opinion & comment

Martin Kowarsch1*, Jason Jabbour2,
Christian Flachsland1,3, Marcel T. J. Kok4,
Sir Robert Watson5,6, Peter M. Haas7,
Jan C. Minx1,3, Joseph Alcamo8, Jennifer Garard1,9,
Pauline Riousset10, László Pintér11,12,
Cameron Langford13, Yulia Yamineva14,
Christoph von Stechow1, Jessica O’Reilly15 and
Ottmar Edenhofer1,9,16 are at 1Mercator Research
Institute on Global Commons and Climate
Change, EUREF-Campus 19, 10829 Berlin,
Germany. 2UN Environment, North America
Office, 900 17th Street, NW, Suite 506, Washington,
DC 20006, USA. 3Hertie School of Governance,
Friedrichstraße 180, 10117 Berlin, Germany. 4PBL
Netherlands Environmental Assessment Agency,
PO Box 303, 3720 AH Bilthoven, Netherlands.
5
Tyndall Centre University of East Anglia, Norwich,
Norfolk NR4 7TJ, UK. 6Intergovernmental
Platform on Biodiversity and Ecosystem Services,
Platz der Vereinten Nationen 1, 53113 Bonn,
Germany. 7University of Massachusetts Amherst,
216 Thompson Hall, Amherst 01003, USA. 8Center
for Environmental Systems Research University
of Kassel, Wilhelmshöher Allee 47, 34109 Kassel,
Germany. 9Technical University Berlin, Strasse des
17. Juni 135, 10623 Berlin, Germany. 10Institute
for Ecological Economy Research, Potsdamer
Straße 105, 10785 Berlin, Germany. 11Central
European University, Nador u. 9, Budapest 1051,
Hungary. 12International Institute for Sustainable
Development, 111 Lombard Avenue, Suite 325,
Winnipeg R3B 0T4, Canada. 13University of
Cambridge, Sidgwick Avenue, Cambridge
CB3 9EF, UK. 14University of Eastern Finland,
PO Box 111, 80101 Joensuu, Finland. 15Indiana
University, 355 North Jordan Avenue, Bloomington,
Indiana 47405, USA. 16Potsdam Institute for
Climate Impact Research, Telegraphenberg A 31,
14473 Potsdam, Germany.
*e-mail: kowarsch@mcc-berlin.net
References
1. Jabbour, J. & Flachsland, C. Environ. Sci. Policy
http://dx.doi.org/10.1016/j.envsci.2017.05.001 (2017).
2. Mitchell, R. B., Clark, W. C., Cash, D. W. & Dickson, N. M.
(eds) Global Environmental Assessments: Information and
Influence (MIT Press, 2006).
3. Kowarsch, M. Nat. Clim. Change 6, 15–17 (2016).
4. Norgaard, R. B. Conserv. Biol. 22, 862–869 (2008).
5. Kowarsch, M. et al. Palgrave Comm. 2, 16092 (2016).
6. Dodds, F., Laguna-Celis, J. & Thompson, L. From Rio+20 to a New
Development Agenda: Building a bridge to a sustainable future
(Routledge, 2014).
7. Perrings, C., Duraiappah, A., Larigauderie, A. & Mooney, H.
Science 331, 1139–1140 (2011).
8. The Future of Sustainable Development: Rethinking Sustainable
Development After Rio+20 and Implications for UNEP
(IISD, 2013).
9. Carraro, C. et al. Science 350, 34–35 (2015).
10. Lee, H. Science 350, 1007 (2015).
11. Victor, D. G. Nature 520, 27–29 (2015).
12. Edenhofer, O. & Kowarsch, M. Environ. Sci. Policy
51, 56–64 (2015).
13. von Stechow, C. et al. Environ. Res. Lett. 11, 034022 (2016).
14. Garard, J. & Kowarsch, M. Environ. Sci. Policy
http://doi.org/b6rt (2017).
15. Funtowicz, S. O. & Ravetz, J. R. Futures 25, 739–755 (1993).
16. Nowotny, H., Scott, P. & Gibbons, M. Re-Thinking Science:
Knowledge and the Public in an Age of Uncertainty (Polity
Press, 2001).
17. Fabricius, C., Scholes, R. & Cundill, G. in Bridging Scales and
Knowledge Systems: Concepts and Applications in Ecosystem
Assessment (eds Reid, W. V., Wilbanks, T., Capistrano, D.
& Berkes, F.) 165–182 (World Resources Institute, 2006).
18. Edenhofer, O. & Minx, J. Science 345, 37–38 (2014).
19. Riousset, P., Flachsland, C. & Kowarsch, M. Environ. Sci. Policy
http://doi.org/b6rs (2017).
20. Ostrom, E. Governing the Commons: the Evolution of Institutions
for Collective Action (Cambridge Univ. Press, 1990).
21. Petersen, A., Blackstock, J. & Morisetti, N. Nat. Clim. Change
5, 909–911 (2015).
22. Dietz, T. Proc. Natl Acad. Sci. USA 110, 14081–14087 (2013).
23. Haas, P. M. Epistemic Communities, Constructivism and
International Environmental Politics (Routledge, 2015).
24. Grieneseisen, M. L. & Zhang, M. Nat. Clim. Change
1, 72–73 (2011).
Acknowledgements
The insights presented here are based on a larger research
project Future of Global Environmental Assessment
Making (2013–2016) jointly initiated by the Mercator
Research Institute on Global Commons and Climate
Change and UN Environment.
Additional information
Supplementary information is available in the online
version of the paper.

COMMENTARY:

Emerging clean energy

technology investment trends
A. Bumpus and S. Comello
Early-stage capital providers and clean energy technology incubators are supporting a new wave of
innovations focused on end-use efficiency and demand control. This wave complements expanding
investments in supply technologies required for electricity sector decarbonization.

T
he electricity sector is the single
largest contributor to greenhouse-gas
emissions, representing 25% of
the global total1. As such, this industry’s
decarbonization pace is pivotal to achieving
the Paris Agreement goal of limiting
temperature increases to 1.5 °C by 2100.
However, attaining this target means global
emissions must peak by 2020 and rapidly
decrease thereafter 2.
Renewable energy supply technologies
such as solar and wind make up 10% of
global generation capacity, and continue
to be de-risked across scale, political
landscapes and economies3. Moreover,
these technologies are approaching cost-
competitiveness with fossil-fuel-powered
generation4. Yet, this progress is insufficient.
The electricity sector requires on average
~US$1 trillion per year invested until
2050 in additional renewable energy
alone to achieve the global climate goal.
However, the current investment pace for
deployment — drawing upon deep pools
of project finance capital — achieves only a
third of this total5.
Energy-efficiency solutions, consisting
of both demand and system control
technologies, provide an important
complement to renewable energy supply
technologies. Demand technologies can
reduce the total volume of electricity
consumption, while system control
technologies reduce the emissions intensity of
energy generation. Energy efficiency solutions
are expected to contribute an equal share of
electricity sector decarbonization in the 1.5 °C
scenario5 and thus are a crucial component
of climate mitigation strategies6. The savings
can be remarkable. For example, energy
management systems can reduce building
electricity demand by 20–30% and lower

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 opinion & comment

Table 1 | Distinctions between wave 1 and wave 2 technologies (see Supplementary Information for more details).
Attribute Wave 1 Wave 2
Characterization Technologies focused on the hardware components required Technologies focused on software applications and demand-side solutions
for renewable energy generation and storage systems
Examples technologies Solar panels Sensors, actuators, controllers and electronics
Wind-turbine blades Communication, analytics, management and automation software
Biomass digesters Responsive end-use elements such as dimmable windows or shading,
Battery cells intelligent lighting and smart thermostats
Inverters
System size (scale) Megawatt to gigawatt Watt to megawatt
Location on grid Majority central facilities; minority distributed generation All distributed
Owner and operator Electric utilities and/or specialized power producers Customers, solutions providers, specialized power producers and utilities

GHG emissions by 96% relative to heating
using conventional natural gas boilers7.
To date, with the general exception
of China8, the majority of clean energy
technology attention has concentrated
on innovation and deployment of energy
supply technologies, while focusing less on
energy efficiency9. Despite this, we find an
emerging shift in early-stage investment,
entrepreneurial activity, and industrial
organization focused on demand and
control technologies. An expanded set
of early-stage capital providers (seed and
venture funding provided by angel funders,
venture capitalists, corporate ventures
and corporations) are beginning to fund
a new wave of clean energy technologies,
analogous to the support provided to power
generation technologies during the first
decade of the twenty-first century.
Due in part to policies expanding the
role of energy-efficiency solutions8,10,
these investments build on the increased
adoption of renewable energy supply, new
applications of digital technologies, and
the evolving modularity of the electricity
system. These factors are enabling niche
innovations that have the potential for
large-scale effects. In this Commentary,
we highlight these trends and suggest
supportive policy mechanisms.
Investment and innovation trends
We highlight three trends favouring end-
use technology development: increasing
decentralization, digitalization, and
decarbonization of the electricity grid;
early-stage investment in such technologies;
and the growth of energy-specific
incubators in the USA. For the latter two,
we use empirical data to quantify shifts in
investment targets, capital intensity, and
innovation infrastructure.
Decentralized, digital, decarbonized
energy. New connected energy technologies
and their applications are emerging from the
nascent shift from centralized to distributed
energy resources, the increase in end-use
customer choice of energy services, and
grid optimization through information and
communication technologies.
The grid is becoming increasingly
modular: many small energy resources
are distributed throughout the network,
and owned and operated by various
stakeholders11. Such energy resources
include distributed generation, storage,
automated demand-response, and appliances
connected to the Internet of Things.
Moreover, advances in data analytics,
machine learning, and communication and
control technologies mean these resources
can be operated more intelligently. This
enables flexible and more efficient demand
and supply dynamics at both the individual
and systems level, creating lower electricity
requirements, lower system emission
intensity, and greater asset utilization.
Critically, this integration increases the
ability to harness intermittent renewable
generation sources at scale, avoids costly,
high-emission intensity peak generation,
and maintains required system reliability
and service levels.
New early-stage investment. A more
modularized grid is also driving new
business models and technologies12. End-use
technologies are close to the consumer,
meaning solutions providers can take
advantage of faster technological and market
iteration13. This supports cost, performance,
and efficiency improvements, with
associated emissions reductions9,14,15,.
New opportunities are attracting new
firm formation and early-stage investor
support, beyond utilities and incumbent
suppliers that have traditionally dominated
energy efficiency deployment. From an
entrepreneurial perspective, the growth of this
new, demand-side sub-industry mirrors that
of renewable energy supply technologies that
came before it, and creates a successive wave
of clean energy technology deployment14,16.
We define ‘wave 1’ as renewable supply
technologies and ‘wave 2’ as distributed,
control and efficiency technologies
encompassing communication, analytics and
automation software (see Table 1).
The prevalence of wave 1 and wave 2
investment activity can be measured
by the number of transactions between
wave-1-focused and wave-2-focused
firms, and early-stage investors. Using
data provided in the CB Insights database,
we categorize an initial universe of 6,769
transactions within the energy, utilities
and cleantech sectors between 2003 (that
is, the beginning of the cleantech boom)
and 2015, inclusive (see Supplementary
Information for further details, and remarks
on data limitations). Results are provided in
Fig. 1a. Wave 1 solution providers become
less prevalent within early-stage investor
portfolios as wave 2 emerges.
While cumulative investment to date has
favoured wave 1 technologies, the capital
intensity of investments is also shifting, with
emerging wave 2 technologies requiring
less capital per transaction. On average,
transactions in wave 2 require 54% less
capital than wave 1, and have a transaction-
weight average of US$7.1 million, compared
to US$15.3 million, respectively. A reduction
in required investment level per transaction
is important: a greater number of solutions
can receive financial backing per unit capital
deployed (assuming similar risk profiles),
assisting investors in funding a diversity
of options17. Thus, wave 2 technologies
enable capital-light experimentation, which
is attractive to early-stage capital provider
business models18. This contrasts with basic
science innovations that require longer
timeframes and greater public funding
involvement, both of which are beyond the
capabilities of early-stage funding 13. An
indication of early-stage investor preference
is reflected in the relative number of
wave 1 versus wave 2 firms receiving first
investment (earliest seed stage) in recent
years, with wave 2 receiving the majority
since 2013 (Fig. 1b).

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opinion & comment

a b c

early-stage capital providers to firms (%)

early-stage capital providers to firms

Percentage of firms within US clean

Percentage of first investment by
100 100

early-stage capital provider (%)

200 100 100 100

Percentage of transactions by
early-stage capital providers

No. of first investment by

clean energy incubators

energy incubators (%)

No. of firms within US
No. of transactions by

150

100 50 50 50 50 50

50

0 0 0 0 0 0

2007
2008
2009
2010
2011
2012
2013
2004
2015
2016
2015
2015

2001
2003
2005
2007
2009
2011
2013
2003

2005

2007

2009

2011

2013

Wave 1 Wave 2 Wave 1 Wave 2

Figure 1 | Trends in wave 1 versus wave 2 early-stage capital investment, firm formation and business incubator support. a, Global trends in the number of
investment transactions by early-stage capital providers for wave 1 and wave 2 firms (2003–2015). b, Relative prevalence of wave-2-focused firms compared to
wave 1 of those firms that have received funding from early-stage capital providers (2001–2015). c, Relative prevalence of wave-2-focused firms compared to
wave 1 of those within energy-focused incubators within the United States (2007–2016).

Clean energy incubator support. Wave 2 technologies; and reimagined measures for Impact Partners, a syndication between
technologies are also being supported by energy efficiency programmes. incumbent utilities and across capital
business incubators. By providing platforms providers that seeks to invest in wave 2
for experimentation, information exchange Entrepreneurial funding support. Public technologies. Importantly, a group like this
and mentorship, incubators nurture the funds should be deployed to support offers entrepreneurs direct access to ready
innovation process. This kind of industrial early-stage technology validation13 as a markets, guidance from expertise, and fast
coordination has proved successful in countercyclical mechanism to potential technology iteration and validation. Public
increasing the uptake of new technologies in private funding variability20. However, and private funds to support additional
other sectors19. Further, emerging evidence unlike controversial mechanisms (for private investment in platforms like
suggests such facilities and programmes example, the US Department of Energy’s incubators could be directed to both buttress
provide an efficient forum to scrutinize Loan Guarantee Program) that allocate efforts to lower the utility–investor search
ideas, thereby reducing the uncertainty large sums (for example, US$100 million) cost, and simultaneously inform the solution
surrounding investment quality 17. to few companies, small sums to many providers of viable use-cases. One example
Through a survey of the incubators companies are required18. The US Small of this is the partnership between the Edison
within the US Department of Energy Business Innovation Research (SBIR) Electric Institute, which represents US
innovation cluster project, Incubatenergy, grant program, offering non-recourse utilities, the start-up incubator 1776, and
we find the number of such facilities has funding, is a successful example to use as a the municipal governments of Arlington
grown from 6 in 2010 to 19 in 2016 (see departure point. The structure of funding (Virginia, USA), Washington DC, and Dubai
Supplementary Information) and that could, therefore, take three forms: direct (United Arab Emirates).
wave-2-focused firms have grown in funding such as SBIR and the California
prevalence within these incubators, from Clean Energy Fund CalSEED program; Reimagined energy efficiency
33% in 2007 to 74% in 2015 (Fig. 1c). Wave 2 indirect funding, such as the New York State programmes. Customer-funded
technologies offer a potential feedback: Energy Research and Development Agency utility energy efficiency programmes
wave-2-focused incubators can help diverse (NYSERDA), which provides funds to its represent a large opportunity for wave 2
companies scale relatively quickly, given the clean energy incubators which in turn offer technologies. Such programmes are typically
low capital and equipment requirements, grants to eligible firms; and public–private technology-specific or application-specific
in contrast to facilities required for wave 1 funding partnerships, such as the Clean (for example, lighting, heating, ventilation,
technologies and firms13. Energy Innovation Fund in Australia, air conditioning, plug loads, and so on),
Taken together, the growing number which partners with a private early-stage leading to solutions that underachieve
of wave 2 firms (breadth), coupled with capital fund to support energy start-ups. At the savings potential that could otherwise
investor and industry involvement the same time, irrespective of the funding be captured by using a broader suite of
(depth), creates a foundation for diverse structure, such programmes should be interventions21. California’s AB 802 is an
opportunities for new innovations and competitively awarded and continuously innovative policy that seeks to remove
technology diffusion. evaluated against a diverse set of measures to this conflict by directing utility efforts to
limit largesse, and determine type and extent overall changes in building consumption,
Recommended supporting policies of benefit. supporting new technologies across
We provide three policy recommendations all types of reductions, and instituting
that could support the investment and Incumbent investment support. Incumbent pay-for-performance models. This
innovation activities surrounding wave 2 utilities that have otherwise been reluctant new approach rewards utilities based
technologies and the concomitant potential to embrace disruptive technological and on a comparison of pre-intervention
mitigation benefits: small, accessible, and business model innovation are showing and post-intervention consumption,
available entrepreneurial funding support; signals to the contrary. A clear example encouraging maximum energy savings,
supporting incumbents’ search for new of this is the recent formation of Energy subject to least-cost constraint.

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 opinion & comment

Conclusion California 94305, USA. 15. Mitchell, C. Nat. Energy 1, 15030 (2016).

The 1.5 °C scenario means a rapid
decarbonization pathway for the electricity
industry. Emerging electricity demand and
control technologies are gaining increased
attention from investors and entrepreneurs
alike. In addition to the imperative
of on-going deployment of CO2-free
generation and parallel efforts required for
more fundamental scientific breakthroughs,
targeted policies that support the diversity
of these solutions would further support this
emerging wave. ❐ 8. Mathews, J. A. & Tan, H. Energy Policy 52, 170–180 (2013).
A. Bumpus is at the School of Geography,
Faculty of Science, University of Melbourne,
221 Bouverie Street, Parkville, Victoria 3053,
Australia. S. Comello is at the Stanford Graduate
School of Business, 655 Knight Way, Stanford,
e-mail: abumpus@unimelb.edu.au;
scomello@stanford.edu
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Acknowledgements
We thank D. Anosova, D. Grueneich, B. Hartman,
J. Koomey, M. Meinshausen, T. S. Schmidt, I. Strebulaev,
M. Wara, and J. Wiseman for their helpful feedback.
Thanks to S. Mancuso for the data analysis. A.B.
received funding from an Australian Research Council
DECRA Fellowship.
Additional information
Supplementary information is available in the online
version of the paper.

NATURE CLIMATE CHANGE | VOL 7 | JUNE 2017 | www.nature.com/natureclimatechange 385

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 Reproduced with permission of copyright owner.
Further reproduction prohibited without permission.