Energy Transition Digest: 9-22 December 2024

1. Climate Tech Investing Slows Down

In 2024, the amount of capital for climate tech investing grew, while the deployment of this capital to actual deals slowed down.

So what? This trend indicates a more conservative approach of investors, who now prefer higher-quality deals over the speed and breadth of deployment. On the other hand, growing amount of capital shows continued long-term commitment to climate tech investment.

Details:

• According to the report by Sightline Climate (CTVC) , climate funds added $47bn in AUM (+20% vs 2023). At the same time, capital deployment slowed, and funds are sitting on $86bn of dry powder.
• A similar message is in the 普华永道 report: climate tech investing has been slowing down for the third year in a row, indicating a more mature market and greater investment discipline.
• The number of new climate-focused VCs decreased, as LPs tend to prefer GPs with successful track record. Furthermore, established companies and their CVCs play an important role in driving climate tech investments.

2. Europe Faces Challenges in Expanding Wind Power

Several European countries, including Denmark and Sweden, are struggling to attract investors in large-scale wind farms due to low project returns.

So what??As the share of intermittent renewables (like solar and wind) in the power mix increases, more technical and economic challenges to integrate new projects appear. At a certain penetration level, market electricity prices don’t justify new investments, and it seems that some European countries are reaching that level.

Details:

• Crowding of renewables with similar generation profile in the same market zone causes “cannibalization effect,” when market prices are depressed because of excess electricity supply.
• Rising costs of wind power because of inflation and high cost of capital don’t help either.
• Denmark is a case in point: with 58% share of wind in the electricity mix, it did not attract any bids in the latest offshore wind tender because of low projected investment returns.
• Building interconnections and implementing demand response technologies can help resolve technical constraints of renewables integration, but market forces come into play anyway.

3. Flamanville 3 Nuclear Reactor Connected to the Grid

EDF ’s Flamanville 3 nuclear reactor was connected to the French national grid and started supplying electricity.

So what? Flamanville 3 is the first reactor to be built in France since 2002 - definitely an achievement for the French nuclear sector and the EPR technology. And although France has declared the intention to build new nuclear capacity, it is also the last one for at least a few more years, as there are no other reactors in construction or planned as of now.

Details:

• Flamanville 3 is a Generation III+ EPR reactor with 1630 MW net electric capacity.
• The EPR design was developed by Framatome , EDF , and 西门子 . Other EPRs already operate in Finland (Olkiluoto 3) and China (Taishan 1&2).
• Construction of Flamanville 3 started in 2007 with initial plan to achieve commercial operation in 2013, so the construction took 17 years (about 11 years of delay vs the original plan).

4.?Stellantis and CATL Announced a Battery Project in Europe

Automaker Stellantis and battery manufacturer 宁德时代新能源科技股份有限公司 (CATL) will jointly invest €4.1 billion in an EV battery factory in Zaragoza, Spain.

So what??The new JV will strengthen Europe’s battery supply chain localization efforts that were recently confronted with several setbacks, including Northvolt’s bankruptcy and slowing EV demand growth.

Details:

• The 50-50 partnership plans to commence production by the end of 2026, targeting an annual capacity of up to 50 gigawatt-hours (GWh).
• As a location for the gigafactory, Spain was chosen because of government support, proximity to Stellantis facilities, and availability of clean energy.
• Furthermore, Spain’s abstention in the European vote on import tariffs on Chinese EVs could have influenced Beijing’s decision to approve CATL’s investment in the country.

5. U.S. Sets New 2035 Climate Goal

Biden administration announced a new target to reduce U.S. greenhouse gas emissions by 61%–66% by 2035, relative to 2005 levels

So what??Although Donald Trump is expected to roll back federal climate initiatives, the outgoing administration pushes as much policy and funding as possible in its final days, with a view that climate action can continue on the state, local, and corporate level.?

Details:

• The new target is intended as a basis of the updated Nationally Determined Contribution (NDC) under the Paris Agreement due in 2025. The U.S. current NDC assumes 50-52% emissions reduction by 2030.
• According to a government official, the lower end of the target range can be achieved without significant additional effort at the federal level.
• The U.S. has set an economy-wide net-zero target by 2050.