Climate Tech

Keeping in line with our sector-agnostic approach, for our second post today, we’re gonna be covering (you know the drill…*drum roll please*) …ClimateTech!

Why?

India is acutely vulnerable to the climate crisis and ranked #7 on the Global Climate Risk Index 2021.1 India has a long coastline which makes her prone to coastal floods. Between 1990 and 2016, India lost about 235 sq. km. of land due to coastal erosion. India has a high dependency on the monsoon. 

Nearly 55% of India’s arable land is dependent on rain-fed agriculture and agriculture-linked production amounts to 18% of India’s GDP—as a result, any adverse changes in the monsoon levels could have a significant impact on the economy.

India's low per capita income of about $1,900—even below the lower middle-income country average (USD2,200)— implies limited social safety nets, which limits the country’s ability to mitigate the impacts of the climate crisis.

Sector-wise emissions for India 

While India has performed well in the renewable energy segment, we are lagging on targets around carbon capture. As of 2021, India was able to achieve less than 3% of its plantation target under the Green India Mission. Estimates suggest that meeting our NDCs would require nearly $2.5 trillion between 2015 and 2030.

  India’s objectives under the Paris Climate Accord/Agreement 

Over the last few decades, we have witnessed startup ecosystems that have emerged the world over and have drastically reduced the cost of creating a business and enabled entrepreneurs to rapidly experiment to develop a product that works and is deployable at scale— and this entirely revolutionary connected ecosystem is now finding root in the ClimateTech space as well. ClimateTech startups, therefore, will be critical in discovering the low-carbon innovations that can scale rapidly, be contextually relevant, and continuously evolve to meet changing consumer preferences.

Thus, Climate and clean tech startups will be vital in deploying low-carbon innovations with global impact, helping national economies achieve their climate goals—nowhere is this truer than in India. 

What drives start-ups in this segment?

• There is an urgent need for climate-related startup investments to transition from a niche asset class to a more mainstream component of the impact-investing ecosystem in the country.

• India is already witnessing the transformative effect of the confluence of capital, technology, and entrepreneurship in socially relevant fields like Education, Financial Inclusion, and Healthcare. e. For instance, impact investments in healthcare saw ~$500MM in 2019-20 alone after the entry of commercial investors.

• Given the gravity of the climate crisis, there is a need for new and innovative solutions that transform the way that economic activity is undertaken and how consumers and businesses interact with the natural world—startups provide one such clear pathway. 

• ClimateTech in India is thus on the cusp of disruptive growth, helped by a host of factors including a large asset base in clean energy developed over the last decade, and a growing recognition of the need for climate action both globally and within India.

Now let's talk about three  important sub-themes under ClimateTech for this segment:

#1 Sustainable Mobility 

#2 Energy Solutions

Sustainable Mobility:

Why? 

OEMs are keen to create a new E-Mobility brand – this has attracted investor interest: Despite the high infrastructure costs and barriers, “clean mobility” has attracted multiple enterprises eager to replicate the success of Tesla, and the homegrown Ola Electric. These investments cut across vehicle categories, e.g., e-bicycles, e-scooters, e-motorbikes, three-wheelers, passenger cars, cargo vehicle platforms, etc. Various use cases have also been supported, such as passenger commute and commercial logistics/ goods delivery.

Key Growth Drivers:

1. Strong investor momentum  in energy storage and management for mobility applications 

2. Solutions for resolving infrastructure gaps hold potential 

3. Solutions that make EV adoption affordable and easy will continue to see traction

Investment Split across sub-themes within Sustainable Mobility

Use Case:

#1 Clean Mobility (EVs)

The sub-segment attracted 85% ($602MM) of the capital inflow b/w 2016-20 and accounted for almost half the number of sustainable mobility deals. Some of these manufacturers work end-to-end in the EV value chain, even establishing dedicated charging infrastructure for their EV platforms and/or providing custom-built platforms with connected vehicle solutions for commercial clients

Despite being infrastructure-heavy, EV manufacturing has been backed by investors – cutting across various vehicle categories such as e-bicycles, e-scooters, e-motorbikes, 3-wheelers, passenger cars, cargo vehicle platforms, etc.

Various use cases have also been supported, such as passenger commute and commercial logistics/ goods delivery. Both these trends are largely due to the potential of these OEMs being successful vehicle “brands”. Interestingly, many of the above startups manufacture various categories of platforms.

#2 Clean Logistics, Fleets, and Connected Vehicles

Startups in this space offer connected vehicle and fleet management solutions by blending IOT, GPS & data analytics layers with vehicle platforms. This helps track shipments and vehicle health through data-driven insights and optimizes fleet use. 

What are some exciting value propositions under the ambit of #2?

1.  Fleets and Connected Vehicles: 

EV ride-hailing and shared mobility solutions have been backed by investors.

Players operating at the intersection of electric mobility and fintech. These startups can offer end-to-end services to customers through lease / rental models for the first and last-mile commute needs – across both B2C (e.g., delivery executives and individuals) and B2B (e.g. last-mile delivery and logistics players) needs. 

The value propositions for customers include lower upfront costs, hassle-free maintenance, data-driven insights through connected vehicle and fleet management solutions, and lower predictable operational costs. In addition, for commercial clients, these solutions help lower the costs of converting and/ or modernizing existing fleets to smart connected EVs. 

In both (i) & (ii) above, startups sometimes have their own custom-built EV platforms through contract manufacturing partnerships, or simply develop a multi-brand fleet.

2. Clean Logistics:

Some startups provide last-mile logistics as a service to companies (B2B) via in-house driver partners. Just like in the case above, this solution to is an asset-light strategy for customers and, therefore, has seen interest from investors.

3.  Novel Batteries, Fuel Cells, Charging, Components

Novel Batteries: 

Startups that have received funding include those working with new materials and/ or novel battery chemistries, as well as those that significantly enhance battery properties for mobility applications 

Charging: 

Scalable charging solutions, whether platform-focused or agnostic, have been able to attract investment. In addition, intelligent battery management systems that can monitor battery health and/or effectively improve the life and performance of batteries have attracted capital. Finally, battery swapping solutions (Battery as a Service e.g., Lithion Power) are also growing. Interestingly again, there are vertically-integrated startups in this space that provide multiple or all of the products and services above 

Component:

A handful of startups that focus on providing custom component development services around power trains, motors, motor drives as well as battery packs have received investments.

In all of the above categories, a few of the startups partner with a contract EV manufacturer and bundle their own battery and charging solution into it. This makes it attractive to investors as upfront capital expenditures are lower and represent an asset-light business model.

Now, on to our second sub-theme within ClimateTech —> Energy Solutions 

Why?

The Indian energy outlook is robust. India is currently the third-largest energy consumer in the world and over the next 20 years, India will require the addition of a power system the size of the EU’s current power system. While energy use has doubled over the last two decades, India’s per capita energy use is still lower than half the world average, implying that the latent energy demand is high. Further, over 270 million people are set to join the urban population over the next two decades - requiring significant additions across generations to distribution.

What are some key characteristics of this ClimateTech sub-segment?

1. More than 65% of India’s GHG emissions can be attributed to the energy sector: 

   Even globally, the energy sector is the biggest contributor to GHG emissions; India’s energy sector alone contributes 2.6% to global emissions (2018). Even as of 2021, about 52% of the electricity produced in the country is fuelled by coal. Given the high concentration of emissions arising from energy, it is imperative that we identify solutions to mitigate these to achieve net zero.

2. The sub-sector has witnessed a lot of activity over the last decade both in terms of policy changes and investments: In 2008, the Government launched the National Action Plan for Climate Change, which included the National Solar Mission (promotion of use and development of solar energy) and the National Mission for Enhanced Energy Efficiency (push for reduced energy consumption through financing public-private partnership and system for companies to trade energy-saving certificates) along with other climate action programs.

   Today, India has 100 GW installed renewable energy capacity, which is almost 25% of the total installed power generation capacity in India. A positive policy environment, coupled with the ease of access to capital has catalyzed both utility-scale energy investments and a host of technology-led startups serving the existing large asset base of solar and wind projects.

3.  Action in India is comparable to global trends: Energy attracted ~8.2% or ~$4.9B of the total climate-tech investments between 2013 and 2020 in this space, globally. VC investment has flown into startups operating in spaces such as renewable energy generation, high-efficiency energy-intensive electronics and smart monitoring/ management, energy storage (thermal or electricity), grid management, etc. 

Use Case:

#1 Clean Energy

Utility-scale projects are better suited for project finance and/or private equity, and are not really in the VC mandate. However, there are early-stage investments being made in rooftop solar startups (Energy as a Service / EaaS companies, solar project financing platforms, etc.).  

#2 Energy Optimisation

There are many innovative startups that support the large asset base of renewable energy (RE) projects, and VCs and other early-stage investors are well placed to take on technological risks in this space. These include solutions like energy-data analytics, energy accounting, drone-based & GIS-based survey companies, robotic/automated cleaning for solar, automated mechanical/ optical solar trackers as well as Operations & Maintenance (O&M) optimization and predictive maintenance. In addition to these, there are startups in energy efficiency, building energy management systems, smart grids, and smart metering in this category.

#3 Energy Storage & Management

Another area of investor interest has been DeepTech smart hardware-software solutions for battery management as well as novel materials & chemistries for energy storage and management - both electrical and thermal energy storage (e.g., Tessol) – meant for various end-use applications.

#4 Energy Access

Startups providing solar/biomass/biogas-powered solutions for energy access are viewed from a social impact lens and are not a typical focus sector for pure commercial investors. Instead, these startups are largely backed by grant capital and/ or impact investments.

Investment Split across sub-themes within Energy

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That's all for today! This space is for startups in the sectors and solutions we are bullish about, therefore, a call out if you are a founder working on any of the above use cases, you can reach us at connect@huddle.work and we look forward to brainstorming with you. If you are an enabler and investor and would like a further look into our ecosystem, then we are happy to dive deep into these sectors alongside you.

PS - Our thoughts and thesis are inspired by what we learn from the ecosystem, our founders, investors, and experts. Therefore, some of these views are through other reports, and knowledge, and are continuously evolving.