The Impact

Project Finance or VC for the clean economy

To: The Impact Readers

Howdy 👋

If I gave you $1 Billion to invest into the clean economy – would you be a VC or Project Financier and why?

This week Daniel – my co-founder at The Impact – posed this question on LinkedIn and sparked a healthy conversation around the benefits surrounding this topic. It even turned into a week long research project to understand the perspectives around this key question.

Who knows, maybe if you engage with us on social you might make it into a future Impact article!

Also if you want to help us out a bit – shoot me a quick reply sharing what value you gain from our weekly newsletter. It’ll really help us out while we go about making continuous improvements.

– Swarnav S Pujari

In Your Inbox: VC vs Project Finance for clean economy investing; evaluating solar panel recycling; TrueAlgae is making high quality algae; Carbon Capture investing heats up

📃 POLICY & FINANCE

Is Venture Capital Or Project Finance The Key To Solving Climate Change?

By: Daniel Kriozere

Project Finance or VC for solving climate change
Diving into the difference between Venture Capital & Project Finance in Climate Tech. (Image: Swarnav S Pujari)

I was bored Sunday morning, so I posted a question on LinkedIn with a question that I’ve been thinking about for a while now.

As I talk to many startups on a weekly basis, usually regarding fundraising strategy, I have noticed one of two scenarios:
  • Early stage startups (pre-seed/seed) are struggling to fundraise.
  • Later stage startups are looking to do an equity raise and use the funds where project finance would typically be used.
This led to my question of the role of venture capital vs project finance.
 
Meanwhile, the answer to this question is not black and white, the post ignited some interesting discussion.

The Problem:

There is a gap between lab-scale prototypes (government/seed funded) and fully commercialized plants/processes with predictable performance and economics (project finance).
 
At the earliest stages, government favors funding academic work, whereas corporates are wary of risk. Companies need resources to de-risk and pilot technologies. Later-stage startups seek venture and/or project finance to build the first commercial systems.

To Answer the Original Question:

Project finance is needed in the short-term to deploy and scale technologies currently in the market that can have a great impact. Project financing today is best used for proven technologies like wind, solar, and geothermal energy. The tricky piece of project finance is modeling risk, which is why it is harder for new technologies to receive project finance, even when the capital costs of these smaller MVP units are significantly less than that of a full-sized asset.

Venture capital is needed in the long-term to build and accelerate new ideas to create impact. However, it is difficult to put the cost burden entirely on investors with high-risk appetites.

 

The solution to this short-term vs long-term tradeoff is a cooperation between public and private agencies. Among those, Corporate VC is playing an important part. New partnerships and investment vehicles are combining capital with other resources. Additionally, we may even see more challenges, similar to Elon Musk’s $100M carbon capture challenge.

The conversation got more interesting – pulling in other pieces of the puzzle.

Even though project finance is more of a priority, in terms of timing, the decision relies upon what is applicable when and under what market circumstances. Additionally, to be able to scale and deploy technologies, there needs to be a strong market. Strong markets mean more options to fund and finance businesses/projects.
 
The takeaway is that there will be a variety of investment vehicles and partnerships to continue to drive innovation forward to fight climate change. Among that, we will likely see new models to assess risk, as well as more creative and new finance structures.

My Thoughts:

Meanwhile the initial question was intentionally written to ask which financing options are better, I agree that it will take a combination of venture capital and project finance to help scale and deploy technologies to fight climate change. We need to prioritize which technologies receive funding.
 
The path forward will include finding a new way to assess and underwrite technology risk to help earlier stage technologies deploy, and creating new vehicles/structures for funding.

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📃 POLICY & FINANCE

Does Solar Panel Recycling Make Economic Sense Yet?

By Oakley Jennings-Fast

Solar Panel Recycling
Bringing the conversation around solar panel recycling to the frontlines. (Image: Swarnav S Pujari)

Circularity Fast Facts: The Big Picture of Solar Panel Recycling

  • Photovoltaic modules have a lifespan of 25-30 years. This does not mean they are dead; it simply means their efficiency is significantly reduced (1).
  • In the US, an estimated 80 million metric tons of PVs will reach end of life by 2050 (2).
  • The environmental concerns of disposing PV modules in landfills are leaching of lead and cadmium and losing valuable resources such as aluminum, silver, and others. (3).
  • A study in 2018 by the Electric Power Research Institute found that in the US, “PV module recycling is technically feasible…though it is not yet economical.” (3).
  • The EU and Japan require solar panel recycling by law. However in the US, “there are currently no federal, state, or local regulations mandating PV module recycling” (3).

Take a moment to imagine this: a solar panel sitting in a landfill.

If you see the irony in this image then you understand that there are many factors at play while transitioning to a truly sustainable future. Renewable energy is a major driver in this change and so is the concept of circular economy. A circular economy is an economic and industrial ecosystem which is structured to prolong the value of material items to avoid the landfill as long as possible, if not altogether.

The huge elephant in the room with solar panels is what happens when a solar panel reaches the end of life?

Luckily, there are examples of great frameworks in legislation and technology to effectively recycle solar panels at the end of life. The European Union and Japan have succeeded in setting up the laws, infrastructure and technology to handle their aging panels largely because PV modules are considered hazardous waste and are required by law to be dealt with accordingly.

However, in the US, solar panels are not necessarily considered hazardous waste. Why is that?

Federal law dictates what happens to the disposal of solid waste and hazardous waste through the RCRA (Resource Conservation and Recovery Act). And this act requires a TCLP (Toxicity Characteristic Leaching Procedure) test to determine if a panel will leach hazardous materials to the environment (4). If it doesn’t leach, it is not considered hazardous waste. In other words, it can be considered non-hazardous and thrown in the landfill. Furthermore, if you can prove it is non-hazardous, it is fairly inexpensive to dispose of a panel in the landfill. This is largely why it is “not yet economical” to recycle solar panels in the US according to the Electric Power Research Institute.

So what can we do?

First, the US can start by classifying PV Modules as hazardous waste. Second, existing solar panel recycling in the US can expand its infrastructure and technologies. And finally, let us not forget the “reuse” in reduce, reuse, recycle. Solar Panels which have reduced efficiency after 25+ years are still capable of producing energy, just less efficiently. Therefore, panels can be utilized for other purposes requiring less load before they are eventually recycled.
 
Solar panels are a symbol of a transition to a cleaner economy. However, if panels are simply thrown into the landfill at the end of use, have we really evolved? Have we really learned? Solar panels have the incredible potential to drive the planet to a sustainable future. In order to truly learn from our past, we must also find a new life for the valuable materials contained in each panel. Committing to the circularity of solar panels is a symbol for a truly sustainable future.

🚀 STARTUPS & TECH

TrueAlgae – Creating Metabolite Tea for Soil Health

By: Daniel Kriozere

TrueAlgae’s production facility. (Image: TrueAlgae)
TrueAlgae’s production facility. (Image: TrueAlgae)

This week Taka Kamezawa took time to discuss what he is working on at TrueAlgae.

Can you describe what your company does and your impact?

TrueAlgae is a biotechnology company that has a very efficient, patented mode of production for making high-quality algae. We can monetize algae in many ways, including chicken feed, fish feed, and nutraceuticals, but our first market is as an organic liquid soil amendment. We are currently selling in bulk to large fruit and vegetable farms in California and Florida. We are also licensing our production technology in Mexico.

Our initial product, TrueSolum, is an organic soil amendment product that has demonstrated 20% yield increases in various fruits and vegetables. We have also proven up to 100% extended shelf life in various berries.

How do you differentiate yourself from competitors?

TrueAlgae currently sells TrueSolum, a natural and OMRI-certified organic solution to decrease the use of chemical fertilizers, improve soil quality, and increase crop yield.

TrueSolum is very different from the other micro and macro algae-based products. Our product is the cultured water, or “metabolite tea”, that results from the growth of the algae. As the algae grow, they express certain valuable metabolites into the growth medium. During harvest we separate the algae biomass from the metabolite tea to produce a clear, nutrient rich, cultured water that is sold to the farmers. The metabolites present in this cultured water act as both a prebiotic for the soil microbes, driving better nutrition into the plant through its roots, as well as a growth stimulant for the plant itself. As it does not contain any algae biomass, it is easily blended into the irrigation water and applied to the fields through drip irrigation, along with other agricultural inputs, without clogging the lines. It can also be used as a foliar application with added benefit.

Independent research has shown that TrueSolum reduced chemical fertilizer usage by 75% while increasing yield by nearly 9% when tested with strawberries. Decreasing the use of chemical fertilizers reduces harmful runoff which create many ecological challenges for our waterways. Our product also helps to sequester carbon in the soil, in direct contrast to NPK chemical fertilizers that emit nitrous oxide, which is roughly 300 times more potent in terms of greenhouse gas emissions than carbon dioxide.

In addition to increasing yield, our product also increases Brix (a measurement of sugar content) which is valuable for certain fruits and vegetables, and longer shelf-life of the crop. It is also pH neutral with no negative impact on the soil ecosphere.

Most of the algae based biofertilizers marketed and sold in the US are macroalgae or seaweed (kelp) based. They include Stimplex, Maritime, and KelpExpress, among others. All seaweed products are farmed in open water creating inconsistent product, potential for contamination and variable effectiveness.

What are some trends in the sector?

Agriculture is the one of the top contributors to greenhouse gas emissions. The use of chemical fertilizers, particularly nitrogen, phosphorus and potassium (NPK), are drivers of these emissions. Because of this, there is a global movement to reduce the use of chemical fertilizers. Natural and organic TrueSolum has been shown to improve availability and uptake of NPK from the soil, thus allowing the reduction of NPK applications by as much as 75%, while providing farmers with increased yield and crop quality.

In addition, algae are an important part of a healthy ecosystem. They produce 50% of the oxygen we breathe by consuming the carbon and releasing the oxygen of the GHG, CO2. Through the process of growing algae, TrueAlgae is contributing to a healthier environment, in addition to helping to create healthier soil and crops.

What is next for TrueAlgae?

We will be sharing our latest developments and our exciting future plan in an investor presentation hosted by Bethesda Green on Monday March 22, at 3 pm EDT (register here).

Our Outlook

TrueAlgae’s proprietary technology grows algae in a unique, closed-loop, sustainable process. This highly efficient production allows for 50% of the algae to be harvested daily. They have raised $3.1 million so far and have over 30 field trials in motion globally – and for different produce.

There is a clear value add of TrueAlgae’s technology, from increasing crop yield and extending the shelf life of produce. TrueAlgae will contribute to the future of agriculture.

🚀 STARTUPS & TECH

Carbon Capture Tech Is Getting The Funding It Needs

By Matt Morris

Carbon Capture has become a key focus for climate focused funds. (Image: Popular Science)
Carbon Capture has become a key focus for climate focused funds. (Image: Popular Science)
On March 5, 2021, The Department of Energy (DoE) announced a $24 million investment in carbon capture technologies. With the United States being one of the world’s largest greenhouse gas emitters, the Biden administration is backing its commitment to combating climate change. This proposal, combined with increased attention for innovation in the sector vertical from Elon Musk’s $100 million challenge, much-needed capital will be pouring into companies working fast to find a cheap, effective solution to carbon emissions collection.
 
Carbon capture systems (CCS) come in two forms: direct-air capture (DAC) and point-source capture. DAC systems pull CO2 straight from the air, whereas point-source systems remove CO2 straight from industrial emissions. From here, the captured CO2 can either be sequestered into the ground or be further separated to create carbon-to-value products. These technologies, however, are incredibly expensive. In a January 2021 article by the World Resources Institute, the cost of DAC is reported to be between $250-600/ton CO2. For this to be cost-competitive, the price of capturing carbon must be equivalent to the cost of emitting carbon, which is generally between $50-100/ton CO2.

Why does this matter:

  • CCS is not a new technology, but it in its current form has been receiving a lot of attention as the atmospheric carbon concentrations have reached 400 ppm. Instead of just trying to find ways to decrease carbon emissions, it provides a way to utilize Earth’s enemy for positive change
  • Government commitment to climate change by providing real dollars for a fledgling technology goes a long way. Outside of existing grant programs like SBIR, STTR, baseline DoE and ARPA-E grants, an investment program specifically directed towards necessary technologies with variable learning curves will not only stimulate more research and growth in the vertical but also builds trust in the government to explore more niche, revolutionary technologies that do not have track records.

Thoughts:

Carbon capture is not going to be the sole technology that saves the planet, but it is going to be necessary for the green transition. In the short term, as society continues to pollute at an alarming rate, CCS will begin to level off the emissions rate. In the long term, it will, hopefully, serve as a carbon-negative source for carbon-based products. Therefore, it is a transitory technology that will reap greater benefits the longer the useful life and increasing efficiency of the systems.
 
CCS gives birth to a whole new array of downstream economies. Because carbon is a part of almost everything society uses (fuels, plastics, chemicals, steel, etc.), low-cost carbon capture will be essential to creating a circular economy. In a Carbon180 report, the global carbon-to-value market is estimated to be around $6 trillion. If emerging innovation can replace incumbent materials and production methods, industries can be redefined to achieve carbon neutrality while creating pathways for an entirely renewable future.

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Writers: Swarnav S Pujari, Daniel Kriozere

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