With the outcome US federal government again set to cede its role in climate leadership, whither the market for clean energy and climate investments? VX News shares these pre-election remarks from Daniel Weiss, Co-Founder and Managing Partner of Angeleno Group, delivered at the Angeleno Group 2024 CEO Summit & Investor Retreat assessing markets, technology, and climate trends and policy. Weiss reflects the long term evolution in scaling and adoption of clean technologies through the lens of a growth-oriented investor and concludes, despite short term variations, the markets for clean energy and green technology reflect still 'the greatest investment opportunity of a generation.'
Daniel Weiss: After feeding the heart and spirit with some art and culture, now we’re going to try to feed the mind – or perhaps, in other words, subject you to some data-driven remarks about the investment area in which we specialize. So, to set the stage for the next 24 hours, we’d like to share some high-level reflections and observations on the clean energy and climate solutions sector landscape in terms of where we’ve been over the last two years since we gathered here, where we are now, and where we might be going. Some quick takeaways on three possible subjects of interest: (1) markets, (2) technology, and (3) climate trends and policy. The headline, which we’ll return to in various ways tonight and tomorrow, is that with all the bumps in the road and twists and turns over the last couple of years, the global secular shift to a low-carbon economy is now well-established -- and going forward, we would humbly submit, may well represent the greatest investment opportunity of a generation.
Markets
Let’s start with the public markets – and some bad news. Elevated interest rates -- turning the economics of renewable projects upside down -- supply chain inflation and other factors have affected stock prices. And it’s been a rocky couple of years. Since reaching a recent peak in early 2021, the S&P Global Clean Energy Index was down 58% as of the end of June. This is in stark contrast to the general market and the S&P 500, which was up 43% during that same period.1 Sector bellwethers that some of you may have heard of, such as solar microinverter manufacturer Enphase Energy and electric vehicle producer, Tesla, were down 78% and 75%, respectively, peak-to-trough during the past three years.1 Valuation metrics have similarly compressed in the industry, with the P/E ratio for the S&P Global Clean Energy Index declining 60% from over 70 in the first half of 2021 to 28 as of the end of last month.1 In terms of capital markets, whereas in the first half of 2022, clean energy and climate solutions companies raised $16.5 billion in the global public equity markets, as of the first half of 2024, that figure was down 84% to an anemic $2.7 billion.2 There has not been a single cleantech IPO on a major US stock exchange this year.
Private markets have lagged public markets but are experiencing similar dynamics. In the last year, VC investments have declined 20% from $54 billion to $44 billion. Median pre-money Series C+ valuations have come down ~ 30% since 2022 through the end of last year. According to recent analysis of PitchBook data and other sources, the majority of VC-backed climate tech companies have less than 12 months of runway with 60% projected to be cash out over that period (relative to ~ 50% of all tech companies).3This could create further downward pressure on valuations. As mentioned earlier, public markets have been largely closed to the climate tech universe after the post-SPAC era and PTSD among other IPO investors in the space. A large group of privately held climate tech unicorns are hovering in airspace above Wall Street unable to land – 97 as of Q2 of this year.4
But let’s zoom out, look at the broader historical context, and perhaps get a glimpse of where we are going in the future of the cleantech capital markets. When we founded the firm in 2001, there were NO widely recognized public market indices dedicated to clean energy and climate technology. Indeed, cleantech didn’t really exist as an institutional investment category. It wasn’t until four years later that Secretary Kofi Anan convened 20 large institutional investors under the umbrella of the UN Principles of Responsible Investing. Not until 2007 did the Intergovernmental Panel on Climate Change (IPCC) win the Nobel Prize for its research on climate change along with Al Gore. From virtual non-existence as an investment category, today, the public market capitalization of cleantech companies as defined by AG’s proprietary index (including wind, solar, EV, battery, and other companies that have gone public in the sector over the last decade) is now $4.5T. 5 We’ll come back to that number - so hold onto it.
Also, notwithstanding the recent downturn, investing in cleantech has been profitable. Over the past ten years, compared to traditional energy as represented by the MSCI World Energy index, investing in the S&P Global Clean Energy Index would have yielded more than 100 basis points of excess return annually.6 Using Angeleno Group’s proprietary portfolio of clean energy and climate solutions companies, that figure jumps to 400 basis points of annual outperformance.7 Even with recent declines in the sustainability space, uptick of stock performance in conventional energy, and a “backlash” against ESG investing, green has been green over the last decade in the public markets versus fossil fuels.
Similarly, as we take a broader historical perspective, we see that private markets have also blossomed. In the last roughly ten years, from 2013 to the end of 2023, there has truly been a tectonic shift in global VC climate funding -- growing ~25x from $2B-47B.8 Globally, the number of VC firms that indicate climate as a sector of investment has grown dramatically over this last decade - from dozens to over 350 today.9 And the total amount of VC dollars going to climate tech has tripled in percentage terms. This long-term trend extends – in the main - to private equity and private debt markets as well. Taken in the aggregate, global investment in clean tech and energy transition reached a record $1.8 trillion in 2023 (surpassing fossil fuels) and is on track this year to be twice the amount going to fossil fuels.10
But here’s the punchline on capital markets – three letters - TAM (as we say in the investment business – total addressable market). According to newly revised estimates by Bloomberg, if we are to achieve a net-zero target, the required global energy investment and spending by 2050 is a nearly unbelievable $215 trillion.11 Now, let’s go back to that $4.5 trillion number we discussed earlier – the entire current market cap of the AG cleantech public company universe. Of course these numbers are flawed and incomplete in various ways, but for directional purposes, consider this – while the total investment required to reach WHO’s global health targets is ~ 6 times the total current biotech & pharma market cap, the total investment required to achieve a 1.5°C pathway – and address the existential issue of climate change is more than 60 times the current market cap of all climate tech companies.12
It makes one ask the question– invoking the investment Oracle of Omaha Warren Buffet – “is now the time to be greedy when others are fearful.”
Technology
Again, in terms of technology scaling and adoption of clean energy and climate tech over the last 24 months, a mixed picture emerges. As an example, recent media headlines involving the slowdown in EV adoption abound. 50% decline in the rate of sales growth over the last year.13 Images of cars stacked up on dealer lots. Original equipment manufacturers (OEMs) such as Ford and GM are reducing EV sales forecasts, and Volvo just this month signaled a pullback by abandoning their “EV only” 2030 mantra in their vehicle lineup. Newer technologies such as hydrogen and carbon capture have also lagged behind hopeful projections. In 2021, the US launched an initiative to cut the cost of clean hydrogen to $1 per kilogram within a decade.14 As we head to the midpoint of the decade, green hydrogen costs in the US are still more than an order of magnitude away from the target – hovering at $10-15 per kilogram.15 In 2021, the International Energy Agency (IEA) stated that carbon capture and storage (CCS) capacity needed to grow to 1.6 billion tons of CO₂ captured annually by 2030 to meet global climate targets. As of 2024, carbon capture plants have achieved less than 3% of the 2030 goal.16 These and other stats take some near-term wind out of the sails of the energy transition.
But let’s take another step back reflect on the long-term and the bigger picture of evolution in scaling and adoption of clean technologies – especially through the lens of a growth-oriented investor.
[VX news includes this graphic by Canary Media for additional context]
One common question we get asked as investors in this space is what changes are we seeing on the technology landscape? Over the next day, you’ll hear quite a bit in answer to this question – examples of innovative companies with new and exciting ways to create supply chain efficiencies in clean energy storage, scale renewables adoption via data and trading platforms, decarbonize industrial manufacturing, measure low-carbon fuels, and accelerate the electrification of the home. From AI and quantum computing to digitization and sensorization of hardware to additive manufacturing and next-generation power electronics – fundamental advances in technology are having a profound impact on each of Angeleno Group’s seven thematic investment areas you will hear about tomorrow.
As a result of both scale and new technology, one of the unifying threads you’ll hear from our CEOs is that the value proposition of their products or services is based primarily on economics as well as sustainability priorities. This is a dramatic change from many of the technologies in the clean energy and climate tech space that originated 20 years ago – and represents a powerful catalyst for the adoption of clean/green products and services. Consider the following now well-known numbers since our first gathering in this room in 2006 – all emblematic of humankind’s Promethean impulse for energy innovation:
~90%: Cost decline of solar PV modules ($/Watt) ($5 to $1 2000-2022)17 ~70%: Cost decline of wind Power ($/MWh)13
>90%: Decrease in lithium-ion battery costs($/KWh)13
As many of you know, such cost reductions are contributing to a striking uptick in market adoption of these technologies.
Going back to EVs. Globally, over the last dozen years, EV adoption surged with a compound annual growth rate of ~80%.18 Even with the slowdown in EV car purchases this last year, growth rates are still 30% - numbers that many software companies would envy.18 A record of 1.2 million EVs were sold in the US in 2023.18
And renewables have now achieved scale as part of the energy transition. Despite global economic uncertainties last year, solar and wind represented the vast majority of net new electricity capacity in both the US and globally – setting records – almost 85% (including battery storage) in the US and more than 90% for the entire world. Renewables are simply the fastest-growing energy source in the world today.19
In fact, according to recent reports by the IEA, Onshore wind and solar PV are cheaper today than new fossil fuel plants almost everywhere and cheaper than existing fossil fuel plants in most countries.20
Climate Trends and Policy
Finally, let’s take a quick look at climate outcomes and policy over the last 24 months. Again, some recent suboptimal news. As we closed out 2023 with COP 28: (1) the overwhelming scientific consensus was that we are way off target to achieve the 1.5-degree target set forth in the Paris climate agreement; (2) 2023 was the hottest year on record - this year is on track for the same; (3) in 2023 global emissions hit an all-time high.21 Not good news.
On the other hand:
(1) As Biden told the UN in NYC this week, the largest economy in the world is now celebrating the two-year anniversary of the most important climate legislation in our country’s history. Total private investment from the second half of 2022 through the first half of 2024 is $493 billion. A 71% increase from the prior two-year period.22
- 300,000 new jobs have been created23
- Consumer investment has totaled $242 billion, with purchases of zero emission electric vehicles hitting $157 billion. Double its pre-IRA level22 (source)
- Remarkably, there is still a lot of dry powder from this and related legislation, with 80% of the public dollars in tax credits/grants and loans left to be deployed CHIPS ACT and IRA (collectively)22.
(2) According to McKinsey’s most recent estimates, 90% of the world’s GDP has now signed up for net zero (including India and China – albeit on different time frames.)24
(3) The train has left the station at the sub-national level on climate with key announcements at the UN for Climate Week, as well with over 500 subnational leaders, including Mayors and Governors, at the last COP – marking the first time the COP presidency of cities hosted such a summit (we’ll hear an example of this policy subnational climate leadership from our very own Mayor tomorrow).25
Again, although there are exceptions and open questions in local and global regulatory settings (e.g., carbon markets, biodiversity rules, allocation of financial burdens, timelines), the overall trend of government policy regarding climate is clear – climate change represents major societal costs, existential risks and potential economic opportunities that must be addressed.
As we have spoken about in the past, over the course of modern history, there have been a number of inflection points in the energy sector that have brought transformative change: the Industrial Revolution in the 1750s and 1760s, which ushered in the rise of coal power and the use of steam; the invention of the first widely-applicable incandescent lightbulb in the 1870s which extended the workday and improved quality of life; and the rise of oil, which overtook coal as the primary global source of power in 1964 and spurred a new era of mass-production and global transportation.26 Today, we are at another such tipping point as we continue the path towards a more sustainable clean-powered world. At the same time, we realize that we are still in the early innings of sector transformation – we still get over 80% of all the BTUs we consume in the world from hydrocarbons.27 There will be zigs and zags on the road of the energy transition and moments of frothiness and dislocation, unpredictable world events and economic realities – some of which we’re staring at in the current historical moment. Nonetheless, in our humble opinion, the sector trajectory is evident. We believe that the third decade of the 21st century offers unprecedented investment opportunities to deploy capital in the clean energy and climate solutions companies of tomorrow. We hope we‘ll have another 20 years to do it! Thank you.
1 Bloomberg Data as of September 2024
2 Bloomberg New Energy Finance Cleantech Public Equity Financing Database 08/07/24 3 PitchBook Data as of September 2024
4 PitchBook Carbon and Emissions Tech Report Q2 2024 July 2024
5 AGE Executive Summary 08/31/24
6 MSCI Data as of September 2024
7 AGE Executive Summary 08/31/24
8 PWC “State of Climate Tech 2023” 10/17/2023, from
https://www.pwc.com/gx/en/issues/esg/state-of-climate-tech-2023-investme... 9 CTVC, 05/05/2023, from https://www.ctvc.co/climate-capital-stack-2023/
10 IEA Data as of June 2024
11 BNEF, New Energy Outlook 2024,
12 WHO estimates cost of reaching global health targets by 2030, World Health Organization, 2017
13 Visual Capitalist, Global Electric Vehicle Sales in 2023, by Market Share, March 2024
14 Utility Dive, 05/09/2024, from https://www.utilitydive.com/news/doe-clean-hydrogen fuel-cell-program-plan/715606/
15 SG H2 Energy, 2020, from
https://www.sgh2energy.com/economics#:~:text=COST%20COMPARISON,- Our%20greener%20than&text=Green%20hydrogen%20produced%20through%20electroly sis,to%20higher%20natural%20gas%20prices.
16 IEA, 04/25/24, from https://www.iea.org/energy-system/carbon-capture-utilisation-and storage
17 IEA Data as of September 2023
18 IEA Global EV Outlook 2024, April 2024
19 World Economic Forum, 02/08/24, from
https://www.weforum.org/agenda/2024/02/renewables-energy-capacity-demand...
20 IEA, 01/11/2024, from https://www.iea.org/news/massive-expansion-of-renewable power-opens-door-to-achieving-global-tripling-goal-set-at-cop28
21 World Meteorological Organization, 2024
22 Clean Investment Monitor, 08/07/2024, from https://www.cleaninvestmentmonitor.org/reports/tallying-the-two-year-imp... inflation-reduction-act
23 Earth Justice, 08/16/2024, from https://earthjustice.org/press/2024/earthjustice celebrates-two-year-anniversary-of-the-inflation-reduction-act
24 McKinsey, January 2022, from
https://www.mckinsey.com/capabilities/sustainability/our-insights/the-ne... transition-what-it-would-cost-what-it-could-bring
25 ICLEI, 11/30/2024, from https://iclei.org/news/cop28-preview/