What can CCS learn from solar financing? #7

Happy Monday!

This week, renewables leave coal in the dust, we compare solar and CCS financing, and share some exciting bike, battery, and farm yield investments.

Thanks for reading!

Not a subscriber yet?

US renewables production will eclipse coal for first time ever

This isn’t an energy newsletter, but the rhythm of the energy industry often moves the climate conversation. For the first time ever in the US, renewables are on track to beat out coal in electricity production this year.

That’s despite coal making up over half of our annual energy production less than a decade ago, and despite Trump’s recent 3-year crusade to prop up the sector. This is a story of continuous innovation in renewables at the same time that coal has been dying by a thousand cuts. Now, the coronavirus pandemic is potentially delivering the final lethal blow.

What does this mean?

• As COVID slashes electricity demand, utilities are responding by cutting back on coal power since coal plants are the most expensive to operate.
• Meanwhile, prices for natural gas and renewables are at all time lows. The former as a result of the fracking boom and a warmer winter (less need for heating then, more natural gas around now), and the latter as a result of the incredible accelerated learning curve associated with renewables manufacturing and production. Since 2010, the cost of building wind farms has declined more than 40% and solar more than 80%.

Why does this matter?

• Solar prices have plunged further and faster than any credible organization (ie. IEA, BNEF) had forecasted a decade ago. Clean energy investor Ramez Naam has thoughtfully modeled out solar’s price decline based on Wright’s Law. Also known as the “learning curve,” cost reduction is directly driven by our accelerated rate of learning around technology production. Ramez found that solar prices declined smoothly as total solar deployed doubled. In other words, it gets (a lot) cheaper the more we deploy.

What is likely to happen?

• Expect to see more coal plants shut down, for good. The pandemic is speeding up utilities’ plans to retire coal plants, and no utility is currently planning to build a new coal facility. Case in point, in April, Longview Power, which operates a fresh and fancy coal power plant, filed for Chapter 11 bankruptcy protection, citing the pandemic as a factor.
• Having aced the test to decrease cost of production, renewables’ next challenges are second order consequences - like storage. As we wrote last week, Great River Energy, a utility in Minnesota, announced the closure of its Coal Creek Station in favor of wind energy enabled by Form Energy’s long-duration energy storage batteries.
• Perversely, rock-bottom fossil fuel prices matched with healthy renewables production might eliminate the need for a carbon tax altogether. Everything is so damn cheap, that a carbon tax wouldn’t significantly move the needle on decision making that’s already tracking green. Smart investors are already thinking ahead; Matt Eggers from Breakthrough Energy Ventures prompted a Twitter storm by asking “What crazy stuff will you do when you have power for $0.01/kWh?”

Deals of the Week (5/11-5/17)

Span’s smart electric panel streamlines adoption of solar and storage (TechCrunch).

🚗 IRP Systems, an Israel-based leading provider of innovative electric powertrain products for e-mobility, raised $17m in Series B funding from Chinese VC Fosun RZ Capital among others including Champion Motors (Israeli distributor of Volkswagen Group). The company provides products like controllers, motors, and battery management systems for the electric vehicle market. More here.

🚲 VanMoof, an Amsterdam-based e-bike startup raised $13.5m from London VC Balderton Capital and SINBON Electronics. The funding will be used for international expansion as cities gradually emerging from lockdown discourage public transport in favor of safer (and greener!) options such as cycling and walking (see the news section for more on the UK’s £2bn travel alternatives package). TechCrunch has more here.

🚗 Wallbox, a Barcelona-based smart EV charging startup closed a $13m second tranche of Series A funding in early March from Seaya Ventures, Endeavor Catalyst, and Iberdrola (Spanish electric utility). The company designs smart charging systems which enable real-time charging control through its smartphone app and the ability to transfer energy from your car to your home or electric grid. More here.

⚡ Span, San Francisco-based maker of smart electrical panels, raised $10.2m in funding from ArcTern Ventures, Capricorn Investment Group, Incite Ventures, Congruent Ventures, and other existing ventures. Span’s panel replaces the standard electrical panel, enabling digital monitoring, control, and automation of home energy through a smartphone interface. TechCrunch has more here.

🌾 The Yield, a Sydney-based IoT agricultural technology startup, raised $7m in funding from Yamaha Motor Ventures and Bosch Group. The IoT platform ingests variables such as rain, light, and soil moisture to better predict crop yield as farmers face a risky future with climate change and more unpredictable weather events. More here.

🌱 Ecoinno, a Hong Kong-based company developing sustainable alternatives to single-use plastics, raised $6m in Series A funding from Alibaba. The funding will be used to scale the company’s production of its Green Composite Material™, which is based on 100% natural plant fibres. More here.

🌾 Intello Labs, an India-based software startup that uses computer vision and AI to grade food quality, raised $5.9m in Series A funding from Saama Capital, Omnivore, and Nexus Venture Partners. Food quality assessment tools like Intello Labs’ can bring efficiency to the food supply chain and reduce food waste. LiveMint has more here.

🌾 Andes, an Emeryville, CA.-based regenerative agriculture startup raised $3m in Seed funding from KdT Ventures and Fondo Alerce Venture Capital. The company harnesses the power of microbes to develop novel seeds that rely less on synthetic nitrogen and outperform traditional crop yields.

📏 Transect, a San Antonio, Tx.-based company focused on environmental risk for energy, infrastructure, and real estate companies, raised $1.5m in Seed funding from Blue Bear Capital, Holt Ventures, and Gary Horn.

Feature: What can CCS learn from solar financing?

Despite much effort and funding poured into innovative solar technologies over the past two decades, financing mechanisms have been critical to driving down the cost of deployment as much if not more than the technology innovations did themselves.

As carbon capture and sequestration (CCS) technologies mature, the production of carbon offsets will require similar creativity in the arrangement and deployment of capital.

Key renewables financing takeaways:

• Varied investment structures incentive varying returns: To stimulate investment in renewable energy generation projects, the federal government developed a series of support structures to reduce taxes for investors - namely, the investment tax credit, the production tax credit, and accelerated depreciation.
• Advanced financial structures work because they allocate risk and reward: The nature of these tax incentives often requires an outside investor and a complex financial arrangement to allocate risk and reward among multiple parties.
• Access to debt is key: Financial structures that include project debt generally yield a lower cost of energy compared to those that rely purely on equity capital. Realistically, raising project debt is tricky, especially for newer, smaller developers.

What’s similar about the carbon offset and solar markets?

Both require outsized complex technologies, scale, and sale of commoditized end products (e.g. electricity, carbon offsets) for which there are myriad cost complexities. Both struggle with deployment, and both reduce the cost of technology on a predictable curve. However, to date, there has been less innovation on how to price the return of carbon offsets partially due to a lack of financial innovation.

What needs to be true for CCS technologies to scale?

• Carbon offset markets need to mature: Today, the market is small ($300m voluntary market), shallow in terms of projects and participants, and pricing lacks transparency and stability.
• Carbon offset products need to peg to an inelastic need (or regulation): Stable, significant commitments to purchase large volumes of carbon offsets at a set price over a concrete timeframe will allow project developers to raise debt capital. Unlike electricity, carbon offsets remain a privilege and not a need - were companies allowed to operate only if they reduce carbon (or drive it negative) it would create a futures market for longterm sequestration.
• Carbon sequestration requires more players: Lots of legacy investors, with varied ESG stripes, enabled the financial innovation required to de-risk and drop the cost curve of solar. Currently, the players financing CCS are limited to deeptech venture capitalists and strategic corporate players; the field lacks the institutional or governmental support to deliver an asset mix at scale

In the News

• Reuters: With oil prices around $20 per barrel, France is looking at proposing a carbon price floor in order to capture the true environmental cost of fossil energy and boost investment in new low-carbon power generation capacity.
• CNN: The pandemic is driving Americans, businesses and government officials to encourage the use of single-use plastics. With global plastics production quadrupling over the past four decades, plastics manufacturing will make up 15% of greenhouse gas emissions by 2050.
• UK Government: With social distancing, the UK recognized that public transportation capacity will be decreased by 90%. As a result, the government announced a £2b package to put cycling and walking as the central focus of their transport policy.
• Bloomberg: Building off last week’s feature on oil & gas majors’ net-zero commitments, Bloomberg debunks majors’ plans by peeling back varying definitions, timeframes, and basecases to reveal that none of the commitments comply with the Paris climate agreement. BloombergNEF also finds that low-carbon investments by oil majors have declined amid oil price shock, with clean energy deals in Q1’20 down 82% yoy.
• World Bank: A new report finds that the production of minerals such as graphite, lithium, and cobalt could increase by ~500% driven by the growing demand for clean energy technologies. However, even at scale, the carbon footprint of clean energy production will only account for 6% of the GHG emissions from fossil fuel technologies.
• WSJ (paywall): Robert Litterman, former Goldman Quant, now focuses on building climate risk models for the government. In March, he testified to Congress that based on his models, the failure to act quickly on climate change could result in a “tragic and potentially catastrophic mistake”. He argues for a carbon tax to incentive climate-friendly behavior and investment in carbon-free technologies.
• Decarbon8: Interested in investing in climate tech? Seattle-based E8, an angel investor network backing clean-tech companies, has launched Decarbon8-US, a philanthropic fund investing in startups developing innovative solutions to climate change (and it’s open to everyone to donate!).

Pop-up

Snapshots of the Kuri app which calculates the carbon footprint of your personalized, seasonal recipes.

Kuri: Download a new app to help you cook more sustainably, personalized to the seasons near you. Kuri is the first cooking app to calculate the carbon footprint of its recipes. Kuri curates recipes based on your dietary preferences and will soon offer low-carbon personalized meal plans.

Venture Capital Needs A Complete Reset: Read a call to action for the VC industry to step up to a higher purpose, which Gabe Kleinman of Obvious Ventures argues will, in turn, drive higher value. It’s a hat tip to the decarbonized economy, plant-based food, and all things climate tech.

Entrepreneurs Creating Success in Cleantech: Join Women in Cleantech & Sustainability and The Cleantech Open this Thursday at 5pm PT for networking with two female entrepreneurs (Exergy, ChargerHelp) at different stages of their journeys into starting cleantech companies.

Power Trip: Watch the PBS series on how energy "is the underlying force behind water, food, wealth, transportation, cities, and war," based on the book of the same name published last year by Michael Webber.

Air Miners: Laugh and learn at the 5 minute (literal) rap up of the Air Miners conference.

Jobs

We’ve teamed up with Climate.Careers to highlight the latest jobs in Climate Tech:

• Systems Engineer, Senior Mobile Engineer @Span.io
• Full Stack Developer @Climate Interactive
• Program Manager @Nio
• Principal @Lowercarbon Capital
• Software Engineer @Aclima
• Account Executive, Software Engineer @Planet
• Head of Product @Terrafuse
• Remote Product Designer @Pachama

Feel free to send us new ideas, recent fundings, or general curiosities. Have a great week ahead!