JANUARY 17, 2024

Bonjour to everybody from snowy Brussels! Anca here, stepping in this week for Amy, who is on a well-deserved vacation.

In today’s edition, I have an explainer on public guarantees for cleantech (wonky, we know, but keep reading!) and Amena tells us about all the renewables waiting to be connected to grids around the world.

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The European Investment Bank Group’s headquarters in Luxembourg. Photo by Oscar Romero.

Why cleantech groups want the EU’s public lending arm to prop them up

BY: ANCA GURZU

Governments around the world, led by the United States and Europe, are prodding their economies to adopt cleaner energy with a mix of largely two types of policies known often by their metaphors: Carrots (subsidies and tax credits) and sticks (mandates and taxes).

Let’s add a third metaphor: Safety nets, which have traditionally been used as a metaphor to describe social programs like Social Security in the U.S. or universal healthcare in European nations. Let’s adapt it to a business lens to describe our focus here: publicly funded financial guarantees that help reduce the risk of investing in nascent clean energy technologies.

These guarantees, or financial safety nets as we’re calling them, are currently the focus of a lobbying push in Brussels.

Interest groups representing Europe’s emerging cleantech sector are asking the European Investment Bank (EIB) to provide public guarantees that advocates say could speed up investments, help companies ramp up their manufacturing capacities and sell more equipment.

We’ll explain the basics of how guarantees work and who can issue them before diving into the cleantech community’s specific asks and potential concerns with them.

A financial guarantee is a pledge by a lending institution that it will step in and provide compensation should a business transaction between two parties not go through. There are different types of guarantees, and they can be issued by both public institutions, such as the EIB, the World Bank or national credit agencies, and private institutions, like commercial banks.

Using guarantees is a complex process and we can’t get into all the details, but let’s look at how things generally work within the cleantech sector.

An industrial firm selling a new, relatively unproven product, like an electrolyzer or a long duration energy storage system, must provide buyers with a financial guarantee, known in this context as a performance guarantee. The guarantee assures buyers that if something goes wrong — delays, functional issues, the firm goes bankrupt — the bank will step in and help make the buyer whole.

To obtain a guarantee from the bank, manufacturers must put up collateral. If something goes wrong, the bank can collect that collateral and use it to pay the buyer.

Compared to established industrial firms, emerging cleantech manufacturers are still small fry, lacking both an established credit history to secure good conditions on their guarantees and the money needed for collateral.

That’s where an additional safety net comes in. Cleantech groups are ramping up lobbying in Brussels, calling on the EIB to provide an additional layer of assurance, known as counter-guarantees, to back up cleantech investments.

They’re asking for, in essence, a safety net to a safety net.

Cleantech groups want the EIB, as a public entity, to guarantee the guarantees issued by commercial banks to cleantech manufacturers. If something goes wrong, the bank will pay the buyer and then the EIB will pay the bank. Under this system, advocates say companies would get the guarantees they need without necessarily tying up all their capital in collateral and could instead use that capital to ramp up manufacturing.

The EIB, one of the world’s largest providers of climate finance, recently approved these types of counter-guarantees for the bloc’s ailing wind sector. Specifically, the EIB will provide €5 billion to back up performance guarantees issued by commercial banks to companies manufacturing wind and grid interconnection equipment.

Several cleantech start-ups and think tanks recently sent an open letter asking the EIB to provide similar backup for their products.

“Manufacturers are turning down orders because they don’t have working capital to place as guarantees,” creating a vicious cycle that prevents them from ramping up quickly enough, said Jules Besnainou, executive director of Cleantech for Europe, one of the organizations that signed the letter.

Advocates say this is about how to finance the bloc’s green industrial transformation through tools that don’t require direct monetary support.

“We need technologies to go green, but we can’t subsidize everything,” said Tobias Lechtenfeld, executive director of the Tech for Net Zero Alliance, a network of climate tech startups and venture capital funds in Germany and neighboring countries, which also signed the letter.

Still, in practice the proposed measure means the EIB would take most of the hit if something (bankruptcies, non-durable equipment, etc.) were to go wrong, likely prompting criticism and concern about wasting public money.

Read the full article on Cipher’s website.

Editor’s note: Cleantech for Europe and Tech for Net Zero are supported by Breakthrough Energy, which also supports Cipher.

Lunchtime Reads and Hot Takes

Big Green? The clean energy leader enraging environmentalists — E&E News (paywall)
Amy’s take: Grumet’s role is relevant far beyond one trade group because it reflects the broader changes in our climate debate since the Inflation Reduction Act was passed.

Azerbaijan appoints no women to 28-member Cop29 climate committee — The Guardian
Anca’s take: Azerbaijan is already under scrutiny for being another fossil fuel-producing nation to host a COP. This news is only set to magnify that scrutiny.

The Electric: Are Western Companies Surrendering Sodium-Ion Batteries to China? — The Information (paywall)
Bill’s take: These batteries — which cost half what conventional batteries do — may well combine with China’s massive electric vehicle production capacity to bring EV prices well below even the prices of subsidized models elsewhere.

US proposes fee on methane from big oil and gas producers — Reuters

Amena’s take: Coupled with recently announced federal funding for methane detection technology, this fee will make a dent in curbing the release of this potent greenhouse gas.

As Utility Bills Rise, Low-Income Americans Struggle for Access to Clean Energy — The New York Times
Amy’s take: The kicker quote says it all (so read ‘til the end!) The energy transition won’t happen to the degree we need it to if it exacerbates inequality.

Arcelor, France Plan to Invest €1.8 Billion to Cut Emissions — Bloomberg
Anca’s take: The decarbonization of the company’s steel plant will happen with nuclear power. The finance minister described it as a "victory for France," since it won out over Belgium, Germany and Spain to get the company's investment.

“A la carte menu”: Saudi minister claims Cop28 fossil fuel agreement is only optional — Climate Home News
Amy’s take: The story notes an earlier draft had allowed nations to ignore certain provisions, but that part was cut, indicating a clear misinterpretation here (or for the critics, a manipulation).

4 things to know about EPA’s new climate damage metric — E&E News (paywall)
Amena’s take: The social cost of carbon is the price we pay for using consumer products derived from fossil fuels, which, frankly, is everything right now.

U.S. LNG Export Boom: Defining National Interests — Center for Strategic & International Studies
Bill’s take: Analyst Ben Cahill reviews the issues surrounding U.S. liquified natural gas as President Biden faces monumental calls on approving more export facilities, the first big decisions interpreting the COP28 accord.
 
EU built record new wind farms last year but lags green energy goal — Reuters
Anca’s take: In other words, it's a new record, but not a big enough record. The good news is that industry is starting to see significant improvements with permitting on the ground, according to the article.
 
Can artificial intelligence pave the way for greener cement and steel? — Reuters
Amy’s take: AI’s profound changes are becoming like the Internet. How did the Internet change anything? In every way. AI will be the same; it will change everything in (almost) every way.

More of what we're reading:

• UN chief says phase-out of fossil fuels 'essential and inevitable' — Reuters

• A huge battery has replaced Hawaii’s last coal plant — Canary Media

• UK government plans further nuclear power expansion — BBC
• World’s Capacity for Renewable Energy Will Likely Fall Short Of COP28 Target By 2030, Report Suggests — Forbes

ICYMI: Take a spin around Cipher’s new Cleantech Tracker

Thank you to everyone who has engaged with us on our Cleantech Tracker that we launched earlier this month!

ICYMI: Our interactive map and accompanying investment chart show the progress of select emerging technologies: carbon management, clean hydrogen production, hydrogen electrolyzer manufacturing and sustainable aviation fuel.

These tech types are critical parts of a broader puzzle of technologies, ranging from wind and solar farms to carbon dioxide pipelines to electric vehicle manufacturing. Cipher is intentionally focused on technologies that receive less attention from the media and investors and on sectors that are harder to clean up compared to others, though our tracker and focus will evolve with time.

We’ve heard from a lot of you about what you like, what you want to see included and what we should update. We’re working to respond to all of you, and please keep the feedback coming! You can reach us on all our social channels (LinkedIn, X and Threads) as well as at news@ciphernews.com.

Check out the full Cleantech Tracker here.

Unlocking the grid is key to meeting global renewable goal

Source: International Energy Agency, Renewables 2023 • The Asia Pacific region does not include China.

BY: AMENA H. SAIYID

Tripling global renewable energy capacity by decade’s end is possible if all the wind and solar capacity currently languishing in regulatory limbo is hooked up to the power grid, a new International Energy Agency (IEA) report shows.

The world will need to add more than 11,000 gigawatts (GW) of renewable capacity by 2030 to wean itself off fossil-driven electricity and reach the goal of tripling renewables set at the United Nations climate summit in November, said the IEA.

Investments in updating and expanding power grids have generally not kept pace with the proliferation of renewable energy projects. Since 2010, transmission and distribution investments have grown just 1% per year since 2010 everywhere except China and India, according to IEA.

By the end of 2023, the world had added 510 GW of renewable capacity, but nearly three times as much wind and solar capacity is waiting to be added to the grid, Heymi Bahar, the report’s lead author and senior analyst with IEA’s Renewable Markets and Policy group, told news reporters at the report’s launch.

With 677 GW of wind and solar projects awaiting connection in the United States, the U.S. backlog is twice as much as the backlog in the EU, nearly three times that of the Asia Pacific region (excluding China) and four times as much as the backlog in Latin America.

To end the backlog and get the world on track to meet its renewable energy goal, Bahar said countries will need to process permit applications faster, which remains a particular problem in the U.S., and invest more money in expanding existing grids.

AND FINALLY...
Refuge power

Ben Holzer, Cipher reader and president of Holzer Strategies, snapped this photo of power lines from the Stevens Creek Shoreline Nature Study Area Preserve in the San Francisco Bay ecosystem. The nature area is near Google’s Mountain View campus and the Baylands Nature Preserve, a tract of undisturbed marshland that formed the backdrop for a June meeting between President Biden and California’s Governor Newsom about climate and clean energy.

Each week, we feature a photo that is somehow related to energy, the thing we all need but don’t notice until it’s expensive or gone. Email your ideas and photos to news@ciphernews.com.

Editor’s note: In addition to supporting Cipher, Breakthrough Energy also supports and partners with a range of entities working to tackle climate change, including nonprofits, corporations, startups and research firms. For more information on Cipher’s editorial policy, click here.