As the Indian subcontinent bakes in stifling 50 degree heat, there’s a financial market heating up too. And it might just help save us all. Bloomberg is reporting that European borrowers have accessed €1 trillion of debt capital in 2024 at a faster pace than any other year in history. This flurry of bond (debt) issuance has been driven by expectations of lower interest rates by investors but, hidden in this huge number, cleantech has emerged as a star sector. In fact, European cleantech debt investment surged to a record-breaking €16.7 billion in the first quarter, more than twice the debt raised by the sector in all of 2023. That data comes from  Cleantech for Europe in their latest report and is nicely timed given the European Council has just adopted the Net-Zero Industry Act (NZIA).

The Act, which comes into force in June, will simplify the permit-granting process for strategic projects, facilitate market access for strategic technology products including via public procurement or auctions for renewables and enhance Europe’s clean energy workforce. It’s more than just words. There are targets to give NZIA teeth; the ultimate aim is to have a clean energy manufacturing industry, including solar, wind turbines, batteries and heat pumps that can meet 40% of the EU’s deployment needs, and 15% of global demand by 2040. More importantly, EU money is backing this aim. We have written previously on this significant financing shift and note that 8 out of the top 10 cleantech debt deals in Europe were partially financed by a public bank, six from the EIB alone. The data from the Cleantech for Europe report reveals the EU finally getting serious about financing the scale-up of cleantech manufacturing, including first-of-a-kind (FOAK) plants. Indeed, the significance of public money backing has been recognised by a leader of one of the biggest deals, Henrik Henriksson CEO of H2 Green Steel:

“Developing a first-of-its-kind project requires all types of cleantech financing mechanisms and they need to interact. In H2 Green Steel’s case, this meant securing €4.2 billion in project finance, €2.1 billion in equity and a €250 million grant from the EU Innovation Fund for the world’s first large-scale green steel plant in Northern Sweden.”

 

A critical part of this “interaction” is the de-risking of investments with the participation of public lending institutions. The other key point is confidence. Lending activity in Q1 was a whopping six times greater than historical averages and that breeds confidence in even riskier parts of the investment world. Not every cleantech project is as big as Northvolt, Sunfire or H2 Green Steel. The little guys in the cleantech ecosystem need support too. Venture Capital (VC) investment funding activity of €2.8 billion was a 55% increase on Q1 2023. A few other data points from the Cleantech for Europe report are also worth highlighting:

*Cleantech VC deals took place in 17 out of 27 EU countries

*The average VC deal size increased by 15%

*Deal volume in late-stage investments grew by 31%

Perhaps the most encouraging development in a geopolitical race for cleantech independence was that Europe is closing the gap on a headline-grabbing US “Bidenomics” ramp-up in the sector. Europe’s less-developed VC investment pool achieved funding levels of 71% of North American investment totals in Q1 – the narrowest margin ever. The good news is that this gap can close even further if increased confidence and lending (bond) activity can attract more capital into the VC investment pool. US pension funds, university endowments and insurers are huge providers of venture and growth capital. Their European counterparts not so much. In fact just 0.01% of these multi-trillion euro assets are allocated to venture funding (Source: State of European Tech). At some point you’d hope these stewards of our savings and wealth will work out that a dead planet doesn’t really need a discounted cash flow model, or asset-liability matching risk frameworks. The risk is very NOW but thankfully the headlines continue to encourage:

French gigafactory startup Verkor secures €1.3 billion loan  – Financial Times

Inside Microsoft’s record-breaking carbon removal contract  – GreenBiz

US, Europe battery factory spend triples  – S&P Global Research

Lots of cleantech headlines to come. Lots of investment capital needed too. Clearly, the bond market is rapidly waking up to the cleantech revolution. So, let’s hope further institutional support follows the Net-Zero Industry Act and “interacts” with our threatened world.