Intersect raises $750M to ditch PPAs and bet big on clean industry

Renewable energy project developer Intersect Power just raised a $750 million growth equity investment, which it will use to drive its defiantly nontraditional approach to scaling up clean infrastructure. This means leaving power-purchase agreements behind and focusing on moving into new industrial sectors that will be critical to a decarbonized world.

The funding round was led by TPG Rise Climate and included existing investors Climate Adaptive Infrastructure and Greenbelt Capital Partners.

Intersect Power CEO Sheldon Kimber wants to redefine what it means to be a clean power developer. ​“We’re not just trying to sell people electrons,” he told Canary Media. ​“We’re looking at new industries that we want to vertically integrate into.”

Kimber lays out his vision for deep decarbonization in a manifesto that he released earlier this year. In it, he lays out the ​“five inevitable industries” that he expects to develop into trillion-dollar markets. They are:

• Green hydrogen and e-fuels
• Direct air capture of carbon dioxide
• Electrification of industrial thermal loads
• Mass EV charging
• Desalination and transport of water

What these five types of technologies have in common is that ​“cheap, clean electrons make them all work,” Kimber said — and Intersect Power is already adept at producing those cheap, clean electrons.

“We’re a developer, owner and operator of some of the largest-scale solar and battery facilities in the country,” Kimber said. The company also has a robust pipeline of projects in the works, with 2.2 gigawatts of solar PV and 1.4 gigawatt-hours of co-located energy storage under construction and slated to come online next year, along with a later-stage pipeline of projects totaling more than 8.5 gigawatts of solar and 8 gigawatt-hours of energy storage. Intersect’s next set of projects falls in the range of 750 megawatts to 1 gigawatt.

Kimber believes Intersect can build on its expertise in producing ​“high-capacity-factor, low-cost clean electricity” to get a foothold in the five growth sectors he’s identified. ​“They rely on our core strengths: greenfield development, permitting, interconnecting, infrastructure, financing and construction — these are the things we do anyway.”

“Ultimately, we are an industrial-scale energy company,” he said, ​“and over the next 10 years, [we’ll] probably [be] consuming more and more of our own generation to produce value-added products. We’re an [independent power producer] today, but we’re moving toward becoming a green supermajor.” 

Ditching the PPA

Intersect’s transformation was born out of dissatisfaction with the traditional way that renewable energy developers do business: selling electricity under long-term power-purchase agreements, or PPAs.

“People are beginning to realize that long-term contracts are…underpriced and destroy value,” Kimber said. ​“They’re becoming too competitive. Prices are too low and tenors are shortening. People are moving into an understanding that you have to own assets.” That’s why Intersect is moving toward becoming an independent power producer, according to the CEO.

Traditional renewables developers have focused on driving down the cost of capital. ​“If you look at the evolution of the industry, in the early days when I was working at Recurrent, developers made money, essentially, by signing long-term contracts and writing bonds,” he said. Recurrent simply ​“found the lowest cost of capital for a 25- to 30-year contract with PG&E.”

Intercept, in contrast, accepts a slightly higher cost of capital and shortens the duration of its contracts — an approach that Kimber said allows the company to capture ​“much higher prices” that don’t rely on 20-year cost projections.

Bill Green, founder and managing partner at Climate Adaptive Infrastructure, is sold on that approach. He’s doubling down on his investment in Intersect Power because of the developer’s contrarian business strategy.

“The renewable energy industry has been broken for years — because of the PPA,” Green told Canary Media. ​“Over the years, the reality of the PPA began to disintegrate as the prices dropped and utilities got smarter, but the developers…said, ​‘Wait, we need the PPA because that’s how we get tax equity, and hence how we get debt.’ As the PPA became less and less valuable, the developers kept signing them because they had to.”

But Intersect opted to get off that treadmill. ​“Sheldon and his team saw that this destroys value and said, ​‘We’re not going to do that,’” Green said. ​“He asked a very important question: What if we could go out in the market and raise debt and tax equity without a long-term PPA? What if we could do it just like any other energy company based more on market prices? … Sheldon said it’s time for us to stop being ​‘alternative energy’ and [just] be energy, and do it the way everybody does it.”

By financing in innovative ways, Intersect is able to get tax equity without contracting to sell all the power it produces, Green said. The company is then free to sell its power in ways that command a higher price — by selling unbundled renewable energy certificates, for example, or storing solar energy in four-hour-duration batteries and selling it at 8:00 p.m., when demand is at its peak.

“There are two catches to this,” Green said. ​“You can only do it if you can actively manage market risk. And you can only do it if you have a lot of money so that you can afford to post the collateral required to participate in these markets.”

Intersect has the team to actively manage risk, according to Green, and now, thanks to its successful fundraising round, it also has ​“a lot of money.”

Said Kimber, ​“We responded to the cratering of the long-term PPA market in a way that I think is smarter, more efficient and better for the future.”

“The five inevitable industries”

Kimber argues in his manifesto that his five favored technology sectors ​“are massively scalable, benefiting from economies of scale both within their supply chain and also within each installation.” The five share these common traits, he writes:

• They leverage existing technologies and rely on well-understood learning curves that are achieved with mass deployment.
• They benefit from improvements in adjacent technologies, such as wind and solar.
• They are not threatening to entrenched political and business interests but rather present those interests with new opportunities.
• They could reuse or retrofit large portions of today’s industrial and energy infrastructure.
• These five multi-gigaton levers ​“can actually solve most of the climate problem” if you get them to work right, Kimber told Canary. 

Here’s Kimber’s rundown on each of his five ​“inevitables.”

Green hydrogen and e-fuels: ​“The world is itching to bifurcate its energy markets,” with more affluent countries willing to pay more for stable low-carbon fuel sources, the CEO told Canary. This will drive the production of green hydrogen, ammonia and methanol in ​“multiple 5- to 10-gigawatt facilities,” said Kimber, likening these efforts to multibillion-dollar oil and gas projects carried out by multicompany joint ventures — but instead using clean electrons to make clean fuels for export.

This industry is further along than the other four. Intersect already has plans to develop nearly 1 gigawatt of green hydrogen production capacity.

Kimber’s top policy ask from Congress is a hydrogen production tax credit, which he says would be ​“a game-changer.” He continued: ​“It pulls together a political coalition because the tax credit includes blue hydrogen” — that is, hydrogen produced via fossil gas with carbon capture — ​“and it could change the face of clean energy in this country politically.”

Direct air capture of carbon dioxide: Kimber believes that the clean energy sector can exploit the oil and gas industry’s expertise in subsurface geology, subsurface mapping and fracking in order to accelerate progress in carbon capture and sequestration. The time and money that oil and gas majors have invested in these areas over the last 20 years are ​“going to come back around and help us in sequestration, improving the reservoirs and storage facilities for capturing carbon.”

Electrification of industrial thermal loads: Roughly 30 percent of all carbon emissions come from industrial loads, according to Kimber, and about two-thirds of those stem from boiling water, mostly using natural gas. ​“What will truly move the needle is finding ways to electrify the production of steam or the baking, drying, melting and similar direct heating processes found in large industrial facilities,” he writes.

Mass EV charging: The looming demand for EV charging will come from prodigious fleets of buses, taxis and cargo trucks, not the six-charger passenger-car project at your local shopping center.

Consider a Tesla Semi truck, should it ever actually become available: ​“A single charger for one of those is going to be 2 megawatts. What does a truck stop look like for 50 Tesla semis? It’s a 100-megawatt load,” Kimber told Canary.

As he states in his manifesto, ​“The scale of energy demand and delivery that will eventually result from these massive charging networks will be like nothing the grid has ever seen. Making good on the promise of the EV revolution is at least as much about building, financing, managing and dispatching utility-scale infrastructure assets as it is about the cars themselves.”

Kimber had once expected utilities to dominate this space, but now he believes they’re not moving fast enough. And he thinks that EV-charging companies, flush with cash from their SPACs, do not possess the core competencies to build and finance infrastructure at scale, leaving the space without a clear winner.

Kimber told Canary that in five to 10 years, Intersect Power could be operating enormous EV-charging sites.

Desalination and transport of water: The environmental degradation of the globe’s fresh water supply is an enormous problem, and climate change, which is shifting where and how much rain falls, is only exacerbating the problem. Kimber contends that ​“the water problem is really an energy problem” and that low-cost clean energy can be the solution, making seawater potable by powering desalination plants and pumps to move water where it needs to go.

Don’t count on catching cow farts

Kimber calls himself a proponent of ​“all-of-the-above” solutions, but when it comes to predicting the major growth industries of tomorrow, he dismisses rooftop solar, new nukes, ​“catching cow farts” and ​“demanding that everyone stop driving and consuming.” These represent ​“values-based advocacy” that will not scale, he contends.

Intersect Power, instead, intends to go all in on his big five industries and ​“tackle climate change with real steel in the ground,” he said.