Clubhouse with Canary: Cleantech investing in 2021

There’s a new generation of cleantech investors leveraging more capital, more entrepreneurs and more risk than ever before.
By Eric Wesoff

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I’m a Clubhouse curmudgeon, but I actually enjoyed yesterday’s panel covering cleantech investing in these dangerous times. Maybe it was the engaging speakers or perhaps the midday start time, but I managed to learn something from these mission-driven investors.

Canary moderators Stephanie Primavera and Julian Spector were joined by panelists Simran Suri, an investor at Equal Ventures; Jessica Robbins, VP of structured finance and tax equity at Generate Capital; Katie Rae, CEO and managing partner at The Engine; and Joshua Posamentier, GP at Congruent Ventures.

Let’s jump in. Here are some choice nuggets from yesterday’s panelists.

New investments, exciting sectors 

Deep geothermal, DERs, carbon capture

Katie Rae: We look at the entire stack of things that could reverse climate change, so we look at energy generation, and one of the areas that we’re super excited about is deep geothermal, because, besides fusion, it is the only other thing that you could essentially attach to the current grid, almost anywhere in the world — in fact, below current cities. It seems like science fiction, right? Drilling to the center of the earth? But it’s not. It’s a super exciting clean power generation area that we’re looking at and investing in.

And then there’s the complete opposite side of that, which is…decarbonization of everything, whether it is carbon capture or looking at every single industry and how you would remove carbon from current processes. That’s a deep area of interest of mine, because I think it’s unsexy but could reap huge impact rewards and very good economic rewards as well. 

Simran Suri: One sector that is top of mind for us is thinking about how to better optimize and manage all of the [distributed energy resources] that are going to be installed in real time. I think the big catalyst that we have taken notice of is just the massive amount of data that’s going to be flowing through all of the different systems of all the stakeholders in the energy value chain.

Jessica Robbins: One, obviously, is carbon capture and storage, which is made economic from the 45Q credit and new [regulations] around that. For better or worse, tax credits are kind of a fact of life; there’s death, taxes and tax credits. That’s going to be a part of how we incentivize our energy infrastructure for a while.

What’s interesting is that historically that technology (and then the disposal of it) has been used primarily for enhanced oil recovery. And with 45Q that opens up some different applications or just long-term geologic storage, which wasn’t really economical before.

From the capital-markets-investor perspective, it looks a lot like the [federal Production Tax Credit]. You get that longer-term benefit stream. The technology itself has been around for a while, and that kind of fits into what how we think about things. We don’t want to take unnecessary technology risk, and frankly, you don’t tend to have to. 

Joshua Posamentier: In the industrial decarbonization world, there are a lot of really hard problems that are fossil-driven today. The sectors we’re talking about are the massive ones: 96 percent of the hydrogen in the world is made in capital facilities, in the fossil-fuel [sector] and other vertically integrated chemical businesses. That’s the world we’re really interested in. How do you make ammonia without natural gas? How do you make plastic products? How do you generate industrial heat without burning gas? We’re constantly looking at long-term technologies that can electrify and decarbonize that entire sector.

Another sector that is about as different as you can get from that is the world of assigning risk and value, essentially, to climate change. Think of it in terms of better analytics, better understanding of, the world in which we live. And not just that, but understanding how it’s changing and how the risks are changing. And then assigning value to that, say, through insurance, through underwriting, through analytics, sold to third parties, but really pulling in the next generation of analytics and data gathering and data processing. This is everything from better weather forecasting, better flood forecasting. understanding where methane emissions are actually coming from, monitoring forestry and forest growth for carbon sequestration, you name it, but there’s a lot of new, call it, next-generation analytics and tools that will be brought to bear that will really help people assign value to mitigating climate change. 

Policy whiplash and valleys of death 

Katie Rae: It’s such an overused term, but there are multiple valleys of death. On the policy side, we’ve done a poor job of supporting [companies traversing] those in the past. And I think that there is certainly momentum behind making sure those valleys go away. So that’s all the way from more government support for translational companies — more ARPA-E grants, more [Small Business Innovation Research] grants, more [National Institutes of Health seed fund] grants — all the way through to to the next area, which is like…how [to] actually produce a clean energy fusion power plant that’s going to cost you in the billions of dollars. And…there could be loan programs; there could be all kinds of ways to do this, tax credits, etc., or just government partnerships, because we want those industries to be built here in the U.S. I think there are many policy initiatives that could move the needle. And there are real dollars behind it now, unlike the last, say, 30 years.

Joshua Posamentier: Given the whiplash we’ve seen between presidential administrations, certainty would be good. To the extent that policy can be legislated in a way that doesn’t continue to fluctuate every four years would be great. I remember when the [Production Tax Credit] didn’t get renewed and then it did get renewed, and the [Investment Tax Credit] wasn’t expected to get renewed and then it did. Those things really cause havoc; it makes it tough to underwrite. Companies have to assume those policies are continuous. And to the extent that we can have surety — for example, the [Low-Carbon Fuel Standard] in California is something you can generally bet is not going anywhere for quite a while — that sort of behavior would just be would be invaluable.

Jessica Robbins: Corporates that are doing a lot of this investing tend to react to changes in the tax code and uncertainty in general by freezing deployment. If you take those tax credits and make them a direct grant and just elect direct pay…that’s a huge benefit. That’s something that we’re watching closely. If the [corporate] tax rate…goes up, not only does that increase the availability of tax equity capital but it also increases the value of the asset by making depreciation more valuable. And there are additional proposals for consolidation and extension, and new ITC [benefits], and all sorts of goodies.

What we’d really like to see (and I think it’s out of reach politically at the moment) is some broader leveling of the playing field across technologies and across energy sources. That’s a little bit more efficient and can streamline capital deployment.

Using less energy

Julian Spector: How do you find a compelling story or a new story to tell about the age-old wisdom of using less energy? What’s exciting in that space?

Katie Rae: I think it’s a super important space. It’s just that we don’t use the name efficiency.” We use decarbonization,” and we are starting to use other terms. So much of what we look at is either new ways to make something or more efficient new ways to do a lot of the industrial processes. That’s almost always about some form of efficiency — it just has different names now.

Joshua Posamentier: The built environment has actually had a fair bit of success over the years in terms of its efficiency — and it’s a huge carbon footprint. It’s an area that we actually actively invest in. We’ve invested across the spectrum from supply-chain logistics operations, route optimization, electrification. We have a company in the food supply-chain space that’s focused on reducing waste. It all cascades down. If you save 10 percent of your crop, that means it’s a 10 percent yield bump, 10 percent more bang for your buck with fertilizer — it’s just more energy at the end of the day, all the way down through better manufacturing processes. You don’t have to make materials you don’t need to use; you don’t need to build massive amounts of inventory. And it turns out when you make operations like those more efficient, you also improve the economics overall. It’s almost always a win-win. It’s almost never just because it uses less energy.

On the Robin Hood effect and SPACs 

Joshua Posamentier: There’s an excellent chance that the [special-purpose acquisition companies] we’ve seen will generate good returns for investors in those companies. On the other hand, as a mission-aligned investor, what I really want to see is the companies we invest in get to scale and make a massive impact. There are a fair number of SPACs that feel distinctly premature (not necessarily ones I’m involved in), but it feels to me like a very distinct risk.

I have to say some of some of my favorite startups in this space have resisted the SPAC temptation, despite the easy opportunity.

Katie Ray: Retail investors have been shut out of so much of the growth opportunity. It’s been held by private equity and venture and banks, and so retail investors are losing, because they don’t get into these things that will be massive growth opportunities into the future and vehicles of wealth creation. Lots of people want to be in next-generation technology because they know it’s where the money is going to be made. I love that retail investors will have an opportunity to get in much earlier than they would now.

Joshua Posamentier: People are starting to call it the Robin Hood effect — there’s a huge risk of retail going wild on some of this stuff. But, let’s face it, high tech has been pretty opaque in a lot of ways to retail for years. Pharma is opaque. And yet there’s a lot of volume there. There’s always a potential for what I would characterize as inappropriate or overexuberant hype. But there are a lot of really high-quality companies out there, some of which have very long time horizons, and as long as they’re transparent about those timelines and milestones, then all is fair.

We’ll end with Julian Spector’s parting words: Narrative matters, and we see our mission as contextualizing the clean energy transition and giving you straight facts and analysis to make decisions about it. Thanks again to all of our panelists, and stay tuned for more from Canary Media.”

Eric Wesoff is editorial director at Canary Media.