Spain didn’t need the UN Secretary-General, Antonio Guterres to point out last week that the “era of global boiling has arrived”. As early as April, the Iberian nation had been sweltering in 40C temperatures and confirming a new phase of the global climate emergency. However, as outside observers watched and worried about Mediterranean waters bubbling to a record-shattering 28C, Spain was leading Europe in a much more encouraging way. Action.

The big cleantech investment headlines have tended to focus on northern Europe and a cluster of monster battery gigafactory projects. Of course, an abundance of clean energy sources in Scandinavia has helped attract manufacturers in the electric vehicle (EV) ecosystem but the battle to match China’s almost 60% global market share of battery production capacity is, in reality, a continental effort. In fact, a recently published graphic of battery projects either in planning, under construction or already in operation detailed a whopping 46 sites spread across 14 European countries. Spain in this analysis had been looking forward to three EV battery projects but our sense is that rocketing temperatures have focused government minds and prompted a further flurry of initiatives. Despite a tightly-contested July general election the following developments suggest a quickening pace of action:

  1. The Spanish government is planning to approve 15% deductions on income tax for the purchase of electric vehicles.
  2. Seat and its VW parent announced in April an incremental €300 million investment for a battery assembly plant in Martorell, Catalonia. For context, Seat and VW are already investing €10 billion to “make Spain a hub for European electrical mobility”.
  3. As Europe’s second biggest car producer Spain is anxious to protect an industrial legacy which accounts for 8% of GDP and encourage investment in support infrastructure needed for an EV transition. Hence, the announced collaboration between commodities giant, Glencore, domestic construction player, FCC,  and renewable energy leader, Iberdrola, to develop lithium-ion battery recycling facilities clearly indicates some long-term thinking by Spanish industrial and energy leaders.

It is this bigger EV ecosystem picture which makes Spain a very interesting watch over the next few years. We mentioned earlier the green energy attractions of northern Europe but Spain has big renewable credentials too. Currently, the country’s power grid has just passed the 50% renewable mark but the government expect wind and solar to drive a clean energy grid contribution of 81% by 2030. So, it is very interesting to see the latest data on where the EU’s Innovation Fund is investing in cleantech. A total of €3.6 billion is to be invested across 41 projects and, intriguingly, Spain is the destination leader with 7 projects, the same as Germany. Furthermore, four of those seven projects will focus on producing renewable hydrogen. This is all very exciting but we should be conscious of two structural headwinds facing the cleantech sector, and not just Spain.

First, these cleantech projects are hugely capital intensive. The sector depends on other people’s money and the funding environment has become much tougher as interest rates have moved higher. According to data from venture capital analysts at Dealroom, the “recession-proof” 2022 boom of climate tech is now a distant memory. A few 2023 numbers are worth highlighting:

  1. Venture funding for European climate tech companies dropped 43% in the first 6 months of 2023.
  2. The growth stage fundings suffered most with a 48% collapse.
  3. On a more positive note, clean energy has been resilient with funding declining by just 19%.

So, the apparently limitless supply of clean tech investment, as experienced in 2022, has met the reality of higher hurdle rates and returns expectations. Capital market shifts should be considered cyclical events which usually mean revert over time but there is one other significant supply issue impacting the clean tech sector. And, it is definitely structural. The growth of the sector, and even individual projects, is threatened by a shortage of talent with experience and expertise in clean tech construction. As an illustration, consider the following:

  1. Trade publication, Rewiring America, has said the USA needs 1 million more electricians to meet its climate goals by installing heat pumps, solar panels and EV charging stations.
  2. Just 2% of electricians in the US are women.
  3. In Germany there is a shortage of more than 200,000 skilled workers, particularly electricians, for wind and solar energy projects. Lead times to hire electricians are longer than those for software engineers.

The US reference to a huge gender gap in the electrician trade should not be mistaken as a regional differentiator. It is a global problem and the energy and construction sectors lag most sectors in the representation of women. This current failing could, in time, become an opportunity as an untapped pool of talent but, for now, this skills shortage could cripple high growth projects without expert planning and scaling experience. And again, Spain might have a fortunate legacy to add to its auto manufacturing and renewable energy positioning…..

What are the chances the Spanish-speaking populations of Latin America would be an interesting skills resourcing opportunity for a far-sighted welcoming government in Madrid?

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August 16, 2023



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