eu cleantech

quarterly briefing

3q21

In a record investment year, EU cleantech needs equally ambitious policy to become a world leader

Welcome to your Quarterly EU Cleantech Briefing

Jules Besnainou

Executive Director

The first three quarters of 2021 have shown that the EU can lead the world’s cleantech revolution. With more than €8.5 billion invested in cleantech VC over the period, amounts are starting to compete with the US and Asia.The EU has also shown it is ready to lead on the policy front. This summer, it was the first major power to go from commitment to action, when it unveiled Fit for 55, a massive regulatory package aimed at achieving the ambitious target of reducing emissions by 55% from 1990 levels by 2030.

This package, and many others on the EU docket, are an opportunity for clean technologies to access significant demand and funding and accelerate their scale-up.

Immense challenges remain: the EU struggles to scale up its cleantech innovation, and this quarter shows growth equity is still lacking. Ambitious packages are far from passed. Existing regulation and incentives are designed for incumbents, and do not consider the latest innovations that could take us to net zero.

With this quarterly briefing, we aim to give you the information you need to assess the progress of EU cleantech and design a policy framework that can take us to climate and industrial leadership by 2030. We also provide a window into Cleantech for Europe, which is growing fast and becoming the voice for the EU’s future cleantech leadership. Don’t hesitate to reach out if you would like to join the initiative

Executive Summary

01

After an unprecedented H1, an EU summer slump

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While Q3 logged a significant decline compared to Q2 (€1.4 billion vs €5.4 billion invested), it was still the sixth highest quarter ever recorded for EU cleantech

Increase in series B volume shows growing number of EU clean technologies are ready to scale

EU cleantech VC has a shot at attaining more than €10 billion of investments in 2021

02

E-mobility and batteries investments continue, while innovation in materials picks up

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All parts of the electric mobility value chain and vehicle types keep garnering investment

Ag & food and advanced materials see increased early-stage investment activity

03

Cleantech innovation needs policy support to match investment interest

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EPBD has an ambitious agenda to unite a raft of building decarbonisation policies

Revision of State aid guidelines could facilitate investment for emerging clean technologies

Additionality criteria for renewable energy sources could jeopardise scale up of green hydrogen

04

EU Policy Update

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The Energy Performance of Buildings Directive (EPBD)aims to provide an energy efficient, decarbonised buildingstock by 2050

Revised Guidelines on State aid to promote risk finance investments will be adopted by the European Commission in Q4 2021.

Renewable Energy Directive (RED III) stipulates that hydrogen can be classified as renewable if it fulfils the additionality of the renewable electricity used requirement.

After an unprecedented H1 2021,
an EU summer slump

While Q3 experienced a slowdown compared to Q2 (€1.4 billion invested over 73 deals), it was still the sixthhighest quarter ever posted for EU cleantech in terms of amounts invested

A record of 14 series B investment rounds took place in Q3 despite the slowdown. This indicates an increasing number of EU clean technologies are ready for scale-up

However, growth equity was hardest hit, with 11 deals compared to 34 in Q2. The EU still has a lot of room for improvement in supporting companies at the critical scale-up stage

Q3 deal distribution:
‍geography & sector

Deals are happening across 19 of the 27 members states. Per capita, the member states with most cleantech deal-making in 2021 are Estonia, Luxembourg, Sweden, Netherlands, Denmark and Finland

All parts of the electric mobility value chain keep garnering investment, for cars, bikes and buses

Innovation in Materials & Chemicals is experiencing a comeback, especially at the early-stage to replace leather, chemical food ingredients and pharmaceutical products

2021 Q3 Eu Cleantech
‍top deals and activities

Early-Stage investments

(Seed and series A)

Late-Stage investments

(Series B and Growth Equity)

sector analysis:
‍the construction innovation opportunity

The construction industry accounts for around 9% EU GDP and up to 95% are SMEs or micro-enterprises. The sector offers significant potential for job creation

Investment amounts for EU start-ups and scale-ups in green constructions are dwarfed by their North American counterparts, due to a lack of funding for hardware innovation and a slow-moving industry

So far 2021 has seen a few construction innovation deals: Construcia (circular construction), XtreeE(3D concrete printer), scale-up funding for Ecocem (see insert); earlier stage investments in Kewazo(robotics for construction), Mycoplast (bio-materials), Asbetter Acids (asbestos roofing recycler)

Ambitious policy could accelerate innovation and mitigate the effects of rising energy costs

sector spotlight:
‍the construction innovation opportunity

Innovative solutions can address supply-demand issues

On 5 July, the Commission unveiled its innovation roadmap, which sets forth both legislative and non-legislative actions to position the EU as a global innovation leader.
Key measures include:

Building energy efficiency improvements quickly pay off, and help insulate households from future energy price increases

Emissions-negative renovations are now possible at comparable cost: consumer education and industry adoption needed

Industrialisation techniques such as 3D printed concrete, prefabrication, modular construction and mass renovations can bring costs down further

Ambitious policy is needed

EPBD revision is an opportunity to consider buildings holistically and minimise whole lifecycle emissions across construction and operation. For impact, binding targets and measures are needed for member states to step up action

Renovation Wave aims to double annual energy renovation rates over the next ten years* and to reduce building GHG emissions by 60% with respect to 2015 levels, however BPIE analysis calculates that deep renovation rates need to increase more than tenfold to meet the new 2030 targets

Standards are implemented at national level: expedited processes to certify new, low carbon materials and products are needed, as well as harmonisation between member states to facilitate internationalisation

ETS extension to heating fuels could exacerbate fuel poverty: risk that negative effects outweigh the positive ones

Progressive cities are leading the way

City of Zurich requirement for recycled concrete to be used in construction of public buildings has saved around 17,000 m3of virgin material and the approach has inspired other European cities to follow

The European Commission intends to develop a transformation pathway for the construction sector: this could increase adoption of innovation across the sector

Opportunity for public buildings to set an example on switch to low-carbon materials by publishing embodied carbon and lifecycle emissions data associated with their own renovation work

eu innovator profile

Pan EU scale-up, formulator and manufacturer of ultra-low carbon cement, with activities in Ireland, France and Belgium

Parent group Ecocem Materials founded in2000 and headquartered in Dublin, Ireland

Ecocem France, founded via joint venture with Arcelor Mittal, co-locates production to recycle blast furnace slag on-site

Market pioneer who has been developing steel slag-based low carbon cements for twenty years

Supplier to large-scale European infrastructure projects in partnership with Vinci and Lafarge

Discover Ecocem

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eu policy update

Energy Performance of Buildings Directive

What is it?

The Energy Performance of Buildings Directive (EPBD) aims to provide an energy efficient, decarbonised building stock by 2050, and to create a stable environment for investment decisions. A recast EPBD proposal will be proposed in Q4 2021.

This will be a key measure for implementing the Renovation Wave strategy which is part of the Green Deal. Historically, the EPBD has focussed on lowering operational building emissions, but this revision seeks to incorporate a lifecycle approach, paying attention to embodied carbon in construction and renovation materials.

The EPBD covers a range of measures including member state renovation strategies, nearly zero energy building(NZEB) plans, and recommendations on building renovation and modernisation.

Potential impact on cleantech

Increased demand for low carbon construction materials: the EPBD could create lead markets for clean products, especially in new build and public and large, non-residential buildings

Easier to bring products to market: if standards revision processes are streamlined

Increased competition: mandatory disclosures will force suppliers to lower emissions

Look out for

Wide disparity in implementation of building decarbonisation policies across member states, since energy efficiency targets are not legally binding

Potential ETS extension to cover heating fuels risks increasing domestic fuel costs without triggering renovations

Implementation is key: the construction sector is slow to move and hard to regulate

State aid guidelines

What is it?

Revised Guidelines on State aid to promote risk finance investments will be adopted by the European Commission in Q4 2021.

The objective of State aid is to channel public money to companies in a way that does not distort competition.

State aid includes both CAPEX and OPEX support, and may take the form of grants, price guarantees, tax and/or interest relief. The Guidelines put forward the rules under which the European Commission assesses the compatibility of State aid proposed by member states to support innovative projects.

Member states must demonstrate market failure to justify support programmes. State aid will also be assessed for ratio of CO2 reduction to support.

Potential impact on cleantech

More level playing field: due to provision for different treatment of different technologies

Easier access to funding: simplified process will facilitate implementation of support programmes at member state level

Less dilution: due to better access to alternatives to equity financing

Increased support for demonstration projects: where need to support specific technologies or innovation areas is justified

Look out for

Potential concerns around market distortion, which could be tackled by auctioning subsidies

The revision attempts to discourage support for activities using fossil fuels which provide short termGHG reduction but lead to slower emissions reductions over the long term

Additionality

a threat to scaling up renewable hydrogen?

What is it?

In July 2021, the European Commission adopted a proposal to revise the Renewable Energy Directive (RED III).

RED III stipulates that hydrogen can be classified as renewable if it fulfils the additionality of the renewable electricity used requirement.

Additionality means that renewable hydrogen producers will have to demonstrate that the electricity used for hydrogen production derives from an additional source of electricity. This could put the responsibility of building renewable energy capacity on the electrolyser project developer, instead of theutility.

The European Commission will lay out the rules on additionality in a Delegated Act expected to be published by the end of 2021.

Potential impact on cleantech

Key barrier to scaling renewable hydrogen production: imposing additionality criteria to renewable hydrogen producers only is unfair and could deter investment in the space

Increased time: electrolyser projects could be delayed by permitting for renewable energy

Increased costs: additionality increases renewable hydrogen costs and places it at a disadvantage compared to fossil fuels

Increased competition: with renewable hydrogen producers outside the EU where additionality is not applied