It’s easy to talk about the future; it’s much harder to make it happen — as a lot of energy companies are finding now. For climate tech in 2024, the main focus is no longer on discovering new solutions — it’s on deploying them. Companies are facing some of their first interim decarbonization goals; while many headlines focus on net-zero commitments in 2040 or 2050, a lot of firms have interim decarbonization targets for 2030 or even 2025. At Lux, we’ve noticed a considerable uptick in clients asking us what they can do today, rather than only planning for tomorrow. What’s more — and fortunately! — there are also now generous government subsidies on offer to deploy climate tech. Nearly two years after the announcement of the U.S. Inflation Reduction Act, we’re starting to see real movement on deploying technologies, in part to capture these subsidies.
So, how should large energy companies start making climate tech happen? Open innovation has been a crucial tool to explore climate tech opportunities for many companies, especially for innovations that could be disruptive to their core business. Does the growing focus on deployment mean it’s time to abandon open innovation efforts? Far from it — though successful open innovation efforts in this new landscape will require a change in tactics. Rather than exploring new ideas and concepts that are years from deployability, energy companies have an opportunity to find technologies that are ready to pilot and scale, and use their existing expertise to solve hurdles startups won’t be able to on their own. Unlike software opportunities, where new apps can scale in a matter of weeks, climate tech poses more stubborn hurdles. Some of the key ones we see that large companies can help with are the following:
- Supply chains restrict growth. Apple sells roughly 230 million phones each year, which works out to around 40 Mtonne of materials. That sounds like a lot, but translated to electric vehicles (EVs), that’s only enough to make roughly 21,000 Teslas. Scaling EVs requires much more material and thus more significant overhauls to supply chains. Startups don’t have the heft to move raw materials markets and spur investments in mining capacity, for example, but big energy companies do.
- Markets for climate tech are much more complex. Solar photovoltaics provide the lowest levelized cost of electricity generation in many regions — but they aren’t the primary source of power. The grid is a highly complex system not designed for intermittent and variable renewable power, and this integration challenge means that being cheap isn’t enough to drive adoption. As startups develop solutions that impact the grid, they need partners that understand this complexity.
- Investment scales grow dramatically. The International Energy Agency estimates nearly USD 6 trillion worth of investments will need to be made to meet decarbonization targets through 2030 alone. Building first-of-a-kind facilities requires significant capital; while government programs, like the Department of Energy Loan Programs Office in the U.S., have stepped in to help finance some of these projects, deployment at the scales we need will also require the balance sheet of larger energy companies.
We’ve been traveling the world with our Lux Forums, and I’m lucky enough to have attended our Forums in Houston and Brussels to talk about these ideas. Two comments during our client panels really stuck out to me and impacted how I think energy companies should approach open innovation. In Houston, one panelist noted, “Not all inventors want to be founders.” It’s something we sometimes take for granted, but the skill sets to succeed in scaling technology are dramatically different from those required to invent them. In our Brussels event, a speaker from an incumbent company put it like this: “Startups have the brains, we have the muscle.” I think that really gets at the future role of incumbent energy companies in the energy transition: Use your existing skill sets to help startups navigate the complexities of scaling technologies. Given the dramatic levels of funding in climate tech in recent years, there are plenty of opportunities out there. Go find them!
To hear more from Chris about partnering to scale climate tech, join the Lux webinar “Innovating in 2024: How to Navigate the Energy Transition” on May 23rd.