Driving Energy Decarbonization Through Fintech: Overcoming Barriers and Accelerating Transition

Technological finance plays a crucial role in facilitating energy decarbonization by breaking through bottlenecks and accelerating transformation. The energy sector contributes approximately 70% of global greenhouse gas emissions, making the transition to decarbonization an essential choice for sustainable development. With the advancement of China’s “dual carbon” goals, the energy system is poised for significant technological iterations and institutional reforms. Concurrently, the development of new energy sources faces considerable challenges and responsibilities, necessitating disruptive technological innovations and systematic financial support.

Typically, innovative technologies are characterized by long research and development cycles, substantial funding requirements, and high-risk factors, which place specific demands on financial support systems. This is particularly true for innovative technologies in the energy decarbonization field. Although the government has established a dedicated system for green finance, strategic planning and functionality tend to focus on the overall decarbonization landscape, leaving certain gaps in coverage for green technology innovation. In contrast, technological finance, with its strategic positioning and empowerment mechanisms, can expand the reach of green finance to include decarbonization technologies, overcoming funding bottlenecks for technological innovation and fostering a virtuous cycle of “technology-capital-industry.” This positions it as a critical support for advancing decarbonization technologies.

Decarbonization technologies need to overcome greenhouse gas emissions from fossil fuels throughout their lifecycle, including production, conversion, transportation, and consumption. When fossil fuels like coal and oil are transformed into secondary energy sources such as coal-fired and oil power, emissions occur during both processing and consumption. Therefore, energy decarbonization can progress through three main paths: clean energy substitution, energy efficiency enhancement, and electrification, as well as negative carbon technologies. However, each pathway faces its own technical challenges.

In terms of clean energy substitution, the global share of renewable energy in electricity generation has been steadily increasing, but wind and solar power face issues of stability and energy density, leading to bottlenecks in grid integration, transmission, and end-use applications. Thus, storage solutions, solar batteries, smart grids, and renewable energy systems are all seeking optimization. Regarding energy efficiency enhancement and electrification, in addition to converting renewable energy into electricity via storage technologies, hydrogen energy, nuclear power, and solid-state batteries are also focal points that must be matured further. While green hydrogen and its derivatives, such as green alcohol and green ammonia, hold promise as clean transport fuels and industrial energy, their economic viability, combustion energy efficiency, and safety in storage and transport remain challenges. Nuclear energy, despite its advantages of cleanliness, explosive power, and high energy density, currently has controllable nuclear fusion technology only existing in laboratories, leaving its commercial application unclear. Solid-state batteries, which have surpassed liquid batteries in energy density and safety, still primarily belong to the “semi-solid” category, with pressure reduction issues and standardization challenges yet to be resolved.

In terms of negative carbon technologies, Carbon Capture, Utilization and Storage (CCUS) technologies have been around for some time, including traditional point-source carbon capture and the newly emerging direct air capture technologies. While traditional methods have limited application scenarios, emerging technologies have significantly broadened their use, yet actual capture rates remain suboptimal, with high development costs hindering downstream market adoption. In summary, energy decarbonization technologies urgently require breakthroughs, involving innovation iterations on existing foundations and pilot research and development in cutting-edge fields. Given the global lag in decarbonization efforts and the lengthy cycles of technological innovation, the urgency for energy decarbonization technology innovation cannot be overstated.

Why is technological finance essential for energy decarbonization? Innovative decarbonization technologies rely on financial support for their development, but current investment conditions are unsatisfactory. According to a Bloomberg New Energy report, total global financing for energy transitions is projected to exceed $20 trillion by 2024, with 93% of funds directed towards more mature technologies and markets such as renewable energy, grid construction, and electric vehicles. Only 7% of financing is allocated to emerging fields like hydrogen energy, nuclear power, carbon capture, utilization, and storage (CCUS), and clean transport fuels. Hence, there is an urgent need to expand funding sources for decarbonization technology innovation, making the establishment of a dedicated technological finance support system particularly important for at least three reasons.

The first reason pertains to the targeted nature of technological finance, focusing on specific areas of technological innovation, with energy decarbonization being one of them. It is important to note the distinction between technological finance and green finance. Under the carbon neutrality goals, green finance aims to coordinate the overall green transformation, building a resource allocation system that spans industries and cycles to provide systematic financial support for decarbonization strategies, guiding society towards low-carbon transitions and achieving climate goals. In contrast, the core mission of technological finance is to integrate multi-level capital markets through a comprehensive financial network to support technology innovation enterprises related to major national strategic developments, thereby promoting the construction of new productive forces and a technology-driven nation. In other words, while green finance is more focused on overall development, technological finance emphasizes specific field advancements, highlighting their clear differences.

The second reason is that energy decarbonization technology innovation requires the involvement of technological finance to address financing challenges that traditional financial systems struggle to resolve. Notably, energy decarbonization technologies are characterized by high investment, long cycles, and high risks, often requiring over a decade from laboratory development to commercial application, with success probabilities difficult to predict. Traditional equity investments favor predictable, high-yield, and quick-return projects, which do not align well with financing needs for energy decarbonization technologies. Technological finance holds promise in mitigating these challenges, as its risk dispersion mechanisms and value discovery functions can inject multidimensional funding into energy decarbonization technology investments.

The third reason relates to the shared strategic significance between energy technology innovation and technological finance. Energy technology is closely tied to national strategies concerning energy supply, security, and independence. Developing green energy technologies can advance energy decarbonization and implement energy strategies, underscoring their importance. As a cornerstone of the financial sector, technological finance carries the mission of building a technology-driven nation by investing more financial resources and opening up more green channels to assist technology enterprises. In other words, energy technology constitutes a crucial part of energy strategy, necessitating the integration of various resources, including social and financial aspects, alongside the establishment of a corresponding technological finance system for support.

How can technological finance support energy decarbonization? Based on national technological finance guiding documents and existing market practices, this article outlines how technological finance can support energy decarbonization, summarizing it into three points: building investor tiers, expanding capital market levels, and flexibly utilizing financial tools. Each point is elaborated below.

Firstly, technological finance can introduce diverse and patient capital early on to innovative enterprises in the energy decarbonization sector, constructing differentiated energy technology investment tiers. Notably, technological finance can leverage government-guided funds to attract social capital, encouraging industrial investments to increase their involvement in mergers and strategic investments. Additionally, it can create a sustainable investment ecosystem for market-oriented capital such as venture capital, private equity, and angel investment, incentivizing participation through tangible returns and fostering a technology incubation ecosystem. Examples of this practice can be seen in the fields of green methanol, hydrogen fuel cells, and nuclear fusion, with relevant innovative enterprises including Lanzh Energy Technology, New Source Power (Hebei), and Fusion New Energy (Anhui). Lanzh Energy Technology focuses on green methanol and sustainable aviation fuels, aiming to overcome challenges in hydrogen-derived technologies. Its A-round financing was led by the National Green Development Fund and Shanghai Lianhe Investment, with participation from venture capital funds such as Zhongke Chuangxing and Guokai Chuangtou, exemplifying a case of government-guided funds leveraging social capital participation.

New Source Power (Hebei) is a hydrogen fuel cell and hydrogen energy developer that has received investments from industrial capitals such as Tenglong Co., SAIC Group, and Nandu Power Supply, along with support from the Handan Wuan government fund, showcasing a case of strategic industrial capital layout and government funding endorsement. Fusion New Energy (Anhui) is focused on the commercialization of nuclear fusion energy and has secured angel funding from Waneng Power, NIO, and Hefei Industrial Investment Group, illustrating a cross-sector collaboration between the new energy vehicle industry and nuclear fusion technology.

Moreover, Zhongke Chuangxing and Tongchuang Weiye have participated in numerous early financing cases for energy decarbonization technology development, indicating that market-oriented capital has begun to engage in innovative energy technologies.

Secondly, technological finance can coordinate multi-tier capital markets for innovative enterprises in the energy decarbonization field, helping to resolve challenges related to financing and exit difficulties. Multi-tier capital markets encompass primary markets, secondary markets, various securities exchanges, and functional markets for different trading varieties. Technological finance can assist innovative enterprises in building early investment tiers for energy decarbonization technologies, activating primary equity markets, and offering pathways for listing through the segmentation of secondary markets for innovative and unprofitable firms. Furthermore, the bond market and asset securitization products can provide refinancing channels for technology enterprises, allowing early equity investors to exit through the enterprises’ public offerings or supplementary channels such as secondary funds. Currently, while China’s secondary securities market has exhibited a multi-tiered structure, support for energy technologies requires expansion. According to the latest statistics from Wind, there are 66 listed companies categorized under “strategic emerging industries – new energy,” but analysis reveals they primarily stem from more mature subfields. Approximately 40% are from the smart grid sector, around 47% from solar and wind energy industries, about 9% from biomass and other new energy sectors, with only one from the nuclear power sector and none from the hydrogen energy industry. This indicates that emerging domestic fields are just beginning, with relevant enterprises still not meeting listing standards, necessitating broader acceptance in the secondary capital market.

Thirdly, technological finance can flexibly apply various financial tools to expand financing scenarios for innovative enterprises in the energy decarbonization sector through diverse combinations. The financing tools employed include not only general equity and debt types but also compound forms such as “technology loans + insurance guarantees” and “innovation bonds + equity investments,” alongside emerging options like technology loans, innovation-specific bonds, and intellectual property-backed loans, catering to the varying needs of different enterprises. Numerous practical cases exist in this area, primarily utilizing straightforward financial tools. One illustrative case involves the acquisition of Wuxi Huaguang Environmental Energy Group Co., Ltd. (“Huaguang Huaneng”) of China United Wuxi New Energy Development Co., Ltd. (“China United Wuxi”) in the photovoltaic sector. Originally in the boiler equipment manufacturing industry, Huaguang Huaneng aimed to transition into the clean energy sector, initially acquiring 58.25% of China United Wuxi’s equity using its own funds.

Subsequently, Huaguang Huaneng issued 200 million yuan in innovation mid-term notes, with 180 million yuan allocated to replace its self-funding in the innovation sector. The reallocated funds are now utilized for research and development and operational management of photovoltaic power stations. From the perspective of compound financial tools, this case exemplifies a “innovation bond + equity investment” linkage model: the innovative enterprise China United Wuxi receives strategic equity investment while the established company Huaguang Huaneng capitalizes on a second growth curve opportunity. The cash acquisition protects shareholders from profit dilution, while the innovation bonds alleviate financial pressures and enhance capital allocation efficiency, thereby ensuring the subsequent integration of photovoltaic technology solutions.

Challenges and Countermeasures: Improving the Institutional Support for Technological Finance Although technological finance can drive innovation in energy decarbonization technologies, it currently faces several challenges, the three most prominent being: the first challenge concerns the lack of clear financial standards for green technologies, leading to resource occupation by “greenwashing” and “pseudo-technology” projects, hindering authentic technological financing. The second challenge relates to the inadequacy of risk-sharing mechanisms in technological finance, with high early investment “failure rates” dampening social capital participation. The third challenge pertains to the shortage of interdisciplinary talent, with few professionals possessing both energy technology and financial knowledge, reducing the likelihood of precise project identification and efficient development.

To address these three challenges, technological finance must establish corresponding support systems. Firstly, green technology finance should create certification standards for green technology and enhance post-investment management and impact measurement. When disruptive technologies break through technical directories, technological finance must allow for error tolerance, particularly providing opportunities for trial and error. Secondly, technological finance should refine risk compensation mechanisms by establishing a national-level “technology transformation risk reserve” to provide a certain proportion of compensation for early investment losses. Meanwhile, government-guided funds must assume a leading role, increasing financial investments to mitigate risks in energy decarbonization technology investments. Thirdly, the technological finance system should strengthen the cultivation of interdisciplinary talent in “energy + finance” through initiatives such as introducing courses in universities, hosting advanced forums, and organizing public competitions to offer interdisciplinary learning opportunities, fostering thoughtful engagement and encouraging interaction.

In conclusion, energy decarbonization technology innovation lies at the intersection of green finance and technological finance, embodying both carbon neutrality goals and the dual strategy of becoming a technology-driven nation. Policy designers must break free from traditional financial thinking, while market entities should establish investment logic that aligns with the dynamics of technological innovation. When financial capital is adequate to catalyze and drive technological advancement, a chain reaction of “technological breakthroughs – industry growth – ecological optimization” will emerge in the energy decarbonization sector, propelling the achievement of carbon neutrality goals.