CERAWeek, Day Three: Top five cleantech investing moments

Day three at the 2021 CERAWeek by IHS Markit conference went deep on natural gas markets, but also gave space to a detailed series of discussions on cleantech and energy transition business models.

A two-track approach emerged as the most common strategy among large firms navigating the early stages of transitioning to a net-zero pathway, as panelists discussed the alternating roles of innovation and infrastructure. Total CEO Patrick Pouyanne affirmed his company's portfolio calibration toward cleantech. While innovative technologies and renewables get the attention, in a number of cases, executives also argued that reworking existing infrastructure can count as an energy transition strategy as well.

Here are five takeaways from the 3 March CERAWeek sessions from Peter Gardett and the EnergyView Climate and Cleantech team:

• Big changes may be coming for a big cleantech budget inside the Beltway. Cleantech investors care more about management hiring at the US Department of Energy than most of Wall Street, but the Jigar Shah hiring announced by new Secretary of Energy Jennifer Granholm during her morning dialogue with IHS Markit Vice Chairman Daniel Yergin has the potential to reshape the cleantech sector and create ripple effects across energy transition finance. As head of the DOE Loan Program, Shah is walking into a $40 billion pool of pre-funded money for cleantech left undistributed by the previous administration and can move ahead discussions on a national Green Bank. With Shah's venture capital background and network in mind, cleantech financiers accustomed to a more cautious approach from DOE will be watching for any sign of a move to riskier and more early-stage technology types, firms, or projects.
• "Triaging the transition" at energy companies will be a "run down" versus "reinvestment" tradeoff. UN special envoy for climate action and finance Mark Carney loves to talk this way, with historical-sounding frameworks that befit his background as a central banker. He echoed many speakers across CERAWeek so far by emphasizing that existing energy companies with large fossil fuel asset bases have a role to play in deploying cleantech at scale, given their cash flows, engineering and markets expertise, and their global reach. Capital at those firms is most likely to be available for cleantech that fits with existing core operations, Carney said on a panel led by IHS Markit CEO Lance Uggla, echoing 2 March comments from oil industry leaders focused on hydrogen production and carbon capture and storage.
• A number of international oil companies (IOCs) are still trying to do it all, countering Carney's point about building off existing core operations with a broad portfolio approach. Total and Repsol are both investing across a wide range of renewables, digital operations, nature-based solutions, and forming partnerships with end-users and developers with the goal of creating; what Repsol Executive Managing Director of Client and Low-Carbon Generation Maria Victoria Zingoni called a "multi-energy company." French IOC Total, meanwhile, is investing in startups and participating in industry innovation funds, the company's carbon neutrality chief Girish Nadkarni told an afternoon panel at CERAWeek.
• Offset markets could hit $100 billion by 2030, with verifiable cleantech projects receiving offsets they can sell into an over-the-counter market or through exchange-listed spot and forward contracts to "qualified demand." Not to give Mark Carney all the airtime, but his rundown of the outlook for voluntary carbon offsets that wrapped up his CERA session got much more granular than he's been in recent public forums, perhaps reflecting the fast pace of work at his stakeholder group developing standards ahead of November's scheduled COP-26 meeting. Some of those offsets could be structured with co-benefits like biodiversity, and Carney expects 75-90% of the cash flow to go to emerging economies. A deep and liquid offset market would give project financiers price discovery and hedging options, widely considered essential to scaling cleantech and climate finance.
• Addressing climate change requires hard tech, and hard tech is hard to do. Experience in creating, tracking, handling, and limiting carbon emissions can be a compelling first-mover advantage for firms willing to redeploy their expertise in fossil fuels to cleantech uses, Mitsubishi Heavy Industries Senior Executive Vice President Tak Ishikawa noted on a cleantech investment strategies panel that closed out the day. As an example, the Japanese infrastructure and industrial services firm has deep expertise in large-scale carbon capture and storage associated with its efforts related to coal-fired power plants, and has begun to rework that same technology at a smaller scale for use in cleantech applications, Ishikawa said.