Private-sector funding in space-related companies has increased tenfold over the last decade, topping $10 billion in 2021. The exponential growth in privately funded and operationalized space activities is redefining the boundaries of a sector that was once the purview of States. This growing and transforming field of potential investments affects our private equity clients, providing both a multitude of opportunities—and, of course, attendant risks.
To provide an overview of the issues sponsors and investors need to consider, Catherine Amirfar, Co-Chair of Debevoise's International Dispute Resolution and Public International Law Groups, moderated a panel discussion on the “New Space Race: Risks and Opportunities” during Paris Arbitration Week in March 2022. The panel, which featured David Bertolotti (Eutelsat), Julien Cantegreil (SpaceAble), Chris Kunstadter (AXA XL), and Lynn Zoenen (Alpine Space Ventures), explored a series of topics, including private capital opportunities, key investment risk factors, the role of insurance and data in mitigating risks, and the potential for disputes. A recording of the session is available here; key takeaways include the following:
Technological advances are helping to lower launch costs, drive broader access to space, and create investment opportunities in a range of sectors. Launch costs have fallen dramatically in recent years—from €30,000/kilo ten years ago to under €2,000/kilo today—and are expected to drop below €1,000/kilo by 2030. This trend is expected to continue, given the enhanced serial production of space technology, the production of reusable materials and lightweight systems, and the proliferation of launch service providers (“LSPs”).
At the same time that space-based activity has become more economically viable for private actors, technological developments are creating increasingly compelling business opportunities:
- Earth observation from space can enhance mapping, track weather, improve agriculture, mitigate natural disasters, support sustainable development, and document human rights violations. In addition, space-borne data can be used to amplify other data from other sources—such as drone imagery, internet of things sensors, and social media—to produce actionable commercial insights for pilots, fund managers, and infrastructure managers and other front-line decision-makers.
- Internet connectivity outside of urban areas also offers significant investment potential. In addition to residential uses, extending connectivity also creates opportunities for the energy, forestry, and shipping industries operating in remote areas.
- Long-term commercial activity in space is fueling a market for tools providing better situational awareness in space. As low Earth orbit becomes increasingly crowded, private actors need access to a precise and comprehensive pool of data of the orbit of space objects in order to calculate and mitigate collision risk.
- Space mining—the excavation of materials and minerals from asteroids and near-Earth objects—is also an area of rapidly growing interest. This market is expected to reach $3 billion by 2026, suggesting the potential for massive returns, but requiring significant upfront investment.
Activities in space are regulated by both national and international laws. This legal framework is still evolving, however, with gaps at the international level leading to overlapping standards, or an absence of regulation altogether, at the national level. Consider that current international treaties envisage three basic principles for space exploration: (1) non-appropriation (space is “the province of all mankind”); (2) peaceful use (no weapons of mass destruction in orbit or on celestial bodies); and (3) state liability (states bear liability for national activity in space). These principles, however, were established decades before the current rise of private commercial activity in space and are largely geared towards the competition between national space agencies that dominated early space exploration. Their aspirational approach does not address the day-to-day questions faced by private space actors like satellite operators or LSPs. International law standards that take into account enhanced activities in space are in development, but the negotiation of new treaties is a slow process.
In the meantime, national authorities must regulate space activities launched from within their territories. New laws can account for new types of space activities, but different legal systems provide different rules, which can lead to an uneven patchwork of regulations. In the absence of binding and cohesive legal rules that take into account the growth of private-actor activity, practical questions are therefore often left to industry-specific norms.
Space is increasingly crowded. The European Space Agency states that there are currently more than 8,200 satellites in orbit, of which only 5,400 are still functioning; there may be as many as 100,000 satellites in orbit by 2030.
In addition, space debris now accounts for more than 30,000 catalogued objects. Increased military activity in space compounds this problem, as was recently demonstrated when Russian anti-satellite missile tests in November 2021 created a vast debris field, endangering not just satellites and other space objects but the safety of the crew of the International Space Station.
The increasing risk of collisions in space is therefore a pressing issue, as every collision creates more debris and a greater risk of new collisions. Although some national space laws (like those of France) require actors to register and insure space objects, others do not.
This problem has led some insurers to exit the space market. The vast majority of satellites in congested low Earth orbit are now not insured. Investors will therefore need to mitigate collision risk in other ways, such as through technological solutions like propulsion mechanisms.
Disputes in the space sector have so far been largely constrained to activities on Earth, such as disputes between manufacturers and operators, the interpretation of contracts, or disputes with States regarding allocation of the radio-frequency spectrum in space.
As space continues to become more crowded, however, disputes arising from events occurring in space seem inevitable. In this new environment, resolving questions of liability and damages is particularly challenging, given the fragmented regulatory framework and the inherent difficulties of establishing the facts surrounding an event taking place in low Earth orbit or beyond. To address this problem, there is an increasing focus on identifying and recording with greater precision the location and velocity of debris and other objects in orbit.
Private actors are also paying increased attention to the security risks that arise from military activity in space. In addition, many space objects and technologies can increasingly be used for both peaceful and military purposes, creating a dilemma for private operators. Satellites and ground components are also vulnerable to cyberattacks and jamming. In February 2022, as Russia commenced its invasion of Ukraine, hackers disabled thousands of satellite modems, disrupting internet access in Ukraine and across Europe. Cyberdefense protocols and technological protections will therefore be increasingly relevant.
Private space activity is a rapidly growing field with enormous investment potential in a strategic sector traditionally dominated by national space agencies. Until the regulatory framework catches up to the pace of commercial activity, investors will be looking to mitigate risks through a combination of technological solutions, industry-driven protocols, and careful management of the evolving legal risks.
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