Perspective: EU policy

European Industrial Policy and its Role Enabling ClimateTech

On the 16 April 2023 the Dutch cabinet announced a €28b climate investment package, with an additional €5b also allocated to an expansion of nuclear energy. This massive spending package is expected to have significant impact in a number of areas, accelerating the transformation of legacy industries and the adoption of new innovations. The full detail is expected to be released in July, but highlighted below are some of the selected key initiatives which we anticipate will be contained in the final package:

Dutch Climate Package

This investment package follows a consistent focus on wind, solar and energy efficiency, and now steps up attention on hydrogen, nuclear, heating, batteries and grid capacity. This complements a variety of other incentive programs, such as SDE++, which incentivize the widespread adoption of amongst others, electric vehicles for consumers and businesses, and biogas generation.

This package needs to be seen within the context of an avalanche of initiatives, regulation, incentives and subsidies within a broader Europe, in pursuit of the Fit-for-55 objectives, including the recent Green Deal Industrial Plan announced in Feb 2023. Close to €500b has been allocated at a European-wide level (through funds such as RepowerEU, and the Recovery and Resilience Fund), with additional funding at country level (such as Germany’s €180b Climate and Transformation Fund and France’s Green Fund).

Fit-for-55 is the EU-wide legislative policy framework and spending allocation released in July 2021 and designed to drive a 55% reduction in CO₂ levels (below the 1990 baseline) by 2030 and put Europe on a path to net zero by 2050. This is guiding a radical re-shaping of the entire energy consumption and generation footprint of Europe, with some of the key initiatives detailed below:

Fit for 55

Combined with the US’s $369b greentech investment platform (for political window-dressing named the Inflation Reduction Act), the developed world is seeing an enormous investment wave unleashed on scaling up new greentech technology.

However, in many respects, China has led the way: For example in the first quarter of 2023 China’s utility scale solar reached 228 GW, more than the rest of the world combined. China’s wind capacity of 310 GW is equivalent to the next seven countries combined. It is estimated that China will double its capacity and produce 1,200 GW of energy through wind and solar by 2025, beating its 2030 goal by 5 years. By 2030 well over a third of China’s energy is expected to be provided by renewables.

China’s leadership in solar production, and lithium cell production, is also triggering significant regionalization pressure. Both the Inflation Reduction Act with its Buy American provisions, and the European Green Deal Industrial Plan are targeting re-shoring of key supplies of greentech infrastructure into their respective regions, with sourcing limits and local production targets.

As a result of this strong tailwind we see tremendous opportunities across a number of ClimateTech innovation areas in Europe to scale up, with strong support for regionalized production and innovation leaders. These programs provide a source of non-dilutive funding, preserving equity stakes and accelerating growth. Further it is allowing companies to invest in ground-breaking innovation, and expand both the number and size of bets they can make. Commercial viability and adoption is being accelerated through reduction of payback periods, and once viable, scale up is aggressively supported.

Overall, we do not invest in companies based on their ability to receive grants or other funding, or to survive with grants. We look for companies that on a pure stand-alone basis have (1) great economics; (2) solve a clear pain-point for customers in a market that can potentially be very large, very quickly; (3) have clear and protectable differentiation; and (4) have a great team. But we see these dynamics as important to aiding a 5^th dimension we look for: a phenomenal tailwind. We see this tailwind playing out in a number of sectors, supported by the carrots and sticks of incentives and regulation. And we see Europe as playing a leading role in developing ClimateTech solutions that will transport well to other geographies in due course.

We see the direct impact of these various initiatives across our portfolio companies. Cargoroo has benefited from the Interreg Europe grant program for microbility, and we assisted in bringing in PDENH (the North Holland Investment Fund for a Sustainable Economy) as a co-investor. We just assisted Maxwell and Spark to win €1.25m from a regional Rotterdam Just Transition Fund to scale up ClimateTech innovation in the Rotterdam region, and for its products to be added the EIA business subsidy program (allowing customers to receive up to 11% back in tax credits). And all businesses are benefitting from the banning of internal combustion engine vehicles in inner cities by 2025.

Furthermore we are actively working with a number of regional accelerators, funds, and university spin-out accelerators to identify the next wave of innovators who will lead the charge in this exciting space. The Netherlands, with its role as a strong pan-European hub, and as a hub for innovation, is fertile ground. We see exciting innovation emerging from the innovation nodes and spin-outs out of the world-leading technical Universities of Delft and Eindhoven, agricultural University of Wageningen, and medical Universities of Amsterdam, Leiden and Utrecht, as well as industrial complexes surrounding Philips and ASML. These are being well nurtured and supported by local angel investors and dutch regional development funds. We have relationships with a number of exciting prospects here who we look forward to investing with when the time is right in their development. We hope to share some of those with you in due course.