TheChek News Flow

As search engine incumbents — namely Google — amp up their platforms with GenAI tech, startups are looking to reinvent AI-powered search from the ground up. It might seem like a Sisyphean task, going up against competitors with billions upon billions of users. But this new breed of search upstarts believes it can carve out a niche, however small, by delivering a superior experience.

One among the cohort, Perplexity AI, this morning announced that it raised $73.6 million in a funding round led by IVP with additional investments from NEA, Databricks Ventures, former Twitter VP Elad Gil, Shopify CEO Tobi Lutke, ex-GitHub CEO Nat Friedman and Vercel founder Guillermo Rauch. Other participants in the round included Nvidia and — notably — Jeff Bezos.

Sources familiar with the matter tell TechCrunch that the round values Perplexity at $520 million post-money. That’s chump change in the realm of GenAI startups. But, considering that Perplexity’s only been around since August 2022, it’s a nonetheless impressive climb.

Perplexity was founded by Aravind Srinivas, Denis Yarats, Johnny Ho and Andy Konwinski — engineers with backgrounds in AI, distributed systems, search engines and databases. Srinivas, Perplexity’s CEO, previously worked at OpenAI, where he researched language and GenAI models along the lines of Stable Diffusion and DALL-E 3.

Unlike traditional search engines, Perplexity offers a chatbot-like interface that allows users to ask questions in natural language (e.g. “Do we burn calories while sleeping?,” “What’s the least visited country?,” and so on). The platform’s AI responds with a summary containing source citations (mostly websites and articles), at which point users can ask follow-up questions to dive deeper into a particular subject.

“With Perplexity, users can get instant … answers to any question with full sources and citations included,” Srinivas said. “Perplexity is for anyone and everyone who uses technology to search for information.”

Underpinning the Perplexity platform is an array of GenAI models developed in-house and by third parties. Subscribers to Perplexity’s Pro plan ($20 per month) can switch models — Google’s Gemini, Mistra 7Bl, Anthropic’s Claude 2.1 and OpenAI’s GPT-4 are in the rotation presently — and unlock features like image generation; unlimited use of Perplexity’s Copilot, which considers personal preferences during searches; and file uploads, which allows users to upload documents including images and have models analyze the docs to formulate answers about them (e.g. “Summarize pages 2 and 4”).

If the experience sounds comparable to Google’s Bard, Microsoft’s Copilot and ChatGPT, you’re not wrong. Even Perplexity’s chat-forward UI is reminiscent of today’s most popular GenAI tools.

Beyond the obvious competitors, the search engine startup You.com offers similar AI-powered summarizing and source-citing tools, powered optionally by GPT-4.

Srinivas makes the case that Perplexity offers more robust search filtering and discovery options than most, for example letting users limit searches to academic papers or browse trending search topics submitted by other users on the platform. I’m not convinced that they’re so differentiated that they couldn’t be replicated — or haven’t already been replicated for that matter. But Perplexity has ambitions beyond search. It’s beginning to serve its own GenAI models, which leverage Perplexity’s search index and the public web for ostensibly improved performance, through an API available to Pro customers.

This reporter is skeptical about the longevity of GenAI search tools for a number of reasons, not least of which AI models are costly to run. At one point, OpenAI was spending approximately $700,000 per day to keep up with the demand for ChatGPT. Microsoft is reportedly losing an average of $20 per user per month on its AI code generator, meanwhile.

Sources familiar with the matter tell TechCrunch Perplexity’s annual recurring revenue is between $5 million and $10 million at the moment. That seems fairly healthy… until you factor in the millions of dollars it often costs to train GenAI models like Perplexity’s own.

Concerns around misuse and misinformation inevitably crop up around GenAI search tools like Perplexity, as well — as they well should. AI isn’t the best summarizer after all, sometimes missing key details, misconstruing and exaggerating language or otherwise inventing facts very authoritatively. And it’s prone to spewing bias and toxicity — as Perplexity’s own models recently demonstrated.

Yet another potential speed bump on Perplexity’s road to success is copyright. GenAI models “learn” from examples to craft essays, code, emails, articles and more, and many vendors — including Perplexity, presumably — scrape the web for millions to billions of these examples to add to their training datasets. Vendors argue fair use doctrine provides a blanket protection for their web-scraping practices, but artists, authors and other copyright holders disagree — and have filed lawsuits seeking compensation.

As a tangentially related aside, while an increasing number of GenAI vendors offer policies protecting customers from IP claims against them, Perplexity does not. According to the company’s terms of service, customers agree to “hold harmless” Perplexity from claims, damages and liabilities arising from the use of its services — meaning Perplexity’s off the hook where it concerns legal fees.

Some plaintiffs, like The New York Times, have argued GenAI search experiences siphon off publishers’ content, readers and ad revenue through anticompetitive means. “Anticompetitive” or no, the tech is certainly impacting traffic. A model from The Atlantic found that if a search engine like Google were to integrate AI into search, it’d answer a user’s query 75% of the time without requiring a click-through to its website. (Some vendors, such as OpenAI, have inked deals with certain news publishers, but most — including Perplexity — haven’t.)

Srinivas pitches this as a feature — not a bug.

“[With Perplexity, there’s] no need to click on different links, compare answers or endlessly dig for information,” he said. “The era of sifting through SEO spam, sponsored links and multiple sources will be replaced by a more efficient model of knowledge acquisition and sharing, propelling society into a new era of accelerated learning and research.”

The many uncertainties around Perplexity’s business model — and GenAI and consumer search at large — don’t appear to be deterring its investors. To date, the startup, which claims to have 10 million active monthly users, has raised over $100 million — much is which is being put toward expanding its 39-person team and building new product functionality, Srinivas says.

“Perplexity is intensely building a product capable of bringing the power of AI to billions,” Cack Wilhelm, a general partner at IVP, added via email. “Aravind possesses the unique ability to uphold a grand, long-term vision while shipping product relentlessly, requirements to tackle a problem as important and fundamental as search.”

The Florence-based luxury retailer has acquired the company of its CEO Tommaso Maria Andorlini, establishing the new LuisaViaRoma Group.

MILAN — LuisaViaRoma said Thursday it has acquired Holding IT, the firm helmed by Tommaso Maria Andorlini, who was appointed chief executive officer of the Florentine luxury retailer in July.

Holding IT is the parent company of FFW Srl, which has created and managed e-commerce sites for fashion brands since 2011, and Playground Srl, which operates luxury sportswear stores under the banner SOTF.

As a result of the deal, financial details of which were not disclosed, the new LuisaViaRoma Group has been established with the goal to consolidate and further favor synergies between all parties and offer an improved and heightened shopping experience to meet customers’ new demands.

Andorlini said the acquisition “represents a strategic opportunity to combine our strengths and create a new point of reference in the digital and physical retail sector.”

“I am extremely proud of what we managed to create with LuisaViaRoma, and even more excited about this new collaboration that will carry forward our plans for growth,” said LuisaViaRoma’s president Andrea Panconesi, whose grandmother Luisa Jaquin planted the seeds of the family company’s success by opening a small concept store on Florence’s Via Roma in 1929.

Gross merchandise volume of the LuisaViaRoma Group totaled almost 400 million euros in 2023, with the company expecting to reach the 450 million euro threshold in 2024.

As reported, in 2022 LuisaViaRoma’s sales totaled around 250 million euros, of which more than 90 percent were generated online. Last year Panconesi projected revenues to exceed 300 million euros in 2023.

The retailer’s acceleration has been boosted by a strong performance in its domestic market — where sales increased 40 percent in the past two years — and by its ever-increasing work in brand scouting and overall enhancement of its offering, now encompassing more than 500 luxury brands with highly curated selections.

The SOTF business will add to this performance in the brick-and-mortar and online channels. The first result of the deal will be the opening of a new SOTF store in Via De’ Tosinghi in Florence during Pitti Uomo next week. Covering 3,230 square feet over two floors, the unit is dominated by gray tones and steel elements and will showcase collections by both up-and-coming and established brands, as well as artistic installations. A cocktail event will be staged on Jan. 10 to celebrate the opening.

An acronym of “Store of the Future,” the SOTF banner was launched in September 2016, when the first sneaker shop opened in the city’s Via de Tornabuoni. Two years later a store in the Tuscan city of Prato was added, while in 2020 a SOTF outpost was opened in the luxury resort destination Forte dei Marmi. Now the retailer offers apparel and accessories collections from sportswear giants such as Nike, Adidas Originals and New Balance — including items in limited edition — as well as luxury players such as Jil Sander, Golden Goose, Acne, Coperni and Mihara Yasuhiro, among others.

Andorlini’s know-how in the sportswear area and sneakers category, in addition to his two decades of experience in the fashion industry, were key assets contributing to his appointment as LuisaViaRoma CEO last year. In the role he succeeded Alessandra Rossi, who joined the company in October 2021 following the closing of the deal with Milan-based private equity firm Style Capital. As reported, the fund, helmed by CEO Roberta Benaglia, invested 130 million euros to acquire a 40 percent stake in LuisaViaRoma.

Panconesi, who retains a 60 percent stake in the company, masterminded the retailer’s digital foray in the early 2000s with the pioneering launch of its e-commerce platform. Ever since, this has been enhanced with new sections, including the introduction of LVRSustainable in 2019. This is dedicated to environmentally sustainable brands and tie-ups with nonprofit organizations and has proven to be a strategic asset in attracting and engaging with new consumers.

In 2022, LuisaViaRoma also made its foray into the resale sector by partnering with Vestiaire Collective on a project enabling its clients to sell their previously worn fashions in exchange for credits to be spent on new goods on the e-commerce site.

Still, Panconesi has always highlighted the importance of physical retail and IRL events for the company’s success. To this end, in addition to its location in Florence, the retailer is to open its first international outpost in New York in spring 2024. As reported, LuisaViaRoma inked a long-term lease for a 7,855-square-foot retail space at 1 Bond St. in Manhattan’s NoHo.

The retailer is additionally known for its lavish events. Most recently it staged the “Runway Icons” fashion extravaganza in partnership with British Vogue in front of more than 1,500 guests during Pitti Uomo last June. The open-air multibrand fashion show featured a performance by Andrea Bocelli; a long VIP guest list led by Leonardo DiCaprio, and designs from emerging and established labels worn by models encompassing Natalia Vodianova, Irina Shayk, Mariacarla Boscono and Pat Cleveland, to name a few.

The Hollywood-like production echoed the buzzy gala soirées LuisaViaRoma is known to host with UNICEF in Capri and St. Barths, which over the years have drawn celebrity guests such as Jamie Foxx, Jared Leto and Spike Lee, as well as live performances from the likes of Jennifer Lopez, Drake, Lenny Kravitz and Dua Lipa.

Moscow in recent weeks has also begun receiving ballistic missiles from North Korea

Russia is planning to buy short-range ballistic missiles from Iran, a step that would enhance Moscow’s ability to target Ukraine’s infrastructure at a critical moment in the conflict, U.S. officials said.

Moscow’s plans have provoked deep concern within the Biden administration and come as support wanes in Congress for continued U.S. military assistance for Ukraine. Lawmakers have yet to pass a bill that would provide additional funding for Ukraine.

“The United States is concerned that Russian negotiations to acquire close-range ballistic missiles from Iran are actively advancing,” one of the U.S. officials said. “We assess that Russia intends to purchase missile systems from Iran.”

Delivery of the Iranian missiles could happen as soon as this spring if the purchase proceeds, but U.S. officials don’t believe the deal has been completed.

The Iranian missiles would add to Moscow’s recent acquisitions, which include ballistic-missile launchers and several dozen ballistic missiles from North Korea, the officials said.

On Thursday, National Security Council spokesman John Kirby said that Russian forces fired at least one of the missiles into Ukraine last week and that it had landed in an empty field.

Several days earlier, Russia had launched multiple North Korean ballistic missiles, which have a range of about 550 miles, and the U.S. was still assessing those attacks, Kirby said.

“We expect Russia and North Korea to learn from these launches,” Kirby said. Pyongyang was seeking fighter planes, surface to air missiles, armored vehicles, ballistic missile technology and other military technology in return for providing missiles to Russia, he added.

U.S. officials said that Moscow’s desire to acquire Iranian missiles was evident in mid-December when a Russia delegation visited an Iranian training area to observe ballistic missiles and related equipment displayed by Iran’s Islamic Revolutionary Guard Corps Aerospace Force, including its short-range Ababil missile.

That visit, which hasn’t previously been disclosed and marks a further step toward acquiring Iranian missiles, followed a September trip by Russian Defense Minister Sergei Shoigu to the headquarters of the IRGC Aerospace Force in Tehran. During that visit, Shoigu observed a display of the Ababil and other missile systems, U.S. officials said. He also met Maj. Gen. Mohammad Bagheri, the chief of staff of Iran’s armed forces, and boasted that Russian-Iranian relations were reaching a new level.

Engulfed in a grinding war of attrition and facing international sanctions, Russia has also turned to North Korea to supplement its efforts to produce arms at home. Russian President Vladimir Putin and North Korean leader Kim Jong Un held a summit at a spaceport in Russia’s far east in September and pledged greater cooperation on economic and security issues.

In the past several weeks, North Korea has begun to ship a range of weaponry to Russia, including, for the first time, short-range ballistic missiles to eastern Russia, according to several officials familiar with the transaction. The weaponry includes previously reported stocks of artillery, officials said.

Military analysts say that Moscow’s acquisition of the Iranian and North Korean missiles could provide an important boost for Russia as it is stepping up its attacks and trying to overwhelm Ukraine’s antimissile defenses.

“The strikes that Russia has executed in recent days demonstrate the importance to the Russians of having a large supply of ballistic missiles,” said Frederick Kagan, director of the Critical Threats Project at the American Enterprise Institute, a Washington think tank.

Russia has been looking for ways to overcome Ukrainian air defenses by increasing the number of missiles launched, and adjusting the types of weapons it is using, according to Kagan. “Having enough ballistic missiles in their arsenal is a very important part of that,” he added.

Russia has already acquired a large number of drones from Iran to attack Ukraine. Moscow and Tehran have also been building a new factory in Russia that could make thousands of drones for the conflict, U.S. officials have said.

Russia’s outreach to Iran and North Korea represents a shift from its posture in past years when it cooperated with the U.S. and other Western powers in trying to limit the two nations’ capabilities.

The U.S. fears that Russia’s growing cooperation with Tehran will not only help Moscow’s war effort in Ukraine but also strengthen Iran’s military capabilities in the Middle East and potentially provide revenue to bolster its economy, which has been battered by Western sanctions. In November, U.S. officials said that Russia has been helping Tehran develop its satellite collection capabilities and has also been offering “unprecedented defense cooperation” on missiles, military electronics and air defense.

A U.N. Security Council resolution adopted soon after the 2015 Iran nuclear deal banned Tehran from exporting or importing some types of missiles and drones, as well as military technology that can be used to produce and operate missiles, without the approval of the council.

But that restriction formally expired in October, raising concerns among some Western officials that Tehran may now seek to turn to military sales to Russia and other nations.

With the expiration of the U.N. ban, the U.S. imposed sanctions intended to discourage Iran’s missile trade and issued a statement with 47 other nations vowing to block Iran’s sale of ballistic missiles and related technology. But Russia’s Foreign Ministry has said the U.N. restrictions on buying missile technology from Iran or providing it to Tehran no longer need to be followed.

Before its full-scale invasion of Ukraine, Russia was a more cooperative partner with Washington. It joined the U.S., European nations and China in negotiating the 2015 nuclear deal with Tehran. It also supported tough sanctions in the U.N. Security Council on North Korea through 2017 in response to Pyongyang’s nuclear and ballistic missile activities.

“Russia was basically supportive of getting North Korea to accept all kinds of restrictions,” said Robert Einhorn, a former senior State Department official, referring to the bygone era of cooperation.

Moscow’s latest actions reflect a shift in its strategic orientation, according to Einhorn. “Its foreign policy is largely based on undermining U.S. interests,” he said.

Novo Nordisk signs deals worth up to $1bn with US biotechs in race for obesity drugs

Danish manufacturer Wegovy invests in two start-ups as part of efforts to stay ahead in major new market

Novo Nordisk has signed deals worth up to $1bn with US biotech start-ups developing treatments for obesity and other cardiometabolic diseases, as the Wegovy manufacturer seeks to stay ahead in a major new market.

The Danish drugmaker is investing in two biotech companies founded by Flagship Pioneering, the Massachusetts-based life sciences incubator that founded Covid-19 vaccine manufacturer Moderna.

Each of the two will receive up to $532mn upfront and if certain milestones are hit. Novo Nordisk will also pay royalties on developed products and have the right to advance potential treatments through clinical trials.

The popularity of Novo Nordisk’s diabetes treatment Ozempic and weight-loss drug Wegovy has made it Europe’s most valuable company and placed it at the forefront of a new market. Barclays forecasts that sales of Wegovy will reach $7.3bn this year, while Ozempic sales are expected to be worth $16.5bn in 2024.

The deals come as investor interest in weight-loss drugs grows and pharma groups seek new treatments.

Novo Nordisk’s competitors want to win a share of the market for diabetes and weight-loss drugs, which is forecast by Canadian investment bank BMO to grow to as much as $130bn to $140bn in annual sales.

Both Novo Nordisk and the world’s largest drugmaker Eli Lilly committed to spend up to $3.5bn on companies developing obesity medication in 2023, according to figures from data provider Dealogic.

Last month, Swiss pharmaceutical company Roche agreed an up to $3.1bn takeover of obesity drug developer Carmot Therapeutics.

Under the latest deals, Novo Nordisk will reimburse research and development costs for Omega Therapeutics, a developer of messenger RNA treatments, which is trying to develop weight-loss drugs that work by altering genetic code to increase metabolic activity in a targeted way, rather than by restricting the appetite, a traditional focus of many weight-loss treatments.

Eli Lilly is also researching how to tackle obesity by speeding up metabolic activity, spending up to $494mn on a US start-up that studies how a US squirrel species called the thirteen-lined ground squirrel gains and loses weight during hibernation.

Novo Nordisk is also backing Cellarity, which is using artificial intelligence to develop treatments for MASH, a chronic liver disease that increases the risk of developing type-2 diabetes and cardiovascular disease and is estimated to affect up to 6.5 per cent of US adults.

The deals are the first signed under a collaboration between Novo Nordisk and Flagship Pioneering in May 2022.

“We look forward to advancing these research programmes with Omega and Cellarity . . . as we explore bold new treatment strategies with the potential to make a significant impact for people living with obesity or MASH,” said Marcus Schindler, executive vice-president and chief scientific officer of Novo Nordisk.

“By bringing these innovative platforms together with Novo Nordisk’s deep expertise in cardiometabolic disease we have incredible potential to make a bigger leap forward for patients,” said Paul Biondi, executive partner of Flagship Pioneering.

Company will use the proceeds to pay off outstanding shareholder loans

Amer Sports, owner of brands including Salomon, Wilson and Arc’teryx, has filed for an initial public offering on the New York Stock Exchange, as the Chinese-owned company looks to raise money to reduce its debts.

Amer was founded in Finland in 1950 and bought in 2019, in a deal that valued it at $5.6bn, by a consortium led by Anta Sports of China, which makes sportswear under its own brand and has the Chinese rights for Italian brand Fila. Video game maker Tencent and Lululemon founder Chip Wilson were also part of the acquiring group.

To finance that deal, Anta’s consortium took out a €1.3bn loan that expires in March, underscoring the importance of a successful listing. Thursday’s filing gave no financial details of the proposed equity issue, but people familiar with the matter have previously said the goal was to raise more than $1bn at a valuation of $10bn.

Amer said in its filing that it intended to use the proceeds of any transaction to pay off outstanding shareholder loans.

Its revenues in the first nine months of 2023 were up 30 per cent to $3.1bn, although losses in the period widened from $104mn to $114mn. The company generates about 15 per cent of its sales in Greater China, with the bulk coming from the US and Europe. The filing also shows that at the end of 2022, the company had net debt of $5.8bn.

Companies raised $123bn globally last year on the IPO market, according to accountancy EY, down from $184bn in 2022 and $460bn in 2021. The number of new listings also fell to 1,298 from 1,415 a year earlier and a 2021 peak of 2,436.

Analysts at EY have blamed high inflation, rising interest rates and the poor market performance of those that did list for the muted investor demand for IPOs. However, the prospect of interest rate cuts “could encourage investors by offering a more reliable return on investment in IPOs, which should boost activity”, they said.

Several companies have filed paperwork for IPOs in the past few weeks, including UK commodities broker Marex and casual dining chain Panera.

Anta Sports is based in the southern Chinese province of Fujian and has become one of the country’s top sports brand. Last year it overtook Adidas as the second-bigger sportswear retailer in China by sales, with revenue of $7.8bn.

However, the industry outlook is under increased scrutiny since Nike announced $2bn of cost cuts last month, sending its stock down more than 10 per cent. Nike also warned that demand in China and Europe was weakening.

Amer has appointed Goldman Sachs, Bank of America, JPMorgan and Morgan Stanley as bookrunners for the IPO.

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Big-name managers post double-digit returns as costs of talent war weigh on some smaller players

Big-name managers such as Citadel and Millennium outpaced rivals in the world’s hottest hedge fund strategy last year, illustrating how an arms race for talent and technology is taking a toll on smaller players in the sector.

Ken Griffin’s Citadel gained 15.3 per cent in its flagship Wellington fund in 2023, according to people familiar with the numbers. It told clients in December that it planned to return $7bn in profits to investors and said it would start 2024 with $58bn in assets.

Izzy Englander’s New York-based Millennium, which runs $61.4bn, gained 10 per cent last year, while Steve Cohen’s Point72 Asset Management, which has $31.4bn in assets, was up 10.6 per cent, investors said.

The three firms are among the oldest and best-resourced players in the fast-growing multi-manager sector. All three groups declined to comment.

The gains came as money managers had to contend with a regional banking crisis in the US and a large sell-off in the bond market for much of last year as global interest rates moved higher. The S&P 500 index rose 24.2 per cent in 2023 in comparison.

Citadel’s and Millennium’s gains were lower than in 2022, when Citadel’s main fund gained 38.1 per cent and the firm made a record $16bn in profits, establishing it as the most successful hedge fund manager of all time. Millennium was up 12 per cent while the S&P 500 fell 19.4 per cent.

Multi-manager hedge funds typically allocate capital across tens or hundreds of trading teams that operate a variety of different strategies, and are overseen by a centralised risk management system designed to help prevent big losses. They seek to make money regardless of overall market performance and have been popular with investors in recent years due to their strong risk-adjusted returns.

Rather than the traditional “2 and 20” fees — where managers charge a 2 per cent management fee and 20 per cent of gains — multi-manager platforms are distinctive for their pass-through expenses model.

Instead of an annual management fee, the manager passes all costs to its end investors, covering costs such as office rents, technology and data, salaries, bonuses and client entertainment. These costs should, in theory, be offset by the resulting performance improvements.

But performance last year by some of the smaller players illustrates how some firms are struggling to deliver as spending on technology and talent has eaten into returns.

Schonfeld Strategic Advisors’ main fund gained 3 per cent last year, according to investors, while Dmitry Balyasny’s hedge fund Balyasny Asset Management ended the year up 2.7 per cent in its Atlas Enhanced fund, according to people familiar with the firms. Balyasny runs $21bn in assets and Schonfeld has $10bn.

The pair were among the main beneficiaries of billions of dollars of inflows in recent years when investors clamoured to get into multi-manager hedge funds and the likes of Citadel and Millennium were closed to new money. Fuelled by the pass-through model, Balyasny and Schonfeld hired aggressively, increasing their cost base.

However, with rate rises having lifted the risk-free return available to investors, funds are facing greater pressure to perform. Within the multi-manager sector, investors anticipate that some players with disappointing numbers could be forced to lay off traders, cut costs or potentially team up.

The Financial Times reported in October that Schonfeld was in partnership talks with Millennium that would have seen Englander’s hedge fund put billions of dollars to work with its smaller rival.

But the plan fell through after investors said they would give Schonfeld another $3bn, shoring up its position. The firm said in November that it would cut 15 per cent of its workforce in a cost-cutting drive.

Among other multi-manager funds, Eisler Capital, which has $4bn in assets, gained 9.8 per cent last year, according to a person familiar with the matter. Another newer entrant to the multi-manager space, ExodusPoint, was up 7.3 per cent, according to people who had seen the numbers.

Bloomberg first reported Citadel’s and Millennium’s performance.

Companies respond to higher energy prices by cutting back domestic production

Germany’s greenhouse gas emissions dropped by about a fifth last year to their lowest level since the 1950s, although the reduction mostly came from stagnant industrial output in Europe’s largest economy rather than improved energy efficiency.

The country emitted 673mn tonnes of carbon dioxide equivalent in 2023 — or 21 per cent less than the previous year, according to Berlin-based think-tank Agora Energiewende’s annual review of Germany’s energy transition.

Roughly half of this drop, which Agora said reflected a “sharp” decline in coal-fired power generation, could be attributed to a slowdown in German industrial activity. Only 15 per cent stemmed from technology improvements such as greater use of renewable energy.

German industry, which makes up a fifth of the country’s overall output, almost double that of the US, France and the UK, was badly hit by the outbreak of war in Ukraine, which stymied flows of cheap Russian gas.

While Germany has been among the developed countries leading the charge in cutting emissions, the latest decline comes as many of its companies struggling with the energy crisis are slashing their short-term investments or preparing to shift production abroad.

The world’s biggest chemical group, BASF, for example, has announced permanent cost cuts at its Ludwigshafen headquarters because of high energy prices.

German vice-chancellor Robert Habeck welcomed the figures published by Agora, noting that in 2023 more than half of the country’s electricity supply had been generated from renewable sources.

But he acknowledged that much of the decrease in fossil fuel use was due to slowing industrial production — an issue of mounting concern for Berlin.

“A distinction must be made when it comes to the decline in emissions in industry . . . the Russian war of aggression and the [energy] price crisis are leading to declines in production. My goal as economics minister is that Germany remains a strong industrial location and becomes climate-neutral,” he said. 

Speaking at a press conference in Berlin on Tuesday, the president of Germany’s industrial lobby, the Federation of German Industries, said the government was failing to understand how “critical” the situation facing manufacturing businesses in the country was.

As a result of rising energy costs, industry in Germany could not hope to be both green and internationally competitive without far greater government support, said Siegfried Russwurm.

“We are no longer talking about short-term economic dips that will correct themselves, but rather about structural problems in Germany as a location,” he added. “Concrete measures that actually improve the situation of companies in global competition are unfortunately still missing.”

Agora said that, while preliminary figures showed German economic output dropped 0.3 per cent in 2023, the equivalent figure for energy-intensive production in industries such as chemicals and steel was 11 per cent.

“If emissions are simply relocated abroad, nothing will be gained for the climate,” warned Simon Müller, director of Agora Energiewende’s branch in Germany. Industry needed a more stable framework to invest in climate-friendly technologies such as green steel and the switch from gas to electricity when generating heat for industrial processes, he added.

Berlin was in November thrown into a budget crisis after a court struck down a €60bn climate fund designed to modernise Germany’s industry and speed up the transition to green energy, deeming it to be in breach of the country’s strict rules on government borrowing.

Müller said the court ruling had made financing for climate protection measures more difficult, adding that Germany still needed an “investment offensive” to achieve long-term goals to reduce the use of fossil fuels, including the rollout of hydrogen pipelines and improvement of electricity grids.

The think-tank added that emissions from construction and transport industries remained largely unchanged in 2023, following several years of failure to reach reduction targets. The lack of emission reductions in the two sectors meant Germany was expected to miss EU-wide goals as set out under the so-called Effort Sharing Regulation, Agora said.

Nonetheless, the 21 per cent drop in emissions last year followed the sharp decline in coal-fired power generation including from highly polluting lignite.

At the same time, almost half of electricity imports came from renewable sources, mainly hydro and wind, and another quarter from nuclear, with a 5 per cent increase in domestic renewable energy thanks to record solar and wind production, taking the share of total renewable energy to more than 50 per cent for the first time.

Contract terminations make for bad headlines but signal a more rational approach in the sector

Offshore wind developers like strong gusts. The inflationary blasts that led to impairments totalling nearly $5bn last year from companies including Ørsted, Equinor and BP were, however, a little too much for everyone.

The bad news didn’t stop there. Equinor and BP this week cancelled a contract to sell energy from one of their projects planned off the New York coast to the local state. Even so, 2023 should mark the nadir of the industry’s woes.

Contract terminations make for bad headlines. They are proof, though, that most developers do now appear to be acting rationally. Before Russia’s invasion of Ukraine, competition in the sector intensified to the extent that it was questionable how players would make money from certain schemes, particularly in Europe.

More than 3GW worth of US offshore wind projects cancelled their offtake agreements last year, reckons BloombergNEF. Deals were typically struck before the Ukraine war, or not long after. Higher financing costs and a spike in the price of everything from cables to turbines later rendered them uneconomic. That was particularly the case where authorities were slow to grant permits.

In 2022, Equinor and BP had agreed to sell renewable energy credits from their 1.26GW Empire Wind 2 project in New York at $107.50 per megawatt-hour. The state’s utilities regulator last year rejected a bid to raise this to $177.84/MWh.

US states and European governments are waking up to the sector’s woes. Keen to press ahead with renewable energy targets, the New York State Energy Research and Development Authority has fast-tracked a process through which developers can try to negotiate higher prices. The UK has agreed to raise the maximum price offshore wind farm developers can secure in a contract auction this year by 66 per cent to £73/MWh (in 2012 prices).

Admittedly, 2024 will not be completely devoid of turbulence. Ørsted, which has specific issues, has yet to convince investors that it can avoid an equity raise. Siemens Energy also faces a battle to turn around its embattled turbine-making business.

For the sector as a whole, though, improving auction terms should mean the prevailing wind will not be quite so chilly.