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BFD Expert Voices - Climate Deals

BFD Expert Voices

Data: S&P Global Commodity Insights.; Chart: Axios Visuals

Renewable energy projects such as solar and wind have drawn the bulk of climate tech investment dollars across the U.S. and abroad since President Biden signed the Inflation Reduction Act, according to data from S&P Global.

Zoom in: Renewables is the least risky of the areas for climate tech investing. And the check sizes for these assets tend to be large, especially in offshore wind, Alan writes.

Of note: The lines between where the U.S. and the rest of the world are spending on climate tech run parallel. 

The IRA's 45X tax credit, for example, introduced an incentive for advanced manufacturing in the U.S., fueling a new race between countries rushing to build solar, wind and battery components within their borders.

"The provision will pay OEMs to make things for the first time since WWII," Overture VC managing partner Shomik Dutta tells Alan, referring to the tax credit's impact on manufacturers like automakers.

What we're watching: There's been a steady drumbeat of funding announcements related to hydrogen development. We'll see whether and how that sector accelerates. 

1 big thing: Where clean energy dollars are going

Occidental agreed to acquire direct air capture startup Carbon Engineering for $1.1 billion, in a deal announced late yesterday, Katie reports. 

Why it's the BFD: The move is a major validation for the direct air capture industry and shows how oil companies see value in removing and capturing carbon dioxide. 

Details: Occidental said that the cash payments deal would be delivered in three equivalent annual amounts. The transaction is supposed to close before the end of  2023.

Upon closing, Carbon Engineering, based in British Columbia, will be a wholly owned subsidiary of Occidental's investing  subsidiary — Oxy Low Carbon Ventures.

2. The BFD: Oxy is buying Carbon Engineering

Illustration of a cardboard box full of carbon molecule with more falling from above. 

The Inflation Reduction Act is playing a crucial role in moving forward the deployment of advanced modular nuclear reactors, according to conversations with executives from the sector, Katie reports.

Why it matters: Energy companies are searching for more clean sources of electricity that provide power around the clock, but new large nuclear plants have largely stalled in the U.S.

Details: The IRA has enabled nuclear to be able to take advantage of both the production and investment tax credits that have been a boon to solar and wind, and the 30% investment tax credit (ITC) is the most important one for the advanced reactor segment.

Companies building small modular reactors, or SMRs, say that their customers, who are entering into contracts to buy electricity or steam from their reactors, are using the ITC to justify the expense in an emerging technology.

"The ITC is a key driver for making that economic choice to buy from a first-of-its-kind reactor," says Ben Reinke, VP of global business development for X-energy, which is working with Dow to deploy its first reactors.

"The cost estimate for projects would be drastically higher not considering those [IRA] levels of support," says Brett Rampal, director of nuclear and power strategy for energy think tank Veriten.

State of play: SMRs can require less upfront capital, can be deployed more quickly, and can offer new applications, but the tech is not yet commercial in the U.S.

Companies developing SMRs include startups like X-energy, Oklo, TerraPower and NuScale Power, but also traditional nuclear players like Westinghouse.

In a first, the U.S. Nuclear Regulatory Commission certified NuScale Power's small modular reactor design earlier this year.

Zoom in: The production and investment tax credits aren't the only tools available for moving advanced nuclear tech forward in the U.S.

The IRA also includes $700 million to invest in the development of a domestic supply chain for the nuclear fuel that many of the SMR companies are using: high-assay low-enriched uranium, commonly referred to as HALEU.

3. The IRA is supercharging advanced nuclear

illustration of an atom surrounded by shapes and legal symbols

There's one area where the IRA has already unleashed a wave of investment: new factory construction.

Why it matters: Private investment to build new factories in the U.S. is up 55% from last year — mostly driven by legislation, per a Moody's report yesterday. 

What's happening: The IRA and two other bills have stoked a surge in manufacturing investment, especially for EVs, computers, electronics, and semiconductors. 

Catch up fast: Those other bills are the Infrastructure Investment and Jobs Act, also known as the bipartisan infrastructure law, and the CHIPS and Science Act, aimed at bolstering computer chip manufacturing.

Of note: Factories take years to plan. Many of these investments were already in the works.

Russia's invasion of Ukraine also spurred companies to reshape their supply chains. 

Yes, but: "Our analysis of trends in the utilities, auto and oil and gas sectors suggest that the IRA is already factoring into companies' investment decisions," Moody's writes.

What's next: Further manufacturing spending in 2024 and 2025, especially as federal agencies finally implement IRA incentive programs.

"Many companies have likely been in a holding pattern this year, awaiting clarity from various federal agencies to issue detailed implementing rules before committing to large investments," the report notes.

4. The IRA's factory boom 

Illustration of a roll of green sheet steel resembling a roll of cash hanging from a crane 

The incentives in the IRA may dent U.S. emissions — but much more will be needed, Alan writes.

What's happening: As we wrote earlier this month, the IRA's strong support for carbon capture is expected to drive investment in cheap natural gas.

Natural gas's cleaner alternative, hydrogen, will take time to deploy due to its high upfront cost and reliance on new infrastructure like pipelines.

Bottom line: The "pace of transition," Moody's wrote in a note yesterday, "hinges on private sector uptake and execution."

5. Gauging the IRA's impact on decarbonization

👀 Treasury's IRA roadmap: The agency overseeing the rollout of IRA tax credits expects to complete the first "phase" of IRA implementation "in the coming weeks," per a memo shared exclusively with Axios Pro Energy Policy. 

Investors and developers have been waiting — and waiting — for such guidance. Among the pieces that reporter Jael Holzman expects to see: new prevailing wage requirements that tie worker pay to IRA tax credits.

The Treasury Department plans to then unveil its Phase Two plans in September. If that sounds just a bit like Marvel you're not alone.

🏛️  The IRA upends old alliances: The climate bill has ushered in a new era of climate politics that prioritizes development and speed — and permitting, Nick Sobczyk writes in Axios Pro Energy Policy.

The dynamic has fractured alliances in the environmental movement and  colored a policy conversation on Capitol Hill that is focused on cutting  down environmental requirements to meet climate goals.

The challenge: How to balance the speed needed to decarbonize with the impacts that new mines, battery factories, RNG plants and other projects will impose on communities.

🚚 Seed round for electric truck charging: ElectroTempo, a D.C.-area startup that's developed software to help vehicle fleets navigate EV charging networks, raised a $4 million seed round led by Buoyant Ventures, Andrew Freedman reports this morning in Generate.

🔥 Nikola's latest facepalm: The electric truck maker recalled all 209 battery-electric trucks it's delivered or built, after acknowledging that fires it had attributed to foul play were sparked by a mechanical issue.

6. Temperature check

Illustration of a pattern of repeating thermometers with different temperature levels.

• Assembly Ventures, a Detroit-based firm focused on the mobility sector, closed its first fund at $76m, with a focus on seed stage through Series B. https://axios.link/3QGd924

• Rondo Energy, an Alameda, Calif.-based energy storage developer for industrial heat and power, raised $60m from Breakthrough Energy Ventures, Energy Impact Partners, SCG, Titan, Microsoft's Climate Innovation Fund, Rio Tinto, SABIC, Aramco Ventures, SDCL Energy Efficiency Income Trust and John Doerr. https://axios.link/3slPMRe

• Mitra Future Technologies, a Mountain View, Calif.-based supplier of iron-based cathode materials for batteries, raised $40m in the first close of a planned $60m Series B led by GM. https://axios.link/3P0aP4I

• Sapphire Technologies, a Cerritos, Calif.-based startup that harnesses wasted energy in gas streams, has raised a $10m Series B round led by Energy Capital Ventures and including Marathon Petroleum, Chevron Technology Ventures, Equinor Ventures and Cooper and Company. https://axios.link/3KGDMAl

• Robomart, a Santa Monica, Calif.-based maker of electric self-driving stores raised $2m in seed funding from W Ventures, Wasabi Ventures, SOSV, HAX and Hustle Fund. https://axios.link/45sGJwn

• American Electric Power, the Columbus, Ohio-based utility, sold its ~1.4 GW portfolio of unregulated renewables to IRG Acquisition Holdings, a partnership owned by Invenergy, CDPQ and funds managed by Blackstone Infrastructure, at an enterprise value of $1.5b including project debt. https://axios.link/3QAuauK

• Blank-check company Pono Capital Three announced a SPAC merger with Robinson Aircraft, a Canadian company doing business as eVTOL developer Horizon Aircraft, in a deal valuing Horizon at $96m. https://axios.link/458L0oN

7. Hot deals

VinFast's CFO had this to say to Katie yesterday, after the company listed on the Nasdaq via a SPAC:

"The IRA provides a signifiant benefit and validates our decision to build our North Carolina facility," said CFO David Mansfield. "From a U.S. industrial perspective, the IRA is re-shoring U.S. manufacturing jobs." 

8. Quote of the day: VinFast’s IRA connection

VinFast Global CEO Le Thi Thu Thuy in 2022. Photo: Denise Truscello/Getty Images for VinFast

🐪 Welcome to Wednesday! Today marks one year since President Biden signed the Inflation Reduction Act, the biggest climate law in U.S. history.

The IRA put hundreds of billions of dollars on the table to decarbonize the U.S. economy. Today's newsletter looks at the impact it's had on climate tech investment, where the money is flowing, and where things go from here. 

🎆 Katie feels like climate-tech land is starting to get real busy with September events approaching and deal flow ramping up. See ya later, summer!

🦸 After slogging through "Infinity War" and "End Game," Alan fired up "Spider-Man: Homecoming" earlier this week. Much more fun. Two thumbs up.

Thank you to Michael Flaherty and Phoebe Neidl for today's edits.

And thank you for reading Climate Deals! No matter whether you say "I.R.A." or "Ira," please share with your friends, family and climate colleagues.

August 16, 2023

1 big thing: Where clean energy dollars are going