August 08, 2022
🚨 Oh, was there news this weekend? We've got the rundown on how the Inflation Reduction Act will affect climate-tech investment.
Situational awareness: Clean energy stocks are up on the news of the act's Senate passage. Sunrun is up nearly 9% while EV maker Tesla is up 4% since open.
1 big thing: All aboard the climate "gold rush"
The most important climate bill in U.S. history promises to triple clean-power generation and turbocharge the energy transition.
Why it matters: A significant amount of money is about to be allocated to a range of companies and projects in the clean-energy sector.
What they're saying: "While VCs have often said they prefer businesses that don't rely on government subsidies, the scale of this package is stunning. It will absolutely bring tailwinds to many venture-backed climate tech businesses," Jon Guerster, a partner at Activate Capital, tells Alan.
The big picture: The bill would lift virtually all parts of the sector. It promises to make expensive new technologies less costly; accelerate deployment of mature tech such as EVs and solar and wind; and bring new capital to areas still too risky for most VCs.
The big winners: Funders and founders shared with Alan the sectors they believe stand to gain the most in what one insider called a new "gold rush":
- Hardware: Stand-alone energy storage, as well as microgrids, bio-gas projects and combined-heat-and-power would be eligible for credits under the bill. The bill also boosts hydrogen and carbon capture, plus domestic manufacturers of renewable energy components.
- Project developers: Clean-power projects often depend on tax equity investment. The climate bill cuts those transaction costs by enabling a project's tax credits to be transferred to other taxpayers even if they don't own the project — simplifying credit monetization and opening a broader pool of capital.
- Non-taxable investors: Utility co-ops, schools and nonprofits can now elect to use "direct pay" for their clean-power projects, allowing them to receive direct cash from the IRS instead of (more indirect) tax credits.
- Growth-stage investors: "Growth-stage companies get the real lift, maybe more so than startups, as these businesses are already in motion with customer rollouts, as opposed to technologies still in a lab," Guerster, of Activate Capital, says. (Worth noting: Activate is a growth-stage investment firm.)
- Plus: The EV sector, namely by eliminating the cap on the number of credits that automakers could receive.
The bottom line: “This, by far, is one of the largest investments we’ve seen to advance our clean-energy transition,” Anthony Oni, a managing partner at Energy Impact Partners and CEO of the Elevate Future Fund, tells Alan.