Impact Voices | May 15, 2024

As trade wars heat up, climate investors look to back homegrown ‘Challenger technologies’

Anil Achyuta and Tina Tosukhowong

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Guest Author

Anil Achyuta

Guest Author

Tina Tosukhowong

The fight against climate change relies on global supply chains. 

Clean energy technologies are exceptionally materials-intensive, the supply of which relies on the free trade environment that has prevailed since the end of the Cold War. To scale climate tech adoption enough to reach emissions targets, this global trade must not only continue, but steeply ramp up.

Unfortunately, the global economy is trending in the opposite direction, toward fragmentation and de-globalization. And if this trend continues, according to current models, we will be unable to meet climate goals.

With this week’s increased tariffs on many Chinese-made clean energy products, the impact of trade disruptions on climate tech roll-out looks even greater.

The good news is that models like the IEA’s only consider incumbent green technologies like solar, wind, and EVs. There are alternative, overlooked pathways and investments that are not as reliant or dependent upon global supply chains. We call them “Challenger Technologies,” because they challenge the prevailing mental model that says globalization and free trade of decarbonization technologies, materials, and expertise will continue without restriction. 

These solutions are not economical today but could become so with investment and scale. A concerted cross-sectoral effort combining government incentives with capital and expertise from the investment community will be essential. We’ve seen how well this strategy worked to drive adoption and lower costs in the solar and EV industries. 

In all areas of life, strategies must adapt to evolving conditions. If we act with foresight and adapt the clean energy playbook for Challenger Technologies, we can still realize a clean energy future. Entrepreneurs are ready; investors need to lead.

This week’s announcement of tariffs indicates that governments on both sides of the Atlantic are putting commitment and mechanisms to work to address challenges arising from a fragmented world. Entrepreneurs are willing to develop and build these challenger technologies. It is time for corporate and financial investors to lean in.

Challenger Technologies

Recent disruptions brought on by the pandemic and war in Ukraine underscored just how dependent clean energy is on global supply chains, with bottlenecks driving up prices and suppliers unable to meet demand for electric vehicles and solar panels.

This might be a preview of global trade in the future. A recent study by the KOF globalization index and advisory firm Lux Research found that between 2010 and 2020, globalization across all measured indicators slowed, with only a 1.6% increase. As the demand for critical clean energy minerals like lithium, cobalt, and graphite ramps up, nations will likely be less willing to share them and they will become a bottleneck.

According to Lux, “renewable energy generation requires 40 times the material per kW capacity compared to gas turbines.” Even if the global economy were trending toward greater integration, “the supply of such materials must increase by 220% above the increase needed for ‘normal’ economic growth.” In short, incumbent green technologies carry a significant demand for materials that cannot be met in a fragmented world.

As materials critical to incumbent green technologies become less available, governments will need to incentivize challenger technologies to reach emissions targets, and the investment community can show the way. Investors can play a key role today in identifying, developing and scaling these technologies. 

On an individual basis, challenger technologies appear risky as investors navigate an uncertain economy. But not considering them is even riskier at the portfolio level, because it leaves the investor exposed to the systemic risk that a fragmented world presents.

Identifying future challengers

To identify which challenger technologies had the most potential to scale in each region, Lux Research and TDK Ventures assessed 21 such solutions, from fusion to wave power, on their  potential for low cost, maturity, current commercial focus, and outlook in a fragmented world. According to our analysis, the most promising new challenger technologies in North America are:

Sodium-ion batteries. Lithium extraction and processing is highly concentrated, with 95% of the global supply originating in Australia, Chile, China and Argentina. Most raw lithium is then shipped to China to be refined.

In the US, the Inflation Reduction Act (IRA) and other initiatives aim to jumpstart domestic production, but attempts to open lithium mines have faced pushback from local communities, including indigenous groups (79% of lithium reserves are within 35 miles of tribal lands in the US). 

Even with large lithium deposits confirmed in places such as California’s Salton Sea, it is still unclear whether North America can meet the soaring demand for lithium-ion batteries as car manufacturers phase out internal combustion vehicles and electrical grids transition to clean energy sources that require storage. 

Thanks to some of the recycling technologies being created in the US such as Ascend Elements or pH7 – both TDK Ventures portfolio companies – there is more capacity coming online. Yet, recycling still doesn’t meet the primary demand; across the globe, we still need a lot of lithium.

Sodium-ion batteries (Na-ion) represent a promising alternative or complementary solution.

Sodium carbonate or soda ash is one of the key raw materials for sodium-ion batteries (akin to lithium carbonate in lithium-ion batteries). The US has the world’s largest natural reserves of trona, the primary mineral from which soda ash is produced. Wyoming’s Green River Basin is home to the largest trona deposits globally, ensuring a long-term, stable supply of soda ash. 

The mining and processing of abundant soda ash in the US are also cost-effective compared to synthetic production methods employed in other countries, giving the US a competitive edge in pricing. The low cost of electricity and ready access to cheap renewables bode well for  domestic sodium processing and manufacturing.

To date, sodium-ion’s energy density falls short of that of lithium-ion, but BNEF estimates that it will soon catch up. Sodium-ion could displace some 272,000 tons of demand for lithium, or about 7% of the market, by 2035, the research firm says. Despite the country’s lithium dominance, Chinese automakers have already started selling low-cost EVs with sodium-ion batteries.

In keeping with this analysis, TDK Ventures has invested in Peak Energy, a utility scale energy storage company based on sodium-ion batteries.

Small and modular nuclear reactors. While there are many legitimate concerns around nuclear power – radioactive waste production, safety issues, water use, and others – once a nuclear plant is operational, it produces reliable electricity with minimal direct greenhouse gas emissions, making it a low-carbon, efficient source of reliable baseload power.

Small modular reactors, as their name implies, are not as large as traditional nuclear reactors. These so-called SMRs have several advantages: The modular design of these Gen III reactors allows for off-site manufacturing, potentially streamlining construction, while their smaller footprint makes them suitable for locations where space is limited. This can reduce the environmental impact of nuclear power plants and minimize land use conflicts. 

SMRs also have a long operating life. In the US, the NuScale’s Power Module, at just 76-feet tall and 15-feet in diameter, can generate 77 megawatts of electricity (MWe) and is scalable up to 924 MWe. It is currently undergoing regulatory review, with potential deployment in 2029-2030.

Ammonia power. Ammonia has the potential to replace fossil fuels in various power generation technologies, including combustion turbines and fuel cells. This could greatly benefit transportation sectors, including aviation, shipping, and long-distance trucking, where switching to electric power may pose challenges on the infrastructure, charging, and on the material intensity side. Additionally, ammonia combustion can serve as an efficient heat source for both industrial and residential purposes.

While ammonia is typically derived from natural gas, innovative companies like Brazil’s Unigel are leading the way in producing “green ammonia” using renewable energy and water electrolysis methods.

Even technologies that might seem like science fiction today, like nuclear fusion, could find their prominence growing in a fragmented world. Fusion’s ability to provide constant clean energy from readily-available fuels would be immensely valuable. Startups like Type One Energy are tackling the challenges to making practical fusion reactors with innovations like 3D printing and high-temperature superconducting magnets.

Alternative solutions

While these solutions represent the most promising Challenger Technologies in North America, they are not the only innovations we should invest in. The clean energy future will require a combination of solutions all working in concert, and depending on how these technologies evolve, preferred alternatives might arise.

Compressed Air Energy Storage, or CAES, for example, is a promising method for long-term clean energy storage and electricity supply and demand balancing. In power generation, perovskites-silicon tandems are a growing approach to solar PV that requires less in-demand silicon while delivering greater efficiency.

As the supply of raw materials for incumbent technologies becomes rate-limiting and geopolitical tensions rise over the control of that supply, governments around the globe will need to incentivize these alternative solutions. But we cannot wait for another crisis like the pandemic or Ukraine war to upend supply chains.

The investment community has an opportunity and responsibility to lead the way in identifying, investing in, developing and, with government action, scaling the solutions that can help individual regions find their pathways to clean energy transition.

We must begin developing and scaling Challenger Technologies today because earth cannot wait.

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Anil Achyuta is Investment Managing Director and Tina Tosukhowong is Investment Director at TDK Ventures.