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BFD Expert Voices - Climate Deals

BFD Expert Voices

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.

1 big thing: All aboard the climate "gold rush"

Illustration of an upward trending arrow with the Earth teetering on the edge. 

Ivanhoé Cambridge, a Canadian real estate company, completed a pilot project with Turntide Technologies to test new heating and cooling technology in commercial real estate spaces, Megan reports.

Why it's the BFD: So much of commercial real estate's emissions footprint comes via aging and inefficient HVAC systems that even a small improvement in the machine's efficiency can substantially impact emissions. 

Details: Turntide replaced existing HVAC motors with its proprietary smart motor hardware in two Ivanhoé Cambridge commercial retail locations.

Turntide claims the retrofit yielded a 35% energy savings in each location, or roughly 56,000 kWh of energy annually.

Ivanhoé Cambridge senior director of sustainability Rob Simpson declined to share the pilot's cost, but indicated the investment would break even in fewer than five years.

The intrigue: Ivanhoé Cambridge was the anchor LP in Fifth Wall's first climate fund, and Turntide Technologies was the first investment out of that fund, Fifth Wall's Greg Smithies tells Megan.

The fund's thesis is partly built around Ivanhoé's own net-zero strategy, hence the investment in Turntide and subsequent pilot.

Though Fifth Wall has used a similar playbook in its other funds, this was the first instance of matchmaking out of its climate fund.

Previously, Fifth Wall portfolio company Opendoor partnered with homebuilder Lennar for a trade-in program for homeowners.

Between the lines: Turntide has access to the rest of Fifth Wall's LP base, which comprises more than 100 commercial real estate groups.

Quick take: Commercial real estate is a tough sell for startups. If Fifth Wall continues to grease the wheels of that process, it could substantially reshape the trillion-dollar industry with climate tech at the forefront.

2. The BFD: Real estate group taps HVAC startup

Illustration of a bar chart made of air conditioning units.

Back to the Inflation Reduction Act: A big upside is the longer-term predictability it provides climate tech investors, Alan writes. 

The investment tax credit and production tax credit for solar and wind, for example, will transition to a 10-year technology-neutral credit. 

"The long-term extension of the tax credits provides a type of reliable market that will drive much more private investment," David Kirkpatrick, co-founder and managing director of SJF Ventures, tells Alan.

Yes, but: A surge in investment could make existing supply chain constraints worse, Janice Tran, co-founder of Kanin Energy, tells Alan. 

The bill also requires EV manufacturers, for example, to source materials from domestic suppliers in order to qualify for certain tax credits. That's a boon to U.S. manufacturing, but one that might also drive up costs, at least in the short term. 

"This will exacerbate the already stressed supply chain the renewables industry is currently seeing," Tran says. 

What we're watching: Factories take time to build — and will still depend on raw materials from abroad, at least for the medium term. 

3. Long-term certainty, short-term disruptions

Illustration of an arrow pointing forward patterned with the Earth's surface 

Utility Global, a Texas-based industrial hydrogen startup, raised $25 million in Series B funding and appointed Claus Nussgruber as CEO, the company exclusively tells Megan.

Why it matters: The financing highlights the promise of hydrogen production within the industrial sector of climate technology. 

Details: Existing investor Ara Partners led the round and is gaining two board seats as part of the deal. Samsung Ventures, NOVA by Saint-Gobain and Aramco also joined the round as strategic investors.

Cory Steffek, a partner at Ara Partners, tells Megan there is a venture debt facility as part of the round that is expected to close in the coming weeks.

Steffek says Utility Global is preparing to ramp up commercial production. 

How it works: Utility Global produces hydrogen using waste gases from industrial processes like steel production and petrochemical refining.

It builds a wholly owned and operated facility on-site at a plant and uses waste gas as feedstock in an oxidation process called eXERO, which it says doesn't use electricity.

The company is currently running a pilot in a small-scale facility in Houston, but has signed additional customers at larger scales for trials, Nussgruber tells Megan.

Of note: Nussgruber says that the company is also open to exploring the carbon markets as an additional revenue stream.

It can manage credits on customers' behalf or purchase existing credits for its projects, he says.

4. Hydrogen startup Utility Global nets $25M

Illustration of hydrogen molecules surrounded by dollar elements and abstract shapes

📉 SoftBank doesn't mind this IRA news cycle: The investment giant, whose Vision Fund is the world's biggest tech investment fund, reported $23.4b in losses in Q2, per The Information.

The Vision Fund alone saw a loss of $17.2b amid a downturn in tech stocks, inflation and the broader market slowdown.

🔋 Who's going to pay for EV charging? Everyone, and that's not because of the IRA. Governments, utilities, and companies such as automakers and gas stations are racing to figure out how to deploy EV chargers — and how to make money from them, our What's Next colleague Joann Muller reports.

"There's a battle emerging between utilities and gas stations, convenience stores and other private businesses also trying to get into the vehicle-charging game. Stores and gas stations offering EV charging may wind up competing with the very same utilities they're paying for the power flowing into customers' cars."

🌾 Solar-plus-farming: The hot new thing in agriculture? "Agrivoltaics," wherein the same land is used for both growing crops and collecting solar energy, per What's Next.

"A symbiotic 'cooling' relationship occurs when growing crops ... under solar panels," reads a U.S. Department of Agriculture info sheet.  "Shade reduces air temperature and the amount of water evaporating from soils. The plants in turn give off water vapor that helps to naturally cool the [solar] panels from below, which can increase panel efficiency."

😵‍💫 Dispatch from travel hell: Our editor, Mike Flaherty, was set to fly to Denver with his family for a long-overdue vacation. After a 90-minute delay at the gate, then four hours on the runway, United Airlines canceled the flight — and the next available wasn't until two days later.

Air travel is still a mess. Although apparently not for luggage — the family's bags made it to Denver. 

5. 🌡️ Temperature check

Illustration of three emojis: a thermometer, a hot face, and a cold face.

• Bridge Investment Group Holdings (NYSE: BRDG), a real estate manager, is launching Bridge Ventures, which it says will focus on investments in the proptech sector. https://axios.link/3p0c9XE 

• Project Solar, an e-commerce provider for solar installations, closed a $23m Series A led by Left Lane Capital. https://axios.link/3P77ttC 

• Grey Rock Investment, a Dallas-based private equity firm, has agreed to make a controlling investment of up to $100m in Conduit Power, an electric infrastructure builder and operator. https://axios.link/3BLphHF 

• One Equity Partners, a middle market private equity firm, has entered into a definitive agreement to sell the Brush Group’s power generation business to Baker Hughes (Nasdaq: BKR). https://axios.link/3BPvB18 

• Cenntro Electric Group (Nasdaq: CENN), a New Jersey-based EV technology company, launched a wholly owned U.S. subsidiary, Cennatic Power, to manufacture lithium-ion batteries for the company’s commercial EVs. https://axios.link/3BXr2l4 

• Haitai Solar, a solar module and technology supplier, completed its IPO and began trading on the Beijing Stock Exchange today under the stock code 835985. https://axios.link/3JANanr. 

• Vida Carbon, an investor in carbon credit projects, has entered into a sales agreement with Shell Energy North America, with the first delivery of carbon credits expected in late 2023. https://axios.link/3P8bcHl 

• Advent Technologies Holdings, a fuel cell company, signed an MOU with DEPA Commercial S.A., a Greek natural gas supplier, to collaborate on hydrogen projects. https://axios.link/3A75Wjc

6. Hot deals

• Avangrid, a Connecticut-based sustainable energy company, appointed María Fátima Báñez García and Camille Joseph Varlack to its board of directors. It also appointed Donna S. Watson to the Avangrid Networks board of directors, the company's subsidiary that owns and operates eight electric and natural gas utilities. https://axios.link/3A0TCRl

• Generate Capital has promoted Peggy Flannery and Pietro Lomazzi to the roles of managing director, investment. The firm also hired Greg Richards as managing director, credit, and Alex Raskin as managing director, investments. https://axios.link/3d8K9hT 

• Tiger Infrastructure Partners has appointed Steve Holliday, former National Grid CEO; Christine Weydig, former director of sustainability at the Port Authority of NY & NJ; and Graham Sharp, former founder of energy trader Trafigura, as operating partners. https://axios.link/3bJVYKZ 

• Virginia Energy Resources, a uranium development and exploration company, has appointed Joseph Mullin as president. Mullin was previously CEO and director of QuestEx Gold & Copper. https://axios.link/3zIBme6 

• Bridge Investment Group Holdings has hired Jeremy Ford as chief investment officer for Bridge Ventures. Ford was previously head of property strategy for Reef Technology. https://axios.link/3p0c9XE 

• Essential Utilities has promoted Dave Kralle to chief of staff to chairman and CEO Christopher Franklin. https://axios.link/3p2ayAF 

• Li-Cycle Holdings (NYSE: LICY), a lithium-ion battery resource recovery and recycling company, appointed Aware Mobility co-founder Jacqueline Dedo as an independent director on the board of directors. https://axios.link/3JBtoYI 

• Fermata Energy has hired Loretta Prencipe as communications director. She previously led Prencipe Communications. 

7. It's personnel

🚨 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.

🦅 A young prairie falcon has moved into Megan's neighborhood and has made a habit of stopping by the yard around sunset.

🏠 Alan and the 1-year-old spent last week with his in-laws, while Terry isolated in the apartment due to COVID. She's recovered, and everyone's back at their respective homes.  

🤝 Cox Enterprises is buying Axios for $525 million, CEO Jim VandeHei emailed staffers this morning. More from Sara Fischer.

Thanks for reading Climate Deals! Please share with your friends, family and commercial real estate landlords.

August 08, 2022

1 big thing: All aboard the climate "gold rush"