The next hurdle in Europe's energy transition: Being more enticing than NFTs

“Even though we had great early-stage investors from Germany and Europe that keep supporting us, it becomes very hard to raise the tickets we need right now,” Bitner said, referring to individual investments.

Europe offers a preview for the rest of the world. The European Union has aggressive targets to reduce greenhouse gas emissions, and there is broad political support for tackling climate change. The bloc has poured public money into grants for developing new technology.

But after getting initial startup money or grant funding, businesses are struggling to raise funds for the kind of innovative, large-scale projects needed to complete the transition from carbon-spewing sources of energy. The funding gap means Europeans face the prospect of either falling short of ambitious climate targets or further energy shortages and rising costs.

Solutions are available if given a financial boost, experts said. Almost half the reductions in emissions to meet net zero targets by 2050 will come from technologies currently in their infancy, according to the International Energy Agency. There is, in theory, plenty of capital available globally for the multitrillion-dollar task of funding this transition to greener energy.

The war in Ukraine has made Europe’s energy transition even more urgent. The EU has said it would cut imported Russian natural gas by two-thirds this year and completely by the end of the decade. While some of that supply will be made up by imports from other countries, such as the United States and Qatar, expanding domestic renewable energy capacity is a critical pillar to this plan.

But attracting investors to projects trying to move beyond mature technologies like solar and wind power is tough. Venture capitalists, once cheerleaders of green energy, are more infatuated with cryptocurrencies and startups that deliver groceries and beer within minutes. Many investors are put off by capital-intensive investments. And governments have further muddied the water with inconsistent policies that undermine their bold pledges to reduce carbon emissions.

Venture capitalists’ other interests

Tony Fadell, who spent most of his career trying to turn emerging technologies into mainstream products as an executive at Apple and founder of Nest, said that even as the world faces the risks of climate change, money is flooding into less urgent developments in cryptocurrency, the so-called metaverse and the digital art collections sold as NFTs. Last year, venture capitalists invested $11.9 billion in renewable energy globally, compared with $30.1 billion in cryptocurrency and blockchain, according to PitchBook.

Of the $106 billion invested by venture capitalists in European startups last year, just 4% went into energy investments, according to PitchBook.

“We need to get real,” said Fadell, who now lives in Paris and has proposed ideas on energy policy to the French government. “Too many people are investing in the things that are not going to fix our existential problems. They are just investing in fast money.”

Two years ago 360 Capital, a venture capital firm based in Paris and Milan dealing in early-stage investment, introduced a dedicated fund investing in clean energy and sustainability companies. The firm is now planning to open up the fund to more investors, expanding it to 150 million euros from a 30 million euro fund.

There are a growing number of dedicated funds for energy investments. But even then there is a tendency for the companies in them to be software developers, deemed less risky than builders of larger-scale energy projects. Four of the seven companies backed by 360 Capital’s new fund are artificial intelligence companies and software providers.

Still, the situation has changed completely since the company’s first major green-energy investment in 2008, Fausto Boni, the firm’s founder, said. “We see potentially lots of money coming into the sector and so many of the issues we had 15 years ago are on their way to being overcome,” he said. But the availability of bigger investments needed to help companies expand in Europe still lags behind, he added.

The funding gap

Breakthrough Energy Catalyst, which is backed by Bill Gates, is trying to fill the gap. It was formed in late 2021 to help move promising technology from development to commercial use. In Europe, it is a $1 billion initiative with the European Commission and European Investment Bank to support four types of technologies — long-duration energy storage, clean hydrogen, sustainable aviation fuels and direct air capture of carbon dioxide — that it believes need to scale quickly.

In Europe, there are “significant difficulties with the scaling up phase,” said Ann Mettler, the vice president for Europe at Breakthrough Energy and a former director general at the European Commission. There is money for startups but when companies become reasonably successful and a bit larger, they are often acquired by American or Chinese companies, she said. This leaves fewer independent companies in Europe focused on the energy problems they set out to solve.

Companies that build complex — and often expensive — hardware, like Bitner’s batteries for long-duration energy storage, have an especially hard time finding investors willing to stomach the risks. After a few investment rounds, the companies are too big for early-stage investors but too small to appeal to institutional investors looking for safer places to park large amounts of cash.

“If you look at typical climate technologies, such as wind and solar and even the lithium-ion batteries, they took well over four decades to go from the early R&D to the large-scale commercialization and cost competitiveness,” Mettler said, referring to research and development. “Four decades — which obviously we don’t have.”