The decarbonization challenge mobilizes investment towards cleantech innovation

Investment funds, startups, and experts specialized in clean technologies gathered on April 10th and 11th in Bilbao for the fifth edition of the Energy Tech Summit, Europe’s largest event for climate technology innovation. This key event in the cleantech landscape was held in Bilbao for the first time this year with the support of BBVA, offering a glimpse into an increasingly relevant ecosystem. “We had over 1,000 attendees from more than 40 countries, over 60 investment funds, more than 60 companies, large corporations…,” summarized Antonio Bravo, BBVA’s Global Director of Sustainability Strategy and CIB. This significant mobilization reflects the crucial moment of this sector: “We are facing what will possibly be the most significant investment cycle in human history over the next two decades, being global and cutting across different industries.”

Entrepreneurship in technologies focused on mitigating climate change, the so-called climate tech sector, falls under the broader umbrella of cleantech, which encompasses all solutions to advance decarbonization and planet conservation goals, from circular economy and recycling to ocean protection, alternative low-impact foods, or water-saving tools.

The Energy Tech Summit brought together more than a thousand attendees from 40 countries. Photo: Energy Tech Summit

In a context of climate emergency but also of moderation in European venture capital investment in the first quarter of 2024 according to Crunchbase, the prospects for cleantech entrepreneurship give hope for the capacity of technology and innovation to make a positive impact where it’s most needed.

A value in the present

The share of capital raised by climate tech startups is on the rise. Globally, investments in this sector accounted for 10% of the total in 2023, up from 7% in 2018, according to PwC’s “State of Climate Tech 2023” report. In Europe, this percentage is even higher: “In 2023, climate tech startups attracted 27% of venture capital investment in Europe, tripling the levels of 2021 and surpassing themes like ‘fintech,'” highlights BBVA Spark’s Venture Capital Investments Manager, Santiago Muguruza.

Santiago Muguruza (left), head of venture capital investment at BBVA Spark, speaking at the Growth Meet Capital side event at the Energy Tech Summit. Photo: Energy Tech Summit

Investment in cleantech also shows greater resilience than in other sectors. Thus, despite the general decrease in global investment in 2023 —due to macroeconomic factors and geopolitical uncertainty—, it was considerably lower for climate tech than for overall entrepreneurship (a decrease of 40% compared to 2022 versus an average of 50%, according to PwC’s report).

Decarbonization is a macro trend that “implies what is possibly the greatest disruption in economic history,” Muguruza explains. To meet climate adaptation goals, “estimated adaptation costs and needs for developing countries are in the range of $215 billion to $387 billion per year in this decade,” he adds.

The United Nations estimates the funding gap for climate change adaptation between $194 billion and $366 billion annually. On the other hand, the International Energy Agency estimates that the global clean energy market will reach a value of $650 billion annually by 2030. The need (and opportunity) for innovation and investment in cleantech is undeniable.

The sun shines for cleantech

As recently highlighted by BBVA’s President, Carlos Torres Vila, Spain can lead cleantech investment in Europe. One of the country’s great promises lies in renewable energies (which already generated over 50% of total electricity in 2023) and, specifically, in the 2,500 hours of sunlight it receives annually. Currently, it’s one of Europe’s largest solar energy producers (second in terms of grid-connected power), withby the end of 2023, according to Red Eléctrica’s data.

The increase in installed solar power has been significantly influenced by th over 25 gigawatts of installed solar photovoltaic power e upward trend in solar self-consumption. While growth moderated in 2023 —with a growth rate 32% lower than in 2022, although it was 42% higher than in 2021—, new European regulations ensure that residential solar energy will remain an important market niche.

Christopher Cederskog (centre) speaks on a panel at the Energy Tech Summit. Photo: Energy Tech Summit

“In Spain, we have a market that should be the best in Europe for renewable energies,” recalls Christopher Cederskog, co-founder and CEO of Sunhero, one of the companies present at the Energy Tech Summit. Focused on installing photovoltaic solar systems —primarily in residential homes for now, but also aiming for businesses—, this Berlin-based startup with headquarters in Barcelona offers personalized installations designed with its own software. In 2023, it signed a financing agreement with BBVA Spark worth 3 million euros.

To realize Spain’s full potential in climate tech, “we need more funds to make investments to support the commercial growth phases of companies, namely Series A, B, and C; there’s a lack of financing at this intermediate early growth stage,” he emphasizes, as well as “a stable government subsidy structure. The consumer still thinks about the sun tax, even though it was repealed years ago.” From Sunhero’s perspective, they plan to continue contributing by betting on “the total electrification of homes, which requires a more complex product, with greater software development to create connected systems,” details Cederskog.

The path to financing

BBVA’s case is an example of the growing interest of the financial sector in climate innovation. The institution increasingly prioritizes climate tech and cleantech in its broadest sense: besides joining the Cleantech for Iberia initiative, it recently created a specific unit to finance innovation in clean technologies, whose launch was announced at BBVA’s III Sustainability Forum. Additionally, it has made investments totaling 108 million euros to date in specialized funds like Decarbonization Partners I, Just Climate, or Suma Capital, through which it channels funding to these startups.

During the Energy Tech Summit, BBVA, along with Contrarian Ventures, organized parallel events called Growth Meets Capital and Growth Meets Industry to foster connections between investors, corporate leaders in decarbonization, and the most influential emerging companies in the climate innovation landscape. Through initiatives like this, explains BBVA’s Global Director of Sustainability Strategy and CIB, Antonio Bravo, the institution aims to accelerate this crucial synergy: “The role of investors is key, and their role in supporting the growth of new technologies with an impact on the decarbonization challenge is even more essential than in any other innovation or technology cycle.”

Antonio Bravo, BBVA’s global head of Sustainability Strategy and CIB, participates in the Energy Tech Summit. Photo: Energy Tech Summit

Moreover, Bravo emphasizes, “due to its scale, for the cleantech revolution to be successful, it’s important to be able to channel both equity and debt investment into these technologies as they mature and position themselves on a commercial scale.”

BBVA Spark, BBVA’s initiative to support high-growth innovative companies, has also supported some outstanding solutions in the cleantech field through financing agreements. This includes the aforementioned Sunhero or Wallbox, which received 25 million euros in debt to boost its electric vehicle charging solutions. “Achieving leadership in any industry requires significant efforts in terms of certification, engineering, product capabilities; and this involves a huge investment,” highlighted Wallbox’s CFO, Jordi Lainz, during the Energy Tech Summit in a conversation with BBVA Spark’s Debt Investment Manager Jan de Dreu. In their case, he points out, “we have found a balance between equity —one of our main reasons for going public in the United States— and debt, as we have done with BBVA Spark, one of the partners that has allowed us to finance our CAPEX on a long-term basis.”

Jordi Lainz, CFO of Wallbox (left), and Jan de Dreu, head of debt investment at BBVA Spark, during their talk at the Energy Tech Summit. Photo: Energy Tech Summit

The opportunity

“A breeding ground for Spain and Portugal to become the next specialized industrial leaders in clean technologies in Europe.” This is how Bianca Dragomir, director of the Cleantech for Iberia initiative, describes the current situation of cleantech entrepreneurship in the Iberian Peninsula. “Investment in clean technologies has increased sixfold in the last five years,” she emphasizes. “We are at an important moment in investment, with a lot of growth and potential, but if we compare Spanish startups with those in France or Germany, we see that they receive 70% less investment. We need a greater critical mass of specialized investors and more deal flow, especially in the growth phase. There’s a significant gap in investment at this stage in Spain and Portugal right now.”

Bianca Dragomir (right), director of Cleantech for Iberia, during her speech at the Energy Tech Summit. Photo: Energy Tech Summit

Cleantech for Iberia, part of the Cleantech for Europe association, was precisely created to address these weaknesses in the cleantech entrepreneurial ecosystem in Spain and Portugal. Focused on connecting innovators, investors, and policymakers, it aims to create a hub that competes in the premier league of global climate innovation. “We have the support of Breakthrough Energy, founded by Bill Gates; Cleantech Group, with over 20 entities including investors, universities, banks like BBVA [which has been part of the coalition since its launch in November 2023], leading incubators in clean technologies…,” Dragomir enumerates, who also attended the Energy Tech Summit.

“2022 was an extraordinary year for investment in clean technology startups in the region, with €676 million in funding for just around 160 startups, but currently we estimate there are between 500 and 600 startups in Spain and Portugal specialized in clean technologies, at different stages,” explains Dragomir. An ecosystem, she asserts, ready to scale: “They need investment, they need a more favorable regulatory framework so their technology can reach the market sooner, they need partnerships. And that’s where we come in.”

The inevitability of cleantech change

Maturity of solutions, talent, and growing awareness: there are many factors pointing towards continuing to drive the cleantech ecosystem forward. “In the end, we need cleaner energies, more powerful batteries, a shift to electric cars, replacing building insulation… and all of that needs startups. Some of the most successful companies of the next ten years will be in our sector,” predicts Christopher Cederskog of Sunhero. “Investment is more profitable now than it was five years ago because technology is cheaper and more developed. Moreover, investors see that some of the best entrepreneurs are working in this sector, and I think more and more people understand the need to invest in combating climate change.”

Attendees at the Energy Tech Summit. Photo: Energy Tech Summit

Cleantech innovation, highlights BBVA’s Antonio Bravo, “is a technological revolution backed by a very noble purpose, which is to reduce greenhouse gas emissions. I believe that makes the challenge even more attractive for entrepreneurs, investors, the academic world, and many stakeholders.”

There are many climate tech opportunities on the investment radar: from green hydrogen to alternative fuels, through electric mobility. Sustainability sets the global agenda, and it’s a key guideline on the entrepreneurship roadmap. If one thing is clear, it’s that the deployment of cleantech technologies has only just begun.