A top clean tech group reveals 4 major trends shaping the energy industry - and which startups are most likely to win big

• The research firm Cleantech Group released its Global Cleantech 100 list on Thursday, which showcases the top startups in sustainable innovation.
• Startups in the power and energy sector account for nearly half of the list.
• The firm's director highlighted four broad trends that are transforming the industry, including a shift in foreign investment and a wave of new partnerships between startups and legacy companies.
• Click here for more BI Prime stories.

Cleantech Group, a clean-energy research firm, released its flagship report on Thursday, which showcases the top startups to watch in 2020.

The Global Cleantech 100 features a wide range of companies, from Commonwealth Fusion Systems, which is racing to commercialize fusion technology, to Form Energy, a secretive startup that's developing long-duration batteries. It also highlights four major trends that are bound to transform the energy industry.

These trends are: increased public pressure, fueled by climate change; new corporate commitments; cooperation between startups and big industry players; and a shift in foreign investment, according to the firm's director, Jules Besnainou.

The first two trends aren't particularly surprising; the climate crisis has fueled an increase in public pressure, which has, in turn, fueled a surge of recent corporate commitments to net-zero emissions. But they help explain the resurgence of clean-energy funding.

In 2019, venture capital and private equity investment in clean energy reached $10.5 billion. That's the highest annual investment since 2010, according to new data from BloombergNEF.

"It all comes down to pressure and the need to innovate," Besnainou said. "We're all seeing on a daily basis the climate crisis unfolding before our eyes."

The other two trends are more obscure, yet they're important in understanding how clean-tech startups will win big in 2020.

Big industry players are partnering with startups to keep up with the energy transition

As large corporations race to decarbonize their supply chains, they're increasingly turning to startups. Besnainou calls this "supply chain cooperation."

Consider the suite of startups promising to reform the CO2-intensive cement industry, such as CarbonCure and Solidia, both of which are in the Global Cleantech 100.

In August, the materials giant LafargeHolcim announced that it was teaming up with Solidia to supply customers with low-carbon cement. Similarly, CarbonCure - which developed a technology to sequester CO2 in concrete - partnered with Thomas Concrete.

Read more: Meet the 5 top startups that are turning carbon emissions into concrete and other products

"This is increasingly the case in plastics too, where petrochemicals' corporates must work with packaging, consumer goods' companies and recyclers if their commitments to bioplastics and circularity are to hold water," Besnainou writes in the report.

Big Oil, too, is partnering with startups to meet its energy transition goals.

Occidental Petroleum, for example, has teamed up with CO2-capture startup Carbon Engineering (CE). CE will capture some of the oil company's CO2 emissions, which Occidental will then sequester underground (and get more oil out of its wells as a result).

Data from the research firm BloombergNEF backs up this trend. As Business Insider reported on Wednesday, oil giants like BP, Shell, and Total accounted for four of the top 10 most active private equity and venture capital investors in 2019.

Shifting foreign investment signals a 'cooling in U.S.-China relations'

The last major trend Besnainou highlights is a shift in global investment towards European startups, which make up less than a third of the Global Cleantech 100.

In the last five years, investors from the Asia-Pacific region have "nearly tripled their participation in European cleantech deals," according to the report. Plus, they're starting to put more money into European clean-tech venture funds.

"We've seen a number of large Asian corporations being increasingly interested in European clean tech and using local funds to get a footing," he said.

In 2019, Singapore's SP Group and Changi Airport, for example, both invested in the Paris-based VC firm Idinvest Partners, which runs a clean-tech fund, he says.

Asian investment in North American clean tech, on the other hand, seems to be slipping.

The participation of Asian firms in North American clean-tech funding rounds has fallen from 9% of deals in 2018 to 6.5% of deals in 2019, per the report.

One explanation Besnainou offers is political: "This trend and a tumbling deal count in China in 2019 signal the impact of a marked cooling in U.S.-China relations and the difficulty of doing cross-border deals," he wrote.

But it could also signal that Asian investors - who have historically been more involved with US clean tech - are catching wind of a growing ecosystem of clean tech startups in Europe.

"Even if they started with North America and Silicon Valley, they're branching out and looking for more spots like Europe and Israel," he said. "I wouldn't point to this as bad news for North American cleantech. For us, the big takeaway is that it's a positive sign for European clean tech."

Click here to subscribe to Power Line, Business Insider's weekly clean-energy newsletter.