China green-tech investors hunt for overlooked niches - AVCJ Forum

“We are more interested in innovative technologies that deal with bottleneck issues or to look after the niche but underserved requirements of green industrial activities,” said Jingyi Zhang, a private equity investment officer at Asian Infrastructure Investment Bank.

Zhang highlighted operations and maintenance (O&M) services for wind farms, a segment that has yet to attract PE and VC attention but offers enormous growth potential. She added that one of AIIB’s portfolio GPs has taken much the same approach to electric vehicles (EVs), ignoring the hypercompetitive EV manufacturing space in favour of businesses that supply charging piles to corporate customers.

Eva Xie, a partner at Climate Impact Corporation, also referenced opportunities in O&M services, citing a surge in demand from local wind farm operators. Most of China’s wind farms were built after 2007 and they are supposed to undergo routine maintenance after 10-20 years of service.

Climate Impact Corporation’s other interests include technologies that take granular approaches to improving energy efficiency. As an example, Xie suggested solutions that remove dust particles from solar panels. Dust can be problematic in large-scale photovoltaic farms because it prevents sunlight from reaching solar cells and can cause damage to the surface of cells.

Zhang, meanwhile, pointed to opportunities in lightweight solar panels. Increasingly, panels need to be installed in unconventional locations that may not be able to bear the weight of standard equipment.

Much as investors are looking for ways to serve wind, solar, and hydro providers, they are also exploring other energy sources. Xie emphasised the practical limitations of renewable energy – power plants take up a lot of space – and described it as part of the journey towards sustainable energy.

“Although we cannot confidently say what will be a real means to reach sustainable energy, hydrogen power has some potential in our view,” Xie said, adding that Europe is the current frontrunner in hydrogen energy, accounting for two-thirds of global supply.

Energy storage is another challenge for renewables. Zhang noted that China has become a net exporter of renewable energy without finding a sustainable way to manage these exports. “We’ve maximised production capability, such as in lithium-ion batteries for EV and energy storage, at the cost of environmental pollution,” she said.

This has created an opening for battery recycling technology, Xie added.

Green-tech has received strong policy support in China, and this has spurred investor interest. A record USD 13.1bn was deployed by PE investors in 2021, according to AVCJ Research. It fell to USD 9.3bn in 2022 and about USD 3.8bn has been put to work in 2023 to date. However, the green-tech share of overall deal volume during this period rose from 10% to 14.2% to 15.3%. In 2020, it was 4.6%.

It is hoped that green-tech might avoid some of the fallout from geopolitical tensions. Siyao Jiang, a managing partner at ERM China, said that investment in climate change and environment, social, and governance (ESG) could be one of the few areas of agreement between China, the US, and Europe.

However, Chinese companies operating in the space are considering spinouts of local assets into separate listings to minimise geopolitical risk, said Zhang. She also raised the possibility of tie-ups between Chinese players and overseas partners, especially in emerging economies, which would be consistent with the “China plus one” strategy.

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