff Bezos, not to mention government grants.
Overall, as an indicator of where major advances and profits will be made, the emphasis on batteries is understandable but seems overstated. The residential sector also seems overstated given the relatively simple technologies and likelihood of commoditisation. Fusion is the ultimate hope for decarbonisation but is still a long shot.
On the other hand, hydrogen and long-term storage are missing, possibly because decarbonising heating is seen as less of a problem in North America. Wind is justifiably absent because it has become the domain of large engineering firms with little likelihood of dramatic breakthroughs.
The amount of investment is large, but it is striking how much is provided by large, established businesses. The valuations are also very high especially when compared to AIM-listed start-ups working in the same sector, who have market capitalisations an order of magnitude lower. Most of the companies have been around for ten years or more, so start-ups may not be quite the right word. Tom Blum, a member of the Clean Energy Ventures Group, is quoted as saying “In most cases, these companies are not creating the sort of things that cause a lot of social media and other companies to sizzle, which is new networks. In most cases you are just replacing commodities that already exist”.
So, maybe not so revolutionary or exciting as the typical unicorn, but still important.
[1]As does AIM-listed Ilika Plc, with a market capitalization of £57m. See Greenbarrel, Jan 2020
[2]Similar to AIM-listed Velocys with a market capitalization of £16m. See Greenbarrel, Oct 2018