Beyond Mega investments: which type of funding is needed to drive cleantech adoption in Germany?

According to Wood Mackenzie in September, global investment of $2.7 trillion a year is needed to achieve net zero emissions by 2050. Last week, #Brookfield announced a $3bn commitment into two of their #energytransition / #cleantech funds, their new Global Transition Fund II will have a $20bn size goal.

💰💰💰 With mega transactions becoming more frequent and institutional funds sitting on billions, the question is: what will this capital be invested in? 

With these amounts, #efficient #capital #deployment becomes an issue. #Institutional investors need big transactions so that they can put huge amounts of capital to work efficiently. 

The return requirement of the last Brookfield Transition Fund of 10% #IRR net, 13% IRR gross, may sound high to the German ears, but on the scale of global cleantech it is relatively normal return requirement for low risk capital.

❓ So where are those projects in Germany, big in size (>100 M€), with a track record and pipeline, that can provide +13% equity return – with limited risk exposure to the equity? Well – hard to find.

👆 So, like for the energy system itself, could decentralization be part of the answer? 

💡 What we see as trends in the German cleantech space are

➡ new technologies evolving, like new battery technology, 

➡ new business models developing, like heatpump-as-a-service for retail clients or grid-scale stand-alone storage systems, co-located generation and storage assets of all sizes,

➡ new developers entering the market with limited track record, 

➡ the development of C&I as the next huge growth segment for solar PV, which brings new hashtag#off-taker risk compared to #FIT based business models,

➡ new behind-the meter and baseload PPA’s, taking over from “as produced” PPA structures,

➡ new cross-technology service solutions like solar PV + battery or power + heat – preferably in as-a-service-models.

😤 You will notice that the list includes the word “new” many times. This marks one of the key challenges for those new #assets being developed. The #trackrecord is non-existent (meaning higher perceived risk). Also the first assets are likely in the “few million Euro range” – which is too small for the mentioned billion $ funds.

😡 That means: funding is very complicated for the “new kids on the block”. Welcome to the “First of a Kind” or #FOAK world. 

💫 Bottom-line: the huge institutional funding will help on the net zero path, but it will likely be deployed in more established parts of cleantech infrastructure. To truly expand the reach and increase deployment speed, a new type of funding approach is needed – one that enables the creation of new asset classes. 

👉 In the coming months, we will discuss more how to bring more #FOAK funding to the cleantech space in #Germany.