Six fascinating trends within our net zero transition pt. 1

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It’s hard to keep track of where the transition is at. Dashboards like those from the IEA Clean Energy Progress Tracker, Speed&Scale Tracker and Systems Change Lab aim to give us an overview. Unfortunately, there’s not a lot on green. But what they don’t show us are the recently developing trends and underlying areas heading in the right direction, or not.

And a lot has happened in this regard in 2023. Next to all the news from our portfolio (learn more here), the overall net zero transition has also been active. In this newsletter, I share a few of the developments that we’ve been most fascinated by, or worried about.

Note: my latest blog discusses all trends below in more detail if you want to dive deeper.

Energy production

What’s going well?

Triumphs in solar

Solar is the biggest climate tech success to date. The yellow below represents the total annual installation of solar capacity in the world, which has increased 100-fold over the last 10 years.* Plus, with a record 75% growth in total annual installations between 2022 and 2023, renewable power is on track for net zero.*

At the same time, costs have dropped significantly—more than 80% in the last 10 years alone.* This cost-efficiency has rendered solar power more affordable than electricity generated from fossil fuels in 80% of the globe.

What’s not going great?

Challenges with grid infrastructure

Delays in renewable installations due to grid inadequacies are mounting, with >3,000 gigawatts of projects stalled in connection queues—five times the capacity added in 2022.* Despite the surge in renewable investments, grid funding has stagnated, significantly lagging behind what is necessary for net zero.

Current projections indicate that without increased investment, grid limitations will severely constrain the adoption of solar and wind energy. The need for rapid development of new grid infrastructure, which can take up to 15 years to complete, is more urgent than ever.*

Buildings

What’s going well?

Advancements in heat pumps

The adoption of heat pumps has accelerated dramatically, particularly in the EU and US, supported by advancements in technology and market dynamics**. Plus, the energy crisis exacerbated by geopolitical tensions has also hastened the shift from gas to electricity, bolstering government incentives and policies.

Modern heat pumps are now capable of producing sufficient heat even in cold climates, driving rapid deployment and accelerating economies of scale.

What’s not going great?

The insulation imperative

However, the insulation of buildings remains an obstacle to fully decarbonize the sector. Despite reductions in energy intensity per square meter, total energy consumption in buildings is on the rise due to an increase in our total building stock.* Current trends need to be reversed, and insulation rates must dramatically improve by 2030 to get on track for net zero.

Initiatives like those from companies within our funds, 1komma5° and Fuchs & Eule, are streamlining the retrofitting process, offering digital assessments, installer connections, and financial aid for insulation projects. Yet, with 110 countries still lacking mandatory building energy codes, much work remains to enhance global building efficiency standards.*

Agrifood

What’s going well?

Price parity of plant-based proteins

2023 marked a milestone year for plant-based proteins in the Netherlands, with plant-based options becoming more affordable than animal-based alternatives in supermarkets for the first time.*

This price parity was driven by high inflation’s impact on animal products and proactive supermarket policies to promote plant-based diets. The increasing affordability of plant-based foods is a crucial step toward a broader adoption of sustainable dietary habits.

What’s not going great?

Challenges in consumer adoption

Despite significant strides in the affordability of plant-based proteins, their adoption has plateaued.* The least expensive plant-based options often lack the nutritional and taste profile of their animal-based counterparts, while those that do match are typically more expensive.

Scaling up novel production methods like precision fermentation could address these issues by cost-effectively enhancing the nutritional value and flavor of plant-based proteins. However, regulatory hurdles, particularly in the EU, pose significant challenges to this innovation pathway.

Again, my latest blog discusses all of these trends in more detail here. You can also explore further into each sector and the challenges we need to overcome in our brand new climate tech hub here.

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💡 Carbon Equity updates

We are hosting a new introductory webinar in Dutch to discuss how impact and returns can reinforce each other in climate fund investing. You can register for the session here.

We are excited to be back in Belgium 🇧🇪, where we will host a “State of Climate Tech” dinner on May 22 in Antwerpen. If you are a family office, HNWI, investment/wealth advisor or institutional investor interested in attending, please send Rikkert or Liz a message for more details.

Last month, we partnered with Systemiq to bring together top leaders from corporations, scaleups and governments. We discussed how we can all personally help accelerate the path towards positive tipping points, with a keynote from Rutger Bregman, and impressive igniter pitches from Sahar Rashidbeigi and Mattijs Slee.

We're seeking a Germany Country Manager, Content Marketeer and Professional Investor Relations Manager to join our team. You can find the vacancies here—please feel free to share them with your network!

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💡 News from within our funds

Quilt develops a smart home heating and cooling system with intuitive room-by-room control, occupancy sensing, and predictive tech. We joined in on its recent $33m funding round through Energy Impact Partners (EIP).
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Electric Hydrogen announced $100m in corporate credit financing to support the manufacturing and deployment of its electrolyzer plants. The funding was led by HSBC, with participation from J.P. Morgan, Stifel Bank, and Hercules Capital.
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Twelve won $28.5m in tax credits through the US’s Inflation Reduction Act to kickstart domestic manufacturing and deployment of CO2 electrolyzers.
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Vacuumschelze received $111.9m in tax credits also through the US’s IRA to advance the construction of its first U.S. manufacturing facility in South Carolina.
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Aeroseal, Kelvin and NatureMetrics have been named to BloombergNEF’s annual Pioneers competition for the most promising climate tech! Check out the full list here.

You can explore more companies within our funds here.

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📚 Interesting reads

Over $50 Billion Flow to Climate-Tech Startups in a Stormy Year

Climate tech companies raised $51 billion in venture capital and private equity funding across more than a thousand deals in 2023. Though this was 12% lower than in 2022, the decline was much smaller than the 35% reported for all startups. The majority of this capital flowed to the US, with Europe ranking third after China. Investment rose in energy, industry, and the built environment sectors, while funding for transport and agrifood decreased.

Climate tech investment roars back with an $8.1B start to 2024

Here's some more tangible evidence that the shift towards greener energy is not just theoretical but actively happening. In 2023, we’ve witnessed a record year for energy storage installation, solar and wind becoming the cheapest source of energy, and taken the first big steps in decarbonizing the cargo industry. These are some great motivators to further accelerate decarbonization!

The science of the possible, an exponential mindset

We are finally starting to acknowledge and see in practice that climate tech adoption, like the adoption of many other technologies, happens slowly and then suddenly. RMI is doing fascinating research on this exponential growth of climate technologies. The link above summarizes their thinking in the easy-to-follow, 15-page slide deck.
Fun fact: one of the authors is our newest advisor, Daan Walter!
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Speed & Scale Tracker

As mentioned at the beginning of this newsletter, Speed & Scale has published a nice overview of what they believe is on track vs not in the energy transition. Using the OKR methodology, they’ve developed specific Key Results that we need to hit to reach net zero in time and report on whether we’re on track to reach them. While there are not many on track yet, the good news is that many are getting closer.

The Climate Brick

EQT and Contrarian Ventures, one of the firms we’ve invested in, just published ‘The missing manual for scaling climate tech.’ It describes the seven types of climate tech companies and the growth/funding journey they must go through to scale. Its one-pagers on what milestones a company needs to hit per funding step and what round size or valuation they should target, are fascinating