[Edaily Marketin Reporter Soyoung Park ] Governments around the world are directly investing capital to foster the energy and climate tech industries. This goes beyond simply providing subsidies. Policy-based financing is taking on the initial risk capital to nurture companies and industries, with the strategy of attracting private capital afterward. The industry believes that the focus of these policies should be on how to attract private investment after the funds are disbursed, rather than on the amount of capital invested.

According to the global investment banking (IB) industry on the 2nd, various forms of government policy funding have recently been flowing into the energy and climate tech sectors. Energy and climate tech involve long technology development cycles and require significant initial capital investment in facilities. This means there are limitations to private capital alone being able to grow these industries from the outset.

In fact, the Council on Foreign Relations (CFR) released a report last April diagnosing a large investment gap between demonstration and scale-up in the U.S. energy innovation sector. Private investors perceive the energy and climate tech sectors as carrying significant technological risks and the burden of large-scale capital expenditures. This leads to a situation where private capital is not flowing into the market due to the perception that expected returns are low relative to the risks involved.

Given this situation, South Korea has also decided to establish a full-cycle support framework, led by the government, to foster the growth of climate-tech innovation companies. On the 29th of last month, the Ministry of SMEs and Startups and the Ministry of Climate, Energy, and Environment announced that they would provide approximately 600 billion won in financial support through specialized funds—including the Future Environmental Industry Investment Fund, Green Loans, and the Climate-Tech Innovation Fund—to support the growth of climate-tech companies.

Notably, the support measures have been tailored to each stage of a company’s growth. The two ministries plan to provide customized funding from the early startup phase through the growth and expansion stages to ensure that innovation leads to growth. In particular, they are launching intensive support to help entrepreneurs identify promising ideas and bring them to market. Specifically, to improve the success rate of commercialization, they will implement support programs—including △commercialization, △export, △research and development (R&D), and △loans—totaling up to 10 billion won over a maximum period of five years.

Neighboring Japan has also taken proactive steps to foster the climate tech industry. In 2023, the Japanese government enacted the Climate Transition (GX) Promotion Act and issued GX-related bonds totaling 20 trillion yen (approximately 1,699.972 trillion won)—the first of its kind in the world. Japan’s Ministry of Economy, Trade and Industry (METI) explained the significance of this move, stating, “Over the next 10 years, more than 150 trillion yen (approximately 1,274.79 trillion won) in public-private partnership investments will be required for GX initiatives,” and added, “We have decided to issue GX Economic Implementation Bonds to raise funds for these investments.”

The European Union (EU) estimates that 660 billion euros (approximately 992.1516 trillion won) in annual investment will be required to achieve the energy transition by 2030. To accelerate the pace and scale of investment in related industries, the EU announced a Clean Energy Investment Strategy in March of this year. For instance, the European Investment Bank (EIB) will provide 75 billion euros (approximately 112.7445 trillion won) in support over the next three years.

The International Energy Agency (IEA) and Convergence argued that it is desirable for governments to take the lead in providing seed funding to the energy and climate tech industries. However, they also advised that this approach should not replace private investment. Their reasoning is that public funds should be deployed selectively to share the risks of projects that the private sector finds difficult to shoulder.

An official from the investment banking industry stated, “Given the long payback periods in the energy and climate tech sectors, consistency and predictability in government policy are crucial.” He added, “Private capital will only flow in if the government goes beyond short-term financial support to clearly outline medium- to long-term policy directions, while also providing financial structuring—such as a combination of guarantees, loans, and equity investments—tailored to the risks and revenue structures of each project.”

Meanwhile, E-Daily, in collaboration with Korea Electric Power Corporation (KEPCO), will host the “Global Alternative Investment Conference in BIXPO (GAIC in BIXPO)” on November 5 at Multipurpose Hall 1 of the Kim Dae-jung Convention Center in Gwangju, Jeollanam-do. The event will be organized under the main theme “Tech Meets Capital: Energy Deep Tech Scale-up.”

On that day, experts representing the domestic and international energy industries will gather in one place. They will explore ways to scale up innovative technologies and businesses through the convergence of energy deep tech and global capital. They will also discuss strategies for investment opportunities and corporate incubation.