Four Key Questions to Ask About Climate Investment in 2023
Silicon and lithium prices, venture capital’s appetite for funding climate tech and other factors will set the pace of the clean energy transition this year.
(Bloomberg) — The start of the year is a boon for the data-minded in the climate and energy world: We get the full wrap on the prior year’s investment flows and indicators, and a raft of outlooks on the year ahead. Earlier this week, Bloomberg Green’s Eric Roston neatly summarized the climate numbers to watch in 2023 . I have my own things to watch for, indicators that will reveal what 2023 means for the scale and speed of the energy transition.
Here are the questions I’m asking, which will hopefully resolve as the year develops:
1. Will climate tech make good in 2023 on its bumper funding year of 2022?
Climate tech in 2022 saw an 89% increase in year-on-year venture capital, according to HolonIQ , with more than $70 billion invested from January to December. That’s all the more striking because 2022 was a fairly dismal year for venture capital funding in general — dollars invested were down 42% in the first 11 months of the year compared to 2021.
For the past four years, climate tech has represented between 20% and 30% of total venture investment. That held steady when the venture market more than tripled and also when it pulled back sharply. As we receive more data on total venture funding in 2022, climate tech could prove to have been an even bigger percentage of the global pie.
Last year’s flow of money into climate tech was substantial — more than 35 times as much as a decade earlier. Now deployed into early-stage companies, it will spur a wave of new products and business models. I will be watching to see how much more money could be raised this year, from which investors and for what purposes.
2. Will solar-grade polysilicon and lithium continue their price trends?
For most of last year, two key inputs to decarbonizing the global energy system were rising in cost. Solar-grade polysilicon, the essential metal for making more than 90% of the world’s solar panels, started its price run in 2021 before hitting its highest price in nearly a decade at $38 a kilogram. Prices have since fallen back to $17.51 a kilogram, meaning that they have halved since just October 2022.
Likewise, the lithium necessary for the batteries used in electric cars and energy storage systems had a spectacular price run, increasing more than 11 times since early 2021 before peaking in November. That price movement was significant enough to drive lithium-ion battery prices up for the first time in at least a decade. Lithium prices also began to come down, though not quite as steeply as polysilicon prices did, and are starting the year about 13% off their 2022 high.
What I will be watching for: how far polysilicon and lithium will fall and the price impact on solar and EV businesses. BloombergNEF expects about 50% more polysilicon supplied, which should result in a significant decline in prices even with another record year of solar installations. Mined lithium supply could increase more than 30% this year as well. EV sales are expected to increase, while the broader auto market seems to be returning to normal. For both sectors, every downward price tick in key inputs will be most welcome.
3. How quickly, and smoothly, will the IRA and EU carbon border levy move from planning to implementation?
US readers are surely familiar with the Inflation Reduction Act and its hundreds of billions of dollars in support for climate. Those funds, as well as the additional billions for climate in the infrastructure law and the CHIPS and Science Act, now need to get moving. I’m watching to see how that happens. It’s not just down to the federal government: Local opposition could be a killer for many projects, and that could come from the right or the left.
Meanwhile, the EU’s Carbon Border Adjustment Mechanism has reached “an agreement of a provisional and conditional nature” in the European Parliament and now needs confirmation and adoption before entering into force in October. The next nine months of CBAM reporting obligations should give a clue as to what impact this policy will have on domestic industry and international trade.
4. Will the new king of LNG find trouble at home?
Last year, the US tied Qatar as the world’s top exporter of liquified natural gas. Qatar has long held the top spot whereas the US only began exporting from the lower 48 states in 2016. The main destination for US LNG in 2022 was Europe, and it was certainly welcome there given Russia’s throttling of its gas supplies.
What I have my eye on: the impact of exports on US natural gas prices. Natural gas costs significantly less in the US than in other major economies, thanks to domestic abundance. But continued exports could change that. The Dallas Fed’s third-quarter survey of the oil and gas industry found that most executives expect the age of cheap US gas to be over within three years .
Rising gas prices would affect the US electricity fuel mix, potentially bringing more coal into the grid — but almost certainly pulling in more renewables as well. Higher prices would hit industry too, and if persistent, they might spur deep decarbonization investments in the traditional domain of petrochemicals.
Nat Bullard is a senior contributor to BloombergNEF and Bloomberg Green. He is a venture partner at Voyager, an early-stage climate technology investor.
Comments are closed.