European cleantech companies have developed world-leading batteries, electrolysers, and supercapacitors, as well as near-zero carbon steel and cement technologies. This tech leadership could underpin Europe’s competitiveness, energy resilience and decarbonisation for decades to come.
However, a large funding gap at the scale-up stage puts Europe’s next generation of industry at critical risk. The European Commission calculates that to scale the manufacture of just six key technologies under the Net Zero Industry Act — namely solar, wind, batteries, heat pumps, electrolysers, carbon capture and storage — will require €92 billion of public and private investment by 2030.
Even in this optimistic view, our latest research shows the EU is facing a €50+ billion investment gap by 2030. This gap could easily grow to the hundreds of billions of euros by 2030 if we include the other key technologies we need to scale up: green steel and cement, long-duration energy storage, green chemistry and more.
Meanwhile, our global peers are investing aggressively in cleantech. In the United States, the Inflation Reduction Act is projected to unlock US$1.2 trillion of cleantech incentives by 2032. In 2023 alone, China invested $676 billion in clean energy. Japan, through its GX Initiative, will realise private-public investments of ¥150 trillion (approximately $1 trillion) over the next ten years.
EU cleantech investments: state of play
On the private side, we observe that European cleantech venture capital investments have plateaued at €11 billion. Cleantech venture capital investments are still largely dominated by the United States, with the Asia Pacific region steadily gaining ground since 2020.
On the public side, Europe lacks the growth equity, commercial debt and project finance to meet the needs of first-of-a-kind (FOAK) plants. The fundraising successes of Sweden’s H2 Green Steel and French battery gigafactory developer Verkor showed that newcomers can stack various types of capital (equity, debt, guarantees and subsidies) to finance multi-billion FOAK projects, but these are still exceptions, not the norm in Europe.
A Cleantech Investment Plan for Economic Competitiveness
With our industrial and climate leadership at stake, and our evident need for energy resilience, now is the time for Europe to put forward an ambitious public sector-enabled, private sector-led Cleantech Investment Plan. As we navigate a challenging budgetary environment and political pushback against green policy, we make the following proposals for massively scaling cleantech deployment in a fiscally efficient way:
- Mobilising capital from institutional investors. In the US, insurers and pension funds are prolific investors in venture and growth capital, and this is not the case in Europe – American institutional investors invest 100 times more in venture capital than European counterparts! To unleash such capital, we should both review prudential rules to make it easier for institutional investors to fund the cleantech transition – and also develop de-risking instruments and fund-of-funds to crowd in private capital.
- Deploying public guarantees to de-risk cleantech investments. Cleantech companies have a hard time financing their FOAK projects via commercial loans. When selling innovative equipment, cleantech manufacturers are asked for a series of bank guarantees. Given their lower bankability compared to industrial incumbents, innovators cannot finance these guarantees at a reasonable cost, tying up precious working capital in collateral. Public guarantees are an efficient instrument to mobilise more private capital towards cleantech manufacturing. The recent EIB guarantee put in place for the wind sector should be expanded to validated clean technologies that are ready to scale in Europe.
- Earmarking revenues from the EU Emissions Trading System (EU ETS) for cleantech. These revenues represent a significant pool of capital. In 2022, total auctioning revenues generated under the EU ETS system reached €38.8 billion of which €29.7 billion went directly to Member States. To enable Europe’s cleantech deployment, the EU should consider front-loading cleantech investment, for instance by borrowing against future ETS revenues to invest in cleantech manufacturing capacity.
Readers interested in a deeper dive into Europe’s cleantech capital stack and our suggestions for a Cleantech Investment Plan for European Competitiveness can access the full report here.
About Cleantech for Europe
Launched in 2021, Cleantech for Europe represents the trailblazers developing, deploying and investing in clean technologies across the EU. Our mission is to bridge the gap between cleantech and policy leaders. We equip policymakers with insights about cleantech and build coalitions to chart a new path for the continent.
Sofia Karagianni – Senior Policy Officer, Cleantech for Europe
Sofia is the Policy Team’s expert on cleantech funding policy and oversees the initiative’s Investor Coalition. She is an EU-qualified lawyer and before joining Cleantech for Europe, she worked on EU climate and financial policy with leading international law firm K&L Gates. Based in Brussels, Sofia is a member of the Global Shapers Community of the World Economic Forum. She is passionate about diversity and inclusion, having co-founded two initiatives focused on women’s economic empowerment.