Few fields are changing as fast as climate technology. In the last five years, it has undergone a radical transformation from a niche area to a broad sector full of promising niches. This diversification carries risks and opportunities.
And options. Lots of options. With the world looking to revamp almost every corner of the global economy, there is a seemingly endless supply of startups to invest in. There's no way to create a definitive list, but here are three areas worth a closer look.
Improved weathering of rocks
At a time when humans are about to exceed the "safe" amount of global warming in less than five years, carbon sequestration is receiving a lot of attention. And there are many ways to do it: from large carbon filters and improved algae to rocks. Yes, rocks.
Various types of rocks naturally extract carbon dioxide from the atmosphere and transform it into a stable mineral. The problem is that this process is too slow to have any effect on the colossal amounts of carbon we have pumped into the atmosphere.
One of the easiest ways to speed up that process is to expose more rock to the atmosphere by crushing it and spreading it over a wide area. It may not sound very attractive, but it is for farmers.
Farmers already spend a lot of money on soil amendments, which include everything from synthetic fertilizers to compost and manure. In certain regions with acid soils, farmers also apply crushed limestone to raise the pH of the area.
There are not few emerging companies, such as Lithos Carbon and Eion, that have taken notice of this idea. But instead of spreading lime, they replace it with another pulverized rock, such as basalt or olivine, which can absorb carbon from the air.
In one fell swoop, the amendment reduces soil acidity, adds useful nutrients, and captures and stores carbon. The companies then sell carbon credits to buyers like Stripe, which means they often give the amendment to farmers for free (lime applications typically cost $40 to $60 per acre).
There are two factors that make enhanced rock weathering attractive to investors. First, the cost per ton of carbon removed is quite low: between $80 and $180 per ton. This figure is far less than the costs of direct air capture, which involves the use of large fans blowing air over filters to remove the dilute amount of carbon dioxide contained in normal air. Enhanced rock weathering could remove up to two metric gigatonnes of carbon dioxide per year.
Second, we have technology. None of this would work if start-ups didn't have sophisticated models to accurately predict how much carbon an acre of farmland can remove. Crushing, transporting and spreading rock is not difficult - all of that can be outsourced - but modeling and verification is.
If, as many suspect, carbon removal becomes a service similar to wastewater treatment or garbage collection, the demand for these types of platforms will be enormous.
Fusion
Trading fusion energy pretty much defines high risk, high reward investing. What investor would not want to have at least one bet like this in his portfolio?
Fusion's potential is often described as limitless, and that epithet is not unjustified. The supply is practically limitless: Depending on the technology, the Earth could have thousands or millions of years of fuel.
If fusion reactors can be built on a large scale at reasonable cost, demand won't be a problem. Last year, consumers paid more than $10 trillion for energy, according to IEA estimates. How many other markets have a potential TAM in the trillions?
In addition, the chances of a successful merger have increased considerably in recent years. The new magnets have made it possible to design smaller and cheaper fusion plants, tipping the balance towards profitability. And the pioneering experiment at the Department of Energy's National Ignition Facility has raised hopes that cost-effective, sustainable fusion power is finally within reach.
There are also various investment opportunities. We have unicorn-scale start-ups and suppliers, as well as smaller companies that are taking a simple approach to reactor design and development.
The merger may not work out, but if it does, the winners could dwarf Exxon by comparison.
Network Management Software
What venture portfolio would be complete without a SaaS game? As climate technology matures, there will be many SaaS opportunities, but one area of particular promise is software to help manage the increasingly vital and soon overwhelmed electrical grid.
The electrification of the economy will require major improvements to the network, which will not come cheap. The Department of Energy has planned $13.000 billion in funding to ease the burden, but that's nothing compared to the estimated trillions of dollars we'll need.
However, network management software could reduce those costs. Instead of spending money on physical upgrades, software can help find efficiencies. LineVision, for example, monitors high-voltage transmission lines to determine the maximum amount of electricity they can carry at any given time. In many cases, that amount is higher than the line's original rated capacity, typically 15-40% more.
Electric vehicle charging is another wild card around which companies plan improvements. Since electric vehicles consume massive amounts of power, there is a chance of saturating transformers if too many people plug in at once. To minimize the chances of this happening, WeaveGrid helps coordinate power supply, providing both car manufacturers and utility companies with insight into drivers' charging behaviour.
The good thing about software-based solutions is their inherent flexibility and wide applicability. As the network is upgraded, new ways for software to interact with it will emerge. SaaS-type niches will multiply, creating vast opportunities for investors.
Since the customers are utility companies, the sales cycles will be long, and so will the landing strips. But once a startup has proven itself, the contracts are often lucrative and long-term, which improves profitability.
Balancing risks and opportunities
Climate technology hasn't taken off until the last few years, and many investors are still searching for their place in this ever-changing landscape. However, change means opportunity, and as the industry continues to evolve, so will investment strategies.
The three technologies mentioned are not the last word in climate technology investment, but they do offer a good balance between risk and security. It only remains to choose the winners.
