Feb 6, 2019
| 7 min read

Short Take

Investment Pulse Check: The Energy Sector

Welcome to a new series of Momenta Short Takes. These are short pieces that come after the Deep Dive, which provided details on key dynamics and forces shaping the disruption of different sectors. These Short Takes are to give you a "pulse check" on the current state of the market, to explore different aspects of the market evolution, and why it’s relevant.

 

As we discussed in our Deep Dive, the energy sector is poised for fundamental transformation with the transition away from carbon based fuels to clean generation – solar, wind and other sources – combined with cheaper energy storage, transforming the nature of the grid, the economics of the industry and the impact on society and environment. The energy industry is one of the largest industries globally – according to most estimates, the oil and gas drilling sector currently makes up something between 2% and 3% of the global economy. Given the immense global reach and scale, disruption is unlikely to occur quickly. 

Total investment in clean energy technologies declined slightly in 2018 according to Bloomberg New Energy Finance. Global clean energy investment in 2018 was $332.1 billion, declining 8% from 2017. This is a reflection of the declining cost of solar panels; solar investments dropped by 24% despite solar additions exceeding 100 GigaWatt for the first time in a single year.

 

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Despite the declining investment, renewable growth is expected to be robust over the next two years.  Corporate investment in PPAs is also a factor in growth, with clean energy commitments more than doubling in 2018 over 2017. 

 

Investments in batteries, electric vehicle manufacturing point to the future

Previously, we have discussed how the transition to clean energy, rise of autonomous technologies and adoption of electric vehicles will transform the landscape of energy and transportation. Beyond venture investment there’s significant corporate commitments into manufacturing and production. 

Batteries are one of the critical areas of constraints in this transition, and Tesla’s Gigafactory in Nevada is the highest profile facility focused on expanding production. India has partnered with Panasonic to bring a Gigafactory to their country while China is investing in multiple facilities. Price declines will follow as more factories come only, helping to accelerate adoption.

We are also seeing repurposing of existing manufacturing facilities from traditional combustion engine to EVs. GM has announced sweeping cuts to existing factories, while repurposing assets to focus on electric vehicles. Meanwhile, Google’s Waymo is planning new factories in Michigan to retrofit existing cars to self-driving technology.

 

Venture investments ebb and flow, but innovation remains healthy

Venture investments in clean tech come in waves, and a Brookings Institution report from 2017 highlighted declining VC investments in the sector. According to the analysis, between 2011 and 2016, VC cleantech investment declined by nearly 30%, from $7.5 billion to $5.24 billion.

 

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Despite the challenges that resulted from overinvestment in the sector in 2008 and 2011, there are growing signs of increasing VC investment. According to a report at Mercom Group,  companies in the battery storage, smart grid and energy efficiency sectors raised a total of $2.8 billion in 2018, up 87% from 2017. There have been new funds started to focus on clean energy, and investors appear to have learned lessons from the excesses of the prior cycle. Congruent Ventures, Breakthrough Energy Ventures, Green Bay Ventures and 1955 Capital, are all focused on investing in sustainable businesses.  Nonetheless, at the beginning of 2019, venture funding is not easy to come by for startups in the market– and there is increasing focus on turning to corporate investment such as Shell’s new fund.   

While traditional VC investments are improving, there’s encouraging movement around seed stage investment – with new incubators such as Powerhouse coming to market. Additionally there are new players in the market looking to consolidate the industry, including billionaire Patrick Soon-Shiong who has acquired Fluidic and Sharp SmartStorage in an effort to remake the global energy system.

The sector remains active for innovation and funding, as a quick glance at the Cleantech 100 shows. For innovators looking to participate in, and shape the global disruption and transformation of energy and transportation, there are many options at hand for funding. 
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Momenta Partners encompasses leading Strategic Advisory, Talent, and Investment practices. We’re the guiding hand behind leading industrials’ IoT strategies, over 100 IoT leadership placements, and 17+ young IoT disruptors. Schedule a free consultation to learn more about our Connected Industry practice.