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Alternative Energy

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Climate tech hotspots to watch out for in 2022

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Climate tech investments are tricky. Often, you are either too early or too late. Solar was a hotspot for a good part of the last decade; then batteries took over toward the latter half. Now, we are riding the EV boom. What could the next big thing in climate tech be? 
For us at SPEEDA Edge, it is about spotting that next climate tech hotspot well ahead of time. With that in mind, we identify five innovative climate tech hotspots to watch out for in 2022 and beyond: 
1. Breakthroughs in long-duration energy storage from Form Energy and Energy Vault
2. Commercialization of CO2-to-fuel for the first time by Prometheus Fuels
3. Direct air capture (DAC) gets more customers and new capacity
4. Solid-state battery startups at an inflection point for commercialization 
5. Strong money flow ignites the climate tech software industry
Bonus: Commonwealth Fusion’s massive USD 1.8 billion raise, which put fusion energy in the spotlight
Let’s dive into each of these! 

1. Breakthroughs in long-duration energy storage

  • Long-duration energy storage has been in the spotlight for quite some time, filling the supply gaps left by solar and wind energy. The industry seems to be heating up in recent years, backed by strong funding and some breakthrough technologies. 
  • Long-duration energy storage startups raised more than one billion dollars in 2021, with the likes of ESS, Form Energy, EOS Energy Storage, Energy Vault, and Ambri raising more than USD 100 million each. We expect this heavy money flow to continue in 2022. Several breakthrough technologies are also ready to go to market. 

Total funding by year: Long-duration energy storage

  • Form Energy had a breakthrough earlier this year. It unveiled an iron-air battery with a storage duration of around 100 hours. Currently, long-duration batteries generally last around five to 10 hours. The company also claims its new battery would be 1/10th the cost of conventional Li-ion batteries.
  • On the back of this breakthrough, Form raised USD 240 million in Series D funding to accelerate commercialization efforts. The company has yet to announce a go-to-market timeline, but with the technology now out in the open and well funded, Form is set to kickstart its commercialization plans from next year.
  • Form’s technology, known as “reversible rusting,” uses oxygen from ambient air to turn iron metal to rust when discharging (Fe + O2 + H2O = Fe(OH2) + energy). While charging, the electrical current converts the rust back to iron. 
  • Energy Vault is another breakthrough long-duration energy storage startup looking to further its commercialization efforts next year. The company’s gravity-based energy storage technology promises a storage duration of around 16 to 18 hours. Having made its first US sale in October, Energy Vault plans for a global scale-up across the Middle East, Europe, and Australia in 2022. The company also has an ongoing SPAC deal to list on the NYSE in the first quarter of 2022.
  • Energy Vault’s technology is based on the same fundamentals of a pumped hydro system that utilizes gravity and the movement of water to generate power. It replaces water with custom-made composite blocks that weigh around 35 tons each. The blocks are lifted to a higher elevation using electricity during off-peak hours. Later, during peak hours, these elevated blocks are returned to the ground and the kinetic energy generated from the falling brick is turned back into electricity. 

2. Prometheus Fuels to commercialize CO2-to-fuel for the first time 

  • Prometheus Fuels plans to commercially produce sustainable aviation fuel (SAF) from CO2 emissions, starting next year. This will be the first time that CO2-to-fuel technology is being commercialized. Prometheus claims that it can offer CO2-based SAF at prices competitive with fossil jet fuels—more specifically, “one cent less per gallon.” American Airlines has agreed to purchase up to 10 million gallons of SAF from Prometheus.

Prometheus’ CO2-to-fuel process

Prometheus’ CO2-to-fuel process
Source: Compiled by SPEEDA Edge based on company disclosures
  • None of the other CO2-to-fuel startups have announced any specific plans for 2022. However, the industry saw some major developments toward the latter part of 2021, and we expect the momentum to continue in the next year too.
  • Twelve produced its first batch of SAF from CO2 emissions in October. Though this was just a demonstration, it showed that the technology is already ready to be scaled. The company also signed a memorandum of understanding (MoU) with Exosonic, a supersonic aircraft startup, to develop SAF compatible with the latter’s jet engines. Exosonic’s commercialization plans are set for the early to mid-2030s. 
  • Carbon Engineering revealed plans for its first CO2-to-fuel facility in October. Construction on the British Columbian facility is expected to begin in 2023, with operations scheduled to commence in 2026. The company also signed an MoU with Air Canada to explore opportunities in aviation decarbonization. Carbon Engineering is primarily a direct air capture (DAC) startup, and this was the first time it disclosed any plans related to the CO2-to-fuel business—a sign that the industry is picking up. 
  • LanzaTech spinoff LanzaJet has plans to build a demonstration plant that can produce around 10 million gallons of CO2-SAF per year. It is expected to be completed by 2022. The company also announced its first commercial-scale SAF facility in South Wales and expects to develop multiple follow-up projects globally in the coming years. 
  • LanzaJet takes a slightly different approach to convert CO2 to fuel. The company uses LanzaTech’s proprietary microbes to first convert CO2 into ethanol, which is then converted into other fuels. LanzaTech also has been exploring several pilot partnerships in recent times and will look to further its go-to-market plans in 2022.

3. Direct air capture (DAC): more customers, higher capacity 

  • Direct air capture (DAC) or capturing carbon dioxide directly from atmospheric air has been an emerging technology in this space. We have gone from just a single commercialized DAC startup at the beginning of this year, to three. This healthy competition would push the industry to grow even faster next year, with the likes of Climeworks, Carbon Engineering, and Storegga actively looking for new customers. Some capacity additions are also in the pipeline. 

DAC capacity: operational and pipeline (2015-2025E)

  • Climeworks, having launched the world’s largest DAC facility earlier this year, has been actively trying to onboard new customers. The company has been selling DAC carbon removals since 2019 and has nearly doubled its customer base this year to 10,000+. Recent high-profile sign-ups include Swiss Re, Square, and Ocado Retail. Climeworks would look to further its customer acquisition efforts next year to match its new capacity. 
  • Unlike Climeworks, both Carbon Engineering and Storegga are yet to begin commercial DAC operations. The construction of Carbon Engineering’s first commercial facility in Texas is expected to begin in 2022 and be completed by 2024. The proposed facility will capture one megaton of carbon per year. Storegga will also further its plans to build a large-scale DAC facility in Scotland, having initiated engineering earlier this year.

4. Solid-state battery startups at an inflection point

  • Solid-state batteries have long been thought to be a feasible alternative to Li-ion batteries. These batteries use a solid electrolyte as opposed to a liquid or gel-based electrolyte used in conventional batteries. This provides better energy density (~2.5x higher) and charging efficiency (4x–6x higher). They are also considered safer. 
Solid-state battery cross section
Source: Charged
  • Solid-state battery startups are likely to push their commercialization plans more aggressively in the coming years, with Li-ion battery costs bottoming out and EV makers searching for better battery economics. With startups Solid Power and QuantumScape looking to take their first steps toward commercialization, the coming year will be an inflection point for the technology.
  • Solid Power expects to develop 100-ampere hour (Ah) solid-state battery cells for automotive testing from next year. This will kickstart the company’s commercialization plans set for 2025. Solid Power is backed by automakers BMW, Ford, and Hyundai. The company also has an ongoing SPAC deal to list on NASDAQ at a valuation of USD 1.2 billion.
  • QuantumScape has formed a JV with Volkswagen to develop a one-gigawatt hour solid-state battery manufacturing facility. The two companies plan to select a location for the facility by the end of this year; engineering and construction are likely to begin in 2022. This will be the start of QuantumScape’s commercialization plans too—scheduled for 2024/25. 

5. Strong money flow ignites climate tech software industry

  • The climate tech software space has been hot. YTD funding is at a record high of USD 354 million. This is a 31% increase from last year and a 39x increase from three years ago. B2B carbon management platforms—emission tracking, carbon accounting, and ESG management and reporting solutions for businesses—have attracted the most funding. 
  • Assets managed by ESG-focused institutional investors have increased more than five-fold from around USD 3 trillion in 2010 to USD 17 trillion in 2020, accounting for around one-third of the total assets under management (AUM) in the US. This encourages businesses to actively monitor and commit to sustainable practices, driving the demand for B2B carbon management solutions. 
  • Three startups to watch out for next year are Persefoni, Patch, and Measurable. Having raised significant funding this year, these companies would look to step on the growth accelerator in 2022. 
  • The strong money flow is likely to keep the industry alive in the next year too. The industry is known for shorter gaps between funding rounds (389 days on average for the past three years), so, startups that completed pre-seed or seed rounds this year are likely to step up funding in 2022. 

Total funding by year: Climate tech–software

Bonus: Commonwealth Fusion’s massive USD 1.8 billion raise shines spotlight on fusion energy

  • Fusion is a new form of nuclear energy. Fission, the more conventional nuclear technology, releases energy by splitting radioactive atoms (like uranium) into two. In contrast, fusion combines two atoms to release energy. The latter uses hydrogen instead of radioactive materials. This makes it one of the cleanest forms of baseload energy. 
  • Almost all fusion startups are still in their early stages of development and it’s unlikely that the technology will be commercialized before the 2030s. However, General Fusion's USD 130 million Series E raise and Commonwealth Fusion Systems’ massive USD 1.8 billion Series B funding round have put the industry in the spotlight in recent weeks. 
  • The raise is the highest by a climate tech startup this year in a venture round. Commonwealth Fusion also topped TAE Technologies as the highest-funded fusion startup. TAE raised USD 240 million earlier this year, bringing its total funding to USD 917 million. 
  • Commonwealth Fusion intended to use the proceeds to develop its fusion reactor and build a fusion energy power plant. However, similar to its counterparts, the company does not intend to commercialize before 2030. 
  • Nevertheless, having raised quite a lot of money this year, fusion startups would look to aggressively push their development efforts. We would not be surprised to see breakthroughs from some of the top fusion companies in the coming year.
  • Stay tuned for a more in-depth Edge Insight on fusion energy soon.

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