Scaling net zero tech (Guest blog by Linklaters LLP)
Rapidly scaling a range of net zero technologies will be critical to achieving net zero by 2050 – there is an urgent need to attract greater investment and leverage innovations.
Tech investment needed
There has been a surge in investment in net zero tech, reaching record highs in 2021 and remaining relatively resilient in 2022 despite a wider market downturn. Yet there are significant hurdles to developing, scaling, and deploying net zero technologies to enable net zero by 2050: trillions of dollars of investment are needed and the path from innovation to realising these technologies at scale is complex and challenging.
A recent report by The Rockefeller Foundation and Boston Consulting Group estimates that approximately $3.8 trillion is needed in annual investment flows through 2025 and their analysis suggests that current capital provides only about 16% of the finance required.
Investment is needed across many different technology solutions including power generation from alternative fuels such as green hydrogen, carbon capture at scale, the generation and storage of clean electricity, the electrification of mobility and transport, de-carbonisation of building materials, and the digital transformation of manufacturing, business processes and agriculture.
Investment throughout tech evolution
Government initiatives are essential to creating certainty for the investor community. Governments around the world are setting policy goals and committing significant capital to promote net zero technology investment, and to subsidise technologies they consider critical to the future of energy. For example, the UK launched a Net Zero Hydrogen Fund in 2022.
Investment will be needed at all stages of the technology lifecycle - from equity financing of deep-tech start-ups producing next generation solutions to high value project financing to develop large scale storage and generation facilities for more established technologies. Finance is being sourced from venture capital, private equity, sovereign wealth, and pension funds as well as corporates, banks, multilateral agencies, asset managers, and national governments.
Investing in expertise and IP
With the drive to transition to net zero, global businesses are increasingly focusing on technology investment transactions to leverage the wealth of expertise and intellectual property being developed by emerging technology players. Collaborating with these technology companies can take many forms, including acquisition and venture/growth capital, minority investments linked with commercial collaboration, joint ventures and technology partnerships, acquisitions, and mergers of businesses at different stages of evolution.
Game-changing innovations in net zero tech often come from relatively small companies who have spent years developing technologies in new areas such as fuel cell technology, methods for storing renewable energy, or processes for manufacturing more efficient batteries.
Unlike “pure” tech online businesses, these smaller net zero tech companies need to collaborate with others in large scale engineering and commercial environments to provide external use-case validation to scale their technologies.
For example:
- a vehicle battery needs to be demonstrated in a car operating under driving conditions;
- a fuel cell needs a use case to show the benefit from its use compared to an alternative energy source;
- storage solutions for renewable energy are only significant if they can be used at a large commercial scale, rather than in test or demo conditions.
Large industrial engineering companies, global car manufacturers and other conglomerates can provide the use cases and investment needed to validate and scale these technologies, and in return these larger entities gain a financial stake and licensee rights in potentially game-changing net zero technology.
Protecting IP
From an IP perspective, a collaboration of this type drives complex planning and decisions around how to license the relevant IP into the collaboration, how to control access to the IP, and how to address ownership and licensing of new developments.
Innovators also need to think carefully about how they protect their IP. Patents offer strong protection in granting monopoly rights and the ability to sue third parties using the protected technology without consent. However patents, involve disclosing the invention to the wider world and it can be difficult to stop third parties gaining an advantage even if they do not infringe the patent. Many innovators therefore may decide to keep some inventions secret and rely on confidentiality and trade secrets laws to safeguard their IP.
With the ever-increasing regulation of technology investment and technology transfers between different jurisdictions, the parties also need to be mindful of the powers of national or regional regulators to insist on certain licensing provisions, to approve certain types of transactions and to retain the power to alter or terminate certain collaboration and licensing agreements in the future.
Looking ahead
While the level of net zero tech investment is down from 2021, in 2023 we expect continued strength in investment and more collaborations across a broad range of net zero tech from the financing of start-ups developing cutting-edge technology to the roll out of more mature tech solutions.
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