Young technology companies nearly always need more capital. At their launch, they often function on savings or funding from friends and family. At this stage (no more than TRL 3), fast access to government grants could help extend the company’s viability from a matter of months to a year or more. Depending on the rules associated with grants, they can allow business founders to build prototypes, recruit staff, access test equipment, undertake market research, attend conferences and buy business services – or simply pay bills.

Most start-up founders prefer not to sell equity (through dilutive funding) if possible, as it can reduce future earning potential. This tendency depends on the region, however, with European start-ups being generally more averse to dilutive financing than those in the United States. While governments typically do not claim ownership shares, it is common for incubators to take equity in exchange for providing capital or services, given the risks involved and the inability of most start-ups to cover incubation costs upfront.

As a company grows, it requires more capital to pay for office space, build prototypes, secure procurement contracts and obtain many other necessities, including eventual production capacity. During a company’s later stages of development (TRL 4 to TRL 9), the sources of financing are more varied and government support is more likely to be paired with private capital, with the government either acting as an initial investor to reduce risk perception or co-funding a specific project with a potential customer. In some countries, public grants are available for limited tasks, such as exploring overseas markets or buying equipment. It is rare for governments to provide concessional debt1 to energy start-ups, but it is not unprecedented.

Government programmes also differ in how recipients apply for funding and how funders evaluate them, with prize-based initiatives sometimes resulting in large grants several years after application and other funds being disbursed within weeks or months, in line with the capital needs of a small and growing firm.

The choices governments make in this area constitute some of the greatest policy differences among our case studies. Variations generally reflect the needs of the targeted companies at the stage of maturity that fits the policy objective. However, in some cases they also reflect legal or budgetary constraints, familiarity with existing R&D funding processes or an attempt to maximise the impact of a limited fund. An example of the latter is Germany’s SET Award grants, which are relatively small but generate considerable publicity, recognition and networking. The non-financial benefits of the grant award process are often the primary attractions for many SET Award applicants each year. In some cases, policy differences are related to administrative design, such as whether start-ups are allowed to apply at any time.

The following subsections introduce the various types of government financial support for start-ups, with examples from the case studies and other relevant sources, starting with non-dilutive public grants awarded through calls and prizes, and moving on to dilutive angel and seed equity investments. Each section distinguishes between financing provided directly by governments and indirectly through intermediaries such as incubators and venture capital funds.

The most common way governments provide capital to clean energy technology start-ups is through grants. Public grants transfer public capital to a recipient, either directly from a government entity or indirectly through a third party such as an incubator that manages the selection of grantees and disbursement. The expenditures for which recipients can use grant money are usually ringfenced, with the scope of eligible costs normally determined by public spending rules and the recipient’s application for funding. Grant awardees are commonly subject to a reporting process in which they must demonstrate compliance with the spending scope and, in many cases, report the outcomes of work undertaken. Furthermore, grants sometimes include clawback clauses that protect taxpayers by allowing public funds to be reclaimed in the case of non-compliance. While grants appear to be a straightforward policy tool, government approaches to their use vary widely.

Direct approaches

Grants transferred directly to start-ups from a government entity can differ in some key features: who can apply; which expenditures are eligible; how start-ups’ solvency risks are managed; and how the start-up grant interacts with other public grant programmes.

Who can apply: Consortiums or individual companies?

There is a divide around the world between government grant programmes that solicit applications from individual entities and those that require start-ups to apply as part of a consortium. The main argument in favour of consortium-based funding is that having an established industrial company in the consortium (representing a potential future customer and providing a testing environment) validates the start-up’s promise. In addition, consortium partners are generally required to supplement government grants with co-funding to minimise the taxpayer share, something that is usually not possible for start-ups alone with more limited means.

However, consortium-based grants are usually available for technology development or test projects only, so start-ups cannot use the funds for pressing business needs. This can make consortium grants inappropriate for very early-stage companies, especially those that have not yet developed an intellectual property management strategy.

Therefore, in Denmark the twice-yearly calls of the Energy Technology Development and Demonstration Program (EUDP) allow applications from individual companies as well as consortiums to support TRL 4 to TRL 6 technologies. While they do not specifically target start-ups, SMEs (including start-ups and universities) are eligible.

Also in Scandinavia, individual applicants can apply for Swedish Energy Agency grants for concept development as well as piloting and demonstration. Concept development grants are smaller, at up to SEK 300 000 (USD 33 000), while those for pilots and demonstration projects are EUR 7 million (USD 770 000) or more. As is common in Europe, where EU state aid rules apply, start-ups are eligible to receive a higher share of total project costs from the government than larger companies are (45% for SMEs, compared with 25% for large enterprises). In contrast, ”verification of customers” grants, which start-ups can use to develop a technology prototype that meets a specific user’s requirements, are only for consortiums that include a potential customer, with the more established industrial partner investing at least 55% of total eligible costs and the government covering up to SEK 3 million (USD 330 000).

Most other grant programmes for which start-ups are eligible require consortiums and are restricted to precisely defined technology development projects. For example, Innovation Norway Innovation Contracts cover up to 45% of eligible costs of SMEs (as per EU state aid rules), and occasionally up to 50% for a start-up. Green Innoboost, the main IRESEN programme for start-ups in Morocco, also requires a consortium approach. At least one partner must be a Moroccan scientific institute or university, and inclusion of a Moroccan industrial partner is encouraged.

However, some government initiatives will help start-ups find potential consortium partners with whom they can apply for grants, including Green Innoboost in Morocco and the Swedish Energy Agency, which funds Ignite Sweden, provider of a network through which start-ups can identify potential partners.

Which expenditures are eligible: Unrestricted vs narrow focus

Governments usually restrict how, and on what, grant money can be spent. For instance, grants can often be used for technological but not business development. This applies especially to consortium-based grant programmes, which generally target pre-defined technology projects. In some cases, business development expenditures are ineligible for reasons related to state aid regulations, as allowing some companies to use grant funding for business development could give them an unfair advantage that could distort competition and trade in their favour.

State aid is a prominent concern among EU governments and their trading partners. There are state aid exemptions for R&D that would otherwise not be carried out without state support, and EU rules classify R&D according to company size and type of research (e.g. fundamental R&D, industry R&D and precompetitive R&D). Up to 70% of the costs of industrial research, or 45% of experimental development projects, may be covered for small companies, but in some cases recipients must pay back the funds (especially guarantees and loans) if the project is a success. SMEs are also eligible for post-R&D aid, but only for up to 50% of innovation costs and 20% of investment costs. Consequently, policy measures supporting energy technology start-ups in the European Union often closely follow the modalities of R&D funding programmes previously approved under state aid rules. These programmes generally require consortium-based applications for narrowly defined technology projects.

Some grant-based programmes include a wider range of expenditures in their scope. For instance, in 2018 Canada’s Women in Cleantech Challenge awarded annual grants of CAD 115 000 (USD 90 000) to its six finalists in the form of a stipend for three years.2 Recipients were allowed to spend this stipend however they deemed most valuable, and they used it to cover living expenses, business services, debt, equipment, staff and travel. The goal of the Women in Cleantech Challenge was to help leading female entrepreneurs develop their technologies and businesses, and was one of the Impact Canada Cleantech Initiative’s six Cleantech Impact Challenges. In addition to supporting the six finalists over three years, in 2021 the grand prize winner received a grant of CAD 1 million (USD 800 000) for unrestricted use. The six finalists also each received access to business incubation support worth CAD 300 000 (USD 235 000) and to federal government research expertise and facilities worth up to CAD 250 000 (USD 200 000) without co-funding requirements.

In Morocco, grants awarded under the Green Innoboost programme have a more broadly defined scope than most. Start-ups can elect to receive the MAD 1.5 million (USD 160 000) financial support as a grant (rather than as equity) for buying, testing and prototyping equipment, recruiting new team members, travelling internationally and attending conferences or engaging external advisers and business services. The condition for start-ups to receive non-dilutive financing is that they must pay royalties to IRESEN worth 1.5% of any annual revenues gained from the resulting innovation, starting three years from their first recorded revenues and for an indefinite period.

However, start-ups report that limitations on eligible costs under grant programmes can leave companies without funding for business services such as intellectual property advice, market research and legal services. As many clean energy start-ups require more tailored services than those offered by many standard incubator and accelerator packages, Natural Resources Canada launched the Breakthrough Energy Solutions Canada initiative one year after the Women in Cleantech Challenge and included intellectual property support among its eligible project expenses. Some other policy initiatives, such as Innovation Norway, address this issue by offering some of these support elements separate from grant financing.

Accommodating the financial means and risks of start-ups

Funders view start-ups as inherently risky beneficiaries of capital. Early-stage companies are usually never far from exhausting their funds – a fact that underpins the high-risk, high-return venture capital investment model. However, some governments have public spending rules that prevent the state from transferring grants to companies in financial difficulty. One outcome of this type of regulation is the preference for consortium-based grant programmes in many countries. Another outcome can be a need for applicants to secure bank guarantees before receiving funds, the costs of which can severely reduce the attractiveness of this type of funding.

Two initiatives that use a different method to navigate this tension are Green Innoboost in Morocco and India’s Seed Support System. Grant recipients in these programmes gain access to a bank account established by a government agency, into which they deposit the funds. This helps the agency monitor the company’s spending and recover unspent funds.

Meanwhile, in the United States the government-operated Advanced Research Projects Agency–Energy (ARPA-E) helps US-based companies realise R&D projects for potentially transformational technologies and offers favourable financing terms for small companies. Although ARPA-E funding is open to all businesses, small companies must cover a lower share of their project costs (10% rather than 20%) and none of their costs in the first year. ARPA-E offers this incentive because it recognises that start-ups are a likely avenue for the emergence of new ideas outside of traditional business patterns and that their financial means are limited.

Co‑ordination with other grant programmes

When governments have dedicated policies and programmes to support clean energy technology entrepreneurs, they are rarely the only source of government support available. Countries vary in the extent to which their different support programmes interact and co‑ordinate with one another.

In Chile, for instance, the Chilean Economic Development Agency (Corfo) is a government organisation that offers innovation grants to start-ups. Corfo’s flagship incubator programme, Start-Up Chile, is one of several initiatives that awards grants, and recipient start-ups can also engage with a variety of Corfo-supported entities, including companies, research centres, business incubators, venture capital funds and other Corfo initiatives. However, start-ups may receive a Corfo grant from only one of these sources.

Meanwhile, Enterprise Singapore is at the centre of an array of grants and other types of support available to technology start-ups. In Singapore, as successful early-stage companies scale up, it is common for them to accumulate multiple different Enterprise Singapore awards.

Indirect approaches

Some governments provide funding to independent incubators and other entities, which in turn are responsible for selecting start-ups and issuing grants. In India, the Department for Science and Technology (DST) channels a monthly grant of INR 30 000 (USD 400) through Technology Business Incubator-accredited incubators as a stipend for individuals with a technology business idea. This Entrepreneur-in-Residence initiative targets recent graduates who might otherwise leave their idea undeveloped and take a more highly paid job elsewhere.

In the United States, CALSeed Ventures, managed by New Energy Nexus (a private not-for-profit entity) on behalf of the California Energy Commission, offers seed-stage grants for start-ups. Since the California Clean Energy Fund’s launch as a publicly capitalised venture fund in 2004, the public-private partnership has overseen several generations of equity funding and grant programmes. It currently only disburses grants of up to USD 600 000.

In recent years, prizes have become a more popular way to award grants to energy technology start-ups.4 Prizes can be attractive for several reasons:

• They confer recognition and give a “stamp of approval” to finalists and winners, which attracts innovation applicants from outside the typical government grant recipient network (i.e. universities, research institutes and corporate R&D divisions).
• Some of the administrative requirements for governments are lower for prizes than for project-based grant calls. For example, detailed evaluations of project plans and audits of subsequent spending in relation to these plans are not necessary.
• Relatively small sums of taxpayer money can mobilise a large number of entries and attract a more diverse set of technology ideas, especially if applicants perceive the bureaucratic requirements to be lower and the publicity co-benefits to be higher than for other grants.
• Prizes generate considerable publicity and prestige for government, sponsors, finalists and winners, raising the profile of clean energy innovation and inspiring future applicants.
• Prize entries can help governments learn quickly and inexpensively about the range and quality of existing (or potential) start-ups in clean energy technology areas.
• Prize awards can often avoid the need for co-funding from the private sector while still conforming with state aide rules, making them attractive to start-ups that have meagre capital.

Direct approaches

Prizes that publicise contest finalists and the innovation ecosystem

For generating publicity, prizes can be far more effective than individual start-up grants – for the same total public budget. If the prize is not large, the value all finalists derive from the publicity can outweigh the cash worth of the prize for the winner, as connections with potential investors and the validation of business ideas can lead to much greater sources of financing. While the disbursement of all public funds must be rigorously evaluated, the expert judgement process can be lighter and speedier when prizes are smaller. Furthermore, well-publicised prizes can showcase the government’s work with clean energy start-ups and promote the local clean energy innovation ecosystem in general.

Indeed, this rationale has also spurred numerous private sector organisations to sponsor prizes and awards with modest or no financial rewards for cleantech start-ups in recent years. The additional value of public prizes in this area rests on the credibility and access to key stakeholders they confer.

Germany’s Energy Agency (Deutsche Energie-Agentur, known as “dena”) has been granting the Start Up Energy Transition (SET) Award annually since 2017. It is a good example of how a relatively modest prize can produce extensive co‑benefits in terms of publicity and inspiration, especially as it connects innovators with stakeholders in the venture capital, public and corporate sectors. Target applicants are early-stage energy technology start-ups that have a working prototype but need contacts and financing to become self-sustaining, given the inherent risks and time frames involved in hardware development. Networking opportunities and online publicity are available for the top 100 entrants, and the 15 finalists receive promotional videos and introductions to investors, customers and policymakers. Winners in each technology category5 are awarded publicity through the World Energy Council and its media partners, and up to EUR 10 000 (USD 11 000). Eligible entrants can be from anywhere in the world.

Meanwhile, Climate-KIC, an independent entity funded by the European Commission to support innovation to tackle climate change, runs ClimateLaunchpad, a prize with annual national and subsequent regional finals around the world, the winners of which compete in a global final. The global first prize is EUR 10 000 (USD 11 000), the runner-up receives EUR 5 000 (USD 6 000) and third place wins EUR 2 500 (USD 2 800).

Prizes that take winners to the next level of development

Larger prizes funded by public money usually require evaluations as rigorous as for grant calls. However, governments have some flexibility to integrate prize evaluation into the process of supporting a cohort of finalists. Due to the judging time and resources required, evaluations to award such prizes can take much longer than for calls for grants – in some cases several years – and the cost can be greater than the prize purse itself.

For example, in the Women in Cleantech Challenge, Natural Resources Canada partnered with MaRS Discovery District to offer support to female entrepreneurs, an underrepresented group in the science, engineering and clean energy areas. The Women in Cleantech Challenge ran for one prize cycle between 2018 and 2021 and awarded one grant of CAD 1 million (USD 800 000) to the winner at its conclusion. The programme provided significant support to six finalists over three years, during which time their businesses advanced and their progress was evaluated.

As much as being attracted by the final prize, applicants were interested in the annual stipend that would enable finalists to commit 100% of their time to their start-ups, the opportunity to collaborate with leading federal researchers and the incubation programme. In practice, finalists reported that the access to laboratories, development of the cohort of finalists, and the solidarity and business support they received through the incubation programme proved to be of greater value than the final cash prize. For the government, the investment in stipends and services to help women-led businesses and technologies grow made up more of the challenge’s cost than the final grand prize.

In the United States, NREL has been overseeing the American-Made Challenges series of prizes since 2018, each focused on a technology priority identified by the Department of Energy (DOE). The first energy technology challenge was in solar manufacturing, and it built on the success of previous prizes for artificial intelligence. The programme’s managers have found that innovators are attracted to their prize format because the entry requirements are lower than for traditional calls for public grants and loans (such as those available through the Small Business Innovation Research [SBIR] programme), which they perceive as being too bureaucratically costly for start-ups.

The size of the prize depends on the specific challenge and stage of the prize process. For example, the American-Made Solar Prize Round 4 had three contests, with unrestricted cash grants of USD 50 000 for 20 winners at the initial “ideation” stage, an additional USD 100 000 for the 10 start-ups that reached the prototyping stage and USD 500 000 for 2 winners at the final stage to perform pilot tests with an industrial partner. Winners at the second and third stages also received vouchers of USD 75 000 to access national laboratories and other qualified facilities for prototype development. Evaluation stringency and timelines grow in line with the prize level.

Indirect approaches

Similar to Germany’s SET Award, PowerACE is a Singaporean prize that EcoLabs-COI has contributed to since its launch in 2018. The Sustainable Energy Association of Singapore (a not-for-profit business association) runs the prize, which targets international start-ups with energy technologies at TRL 3 or above. In 2020 there were 60 entrants from 25 countries, all required to have a Singaporean market focus. Twelve finalists receive one month of mentoring from financial and sectoral experts before pitching their start-up at the Asia Clean Energy Summit during Singapore International Energy Week. The winner of the PowerACE EcoLabs-COI Special Award receives a prize worth SGD 100 000 (USD 75 000) that covers one year of EcoLabs-COI support services and access to infrastructure. In 2021, PowerACE also included an SGD 13 000 (USD 10 000) Private Financing Advisory Network (PFAN) prize and an SGD 82 000 (USD 60 000) BloombergNEF prize.

For start-ups that need capital to expand their business, loans are an attractive form of capital if the start-up either anticipates near-term revenue or does not want to be pressured by equity investors to “exit” by selling the company. Start-ups that might fall into this category are energy technology businesses with a software-based product (especially if their product does not need time-consuming regulatory approval) and enterprises that simply wish to retain control over their route to profitability.

If a government wishes to ensure that local innovations develop and take root in a region, it may favour delaying the sale of the founders’ ownership of a company to avoid the risk of the business being relocated by investors based elsewhere. A concessional loan from a government entity (at a lower interest rate than would be commercially available to an unproven and poorly capitalised company) might be even more attractive than a grant with associated spending constraints in some cases. However, carrying debt can make a start-up less attractive to future investors, who may need additional capital to pay off outstanding loans as part of the deal. Plus, the failure rates of early-stage start-ups pose a substantial risk for lenders. For these reasons, few governments offer loans to start-ups, but there are some concessional grants and loan guarantees that seek to mitigate these challenges. Trials of recoverable grants and forgivable loans to manage government costs and risks while minimising debt on start-ups balance sheets are a recent development.

Direct approaches

In recognition of the considerable amount of time it sometimes takes to secure grants, Innovation Norway is offering small quick-approval loans to start-ups. Unlike its grants, Innovation Norway’s loans can be used to purchase business services, and these loans have long deduction periods adapted to the depreciation of purchased goods.

Meanwhile, the Swedish Energy Agency began using conditional loans as an early policy tool to support start-ups in 2006. The Agency allowed a grace period for repayment, and payback was not required if the project for which the start-up received the loan failed to help get the associated product to market. However, the payback mechanism triggered too early for some recipients, and the loans made their balance sheets less favourable. Sweden has since discontinued the loan programme in favour of grants.

Spain also shifted from providing loans to providing grants under its NEOTEC programme, which counts energy among its focus areas. Between 2002 and 2011, technology-based companies younger than four years old in any sector could apply to the Ministry of Science and Industry for NEOTEC loans of up to EUR 1 million (USD 1.1 million) and the debt would only have to be paid back once recipients generated revenue. However, this condition, combined with the relatively immature status of many recipients was found to be a poor fit with the timelines of start-ups and requirements of public financing. It has been updated three times: in 2011, the conditionality of the loan repayment was replaced by eight identical annual payback instalments; since 2014, successful applicants have received grants for defined technological projects, which were up to EUR 250 000 (USD 280 000) in 2020; and, since 2017, the minimum company age has been reduced to three years old. In 2022, NEOTEC launched its first dedicated call for projects to establish new technology-based businesses led by women.

Like the Swedish Energy Agency model, the Israel Innovation Authority (IIA) does not require repayment of its loans unless the funded project is successful, and if royalties do happen to flow from the project or equipment funded by the loan, the IIA receives around 50% as loan repayment. This “conditional grant” does not appear as a liability on the books of the SME. Another repayment variation is an agreement that the government agency will convert a certain portion of the borrowed money to equity unless the owners purchase it (at a price of multiples of the company valuation) within a given time frame.

Loan guarantees, which offer insurance against losses and significantly reduce risks for borrowers while allowing them to keep the potential upside, have been used most prominently for SMEs in Chinese Taipei and the United States.6 In the past decade, the US DOE Loans Programme Office has managed more than USD 30 billion of debt – including loan guarantees and conditional commitments to help project developers secure financing – across a variety of energy sectors.

The DOE office’s mission is to facilitate debt financing for the commercial deployment of large-scale energy projects. Funding is project-based and generally appropriate for companies that have already secured later-stage venture capital rounds as well as a major customer, with loans ranging from USD 100 million to USD 5 billion. Meanwhile, European Investment Bank loans for clean energy R&D tend to be smaller, but their bankability and co-financing requirements generally put them out of reach for start-ups.

For start-ups wishing to expand globally, another source of debt finance is export credits, which can take the form of loans, guarantees, insurance products or purchase-order financing. Several countries have tailored solutions for start-ups that are generic rather than dedicated to clean energy, including France, India and the United States among others. However, the programmes in Norway and Sweden have a specific focus on clean energy,

Indirect approaches

India’s Technology Business Incubator (TBI) programme channels funds to start-ups through accredited incubators responsible for applicant calls and their evaluation. These incubators can choose whether to provide the financing as debt or equity.

Public capital is part of many venture capital funds around the world and, so far, these investments have had mixed success in their two aims of generating a return on taxpayer money and contributing to start-up advancement.7 Some private funds in which governments invest do not respond to government technology priorities, nor do they have a higher risk appetite or longer-term perspective than other venture funds.

Direct approaches

Funds managed directly by civil servants working for public bodies and dedicated to clean energy technologies are scarce, and direct government investment in individual companies is often discouraged due to political concerns about negative publicity in the event of losses as well as legal barriers related to state ownership in some countries. Nevertheless, some governments have pursued this approach in recent years, and other countries, such as Spain, have proposed using public finances, via tax breaks, for investors in clean energy start-ups.

The European Investment Bank participates in one such scheme: the Breakthrough Energy Ventures - Europe Fund (BEV-E). BEV-E, launched in 2019, received half of its EUR 100 million (USD 115 million) capitalisation from the European Commission and the other half from a private investment fund. It is jointly managed by the European Investment Bank and Breakthrough Energy Ventures, and its mission is to invest equity in a manner suited to the capital intensity and long timelines needed to develop energy technologies. In 2021, BEV-E invested in its first two deals, one of which was EUR 3.4 million (USD 3.9 million) seed funding for the start-up Bloom Biorenewables.

Europe is home to another recent funding project of this type, partially focused on clean energy technology. The European Commission established the European Innovation Council (EIC) Fund in 2020 to make direct equity and quasi-equity investments in TRL 9 “European high-impact and deep-tech start-ups and scale-ups” accepted into the EIC Accelerator. Investments are between EUR 0.5 million (USD 0.6 million) and EUR 15 million (USD 17 million), up to 25% of the voting shares, and with a relatively long time horizon of 7-15 years. Funds come from the Horizon Europe budget and the project represents a new means of using the EU R&D framework programme, alongside its traditional focus on grants.

For TRL 5‑8, the EIC Accelerator can also provide grant funding of up to EUR 2.5 million (USD 2.9 million) for development costs and coaching (in general, the equity investment is “blended” with grant funding), mentoring and networking. Start-ups can apply at any time, and the targeted response time is four weeks. In 2021, the EIC prioritised applicants with Green Deal innovations for economic recovery, as well as strategic digital and health technologies. As of November 2021, the EIC Fund had invested over EUR 500 million (USD 580 million) in 111 deals.

In 2011, the Australian Government announced AUD 100 million (USD 100 million) to establish the Renewable Energy Venture Capital Fund (REVC), and appointed a private fund manager who brought in an equal co-investment from Softbank China Venture Capital (SBCVC). The 13-year fund is restricted to investments in companies commercialising renewable energy technologies and overseen by the Australian Renewable Energy Agency (ARENA), which issued public calls for interest until the end of the investment period in 2019, by which time it had invested around AUD 80 million (USD 80 million) in 12 companies. ARENA reinvests any returns in its activities and, by 2020, a return of 4% had been made from sales of equity in two companies. While it had invested only around half of its committed capital by 2020, an evaluation found REVC had broadly met its objectives, especially in attracting private capital into its deals and in creating knowledge and innovation system spillovers. The evaluation notes that REVC portfolio companies struggled to grow into in international markets and that it had needed to manage certain misalignments between the objectives of public and private partners in the fund’s management.

In 2021, Morocco’s creatively designed Green Innoboost scheme was adjusted for its second call for proposals to let start-ups choose between applying for grant or equity financing of up to MAD 1.5 million (USD 160 000). If recipients select equity, they must yield a stake of up to 20% to IRESEN, which will use possible future revenues to support clean energy innovation in Morocco. If applicants choose to receive the funding as a grant, they must pay royalties to IRESEN worth 1.5% of any annual revenue from the innovation supported by the grant the third year after collecting the first revenue and for an indefinite period.

In 2017, the Netherlands province of South Holland earmarked EUR 35 million (USD 40 million) for ENERGIIQ, a public clean energy venture capital fund that provides shares and loans. As is the case for other regional and national initiatives, the fund has an economic objective as well as an environmental one: it invests in equity of EUR 200 000 to EUR 4.3 million (USD 230 000 to USD 4.9 million) in start-ups with proven technologies that can demonstrate expected CO₂ reductions in South Holland or which have a head office, R&D or production location in the province. The investment is conditional on private investors joining the funding round with at least as much money, and it aims to complement other types of regional public funding, such as Rotterdam’s Energietransitiefonds. There are currently nine companies in its portfolio.

Although not specifically dedicated to clean energy, Sitra, the Finnish Innovation Fund, is noteworthy for its focus on equity investing (among other tools). This independent foundation, which reports directly to the Finnish parliament and can make policy interventions without a government mandate, has placed the ecological reconstruction of society at the top of its list of five goals for 2021-2024.

Founded in 1967, Sitra became an independent body in 1991, and in 2019 was favourably evaluated as a leading international example of a national innovation agency. In addition to being a think tank and promoter of experiments and operating models, it invests in Finnish start-ups and other SMEs, mainly through venture capital funds. Committed to the ownership and development of portfolio companies for an average period of four to ten years, it is a longer-term investor than most venture capital funds. 12% of its portfolio is currently allocated to venture capital and private equity, with this capital coming from annual returns on capital investments of its initial government endowment. It does not provide grants or concessional financing, but works with VTT (a public research institute), Enterprise Finland and Business Finland (a public R&D funder). Sitra has been organising annual Cleantech Venture Days focused on clean energy start-ups since 2006.

Indirect approaches

Governments fund equity in start-ups through two main types of intermediaries: incubators and venture capital funds. These two approaches differ considerably in both financial management structure and where the returns accrue. When public funds are invested in equity by a private incubator, it is generally so that the incubator can use any subsequent equity sales to fund future incubation costs. When public funds are invested in a venture capital fund or fund-of-funds, the government usually receives the profits from any future sales. More initiatives invest public funds in clean energy technology start-ups via incubators than through venture capital funds.

Since 2010, the European Institute of Innovation & Technology (EIT), an agency of the European Union, has co-funded a private entity, EIT InnoEnergy, to run a European Knowledge and Innovation Community (KIC) on the topic of sustainable energy. KIC InnoEnergy was one of the first three sectoral KIC proposals to be approved and, as of 2022, eight KICs are funded to “strengthen cooperation among businesses (including SMEs), higher education institutions and research organisations [and] form dynamic pan-European partnerships.” The EIT InnoEnergy Highway programme is one of several ways in which EIT InnoEnergy executes its mandate to support start-ups under its EU funding grant. The programme, which is also co-funded from non-public sources, solicits applications from start-ups via a permanently open call and also scouts for energy technology innovators to join the scheme. In return for EIT InnoEnergy taking a minority equity share, recipients receive tailored acceleration services.10 Returns from these investments are expected to help secure EIT InnoEnergy’s future finances and it has sold shares in around 25 companies to date. One feature of Highway is that innovators can join the programme before incorporating a company.

India’s Clean Energy International Incubation Centre (CEIIC) – launched by the Government of India and Tata Trusts in 2018 under the auspices of Mission Innovation and operated by Social Alpha – has several financing options for start-ups that win its energy technology challenges. Selected start-ups are eligible for seed equity investments of up to INR 10 million (USD 130 000), which Social Alpha invests using its own resources. CEIIC start-ups are also eligible for product development support and scale-up grants. Social Alpha also connects all start-ups with its network of investor partners.

Among its other support measures, India’s Technology Business Incubator (TBI) has issued calls for proposals from independent not-for-profit incubators to fund a large network of incubators to channel government funding as equity to start-ups. The Department for Science and Technology’s National Initiative for Developing and Harnessing Innovations (NIDHI) has managed the system since 2015, and while energy technologies are not the system’s primary focus, certain accredited incubators (such as Indigram Labs) have established energy priorities.

An example of how NIDHI uses accredited incubators is the Seed Support System, launched in 2016 to ensure the timely availability of financial support for “proof of concept”, prototype development, product trials, market entry and commercialisation. Under this system, start-ups can apply to participating incubators in the TBI programme for debt or equity investments of INR 1 million (USD 13 000) to INR 2.5 million (USD 34 000), or up to INR 10 million (USD 130 000) in exceptional circumstances. Recipients can spend these funds on a wide range of eligible costs, including product development, marketing, mentoring, intellectual property issues and personnel. Whether a TBI incubator provides debt or equity is at its own discretion, although equity is encouraged and must be chosen if funding exceeds INR 2.5 million (USD 34 000). The system’s rules require that incubators reinvest any proceeds to secure the long-term viability of the incubator after the initial five years of the TBI funding operational costs have ended.

As a TBI-accredited incubator, Indigram Labs takes 2-5% equity in funded start-ups. Indigram Labs’ public funding has so far come from three different government departments: the Department for Biotechnology (DBT), the Department for Science and Technology (DST) and the Ministry for Micro, Small and Medium Enterprises (MSME). It has incubated clean energy start-ups in the areas of bioenergy and solar PV.

Through the European Investment Fund (EIF), the European Investment Bank of the European Union manages a number of equity funds directed to start-ups via third-party fund managers. Although none of them are dedicated specifically to clean energy technologies, the EIF reports a strong presence in cleantech categories. The rationale for public investment in venture capital funds is the disproportionality between the costs of assessing a relatively small company’s financing needs and the potential financial return. Because it is often more cost-effective for venture capital funds to concentrate on later-stage and less disruptive firms, there is a market weakness when it comes to channelling private capital to start-ups, especially those that could generate positive externalities such as clean energy technologies. Public funds can “crowd in” more private capital.