CERAWeek, Day Two: Top five cleantech investing moments

Day Two at the 2021 CERAWeek by IHS Markit delivered extensive updates on hydrogen's potential as a clean fuel.

Both "green" renewable-origin and "grey" or "blue" fossil fuel-origin hydrogen received a lot of airtime in multiple panels and discussions, and even the Biden administration's Special Envoy on Climate John Kerry name-checked hydrogen as part of the climate change solution set. Blue hydrogen particularly is often segmented at the outer edges of the cleantech universe, along with carbon capture and storage (CCS), but both offer ways for sectors burdened with high emissions profiles but blessed with existing infrastructure and market access to take part in the energy transition.

Here are five takeaways from 2 March sessions at CERAWeek from Peter Gardett and the EnergyView Climate and Cleantech team:

• When is an oil company also a cleantech services firm? Ever since Occidental declared itself a "carbon management company" last year, there have been investor questions about how exactly they'd handle that transition, and over what time frame. CEO Vicki Hollub put some meat on the bones of that rebranding, talking up the company's carbon capture projects and its plans to then use those emissions in enhanced oil recovery, both in its conventional and shale reserves. Of interest to cleantech investors, Oxy is deploying its engineering and project management expertise to play a consulting role in a new North Dakota CCS project it doesn't own, a possible model for energy transition efforts at other skills-rich legacy firms.
• Baker Hughes, already racing to claim its place in the "energy technology" pivot, is poised to become a major potential distribution channel for cleantech. The firm decided in 2019 it was no longer just an "oil services firm" but an energy tech firm and has built out its industrial business to roughly 40% of its revenue, CEO Lorenzo Simonelli said in a panel discussion led by Carlos Pascual, senior vice president, global energy. "Our clients are coming to us asking for technology solutions that reduce their carbon footprint," Simonelli said. His list of priority tech reflected the oil-heavy nature of the day's events, though, with hydrogen and CCS highlighted.
• Cleantech financiers may have to learn to play nice with sovereign wealth funds and international lending institutions. With an estimated $100 trillion (with a "t") in needed investment, of which $48 trillion is in Asia and $29 trillion is just in China, private capital won't necessarily be able to handle the perceived higher risk or contend with the modelling shortfalls for developing-Asia projects, HSBC Chairman of Corporate and Institutional Banking Samir Assaf said. A "blended finance" model with special financial instruments could be a solution to the sheer scale of the capital challenge, he said.
• The cheapest energy is the energy you don't use, Peter Terwiesch of Swedish-Swiss firm ABB noted at an afternoon panel on net zero technology. Across panels and discussions through Day Two there was regular mention of the role of digital tools, advanced analytics, and automation as part of both improving efficiency (and thereby reducing emissions) at existing fossil fuel assets, while also better matching industrial demand with the intermittency of renewable energy sources. Where software and demand management tools belong in the cleantech universe remains a topic of widespread discussion, but much of the VC activity around "climate change" is with tech platforms, and could have impacts on the network effects and valuation prospects of companies participating in the energy transition.
• When it comes to carbon pricing and related regulations, financial market participants and cleantech firms face both a marathon and a sprint. Acting Commodity Futures Trading Commission (CFTC) Chair Rostin Benham echoed 1 March comments at a CERAWeek panel from the SEC acting Chair Allison Herren Lee that climate finance regulations and the release of government-approved carbon pricing for use in financial modeling will be an "iterative process." While the October 2020 CFTC report on climate risk to financial markets made waves with its assertion that many tools, like disclosure, taxonomies, and data sharing, could be adopted under existing regulation, Benham cautioned a panel led by IHS Vice President Susan Farrell that the regulators recognize the need for flexibility and longer time scales for more sweeping action.