Foreword

Barbara Ghinelli

Director of Clusters and Harwell Campus, Business Development, UKRI-STFC

Harwell is proud to partner with Tech Nation on their 2022 Emerging Energy Tech Report.

The report findings are clear. Investment in energy tech has become a global priority – as fast growing organisations within the sector are playing an increasingly important role in solving the global climate crisis.

Climate change is one of the biggest threats to society and our economy. To respond to this unprecedented challenge, the UK has set a world-leading target to achieve net zero by 2050 and this is at the core of its ambitious policy agenda to build back better and greener through innovation.

However, there is a real risk that while there is huge appetite to fund organisations at start up stage, without securing longer-term funding, projects may become stuck at pilot phase without their societal, environmental, and economic benefits realised, something we simply cannot let happen.

As director of clusters at Harwell, and across UKRI-STFC sites, I strongly believe that the connected environment within clusters is key to helping the energy tech sector thrive and boost economic growth across the UK. Clusters encourage industry collaboration, attracts sustainable investment, and delivers breakthroughs at scale.

Harwell has an established history of innovation and leads the way in making the cluster model work. Through embracing collaboration and partnerships and enabling access to Europe’s largest concentration of national science facilities and other capabilities, including the Faraday Institution and its commercial scale test bed, we can continuously push discovery boundaries. This is all with one common aim, to fast track the translation of innovative ideas into tools and products that will help tackle global climate change and deliver significant benefits to society and the UK economy.

By connecting these organisations, the Harwell Energy Tech Cluster is at the forefront of the development of cutting-edge net zero technologies across renewables, battery research, zero carbon energy storage, zero carbon fuels, integrated energy systems, connected and autonomous travel solutions, and digital and data services. Together we can help the UK realise its ambitious goal of achieving net zero by 2050.

Executive summary

In November 2021 the world turned to Glasgow for COP26, where significant steps towards climate action and support were achieved. Following on from the conference, a slew of decisions have been made and agreements formed; including a number of strengthened efforts to build resilience to climate change, to curb greenhouse gas emissions and to provide the necessary finance for both.

We know that technology will play a pivotal part in helping to achieve global net zero (the balance between the amount of greenhouse gas added and removed from the atmosphere) but we now understand that more must be done to reach carbon negativity, helping curb global temperature rises.

In this report, we explore companies who are pioneering cutting edge energy technologies; covering clean energy, energy efficiency, and energy storage.

In taking this focus, we hope to shed light on companies at the forefront of energy innovation; those businesses that are tackling the climate challenge head on, helping the UK and the world to scale to zero.

Both Harwell and Tech Nation believe that UK tech has a fundamental part to play in energy innovation, but support is needed to help companies accelerate their growth. Scaling challenges are acute for R&D intensive, emerging companies and further late stage funding, collaboration support, and development of key talent is needed to capitalise on the enormous growth prospects represented by this cohort of firms. 

The government has put in place a ten point plan for a green industrial revolution, which promises more investment into the UK tech companies tackling the climate challenge. We celebrate this plan, and those of governments across the world. To solve the climate challenge we need a truly joined up, global approach; and technology must be seen as a key, enabling force for change.

Key statistics

• Global energy tech VC investment has reached $22.2bn in 2021, an increase of 124% from the $9.9bn raised in 2020
• There are 7,190 energy tech scaleups globally, with a cumulative value of $1.9tn, of which 489 are in the UK. There are 950 energy tech companies in the UK, including micro businesses
• The majority of private equity investment made into energy tech scaleups was made by venture capital firms in 2021, at $9.8bn
• US energy tech firms achieved the lion's share of global VC investment in 2021, with $10bn worth of deals, compared to European firms’ $6.6bn
• In Europe, the UK is second only to Sweden for 2021 energy tech investment. Energy tech investment is ramping up across the continent, rising by over 300% in many nations, such as Sweden, the Netherlands, and Austria
• In the UK, energy tech investment has increased from $1.1bn in 2020 to $1.5bn in 2021, a rise of 36%
• Nevertheless, nearly half (47.6%) of UK energy tech companies are at seed stage, notable raises by growth and established stage companies are concentrated around neo-energy providers

Global energy tech

Global energy tech VC investment has reached $22.2bn in 2021, an increase of 124% from $9.9bn raised in 2020

While growth in VC investment made into energy tech companies has grown considerably, year on year, from 2012 to 2020, a step change in funding was witnessed in 2021. Last year saw 15 companies raise over $250mn, and a further 31 firms receive investment rounds between $100-$250mn. Despite a higher number of deals overall in 2020, 638 in versus 618 in 2021, mega rounds (those deals totalling over $100mn) were around half last year's number.

The likes of Northvolt in Sweden, Commonwealth Fusion Systems in the United States, SVolt in China, and Octopus Energy in the UK topped the charts for investment received. In fact, investment into these four companies alone in 2021 constituted 37% of global energy tech investment.

(Source: Tech Nation, Dealroom, 2021)

The majority of private equity investment made into energy tech scaleups was made by venture capital firms in 2021, at $9.8bn

Venture capital firms contributed the lion's share of investment into energy tech companies in 2021 - a change from 2020, where corporate investors were key funding organisations. From 2018 onwards corporate investors have played a more important role as funders in the energy tech landscape. Firms such as Tencent, CBRE, Tokyo Gas and Volkswagen have put significant capital into supporting emerging energy tech companies, often complementary to their own activities.

(Source: Tech Nation, Dealroom, 2021)

US energy tech firms led the field for global VC investment in 2021, with $10bn worth of deals, compared to European firms’ $6.6bn

However, this dominance of the energy tech investment landscape by US firms is misleading, based on the last decade of funding. Prior to 2021, European and Chinese firms secured a more sizeable portion of the funding pot - in many years, exceeding that of US counterparts.

(Source: Tech Nation, Dealroom, 2021)

There are 7,190 energy tech scaleups globally, with a cumulative value of $1.9tn, of which 489 of these high growth companies are in the UK, representing around 7% of the global total

The most valuable tranche of energy tech companies globally are those founded between 2000 and 2004, including a number of firms developing new energy storage technologies, and electric motors. Those founded in the last two years, are more likely to be developing alternative energy tech, or providing monitoring or data-led solutions to addressing energy efficiency and clean energy. This gradual change in technology composition of leading startups and scaleups is indicative of the changing technological capabilities of nations and firms, but also points to a shift towards new technology horizons, and an understanding that hitherto undeveloped tech will likely herald the changes needed to address the climate challenge.

In Europe, the UK is second only to Sweden for 2021 energy tech investment. Energy tech investment is ramping up across the continent, rising by over 300% in many nations, such as Sweden, the Netherlands, and Austria.

Taking a look at the relative performance of individual countries, we can see that the US, China and the UK have long been leaders in the energy tech landscape.

Over the last year, Sweden has leapt into fourth position, driven - in part - by the $1bn investment round into Northvolt, but indicative of a changes wrought by government policy to prioritise support for clean energy and energy innovation. In fact, when looking at investment against emissions, we see that Sweden outperformed every other nation, investing over 10x that of the UK per tonne of CO2 .

(Source: Tech Nation, Dealroom, 2021)

UK energy tech

In the UK, energy tech investment has increased from $1.1bn in 2020 to $1.5bn in 2021, a rise of 36%

The value of energy tech companies in the UK was $18.9bn in 2021, up from $13.3bn in 2020. This was driven by significant investments into the likes of HiiROC - producing low-cost, zero emission hydrogen, Newcleo - building the next generation of nuclear energy, and Britishvolt - developing new battery solutions from their global headquarters in the West Midlands.

(Source: Tech Nation, Dealroom, 2022)

Clean energy investment made up 87% of energy tech investment in 2021

Clean energy has represented the largest, and fastest growing area of the energy tech ecosystem since 2018 - followed by energy storage and energy efficiency. Many energy providers have led the charge towards clean energy, including firms like OVO energy, Tokamak energy, and Octopus energy. These organisations have tended to take the revenue model of energy subscription services, offering competitive services to energy incumbents. However, much of the cutting edge research and development conducted, and 100% clean energy supply generated by them sets them apart from traditional energy purveyors.

(Source: Tech Nation, Dealroom, 2022)

Active energy tech companies have increased rapidly over the past decade, but company creation rates have reached a plateau in the last two years

(Source: Tech Nation, Beauhurst, 2022)

Breaking this down, we can see that the heyday for energy tech company foundation was between mid-2017 and early 2020, when firms like Faradion and Tepeo were formed. With firm valuations and investment levels continuing to increase rapidly, it is likely that the energy tech ecosystem in the UK remains nascent.

(Source: Tech Nation, Beauhurst, 2022)

Nearly half of UK energy tech companies are at seed stage

Just over 10% of active UK energy tech firms are established, and around 40% at venture stage, further supporting evidence of the nascence of the sector, and scope for future growth.

(Source: Tech Nation, Beauhurst, 2022)

Notable raises by later stage energy tech companies are dominated by next generation energy providers, and energy storage pioneers

(Source: Tech Nation, Dealroom, 2022)

Characteristics of UK energy tech firms

The majority of energy tech companies are run by male teams (89.1%), however, this is lower than the tech sector as a whole, where 5.5% of all tech companies have at least one female founder

According to Sifted, only 1.3% of all VC funding since 2017 went to businesses which contained at least one female founder. This may be leading to an underfunding of energy tech companies, with a higher than average likelihood of having a female founder.

(Source: Tech Nation, Beauhurst, 2022)

Tessa Clarke, CEO and co-founder of OLIO suggests that a legacy of underinvestment in businesses run by female founders and other underrepresented groups is having a negative impact on the UK climate tech ecosystem.

“In my experience climate tech and tech 4 good founders tend to be (relatively speaking) incredibly diverse in terms of gender and ethnicity. Yet, unfortunately the gender and ethnicity biases in venture funding are well documented, resulting in woeful underfunding in the climate tech space. Ultimately, this is short-changing humanity, given it is these founders who are tackling the existential problems facing us today.'' Tessa Clarke

Directors of energy tech companies are ageing - in 2010, 20% of directors were over 60, while in 2022, 27% are over 60

(Source: Tech Nation, Beauhurst, 2022)

Energy tech companies were initially at higher risk of exposure due to market shocks from Covid-19, however, from February 2021 a significant recovery was made with companies entering into recovery, or a positive position

(Source: Tech Nation, Beauhurst, 2022)

Clustering of energy tech firms

Energy tech firms are found across the UK, with a number of significant clusters in locations such as Glasgow, Manchester- Chester - Liverpool, Aberdeen, Newcastle, Sunderland and Tyne and Wear, London, Cambridgeshire, South Wales, Oxfordshire, and the West Midlands. Explore firms making up these clusters in the interactive map below.

In each location, more than a concentration of firms is required to form the critical mass, and magnetic influence of a tech cluster. Digital and physical infrastructure, networked people and organisations - forming communities of practice and knowledge, and access to talent and finance - amongst other factors - form crucial components of the place-based mix needed to stimulate and grow companies.

Energy tech firms are more likely to be R&D intensive, have a longer lead time to market readiness, require additional capital to scale hybrid or hardware based products, and need highly skilled talent to enable growth. It follows, therefore, that many clusters of energy tech firms seen in the UK are anchored around core institutions and infrastructure, such as the Energy Tech Partnership - the Scottish academic research pool for the energy sector, and CodeBase in Edinburgh, the UK Battery Industrialisation Centre in Coventry, and the Faraday Institution at Harwell Campus.

(Source: Tech Nation, Beauhurst, Dealroom, 2022)

Energy tech at Harwell

Harwell is home to around 5% of UK energy tech companies, clustered amongst space and health tech pioneers

(Source: Tech Nation, Beauhurst, 2022)

Harwell Campus, in South Oxfordshire, represents a robust cluster of space, energy, and health tech companies. 37 leading energy tech startups and scaleups call the Campus home, alongside around 200 other organisations, ranging from national infrastructure providers, such as Diamond Light Source and ISIS Neutron Source, to startups and scaleups such as Oxford Nanopore, and Open Cosmos.

Clustering of people and firms helps build connections; creating an environment where shared objectives, views, or missions can be explored and created 

Harwell has developed a sustainable competitive advantage over other European and global clusters through attracting and retaining a critical mass of academic and industrial talent, promoting opportunities for firms of all sizes, from startups to large corporations, and leveraging significant investment in R&D facilities. Over 6,000 people work on Campus, creating a sizeable innovation community. Harwell Campus is nested within a broader regional energy tech ecosystem in Oxfordshire with companies cumulatively valued at $795mn, including Tokamak energy, and Brill Power.

A subset of energy tech, clean energy tech, is particularly concentrated in South Oxfordshire - and includes companies operating in energy generation and distribution, as well as cutting edge energy reduction, carbon capture, and nuclear fusion firms. 

Scaling challenges

Stakeholders described a range of challenges experienced by energy tech companies in the UK. In some instances, these challenges mirrored those experienced by scaleups across the tech sector, in others, like collaboration with incumbent energy firms, are specific to the sector.

Hiring talent

We looked at a subsection of 137 UK energy tech and energy tech scaleups (28% of all energy tech scaleups headquartered in the UK) and asked them what their top 3 scaling challenges are. It became immediately evident that hiring talent is the top scaling challenge with 45.9% of companies identifying ‘team’, ‘talent’ or ‘hiring’ as one of their top 3. 

STEM-based talent is an underlying problem however when you are trying to pair this with the skill set required to enter a market which may not exist yet, sourcing top quality talent is near impossible. 

Access to late stage finance

1 in 5 scaleups of the 125 we surveyed mentioned funding as one of their top 3 scaling challenges. We believe this is because energy tech companies are less likely to fit into the classic venture business model due to higher risk levels and a longer time to market. In many cases, interviewees cited 5-20 year time horizons for mainstream adoption of technologies already in development - which have been tested, and prototyped. Longer period to take products to market for untested or embryonic technologies mean that some investors may be unwilling to fund.

Looking at the ratio between growth stages of UK companies energy tech companies have a lower chance of from ‘seed’ and ‘early growth’ to ‘late growth’. 1:0.2 compared with the 1:0.6 when looking at all scaleups. This means for every one energy tech startup at a ‘seed’ or ‘early growth’ stage 0.2 make it to a ‘late stage’ which is significantly less than 0.6. The risk appetite of investors is largely related to the opportunity of higher rate of returns which, in percentage terms, is seen at pre- Series A. 

Not achieving a later stage investment is often fatal for energy tech companies because of the longer time to market and expensive staffing and raw material costs.

Collaborating with large incumbent energy companies and understanding their problems

Interviewees cited access to, and collaboration with large incumbent firms was a key challenge to accelerated growth. 

This challenge is both one for incumbents and scaling energy tech companies. On the one hand, scaleups may find it difficult to understand the problems being faced by the prospective customer, a multifaceted and complex organisation, and on the other, unlocking the opportunities collaborative ventures, or supply chain relationships with large firms represent was largely down to the inability to identify the right stakeholders in the large business to create a rapport with, and availability of budget to investment in sometimes costly innovation led projects.

International expansion

Scaling up operations internationally, especially in the United States, was cited as a key opportunity, and challenge for energy tech companies. First, understanding the landscape of incumbent energy firms, and other organisations in the energy industry, can be difficult in a federated system, and second, ensuring regulatory compliance was seen to be a potential obstacle for a soft landing into the States.

To facilitate and support growth of the energy tech sector, these challenges must be addressed. The following section outlines some potential mechanisms by which the alleviation of growth pain-points experienced by scaling energy tech companies could be achieved.

Accelerating growth

Support inter and multidisciplinary R&D projects 

Cross fertilisation, the interdisciplinary combinations of different knowledge and technologies, is key to unlocking innovation breakthroughs. According to a number of stakeholders interviewed, clustering of firms, organisations and other institutions, provides ripe opportunities for this cross fertilisation to occur organically, and should be promoted. Harwell is a good example of the benefits of clustering, where spillovers from space sector innovation are frequently applied to energy, health and quantum computing, among other fields. 

Not only did stakeholders reference interdisciplinary technology application and development as important for the health of energy tech in the UK - in pioneering new energy storage technologies, for example - but they frequently mentioned the establishment of UK competitive advantage in supporting these types of projects through access to infrastructure and finance.

Co-fund innovative energy technology companies to incentivise venture capital investment

UK tech has a fundamental part to play in combating climate change through work in, and around the energy sector, but support is needed to help tech companies accelerate their growth. Scaling challenges are more acute, and compounded for energy tech companies. The government has put in place a ten point plan for a green industrial revolution, which promises more investment into the UK’s net zero, and energy tech companies.

We celebrate this plan, and call for investment levels in energy tech companies to be increased tenfold by 2025. This would equate to an additional $15bn invested by 2025 - 15% of the $100bn climate finance yearly target (a COP26 goal). Tech Nation believes half of this $15bn should come from VCs accelerating the growth of promising energy tech scaleups and technologies, and the rest from other organisational investors; hedge funds, pension funds and PE firms.

Promote inward investment opportunities to the UK from Australia, Asia Pacific and the United States

Interviewees cited ripe investment markets, and examples of investments being made from non-UK investors from Australia, Singapore, the Middle East and the United States, as a positive force for growth and internationalisation of UK energy tech companies. However, they mentioned that these opportunities are currently nascent, and more work could usefully be done to incentivise and promote UK energy tech companies overseas.

Industrial decarbonisation in UK strength industries could help establish global leadership

Heavy industries like glass manufacturing, steel manufacturing, and oil and gas, which the UK has historically been a global leader in, could be ripe for UK led decarbonisation efforts, which could establish new technologies, or applications.

Implementation of these potential interventions to address scaling challenges will necessarily involve many stakeholders. Collaboration led by cluster catalysts such as Harwell Campus, the West Midlands Growth Company, CodeBase, and Cambridge University could be one way that efforts are coordinated.

The UK energy tech ecosystem is undergoing a period of significant growth, and development. It will therefore be of utmost importance to monitor changes to the landscape, and keep a watching brief on future interventions to support growth.

Methodology

Dealroom

Dealroom data deals with venture capital investment and excludes debt, lending capital, grants, ICOs and other non-equity. Secondary rounds, buyouts, M&A and IPOs are also excluded. The data excludes biotech. Including biotech, the UK and European investment data would be significantly higher. Dealroom’s proprietary database and software aggregate data from multiple sources, including news flow aggregation and processing, web scraping and manual research. Data is verified and curated with an extensive manual process, augmented by data processing. To capture the data collected on energy tech we filtered companies which were operating in sub sectors of clean energy, energy efficiency, and energy storage.

Beauhurst

Beauhurst identify a range of criteria that characterise high-growth companies. Each of these are a sign of external validation that a business is either actively growing or creating ambitious growth plans. If a business meets one or more of these triggers, Beauhurst begin collecting information to build a detailed profile of it on their platform.

Using the platform, data was collected for all companies that fall under the Cleantech tag, or firms which have the terms related to energy storage, and energy efficiency in the associated description of their activity. This allows companies operating across the economy, in a diverse range of sectors, using technology, to be identified. This data was then manually checked to ensure validity.