Supercharged Climate Positive® Investing in Europe November 2020 Emmanuel DeSousa, Eric Kosmowski, Joaquin Rodriguez Torres, Melanie Nakagawa Contributing Authors Jake Hansen, Scott Himmelberger, Martin Steinweg [email protected] Supercharged Climate Positive® Princeville Capital I. Executive Summary — As global technology investors we are constantly evaluating Based on our engagements with over 400 companies trends in capital markets and governmental policies that headquartered in Europe and around the world coupled shape technology development, adoption and growth with our analysis of Europe’s market and policy conditions, around the world. We have been particularly focused on we believe the following technologies and tech-enabled the extraordinary rise in climate technology companies business models are well positioned for accelerated – whose funding has grown five times faster than overall growth: venture capital, attracting approximately $16 billion in 2019.1 Several factors contribute to this growth - including 1. Residential clean energy solutions macroeconomic changes, expedited policy adoption, 2. Virtual power plants and distributed energy resources increasing demand, and access to focused capital. We 3. Digital utilities have taken a closer look at where these factors are likely 4. Electric vehicle charging network operators to have a prominent impact and believe that investment 5. Mobility data platforms opportunities in technology companies addressing climate 6. Mobility-as-a-service providers change are supercharged for delivering outsized returns 7. Intelligent building energy management in this decade – 2020 through 2030 – and particularly in 8. Energy efficiency-as-a-service providers Europe. We selected these technologies and models based on We conclude what makes this decade distinct from their high growth, capital efficiency, ability to deliver previous years are four macrotrends: positive unit economics, and the policy pull driving accelerated decarbonization. We also highlight green • Advancement in enabling technologies for climate hydrogen, microgrids, electric vehicle manufacturing solutions and improving economics for climate tech and batteries and certain ridesharing platforms that do • Healthy early-stage climate tech start-up and venture not meet all these exacting criteria, but are exciting high- ecosystem growth technologies and tech-enabled business models • Europe’s Green Deal and stimulus accelerates policy that should remain a focus for investors because of the and technology adoption macrotrends surrounding their adoption. • Increasing consumer preferences for climate solutions and climate leadership from corporations and financial Thanks to strong tailwinds blowing in Europe, including institutions unprecedented government stimulus targeting climate change, we offer our insights into why Europe’s climate- These macrotrends are accelerating the growth in many related technology companies are primed for accelerated leading companies at the forefront of the climate transition. growth and have become a market not to be missed by We identified eight leading technologies and tech-enabled technology investors. business models poised for outsized growth and returns in sectors that green the grid, decarbonize transportation and create a more energy efficient built environment – sectors that are responsible for nearly 60% of Europe’s carbon pollution. 1 PwC research. “The State of Climate Tech 2020.” Sept 2020, https://www.pwc.com/gx/en/services/sustainability/assets/pwc-the-state- of-climate-tech-2020.pdf. Page 1 Princeville Capital Supercharged Climate Positive® II. Europe’s Opportunistic Environment: Four Key Macrotrends — There is growing momentum in Europe for scaling Macrotrend 3: technology companies addressing climate change. Europe’s Green Deal and stimulus accelerating policy and Europe has always been in a leading position on climate technology adoption action – whether being the first region to implement a cap on carbon pollution in 2005 or centering its economic Macrotrend 4: growth and recovery strategy around getting to climate neutrality. Europe is also home to numerous corporations, Increasing consumer preferences for climate solutions investors, and policymakers that have been at the forefront and climate leadership from corporations and financial of advancing climate commitments and new mechanisms institutions to achieve them. Despite these factors, Europe trails the United States and China in attracting venture capital These trends are making the European investment in climate-related technologies – attracting $7 billion environment for climate technology poised for outsized compared to the United States’ $29 billion and China’s performance. Indeed, publicly traded shares in climate $20 billion.2 We believe investors who are shying away technology companies have outperformed nearly all other from Europe are missing attractive opportunities to deploy categories of European public companies this year.3 Since capital in the region as climate technology, especially in the beginning of the year, the performance of the NASDAQ Europe, is benefitting from four key macrotrends: Clean Edge Green Energy Index, an index that tracks publicly traded clean-energy and low-carbon technology Macrotrend 1: companies, has been better than that of the S&P 500 or STOXX Europe 600. Even when looking specifically at Advancement in enabling technologies for climate the returns of technology companies, one of the best solutions and improving economics for climate tech performing sectors through the COVID crisis, these climate technology stocks have performed significantly better. Macrotrend 2: Healthy early-stage climate tech start-up and venture ecosystem IndexIndex MarketMarket CapCap 220% 200% 180% 160% 140% 120% 100% 80% 60% 1-Jan-20 1-Feb-20 1-Mar-20 1-Apr-20 1-May-20 1-Jun-20 1-Jul-20 1-Aug-20 1-Sep-20 1-Oct-20 NASDAQ Clean Edge Index S&P 500 Tech STOXX Europe 600 Tech S&P 500 STOXX Europe 600 2 Id. 3 S&P Capital IQ. Retrieved October 10, 2020, from S&P Capital IQ database. Page 2 Supercharged Climate Positive® Princeville Capital Macrotrend 1 Numer of IoT Connections in the UK 70.0 Advancement in enabling technologies for climate solutions and improving 60.0 economics for these technologies 50.0 The last decade is marked by significant advancements in digitally-enabled technologies that underpin many of 40.0 the most promising climate solutions. This technology 30.0 maturity coupled with new economic conditions have helped drive the significant gains in renewable energy 20.0 deployment and consumption in Europe. 10.0 Technology Maturity The widespread proliferation of low-cost sensors 0.0 connected to the internet known as the internet of things 2016 2017 2018 2019 2020 (IoT) has benefitted many applications related to climate technologies. The number of IoT devices has exploded, Automotive Consumer Electronics more than quadrupling in just the last four years with Utilities Other signs of continued acceleration.4 Many of these devices are being deployed in sectors highly relevant to climate technology including utility, automotive, and smart city applications. With the now near ubiquitous data collection Improved Economics for Renewable Energy from a huge number of distributed assets, climate-related Europe is a prime candidate for renewable adoption. Many technology companies are finding ways to optimize their analysts expect renewables to grow significantly in Europe operations and reduce emissions. in the future due to cost declines in solar, wind, and batteries. Bloomberg New Energy Finance estimates that “by 2040, The rapid and massive improvement in artificial renewables make up 90% of the electricity mix in Europe, intelligence (AI) is another key enabler of advancements with wind and solar accounting for 80%.” This growth is in climate technology. Complex systems that are difficult supported by reductions in capital costs, particularly steep to model in their entirety, (mobility systems, the electric declines in costs for solar photovoltaics (PV) and battery grid, climate models, etc.) are ideal candidates for the technologies, that is lowering the levelized costs of energy application of AI-based algorithms. In recent years, AI has (LCOEs) for renewables. These decreasing LCOEs, along made major strides as computing power has continued to with Europe’s high, and rising, electricity prices (compared increase and the algorithms used to train the models have to other countries like the US), accelerates adoption of become more sophisticated. The amount of compute used renewables and have contributed to new milestones in the for training AI models, a figure correlated with the power deployment of renewables. For the first time, renewables and accuracy of AI-based models, has been doubling every generated 40% of the 27 EU member states’ electricity 3.5 months for most of the last decade.5 This exponential in the first half of 2020, overtaking generation from coal, growth means modern AI tools leverage more than 1 million oil and gas.6 (chart on next page7). For many countries, times the computing power of models just 8 years ago. renewables are now the cheapest energy source. These improvements have unlocked more applications that AI-based models can address with respect to climate change. 4 Data and source for graphic: Cambridge Consultants. (2017). Gordon Davies, “The What and When of IoT Adoption.” Cisco UK & Ireland Blog, 19 May 2017, https://gblogs.cisco.com/uki/the-what-and-when-of-iot-adoption/.