Investing in a sustainable future: resilience & redirection in the climate tech startup scene

2023 presented a challenging year for the startup scene, with total VC and PE investment down by 50.2% YoY. However, climate tech ventures stayed resilient in claiming their share of the total investment flow. Understandably, investors remain keen on finding breakthrough solutions to an increasingly urgent climate problem.

Against the gloomy backdrop at the systematic level, there is an exciting shift in fund flow into climate tech categories with higher emission reduction potential (ERP): carbon capture, utilisation, and storage (CCUS), alternative foods, and green hydrogen.

The UK is a global powerhouse in the climate tech space, home to over 5200 climate tech companies by the end of 2022. We analyse the segments of this market attracting increasing investor interest and which businesses to keep an eye on in 2024.

Carbon capture, utilisation, and storage

CCUS is the only category that rose in absolute investment levels, with 198 new CCUS facilities added to the global project pipeline this year. CCUS technologies mitigate carbon dioxide (CO2) release or remove existing CO2 from the atmosphere, targeting large industrial emission sources.

The Russo-Ukrainian war made energy security a salient issue for governments around the world. Investor enthusiasm reflects the potential of CCUS technology to facilitate a diverse and flexible energy supply. It has been deemed a necessary piece to the UK’s plan to meet its 2050 net zero target.

Affordability, scalability, and ease of deployment are major concerns CCUS startups are looking to address. An award-winning startup, CyanoCapture, looks to address such concerns by taking a biological approach. The Oxford-based startup utilises photosynthetic bacteria to bypass expensive catalysts and control energy usage when scaling.

Alternative foods

Animal agriculture accounts for 15-20% of global greenhouse gas (GHG) emissions. Alternative protein has been identified as a key solution area with significant CO2 reduction potential with the highest CO2 savings per $ invested.

Bright Biotech, a Manchester-based food technology startup, uses chloroplast expression to produce high-value proteins. Because the technology is light-based, Bright Biotech is offering a scalable and sustainable solution.

However, food taste, texture, and cost parity must also be satisfied if the alternative protein market is to meet the increasing consumer demand. If the technical innovation can accelerate to meet the parity demands, the alternative protein market could make up 22% of the overall protein market by 2035 in Europe and North America, causing animal protein consumption to decline. Significant funding facilitated by regulatory support is required to reach best-case projections.

More immediately, despite the rising consumer demand, the current economic picture is causing shoppers to tighten their belts. Brands offering more sustainable but more costly alternatives must work twice as hard to educate audiences and increase awareness about the value of their products.

Green hydrogen

The hydrogen produced is green if the electrolysis process uses renewable energy, such as wind or solar. Green hydrogen can heat at temperatures high enough to power large industrial plants, and it is proposed as a way to decarbonise the hard-to-abate sectors that accounts for around 30% of the annual global CO2 emissions.

Despite the scrutiny over the energy intensity and the source of the ‘clean’ electricity of the electrolysis process, billions of pounds of subsidies and investments are being poured into green hydrogen. Electrogenos is a start-up developing an alkaline electrolyser technology. With their patented catalyst, the founding team aims to significantly reduce cost and increase efficiency in the current supply chain.

Electrogenos has big ambitions to bring green hydrogen production to below $1/kg. It would be a breakthrough technology given that current green hydrogen production in Europe is at least $3-$5/kg.

Many net-zero targets assume that these latest developments will yield results, and potential solutions mustn’t perish in the current hostile macro environment. With the era of low-interest rates and exuberant investors becoming a distant past, startups must effectively communicate their value, credibility, and potential. Moreover, unlike startups in more mature climate tech markets, high-ERP technology startups are communicating with stakeholders with less prior knowledge and benchmarks. Before dominant designs emerge for the high-ERP climate tech categories, how you establish yourself as the frontier of these markets will play a big role in securing sufficient funds for expansion.

Get in touch to see how the PHA team can support your innovations for a sustainable future.

Get in touch with the team