At a time when fossil fuel startups have been suffering from a dearth of capital, clean energy startups are having little trouble attracting cash and investments from all quarters, including from their biggest nemesis: oil and gas companies. Crunchbase, which tracks venture capital investments, has reported that clean-energy startups so far this year have taken in $11 billion, nearly double the $5.6 billion they attracted for all of 2020. Ironically, many renewable energy startups owe their continuing existence to the companies they are supposed to replace: Large oil and gas companies.
Big Oil has often partnered with and invested in new enterprises that have launched clean-energy incubators. Some oil firms take matters into their own hands by setting up their own incubators and venture teams to fund greentech.
A good case in point is oilfield services (OFS) giant Halliburton Company (NYSE:HAL). Last year, Halliburton launched cleantech accelerator Halliburton Labs, and is currently working with eight clean-tech startups. Halliburton gets a 5% share of startups that join its accelerator.
Halliburton’s OFS peer Baker Hughes Company (NYSE:BKR) is collaborating with incubator Greentown Labs to get a window into emerging technologies and provide advice to startups. Meanwhile, European oil majors Eni SpA (NYSE:ENI) and Repsol SA (REP.MC) have approached U.S. clean-tech ventures through various investment arms.
Flocking to incubators
These are hardly the only ones using this radical approach.
Chevron Inc. (NYSE:CVX), BHP, Engie, and investment bank Tudor Pickering have all partnered with Greentown Labs in various capacities, including listening to technology pitches, viewing work by researchers, and providing commercialization advice. It’s a mutually beneficial relationship because established businesses gain from incubators by diversifying and distributing the risk of the energy transition while the startups benefit from their investment and expertise.
Some of the clean energy collaborations are hardly mainstream.
For instance, ENI has agreed to finance Thiozen in its pilot project aimed at generating hydrogen from sour gases that must be heavily processed. Meanwhile, Moonflower Technologies’ subsidiary PowerWell has partnered with Halliburton to convert abandoned oil wells into gravity-based energy storage systems.
Greentown Labs says 80% to 85% of these fledglings live to celebrate their first birthday compared to just 20% of startups overall, a clear testimony that cooperation with their deep-pocketed investors is a big help. Unfortunately, the majority are still destined to fail, if history is any guide.
The risk for big oil companies looking to create new revenue streams through clean energy ventures is that they may fail to grow fast enough or generate enough profit to replace declines in their legacy oil and gas businesses.
Sluggish IPO market
With the ongoing oil and gas bull market, you would be tempted to think that young shale companies are rushing to the capital markets to tap into the sudden gush of goodwill. And the American IPO market is staging a fantastic recovery, with over 470 companies going public last year.
First-quarter markets were awash with liquidity, and now we’re on pace for yet another record year for IPOs at home and abroad.
That doesn’t necessarily include the shale patch, though, where we’ve only seen one IPO in four years as Wall Street is still hesitant after the 2014 boom.
Natural gas might be touted as the key bridge fuel of our energy transition, but that hasn’t helped it raise cash. Vine Energy Inc., a natural gas explorer backed by private equity giant Blackstone Group Inc., was unable to raise the capital it had expected. In its March IPO, Vine Energy (NYSE:VEI) sold 21.5 million shares for a total of $301 million, falling short of its target for $361 million. To get the deal done, Vine had to accept a lower price than its target price, while Blackstone and its affiliates had to step in with a $60 million purchase to push it through.
The IPO of Australian shale gas explorer Tamboran Resources was another bummer after the shares slid 16% on the first day of trading.
Oil and gas IPOs aren’t really on anyone’s radar, but the renewable energy sector definitely is.
Listings by renewable energy companies Xinjiang Daqo New Energy Co., a subsidiary of Daqo New Energy Corp. (NASDAQ:DQ), Acciona SA (OTCPK:ACXIF), and the Shell-Cosan Brazilian JV Raizen have been blockbusters.
Meanwhile, investors are still eagerly waiting for one of the biggest renewable energy listings of all time: LG Energy Solution (LGES).
Last year, LG Chem (OTCPK:LGCLF), South Korea’s largest chemical company and a leading EV battery supplier, announced plans to spin off its battery division LG Energy Solution (LGES), which supplies Tesla (NASDAQ:TSLA) and General Motors Co (NYSE:GM).
LG Energy Solution applied for preliminary approval of an IPO that publication IFR says could fetch $10 billion-$12 billion, easily South Korea’s biggest-ever listing.
LGES and the Korea Exchange announced the application for approval of the previously flagged IPO on Tuesday, without mentioning its size.
A $10 billion IPO would be more than double the 2010 IPO of Samsung Life Insurance, which was valued at 4.9 trillion won ($4.39 billion). If successful, it would mark the third U.S. IPO of South Korean companies following the $2 billion domestic float of material solution provider SK IE Technology Co Ltd and $4.6 billion U.S. IPO of South Korean e-commerce company, Coupang.
LGES has announced plans to invest more than $4.5 billion in its U.S. battery plant by 2025.