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Rising to the occasion

iStock 1328098029 - Global Banking | Finance

696 - Global Banking | FinanceBy Ian Thomas, Author at Turquoise

Merchant bank Turquoise International, which specialises in energy, environment and efficiency, is seeing increasing numbers of investment opportunities emerge in climate technology, with investors keen to back products, solutions and initiatives capable of meeting the evolving demands of the world’s economy for decarbonisation and environmental improvement. In this article, Ian Thomas, managing director, Turquoise International, outlines the opportunities for investors in this area.  

New analysis from PwC shows that climate technology investment from venture capital (VC) funds was three times higher in the first half of 2021 than the first half of 2020.[1] Recent market activity certainly backs this up, with SMEs that have solutions to needs ranging from battery storage to chemical-free weed control capturing investor interest on a broader scale. Indeed, 14 cents of every dollar of VC investment today is now allocated to the sector.[2] Since the conclusion of COP-26, a number of UK businesses have joined the ranks of ‘futurecorns’ – firms valued between $250m and $1bn, including Edinburgh-based Intelligent Growth Solutions, water technology brand Bluewater Bio and Tevva Electric Trucks.[3]

Climate technology investment, or ‘green finance’, has evolved as a label for initiatives whereby providers of finance seek to support investments that are aligned with positive environmental impact. These include the issuance of bonds by public and private sector borrowers whose proceeds are deployed in environmentally beneficial projects, direct investments in green infrastructure and also venture capital investments in new, clean technologies. Turquoise has been active in this space for almost 20 years as an investor and also adviser to companies raising capital and/or selling their business to a strategic acquirer.

Opening the door

The Low Carbon Innovation Fund 2 (LCIF2), an early-stage fund managed by Turquoise that invests in innovative, low-carbon technologies in the UK, has made a range of key investments in the past year. Recent investment examples from across the LCIF2 portfolio include residential renewable energy platform Switchd and EV battery re-use specialist Connected Energy.

Building up renewable energies to a position where they can replace coal and gas and be deployed at scale is critical to future change. LCIF2 investee company Switchd offers energy supply switching services, including green tariffs, as well as MakeMyHouseGreen, a data-driven platform that allows homeowners to source and install domestic renewable energy generation, including solar panels and heat pumps. The combination of the ongoing crisis in the retail energy sector and the urgent need to decarbonise residential housing creates a strong need for the type of services that Switchd offers.

Hitting the road

Road transport is another area of increasing attraction to investors. Turquoise recently advised Gasrec, the UK’s largest dual provider of bio-Liquified Natural Gas (LNG) and bio-Compressed Natural Gas (CNG) to road transport, on a fundraising deal that led to bp acquiring a 28.57% stake in the business. bp will supply Gasrec with renewable biomethane produced mainly from organic wastes, with investment capital used to help the company expand its nationwide network of refueling stations. The agreement represented an important milestone for Gasrec, securing the brand a strong partner and reliable long-term supply of biomethane for its customers.

With new technology comes new opportunity. The European battery electric vehicle (EV) market was forecast to total more than one million units before the end of 2021, with EV sales accounting overall for one in five auto sales across western Europe.[4] By 2030, the EU estimates that there will be 30 million EVs in Europe, with demand for rechargeable lithium-ion batteries set to increase 14-fold by this date, compared to 2018 levels. However, it’s important to consider what happens to the batteries once they reach the end of their useful life in EVs. LCIF2 portfolio company Connected Energy has identified this as a business opportunity.

Connected Energy re-purposes de-commissioned electric vehicle batteries and gives them a second life in grid-scale, energy storage systems, which play an important role in smoothing fluctuations both in demand by energy users and in supply by wind and solar farms. Founded by entrepreneur Matthew Lumsden in 2010, Connected Energy’s pioneering energy storage solution almost doubles a typical EV battery’s lifespan. With the transition to electrification continuing at pace, Connected Energy has a reliable supply of ex automotive batteries. Indeed, industry projections suggest that the used automotive battery capacity available for repurposing could grow by 560% by 2030.[5] With systems operational in the UK, the Netherlands, Belgium and Germany, the company is looking further afield for opportunities across Europe, Japan, the US and other global markets, thanks to substantial investor interest.

Brave new world

There are also opportunities for fossil fuel companies to adapt their business models to embrace the low-carbon economy. Turquoise recently advised GT Energy, a portfolio company from its first Low Carbon Innovation Fund, that develops deep geothermal heat projects. Turquoise provided advisory services to support the company’s sale to IGas Energy, a leading UK onshore oil & gas producer. Under IGas ownership, GT Energy will progress its flagship 14MW project to supply zero-carbon heat to the city of Stoke-on-Trent through a council-owned district heating network.

To the climate technology investor, energy use, environmental impact and resource efficiency are hugely significant considerations. As technology continues to evolve, and, crucially, attracts more capital, investor appetite will keep pace with innovation in new technologies and products. Indeed, the investment opportunities in climate technology are broader and deeper than they have been at any time to date.

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