100+ questions across energy transition

Posted by Deanna on February 18, 2022

As many of you know, this year is the year of learning for me…and I had to think: what better way to start off this journey than posing some questions I’d like answered?

Deciding Scope
I struggled a bit before writing this post to decide what part of this broader climatetech ecosystem I’d like to cover. I have an energy tech background – which means I looked at technologies that influence what we now consider the energy industry. However, that set of technologies is rapidly changing. Technologies like soil-based sequestration, chemicals manufacturing, waste recycling and WTE, hydrogen jets, HVAC, insulation, etc. have moved into the “don’t care” to “care” bucket very rapidly for traditional energy players (meaning utilities + oil and gas companies). And that’s because carbon is carbon is carbon. What happens downchain or upchain matters…and is increasingly the responsibility of the parties across the whole chain. Selling product into market or buying product from a vendor is no longer a transaction void of responsibility. The energy industry should care where its molecules and electrons are going and how it can help get those molecules and electrons into better places, in addition to producing better molecules and electrons in the first place.

Visualizing FEST
I think Bill Gates does a great job in How to Avoid a Climate Disaster breaking down what we do from an energy usage / emissions perspective. He separates it into making things, plugging in, growing things, getting around, and keeping warm and cool, or in other words:

  • Food and ag (19%)
  • Electricity & heating / cooling (34%)
  • Stuff (31%)
  • Travel and Transport (16%)

I call this the FEST framework. Like a FESTival but for seven billion people. One that needs food, beds, ways to get around, sanitation, a clean up crew, and for everyone to be happy and healthy. But one that also only has a limited amount of time, a rapidly growing number of “attendees,” and a planning committee with zero experience doing this well. Sound familiar?

Which leads to the reason why I like this framework so much. What it does so well is allow us to break down how our everyday activities are affected by what technologies we buy, support, develop, invest in, etc. Other breakdowns separate by energy, industry, agriculture, and other abstract categories that don’t mean much to me immediately…I get especially confused with “Industry.” What the heck does that cover? But I know exactly why I care about access to food, electricity, stuff, and travel. With FEST, the impact of tech on living is clear.

There are of course limitations to breaking things down in this way. The most apparent is that the supply chains are still not clear. For example:

The categories get especially muddling when products with complex supply chains like cars or semiconductors are considered. But overall, FEST is a manageable way to understand and chart emissions impact from various sectors. And sets itself up nicely for a FESTivus-themed conference later this year (if anyone has any desire to fund such a conference, please let me know. I have lots of ideas but no money).

Onto the thoughts and questions...

Food and Ag (19% emissions, 9.7 Gt)

This is admittedly the category I’m least versed in. I’m a huge foodie and consider eating one of my hobbies. But what I’ve come to appreciate only recently is the power of industrialism that has led to the ability to mass-produce almost anything edible, even things as niche as pumpkin spice cookie butter and pickle-flavored popcorn. In the land of excess, we enjoy only spending 6% of our income on food, a fraction of what other (even developed) nations spend. The hidden cost of course is that our emissions footprint is a lot higher as well.

It seems that the key levers to reducing emissions in this category are:

1. Improving meat production efficiency (shortening distance & # of steps between production and the consumer, replacing livestock with meat alternatives, cleaning up excess waste in meat production)

  • How efficient are current anaerobic digesters (what benchmarks are used)?
  • What technological improvements are in the works for improving digester efficiency?
  • What are the current leakage rates of NO2, biogas, methane and other emissions from farm equipment and systems?
  • How do we incentivize smaller farms to implement good waste management systems?
  • How much of emissions from meat production is from distance to consumer?
  • How is veganism / vegetarianism around the world and how do the adoption trends correspond to livestock emissions?
  • How is veganism / vegetarianism distributed across age groups?
  • How does consumer labeling of emissions impact affect consumer behavior around food purchases?

2. Improving fertilizers and their usage (using less excess fertilizer via smart fertilizer systems & soil sensing, creating and using new fertilizers that can actually fix nitrogen or release nitrogen gradually, creating plants / “climate crops” that can capture excess fertilizer and/or excess emissions)

  • What kinds of “climate crops” exist today? What prevents them from scaling in the market?
  • What kinds of smart fertilizer systems are in use today and how prevalent are they? How much more expensive do they make the end crops?
  • How scalable are “climate crops” and will there be consumer appetite to pay for more carbon negative crops?
  • Are there naturally more carbon negative food products we can encourage consumer consumption of?
  • What is the average time to adoption of a new fertilizer? What testing and certification processes does a new fertilizer have to go through?
  • How are advances in microbiology influencing fertilizer production?
  • What is the rate of nitrogen fixation by new fertilizers and how much of an ultimate emissions impact would they be able to make at scale?
  • How much interest is there by fertilizer producers in sourcing clean ammonia and how much of a premium would they be willing to pay?

3. Reducing land usage (vertical farming / hydroponics, regen farming, reforestation to build land back up)

  • How much potential do nature-based carbon solution projects have to offset the land usage from our agricultural systems?
  • How much of a time lag is there between release and offset if both projects are started at the same time?
  • How much of farming will move towards urban environments with vertical farming?
  • How distributed will vertical farming be (households, neighborhoods, districts, etc.) and how will food purchasing behavior change with this shift?
  • What are the different flavors of soil restoration / regeneration and their relative impact?
  • How will climate change and unpredictable weather patterns affect fixed-site farming? Will there be a push towards more mobile farming practices?
  • How can the world better insure farmers against crop devastation due to climate change?
  • What mechanisms exist to incentivize regen farming practices?
  • How much of the market are regen farming offsets and how are they priced relative to other offsets?
Electricity & Heating/Cooling (34% emissions, 17.3 Gt)

Electricity and indoor climate control forms the backbone of much of the energy transition discussion. The trend towards mass electrification is a huge benefit for transition because it concentrates the points of potential emissions reduction to the supply side, which is much more controllable than the demand/consumer side. Imagine if we had little generators that powered our phones instead of plugging them into the wall…and imagine how much of a pain it would be to switch out each consumer’s generator for a more efficient generator every few years.

Instead, we have the electrical grid, which, outside of transmission and distribution losses, is a virtually emissions-less form of power delivery. This standardization of energy consumption has allowed us to focus our efforts on generation improvements and make huge improvements to the overall power footprint without massive consumer disruption (well, outside of the occasional power outage…).

It seems that the key levers to reducing emissions in this category are:

1. Improving power generation (making existing clean power sources like onshore solar or wind more efficient, lowering the cost curve for not yet commercial clean power sources like geothermal, offshore wind, nat gas + CCUS, etc.)

  • What new wind turbine technologies not yet at scale (HTS turbines, VAWT, counter-rotating blades, etc.) and how much land / resources can we save by accelerating scale up of these technologies?
  • What retrofit opportunities are available for both solar and wind farms for new technologies?
  • What recycling opportunities currently exist for solar and wind parts and at what cost?  
  • How much value can be captured by the secondary market for solar and wind parts?
  • What is the practical limit for deploying EGS at scale (e.g. how many wells can be drilled across what timeline, step up from supercritical fluid, etc.) and how does that compare to the current development timeline for solar and wind?
  • What retrofit opportunities exist for current oil and gas wells to transition to geothermal wells (e.g. transforming into closed loop)? And how quickly can this be deployed?
  • What are the current technological limitations for deploying ocean / wave energy at scale? How do costs at the theoretical level compare to offshore wind at the theoretical level?
  • How do the different forms of marine power generation (offshore wind, offshore solar, wave energy) compare in suitability for certain water regions and impact (measured by emissions + biodiversity impact)?
  • How much can CCUS turn existing thermal power generation clean?
  • What ongoing resources are needed to keep CCUS on thermal power gen (coal and nat gas) net negative or neutral carbon? How will the lifetime cost (both financial and environmental) of these resources compare to retirement and replacement by renewable energy sources (and both of their lifetime costs)?

2. Building grid dynamism and resiliency (optimizing the grid for more distributed, intermittent power sources + changing weather patterns, improving utility scale and long duration storage, upgrading transmission and distribution networks)

  • Where are the tightest bottlenecks created by lack of sufficient transmission / distribution for new power generation projects?
  • What upgrades are possible to accomplish with current transmission / distribution infrastructure and RoW?
  • How much new land is needed for new transmission / distribution assuming rapid deployment of conventional renewable energy?
  • What current hardware limitations are there for deploying grid optimization software?
  • How much of grid optimization will be done behind the meter vs. in front of the meter?
  • How do load forecasting models interact with weather forecasting models?
  • How do new development needs currently get forecasted and what types of models are industry standard?
  • How does storage need to upgrade with a continuously upgrading set of renewables assets?
  • How does the cost of deploying non-battery storage (like thermal, gravity, compressed air, and pumped hydro) compare when scalability is given time value (i.e. scaling faster is worth more from a “net zero by x” standpoint)?
  • How does the cost of new non-battery storage compare to non-battery storage retrofits compared to the forecasted cost of batteries?
  • How important will modularity be in deploying storage, especially in the face of a continuously changing energy generation picture?

3. Decentralizing energy to improve resiliency and access (developing and deploying microgrids, transforming building-level access to power, improving building energy efficiency via new cooling/heating and smart devices)

  • How will the value of real estate fluctuate with microgrid potential?
  • What new financial mechanisms can be used to incentivize the adoption of energy efficiency devices and improvements?
  • What new financial mechanisms can be used to incentivize connections between private microgrids and/or private clean energy assets?
  • How will the ownership of clean energy evolve between leaseholder and landlord as the differences in energy savings becomes more significant, especially in older properties?
  • How will consumer-to-consumer energy trading evolve and what is preventing mass deployment?
Stuff (31% emissions, 15.8 Gt)

“Stuff” is by far the most complicated category, as it encompasses manufacturing, construction, and production of everything we use in our day-to-day lives. This includes household goods, packaging, fuels, chemicals, clothes, furniture, vehicles, machines, electronics, houses, offices, bridges, roads, etc.

In terms of accounting for emissions, this category has three distinct sources of emissions: electricity* (22% of industrial energy use, ~34% of emissions or 5.2 Gt CO2e), heating (66% of industrial energy use, ~34% of emissions or 5.3 Gt CO2e), and feedstock (remaining 12% of industrial energy use, ~32% of emissions or 4.9 Gt CO2e). If you break that down by sector instead, iron & steel, cement, chemicals and fuels (including oil and gas), and mining make up ~65-72% of emissions. For those top “heavier” industries, heating makes up even more of the equation, 42% of emissions by some estimates.

Because of this concentration of emissions around electricity and heating, industrial decarbonization has been closely linked to new ways of producing electricity and heating in the “E” sector. We see this prominently in the emergent use of renewables in hydrogen production and “lighter” industries like paper and pulp.

There continue to be challenges in using intermittent renewables for heavier industries though. Industries like steel and cement require high amounts of continuous heat and need it reliably available in order to maintain process efficiency and reduce downtime. Because of this, the practical alternative energy sources for industry are more so dependent on the development of alternative fuels, hydrogen, and biomass.

The final third of emissions comes from feedstock and process – the emissions from using fossil fuels in an “imperfect” reaction (like how steam methane reforming produces a mixture of waste products that aren’t well managed) or from leakage in the system. Attaching CCS onto a flue gas stream with a dependable concentration and pressure of CO2 and implementing some good leakage detection/prevention practices can clean up existing systems. Replacing feedstock with something else is a tougher challenge, but one that may be the easier route for industries where CCS is not cost effective.

Which brings us to the final twist in the “stuff” category: the potential to be able to actually store or sequester carbon in things, creating useful objects from a harmful waste product + replacing an existing emissions positive manufacturing process with a neutral or negative one – two birds with one stone. CO2 is already being stored in the form of carbonates in cement, chemicals like ethanol, carbon black, and plastics.  Although elegant, the time and resources needed to scale up completely new manufacturing processes will mean that these solutions will face a harder pathway to capturing market than comparable retrofit solutions, unless there is a distinct financial advantage.

It seems that the key levers to reducing emissions in this category are:

1. Developing dense and reliable alternative sources of energy to provide industrial electricity and heating (co-locating renewable energy with industrial centers where it can be practically used, commercializing biomass, hydrogen, nuclear SMRs, and biofuel solutions for industrial energy)

  • How will energy startups and industrial companies partner to finance the colocation of technologies likes CCUS, hydrogen, etc. onto existing industrial sites?
  • Can industrial waste be used for on-site heating and how prevalent is this practice?
  • How much lead time is necessary to change out a blast furnace?
  • How much biomass is available to provide industrial heating and will the dependence on biomass or other non-traditional heating sources move industrial sites closer to these locations?
  • How do biomass, hydrogen, SMRs, and biofuel solutions for industrial heating compare from a cost, modularity, interchangeability, environmental impact, and scalability perspective?
  • What’s the proximity of industrial sites to grid energy and what bottlenecks exist to use electricity for industrial heating (or in high heat processes, is it the efficiency of electricity to heat itself)?
  • How much electricity is purchased vs. produced on-site for industrial operations and how much does this vary by product produced?
  • What is the frequency of plant downtime due to lack of electricity or heating and how much does this cost the operator?

2. Making process adjustments to reduce energy usage or capture emissions (replacing energy-intensive parts of the process like separations with lower energy versions, pursuing energy efficiency initiatives, implementing CCUS and good waste management / product handling practices to reduce unwanted leakage)

  • What incentives do industrial companies have to continuously improve energy usage?
  • How much can energy efficiency reduce the need for electricity in industry?
  • What possible alternative processes for products that require heavy heat (like iron / steel) can reduce the need for heating and energy altogether?
  • How much emissions reduction can we achieve by locating industrial production closer to demand centers?
  • Does it make more sense to move industrial production closer to energy sources?
  • What public and private financial mechanisms can give credit for lower-CI pathways to produce industrial products (like LCFS for fuels)?
  • How much of emissions is due to poor waste management across different industrial sectors?
  • How much of emissions is due to product / fuel leakage across different industrial sectors?
  • What is the definitive environmental impact of mining for additional clean energy components and what new extraction technologies can help alleviate some of this impact?
  • What is the potential emissions reduction associated with relocating more manufacturing and industrial production to first world countries?

3. Aggressively pursuing the use of “clean” feedstocks like CO2 or H2 in creating products and materials

  • How much can developing CO2 to value pathways drive up the value of carbon?
  • Are there enough products (now and under development) that utilize carbon black to drive CO2 pricing?
  • What breakevens do these future products require in order to scale?
  • What industrial processes could benefit from clean hydrogen (either liquid and gaseous)?
  • What chemicals depend on ethanol and methanol as feedstocks and how do certain products change in price with a green premium?
  • How much of a premium does the use of clean ethylene and other petchem feedstocks add to critical-to-life plastics?
  • What kinds of marketplaces can help facilitate more transparent feedstock selection and enable CI-aware pricing?

*It’s not clear to me how much of electricity here overlaps with the E in FEST and if we are double accounting by including it here as well. From what I can tell from Bill Gates’ numbers, it includes the electricity used in industry even though, at least in the US, the vast majority of manufacturing electricity is purchased. Please let me know if anyone has a definitive breakdown of this…

Travel & Transport (16% emissions, 8.2 Gt)

Travel and transport, as the most dependent category on oil and the most ostensibly emitting consumer-facing portion of the pie, has been at the crux of the energy transition debate since cleantech 1.0. Electric vehicles have come a long way from being an eccentric consumer choice to actually being the sexier transport option for most of the younger generation. And of course, with Tesla paving the way for mass production, the consensus is that transport disruption is almost inevitable. It’s not a matter of “if” but “when” and even the most stringent of forecasts have EVs taking more than 1/3 of EV sales by 2050.

Travel emissions can be divided into four main categories: passengers on the road (45-53% of emissions), freight on the road (25-29%), aviation (9-12%), and maritime (11%). EVs remain the dominant solution for passengers on the road, while a mixture of EVs and hydrogen FCEVs can cover road freight. Aviation and maritime each have a spectrum of solutions between electric, hydrogen / ammonia, and sustainable fuels.

I’m not a car geek…and I suspect I will never be a car geek. I drive a 14-year old Acura with a stuck passenger side window and side mirrors that refuse to adjust properly. But even I was excited to test drive a Tesla earlier last year. The constraining factor to purchasing one was (and still is) lack of charging infrastructure in my apartment. Which brings us to the root of the issue with road travel disruption: the infrastructure bottleneck.

Because of current charging times (a few hours to 20 minutes depending on charger type), charging infrastructure must go where consumers spend a significant portion of their time, which means more deployment to homes, offices, and grocery stores. Charging infra will be way more distributed than our current fueling network, with deployment dependent on individual building and business owners and their policies. There’s also just going to be a lot more of them. There’s an estimated 20 million chargers needed in the US by 2030 vs. est 640,000 today vs. est. 1.2 million gas pump connections. That’s a lot of installation, maintenance, and potential points of failure that I suspect will be a growing annoyance for EV owners. As anyone who has spent time with chargers knows, there’s wide variability between charger quality. It’s not uncommon to drive up to a supercharger to find that a few of the ports are non-functioning. We’ll solve that problem with quality control and better maintenance networks, but it’ll take time and experimentation.

Outside of EVs, hydrogen and sustainable fuels drive a large part of the technology conversation in this category.  Finding dense (either on a volumetric or gravimetric basis or both) sources of energy that can be easily stored and transported is especially critical for ships and planes. I’m very long hydrogen for two main reasons: 1) as the simplest molecule in the universe, hydrogen lends itself to being produced in dozens of ways from many different inputs and it’s only a matter of (short) time before clean hydrogen production becomes cost-effective and widespread 2) fixing the volumetric density issue will not take an unforeseeable technological breakthrough – many companies are already lowering the cost of liquefaction, new metal hydrides, and on-site production.

It seems that the key levers to reducing emissions in this category are:

1. Deploying charging infrastructure safely and effectively (developing new fast chargers, building better maintenance and monitoring systems around chargers, creating new incentive structures for building owners, optimizing load and charging schedules for charging networks and EV fleets)

  • How will decentralized charging affect consumer travel behavior?
  • What incentives will real estate and commercial business owners have to install charging stations?
  • How will charging stations get retrofit (or will they) with new charging technology?
  • How will the installation of charging stations affect the need and sizing of microgrids in the area?
  • Will chargers continue to be owned by building owners or will they get consolidated in the future?
  • What business models for charging infrastructure companies will be prominent 5 years from now (e.g. direct sales, charger financing, owner-operator)?
  • How can state and local codes get standardized to better implement charging infrastructure?
  • How will electricity trading between buildings affect the deployment of charging stations?
  • How will the need for charging stations require upgrades to electrical infrastructure within buildings?
  • How will fleet charging systems work in conjunction with charger networks to dynamically distribute electricity load?
  • How will service networks develop to effectively maintain charging infrastructure and how much of it will be handled and paid for by the building owner, charging network, or customers?

2. Creating energy dense alternatives for heavy freight, maritime, and aviation (producing cheap and clean hydrogen with logistics considered, developing neutral or negative sustainable aviation fuels)

  • What retrofit opportunities are there for older ships and planes?
  • What recycling opportunities are there for older ships and planes in first world countries?
  • How will the need for drop in fuels compete with the need for emissions-free fuel use (e.g. replacing engines with fuel cells)?
  • How will hydrogen production be optimally located to serve the needs of maritime, aviation, and heavy trucking?
  • How will the ability to move certain operations into smaller, electric vehicles (moving from vessels to AUVs or jets to drones) affect the need for bulk transport (and thus the need for fuels)?
  • How will the hydrogen/ammonia pricing for marine fuel compete with the pricing for land freight, chemical feedstock, and industrial heating?
  • How will airlines and shipping companies be incentivized to pay for lower CI fuel?
  • How much differentiation will there be between SAFs and how much will the market tolerate in terms of differentiated pricing?

3. Transitioning vehicles that don’t burn cleanly to EVs or clean-burning setups (retrofitting cars and trucks with fuel cells or electric drivetrains / powertrains, incentivizing early retirement of older, dirtier forms of transport with clear plan for recycling parts)

  • What’s the emissions reduction associated with preventing mass retirement of older vehicles?
  • What recycling opportunities are there for older cars and trucks in first world countries?
  • How much will retrofit be part of the transportation decarbonization picture and who will be performing the retrofits (OEMs, third party specialists, local maintenance shops)?
  • What is the lifespan of an electric vehicle excluding battery replacements?
  • How many consumers will eschew a car altogether in the future in favor of bikes / scooters (and how much of a dent will that make on emissions from this category)?
  • How will desired consumer features like autonomy be affected by choice of fuel / fuel consumption setup?
Bonus thoughts and questions

Several questions that affect all four of these areas:

  • How will the relationship between startups and strategics continue to develop?
    1. Will strategics need to invest earlier and how much of the portfolio should be dedicated to venture vs. traditional corp dev?
    1. Will there be more standardization of partnerships between strategics and startups?
  • What kinds of creative capital are available for startups in this area?
  • How will our definition of “energy” change?
  • How will companies recategorize in the face of a more interdisciplinary universe?
  • How much of recycling should be localized to maximize reductions benefit and prevent carbon leakage?
  • How will companies manage Scope 3 emissions and how much will that management influence supply chain choices?
  • How will offset trading manifest and how many marketplaces or exchanges will the market need? How will they differentiate themselves?
  • How will the time value of the offset be used to price the offset?
  • How will carbon pricing develop to reward consumer behavior as well as corporate behavior?
  • How will the implementation of smart contracts drive supply chain transparency and vice versa?
  • At what scale and using what scenario analysis in offset qualification does additionality become immaterial?
  • Will we have complete standardization of carbon accounting up to a certain point and what will differentiate certain carbon accounting software packages?
  • What will be the impact on energy consumption of technologies like metaverse, quantum computing, autonomy, etc.?

Would love any thoughts / comments / answers / more questions to add to the list 😊

To see a larger version of the FEST map, please click here.


Project Development for Energy Transition: Pt 2

Posted by Deanna on October 19, 2021

Last time we wrote about the different components that make up project motivation for energy transition infra, BEPTC. How well a project can address each of these components and establish project motivation is often times the driving force behind an equity investor’s initial interest in the project.

But after interest is established, the real diligence begins to determine level and type of development risk, which informs an investor’s view of fit with their investment mandate and the ultimate investment structure (% equity or debt, assetco vs opco vs holdco, etc). Once again, we cite NREL’s framework for the second phase, SROPTCC, or Site, Resources, Offtake, Permits, Technology, Team, Capital:

  • SiteWhere is the project located? What agreements does it have that ties it to this location? What operating constraints or risks might this site pose?
    • Site is often times a huge limiting factor for energy transition infra. A site has to have access to appropriate infrastructure to connect feedstock, offtake, supplies, and equipment. It has to be evaluated for environmental impacts. It has to be surveyed and permitted (which will likely come from multiple regulatory and/or private bodies). It has to balance transferability to other locations (to help the holdco scale) with having a unique advantage over other locations. In energy transition infra, it helps to 1) co-locate multiple projects on a single site to share the risks around a chosen site or 2) partner with a larger stakeholder that already has the appropriate rights and permits to a site. In many cases, an investor will expect to be taken through the process of site selection, so having a documented, systematic method of selecting a site can be very useful.
  • Resources What resources will this project need? Where are those resources? Are those resources secured by contract yet? .
    • Resources in energy transition infra can include availability of wind / sunlight, used cooking oil for renewable diesel, or water for hydrogen production…where is the resource that will be turned into product? Who will deliver it and through what logistics? Is this all in writing and/or is there clear visibility into the contract structure? If the feedstock will be purchased from someone else, how much can volume and/or pricing be locked in and for what period of time (vs. life of project?). How much variability might there be in feedstock quality and how will that affect the process? Electricity, gas, catalyst, and all other resources needed for this project outside of the primary ‘feedstock’ are also important to have contracts and/or visibility around.
  • Offtake Who will purchase the product and what terms will they be able to offer for the product?
    • This is an incredibly important part of the project. How much demand is there for what is being made – biofuel, renewable electricity, green ethanol, etc.? How much differentiation is there in the product being produced and is that recognized by the market (i.e. can it attract premium pricing)? Similar to Resources, is there clear visibility into contract structure and how much of the volume/pricing/tenure can be locked in? What customer optionality is there and are there existing relationships if not agreements? Outside of the primary product, are there by-products produced and are there offtakers for those products? What sorts of certifications or specifications will the product need to qualify for and how much variability will the process be able to handle?

These first three are crucial to securing the base project economics. Often times, projects come to us when these three are still in flux, which makes modeling the project more challenging and why some more conservative investors prefer agreements to be more or less in place before they engage. At the same time, project developers often find that initiating conversations with investors when agreements are not finalized can provide larger corridor for investors with different risk profiles to come in and help negotiate those agreements to their liking. Balancing the timing of these conversations is an art much more than a science. Sometimes we advise clients to execute LOIs with the appropriate parties, which can formalize a series of conversations into a document that can be shown to an investor but also leave room for further negotiation. This formalization and documentation is important for projects that are “first of a kind” or championing a new set of relationships.  

The last four components are ones that every project should also have clear visibility around before talking to investors (and probably do based on work done during the project motivation stage) BUT are not crucial to the economics of the project. Instead, they more so dictate timing and execution risk around a project. Thus, these components can change a little throughout the financing process without major effect. At the same time, much of this work will inform the first three, so it’s unlikely that these components will change drastically anyway.

  • PermitsWhat kind of permits are required for construction and operation? What is the timeline for these permits?
  • TechnologyWhat kind of technology is being used? What engineering work is needed to scale the technology up? Has an engineering study been done by a third party?
  • TeamWho will be operating the plant? Who will be managing the overall company? Who will be negotiating the contracts? What kinds of agreements will dictate labor allocation between different entities?
  • CapitalWhat kind of capital will be needed at what stages (development, construction, operation)? What investors have funded the holdco or development stage and what role will they play going forward?

Hopefully that provides a clear framework around how projects in the energy transition space are evaluated by investors. For project developers, the broad takeaway is that there are many questions that will get asked around the development / financing process, many of which there won’t be clear answers to from the get-go. The important thing is to have answers at ready and be ready to document and validate those answers at each step.  


Project Development for Energy Transition: Pt 1 

Posted by Deanna on September 21, 2021

An interesting dilemma for capital providers in energy transition these days is being able to underwrite the unique risk profile for infra development in the space. Traditional project development relies on visibility, predictability, and repeatability, all aspects that get blurred by the uncertainty, dynamism and constant “newness” that runs across energy transition. That’s why infra has traditionally focused on projects that have low to no technology risk, rich precedence, and contracted cash flows – things like roads, buildings, pipelines, etc.

Renewables has come a long way in its road to being the perfect project finance candidate. Technology development has progressed to the point where solar panels and wind turbines are proven at scale and, on the lower end, virtually commoditized. Backstopped by typically 15-20 year PPAs, renewable assets have become prime targets for energy transition infra deployment.

But there’s a whole host of other new energy infrastructure that relies and will rely predominantly on emerging energy technologies. That includes storage, CCUS, hydrogen, biofuels, water recycling and filtration, waste-to-energy, etc. For so many of the companies in these areas, the capital ramp is quick – going from Series A/B to the next phase of capital can mean a jump from $5-15mm to $50-500mm+. The step-change nature of the development cycle for hard tech means that the incremental de-risking that is achieved is often disproportionate to the incremental capital ask. Most of the time, the change in capital is much larger than the perceived change in risk.

NREL breaks down the different components of project motivation, which is what they define as what drives the project forward and gathers the necessary stakeholders. They break it down into BEPTC – Baseline, Economics, Policy, Technology, and Consensus. How this framework plays out in energy transition infra:

  • Baseline – project should have an overarching reason why it’s needed. NREL calls it a “statement of purpose.”
    • The biggest disconnect we get in energy transition infra here is that baselines are often “this will be the first…” or “this is proof that…” vs. establishing a true need from the market forces at work
  • Economics – project should have favorable economics – ideally economics so favorable that there is margin for those economics to fall and still make money. NREL recommends a 20-30% rule of thumb margin
    • This is a challenge for energy transition infra. The project may not be at true economics of scale because the vendor or offtake market is not mature or the technology still has to undergo some engineering work at scale. It may not be feasible to work at a 20-30% rule of thumb or it may be hard to pinpoint what the margin for error is exactly
  • Policy – project should be aware of and have strategies around policy
    • Most projects we come across have a good handle on existing policies. The problem with this component is that policy is not very well defined and rarely has precedents in this space. It sometimes takes coordination with the policy makers to have a view on future policy clarifications or decisions, access that some project developers may not have
  • Technology – project should assess technologies available and choose ones that are “bankable” and NOT unrealistically early stage. NREL calls this the most straight forward component of project motivation, assuming there is plenty of commercial technologies to choose from that achieve the same end. But in the absence of choice around technology, we see this component as the most challenging to navigate
    • Energy transition infra projects that are “first of its kind” need to have robust understanding and explanation of the technology. The earlier stage and unique it is, the more of a challenge this is. What has worked in the past is pointing to rough analogs of each technological component to build some element of precedence. For example, if the process is new but the reactor design, cooling towers, heating elements and all components in the process are old, that can be a form of precedence. Having a good initial list of expected engineering problems to be solved can also serve as a bridge to an investor getting comfortable with the technology
  • Consensus – project should build consensus around stakeholders on motivation and development process. This component is the most difficult to gauge when bringing in a new investor or third party. In our minds, having initial consensus is great, but the perception of future consensus can be a real dealbreaker. In other words, the investor should feel like the project will have an easy path to getting anyone involved in the project now or in the future on the same page. A confusing story or eclectic market may feel daunting to buy into if the investor feels that they are alone in those efforts
    • Energy transition infra ecosystem is constantly shifting, so predicting future consensus (what it will need and who it will come from) is a great challenge. Marketing the story and making sure there is broad public buy-in around the market need is a way to establish this (as is being done around batteries and EV infra) but takes time. The other way is to make sure that the stakeholders involved in the project are both committed long-term and have the necessary resources to commit long-term. Having contractual relationships with large creditworthy strategics can help establish this

How this relates to raising capital is that it’s these very core elements that come to form the “gut feel” of whether a project is worth pursuing. When presented with an opportunity, investors have to make quick decisions on whether to spend time on that opportunity – and what we’ve observed is that it’s this general framework that investors use to make those quick decisions.

Once a project gets the green light for deeper due diligence, the next steps are understanding the timing / stage of a project and refining an investor’s understanding around risk to see whether that matches up with an investor’s investment mandate. A good way to look at this phase is both quality of decision around and progress on decision around: site, resource, offtake, permits, technology, and team.


Distributed Industrial Networks: How the climate crisis is overturning economies of scale ​​​

Posted by Deanna on August 31, 2021

The concept of economies of scale has been long ingrained into our paradigm of an efficient economy. Reducing costs by increasing efficiencies in larger scale, more centralized production units makes sense to us intuitively. We’re taught to buy supplies in bulk and get a discount, spread fixed overhead over larger production volumes, use size to gain market leverage over customers and suppliers, and access larger and cheaper tranches of capital via larger capital projects.

The twist with economies of scale in the context of climate change is that the classic industrial optimization problem becomes bifurcated. Efficiency as a goal has to compete with climate friendliness. That changes the economies of scale equation a bit.

In a traditional economies of scale model, industrial centers produce vast, cheap quantities of product and that product is delivered to other industrial centers for further processing or large distribution warehouses for delivery to the end user. The result is the ecosystem as we have it today: industrial clusters where similar products are developed in tandem, networks of pipe/rail/trucking routes where product can be delivered to another industrial cluster where synergies can gain be realized.

But in an economy where climate impact is prioritized, these centers of industry are focused on delivering the smallest footprint, and that may not line up exactly with our traditional model of economies of scale.

A prime example is the distribution of solar resources. Residential solar comes in at ~$0.15 - $0.22 / kWh vs. community solar at ~$0.07 - $0.17 / kWh vs. utility scale solar at ~$0.03 - $0.04 / kWh, costs that indicate a fair bias towards “bigger is better.” But when taking into account factors that affect the environmental impact of each project like land usage, transmission losses and time to deployment, residential solar starts to level the playing field.

This effect is even more prominent when considering energy resources that don’t have as efficient of a network to deliver to the customer. Within the industrial ecosystem, goods get hauled between industrial sites everyday. For processes that are aimed at lowering the carbon intensity, the effect of this haulage, which includes road fuel and any preparation work to get the product ready for transport, on the carbon footprint makes a sizeable dent on the overall score. Decarbonizing a heavy industry facility will require making sure the incremental footprint made by logistics at that site is netted out against the footprint reduction of the process itself.

A salient example of this is in CCUS, where the financial and environmental cost of transporting CO2 means that sources have to stay close to capture sites which have to stay close to end uses / points of consumption. The end result is a much more distributed network vs. incumbent industrial networks like this in oil and gas or steel production.

Several other areas of climate tech will follow suit in becoming more distributed over time, including hydrogen, green chemicals, and agriculture. The closer one’s customer base is to the individual consumer, the closer the industrial site might have to be a population center, spreading these networks much more similarly to population. The environmental benefits are not just limited to logistics either – finding more sustainable ways to produce something will fragment our industrial products such that regionalism / customization to the local consumer will have an increasingly dominant effect (e.g. consuming produce that’s local or using energy produced by a local landfill). This will often run counter to the traditional inclination to build towards economies of scale and centralization.

A final thought: perhaps the end result of all of this is that population growth and migration will evolve to take advantage of areas where economies of scale won’t have to be sacrificed for the sake of decarbonization. Urbanization is often pointed to as a key risk factor for climate change, mostly due to the current limitations of urban infrastructure. However, urbanization does have the nice benefit of creating economies of scale in having points of consumption all gathered into one place. Cities were once built around proximity to coasts and rivers to take advantage of trade and water available for agriculture/drinking. Now that we’ve identified novel, cleaner ways to utilize the resources around us, perhaps cities will evolve to be gathered around those industrial resources instead.


From Trash to Treasure ​​​

Posted by Deanna on August 3, 2021

Energy transition and circular economy go hand-in-hand, both optimizing for an ultimate vision of sustainability. Where they overlap is around the industrial processes that generate energy, adjacent to energy production, or use energy in a significant way. Creating a circular economy means that products are able to be used for longer or for more purposes, waste products are turned into feedstock for creation of new products, and that there are industrial pathways in place for recycling, repurposing, and recovering within the product’s lifecycle. We see the circular economy divided into two main areas:

Waste to energy, or creating electricity, heat, or fuels out of trash or organic waste. Landfill to biogas, dairy manure to RNG, municipal solid waste to syngas are all thriving examples of these pathways. Most of these technologies have existed for decades in order to reduce the operating costs and amount of land occupied by waste management facilities, but we’ve seen a recent “renaissance” of activity and development. The unusual tenure of the technology (derisking it in many people’s eyes) combined a macro focus on decarbonization and expanding regulatory programs like LCFS have led to WTE projects skyrocketing in number. ​​​​

The production of goods from waste resources or industrial by-products. The utilization of CO2, normally a by-product or waste product, in producing chemicals, carbonates, or synthetic graphite has been a big topic. Plastics recycling has been and continues to be a dominant focus in this space. Creating chemical precursors like methanol or ethanol or hydrogen from excess syngas streams or waste biomass can be the industrial bridge to creating more sustainably produced plastics.

Creating these pathways is no easy task – and being able to sustain them over a long period of time will be even harder. A big challenge with circular economy pathways is maintaining the balance between supply and demand. An instable waste stream can cause a feedstock shortage, disrupting commercial agreements and leading to price volatility. Because the components of a circular economy are so interdependent on other processes, a circular economy is vulnerable to the domino effect. One sequence of disruptions can completely eliminate the viability or need of a pathway.

This brings us to the ultimate challenge: commercializing circular economy pathways for the long term. Like other industrial-scale projects that we have seen in the energy transition space, circular economy projects will require a combination of technology development and project development, two different sets of expertise and ecosystems. Moreover, the traditional infrastructure development mindset relies on having high visibility of offtake and feedstock. Both of those are hard to secure long term in a circular economy, where inputs and outputs are always shifting according to market dynamics.

The name of the game for circular economy is flexibility. Having optionality around feedstocks and offtakes will generate an advantage for projects, especially those that deal with intermediary products. Most of the projects we look at don’t future test their pathways, only basing their narrative on one particular macro outcome. Circular economies are not static, especially as we deal with the behavioral science surrounding waste vendors. A big question is what happens when a waste turns into a valuable product, one that merits a premium vs a discount? We saw that happen with flared gas to bitcoin mining. It’s for that reason that for companies looking to commercialize circular economy projects, we recommend extensive scenario planning.

In any case, the circular economy is an exciting vision that is flourishing now. WTE, which was once the dirty cousin of wind and solar in the renewable energy industry has turned into a fast-growing behemoth. Recycling is not so consumer driven anymore and scaling up to replace industrial processes. We’re excited to see this space grow and what comes out of it.


Carbon Offsets - The Good, Bad, and Ugly

Posted by Deanna on June 29, 2021

Carbon offsets and carbon credits are interesting financial instruments intended to provide a way to quantify and monetize environmentally beneficial actions. They are similar to Renewable Energy Certificates (RECs), which are credits assigned to MWh produced of renewable electricity. Like RECs, a certain number of carbon offset credits are assigned to a project and can be bought / sold separately from the project. But while RECs are solely for promotion and facilitation of renewables development, carbon offsets can theoretically be sourced from just about anything that is emissions reducing.

This broad, broad scope has encouraged a variety of projects to be counted towards a carbon offset. Everything from installing cleaner stoves in Mozambique to reforestation to installation of biogas digesters can generate carbon offsets – and there are many more that are being qualified by the day. This diversity is both a blessing and curse. On the one hand, many projects that are too niche to receive regulatory and / or traditional financial support have a mechanism by which to access for-profit capital. On the other hand, the variation in carbon type and quality has proved a challenge for those looking to establish a unified carbon marketplace.

A part of this challenge is the multiple issuers, resellers, certifiers, registries, verifiers and auditors that each play a part in filling a part of the value chain for at least one carbon offset pathway. The market is extremely fragmented and operates across too many spheres of influence, leaving no one authority with the ability to demonstrably consolidate and reconcile every approach.

As a result, the current carbon offset market looks a bit like a dysfunctional circus – lots of interesting acts going on at the same time in different places, with little continuity or direction. The chaos is bolstered by additional issues like:

Accountability is lacking – carbon offsets require near permanence in the sequestration or use of the carbon involved, but that permanence is difficult to monitor and ensure effectively

Additionality is currently incredibly subjective – a carbon offset project needs to show “additionality” to what the status quo plan was for that piece of land or operation – or in other words, demonstrate that had that carbon offset project not been in place, an emitting action or project would have happened instead.  But proving that is difficult and a bit like trying to prevent a crime that hasn’t been committed yet…something that John Anderton taught us is a highly vulnerable model

Fourth dimension issues – carbon offset projects can generally quantify what the carbon impact would be over a lifetime but struggle in predicting what the shape of those offsets would be, especially in those outer years. Therefore a project could be issued a slew of credits for avoidance or protection actions taken in the future, but the actual real impact from that project may diverge from what was assumed at the time and generate controversy. Thus if the intention of a company is to buy credits to offset emitting actions taken at a certain point in time, a significant lag between the time of emissions and the time of actual offset might reduce the “net present value” of that offset (is there such thing as time value of impact?)

Misalignment of funding objectives – carbon offset pricing is driven by a number of factors: location, human welfare impact, employment impact, vintage, capital costs, etc. What’s been interesting to observe is how cheap an offset project can be, ranging sometimes from a fraction of a dollar / ton of CO2 to several hundred dollars. When a company has to make a decision around whether to develop an emissions reducing project or just buy certain carbon offsets, the most economic option may be just to buy some cheap carbon offsets that may be equivalent on a ton-to-ton basis but may end up discouraging the company from directly reducing its own emissions footprint

This exceptionally blurry universe of carbon offsets has created multiple opportunities for innovation: the monitoring of permanence, data collection to prove additionality, value chain tracking via blockchain, exchanges and entities that can help standardize carbon pricing, etc. Kimmeridge recently put out a paper that argued for an oil and gas-specific carbon offset exchange, one run by the industry and for the industry. Perhaps there’s an argument for multiple “vertical” exchanges that focus on industry “insets” (instead of offsets), where certain industry-specific carbon projects can only be used to counterbalance certain industry-specific actions. Perhaps we will figure out a way to create the “one true exchange.” In any case, it’s clear that the conversation around carbon credits is fast evolving – and despite all of the crime tape around the system today, there are plenty of sharp innovators on the scene to help.


Despecialization: The Impact of Transition on Labor

Posted by Deanna on June 15, 2021

The capital requirements of the energy transition are well-publicized. The amount of money that needs to be invested in order to install new renewables capacity, upgrade the grid, deploy new vehicle fleets, integrate new heating and cooling systems, scale up carbon capture, build up bioenergy pipelines, etc. is in the tens of trillions of dollars. Those aggregate numbers are staggering, but it’s hard for an average consumer to visualize exactly what that impact will be on our day to day. Perhaps we all have to plan on buying an EV in the next decade? Upgrade our heating systems? Choose a more efficient oven or washer/dryer? Foot a higher utility bill? Perhaps we all should expect to pay a bit more in taxes over the next few decades?

For workers in energy, that impact is a lot more apparent. Putting that much capital to work and retiring the corresponding amount of heavy infrastructure will have enormous labor implications. Most of those who touches oil and gas – from investor to CEO to engineer to field tech - are thinking about the transferability of their skills to new energy areas. Geologists and reservoir engineers are evaluating applying their ability to characterize the subsurface to areas like geothermal or carbon capture. Construction workers used to being on the oilfield are evaluating similar work constructing solar panels. Project managers are thinking about how to step into the new wave of new energy-oriented projects. The industry is now facing an unprecedented time of despecialization, that in which nearly everyone in the oil and gas ecosystem, from operator to service company to startup to investor, is being pressured to orient their roles to be less niche and more market agnostic.

And this despecialization doesn’t come without consequences. Pay is one big one. It’s well reported that the average pay for a job in renewables is more likely to be lower paying than a similar job in oil and gas, with the discrepancy ranging anywhere from 20% (construction worker to construction worker) to 40% (engineer to engineer). The gap is even wider when considering the probable scenario of a tenured worker in oil and gas taking a step-down in position in order to learn the ropes of a new trade. And that still doesn’t include the costs of training or job search. Although companies like Workrise are moving to ease this burden, the energy transition will still overall be a painful process for the average worker. With pressure continuing for renewables/new energy to lower costs, coupled with the pressure for oil and gas companies to keep offering attractive compensation packages to attract talent, this pay gap will likely continue for a long while.

What also comes with despecialization is dealing with increased competition. We see this happen with energy tech companies looking to expand outside of oil and gas as well. Although the oil and gas industry is large, the world outside of it is even larger. As more and more people look to transition with a less specialized and more commoditized skillset, they will have to contend with competing against both other workers transitioning and new workers from other industries. The mental and financial stress of dealing with this increased competition can be incredibly taxing.

All of this will change the average worker in energy. The workers that stay in energy will increasingly be the ones that can appreciate the non-pay related benefits of working in energy transition. That includes job stability, impact, and social responsibility. This is not new to the average Gen Z or millennial worker. Studies have shown that Gen Z workers prioritize purpose over pay. So as the generational turnover occurs, becoming a company that emphasizes social mission and responsibility will be key to attracting and retaining talent – and perhaps naturally resolving the pay gap.

In the meantime, for those that have not adjusted or can’t afford to adjust to this mindset, the road ahead will be a little rocky. BLS reports that 400-500k workers work in oil and gas extraction or support activities for oil and gas – and using more inclusive taxonomy, that number expands to somewhere between 1-3mm according to USEER and more than 10mm according to API. As this workforce moves to despecialize and enter into a job market driven by transition, many will be tested on their flexibility, ability to learn, drive, and passion for what they do. Many will flourish under these settings. And many will be pressured to move on from this industry. How this will settle out is still a mystery. If there’s any surety around the future though, it’s that the transition won’t be easy for our workers.


Consumers Matter in Consumer Matters

Posted by Deanna on May 4, 2021

It’s no secret that with the evolving energy landscape, there will be more business models in our industry oriented towards the individual consumer. The advent of new price comparison websites such as Power2Switch or PowertoChoose have made comparing retail energy plans much easier, showing in simplified terms what the average cost per kWh is for certain thresholds, highlighting whether the rate structures are fixed or variable, % renewable energy, etc. Digitalization has made the consumer more powerful in energy choice, leading to an increased focus in studying and responding to the different components of consumer preference.

This has changed the retail energy product offerings over the years, with more robust online / bill pay platforms, higher % of renewable energy, clearer billing structures, and partnerships with sophisticated energy management tools like Nest playing key roles in swaying the more capricious consumer. We increasingly see more energy companies having to take learnings from more traditionally consumer-facing businesses like retail or tech in order to stay competitive. Standard practices in retail and tech like A/B testing, consumer data gathering, and consumer-oriented marketing have been and will increasingly be transplanted into the energy sector.

But this trend is not isolated to residential electricity consumption. Current energy-centric products like EVs and some types of batteries will also find momentum in direct-to-consumer models (such as Tesla). Traditionally oil-weighted products like plastics and polyester fibers are selling into markets where consumers are increasingly having a preference for low carbon / circular economy types of materials (think recycled PET yoga pants or bottles). A Kearney study found that the percentage of consumers that would be willing to pay more for “green” products has jumped 30 points from 2013-2019.

Figure 1. Kearney exhibit on consumer premium. Sourced from Nielsen, International Renewable Agency, Oeko Institute, World Wildlife Fund.

Fuel distribution and consumption has also been impacted by this trend. There is a strong case to be made for why oil and gas and other fuel production companies should expand their retail energy presence – and indeed, we’ve seen some oil and gas companies already pursuing this strategy. Shell, in 2018, committed to investing $7-9 billion in developing a new downstream strategy, expanding its convenience store locations and revamping the product offerings and services at each location. BP formed a joint venture with ArcLight to buy convenience store chain Thorntons. Some companies have taken an even more creative approach, partnering with consumer-facing businesses like food delivery services. The benefits are multi-fold: production companies can find better outlets for their fuel products in a market of diminishing demand growth, increase margins by offering high-value products and services outside of the commodity, and drive better brand perception by direct-to-consumer marketing.

Retail energy also creates better opportunities for energy transition. As renewable fuels gain market share, product portfolios will become more differentiated and complex, which means being able to build a consumer understanding of the different fuel blends will become more important. That understanding is difficult to ramp up without a direct line of communication to consumers. Having a retail presence also creates optionality for energy companies to put in place EV charging or hydrogen depots once the demand is in place.

The point is that energy in a lot of ways has become a consumer matter. All types of energy usage - electricity production and consumption, energy and carbon usage in product manufacturing, fuel distribution and usage, etc. – now involve more consumer input. And the flexibility that a world of energy choice affords means consumer input will increase in importance going forward. Transitioning to a B2C sales model with greater understanding of consumer purchasing decisions will build more nimble and defensive businesses.

Consumers are paying attention to energy and it won’t be long before energy will have to pay attention to consumers as well. Consumers matter in consumer matters.


Tipping Points in Energy Tech 

Posted by Deanna on April 6, 2021

A question we always run into in energy tech is when a technology is worth investing in. How does one know whether a certain technology will persist or desist? What signals form the “green light” to say that a certain technology is for sure sticking around long enough for a good investment to be made? It’s a million, billion, and even in some cases, trillion dollar question (depending on how large of a capital investment is at stake). And it’s especially hard to answer in the world of energy tech.

The challenge with this space is answering the larger questions around adoption rate and predicting the “tipping point.” Malcolm Gladwell famously wrote a book about this entire phenomenon, illustrating the many parallels that dissemination of ideas and beliefs and behaviors have to each other. The moment a trend turns into an epidemic is a tipping point, and just like in literally viral epidemic, the adoption is driven by “superspreaders,” which are a minority of the population. Gladwell lays out the 80/20 rule, which is that 20% of the participants do 80% of the “work.” He defines the 20% to be separated into three different categories:

The Connectors – those that have wide social networks and link up disparate parts of population

The Mavens – those that are collectors and spreaders of knowledge

The Salesmen – those that are good at persuading others to change their behavior or adopt a new idea/belief

Gladwell isn’t the only one that has identified the role of “movers” in tech adoption. Scientists at the Rensselaer Polytechnic Institute found in 2011 that the tipping point threshold for when a sticky belief turns into majority opinion hovers at around 10%. In other words, the burden of accelerating adoption falls disproportionately onto the first 10% committed opinion holders of a population. It may take some time – possibly even forever – for that first 10% to accumulate. After that 10%, researchers found that the exponential switch flips and there is clear line of sight to majority adoption.

We have seen this happen in energy technology. Its tough to quantify the number of “committed opinion holders” around electrification of vehicles and how that’s progressed over time – perhaps that’s somewhat proxied in the multitude of consumer surveys that have shown a dramatic increase in the proportion of consumers intending to buy an EV in the future, a number that has shot up from ~17% to ~45% in 5 years for the US. But some minority threshold did get crossed and the power of population consensus amongst investors around the future being electrification has enabled a dramatic increase in investment into the EV ecosystem (28 SPACs…!).

When will that threshold be crossed for ecosystems less developed like hydrogen? Or carbon capture? Figuring out when the tipping point will occur can make a big difference in whether we will see the same acceleration happen in these spaces. Most reports look to 2030 for green hydrogen to make a significant dent in global hydrogen production. But a lot of that acceleration depends on costs falling at rates in-line with the drops we’ve seen in solar and wind. If there is a tipping point earlier – as we have seen can very well happen with the increasingly steep s-curves observed in the general technology space – it’s possible that something like hydrogen that is still considered speculative by many investors may be here faster than we think.

One of the most interesting aspects of the energy and industrial tech ecosystems is that they’re dominated by large, established companies –companies like the integrateds, large utilities, service companies, independent E&Ps, industrial gas players, etc This is both a blessing and a curse. It’s a curse because technology that is not validated at one of these constituencies often faces a much higher hurdle to be adopted by general industry…and we’ve talked at length about how lack of change culture and siloed roles often prematurely stilt tech uptake in some of these organizations. But at the same time, it’s a blessing because just a few “committed” corporates that can create a culture where the whole company is buying into the strategy can move a technology much closer to tipping point than if the same were to occur in other industries. For better or for worse, we are an in an industry where the large energy companies have the power to be “movers” in the new energy space.

With something like hydrogen technology, which already has a good growing set of committed stakeholders on the demand side and, to a certain extent, on the supply side too, perhaps all it takes is just a couple more of these large players to move themselves into the “committed opinion holders” camp before a tipping point occurs. For the rest of us, making sure that the decision makers at these companies realize how much is at stake in their hands is crucial.


Lessons Learned From 2020?

Posted by Deanna on February 5, 2021

​As we close the books on one of the most unusual years in our history and look to a better, brighter, and less catastrophic 2021, we can at least assure ourselves that 2020, at minimum, offered us some interesting lessons for the energy tech space. Here are some of ours:

  • It pays to be green and clean – 2020 accelerated interest in energy transition as the oil and gas industry experienced yet another major disruption. Businesses that were not previously marketed as emissions reducing strived to clarify their role in energy transition. |
  • SPACs are a viable option for earlier stage companies to access hungry public capital – 2020 saw the largest number of SPAC IPOs and subsequent deSPACs in financial history. As companies look for alternative methods of raising capital and going public in a dry private capital environment, SPACs will continue to be an attractive alternative. 
  • Never take capital for granted – with the private capital shortage, companies that coincidentally raised money in late 2019/early 2020 benefitted from having sufficient runway to take them through the worst of the pandemic, while companies that had planned to raise money later in the year were left with the short end of the stick. The lesson may be to raise capital when you can – and not necessarily when you absolutely need to. 
  • Who backs you matters – companies with stingier or less flexible investors suffered more when things got tough. Finding a backer with deep enough pockets and sufficient belief in the business to be able to provide emergency capital in unforeseen circumstances mattered more last year than ever.  
  • Who buys from you matters – similarly, the quality of a company’s customer base is thoroughly tested in times of distress. Quality can be measured in several dimensions: creditworthiness of the customer, resiliency of the customer’s budget, confidence in and commitment to the solution by the customer, and strength and level of advocacy within the customer’s organization. Working across lower quality customers or with less developed customer relationships was the source of a lot of the customer attrition in 2020.  
  • Ability to effectively pivot business model and end market exposure is a very useful skill to have – companies that were able to move quickly to reduce exposure to oil and gas activity and increase exposure to other markets like other industrial services (or even PP&E) had access to more capital and commercial contracts during the pandemic than those that had siloed themselves into being strictly oil and gas facing. For energy tech companies, 2020 demonstrated the value of flexibility and understanding the transferability of technology between industries. 
  • Remote working is sustainable, and in many cases, preferable - 2020 was a big experiment in the merits and challenges of remote working. For most office jobs, going remote affected productivity less than expected, though sacrifices in face-to-face interaction had an obvious impact on roles that relied on in-person sales or marketing. For heavy industry operations like working on an offshore oil rig, 2020 was the year to push for more automation and remote operations. Many companies found remote working not only acceptable but sometimes preferable in lowering operating costs and company emissions. 
  • Achieving 1.5C is really, really hard - with the pandemic, global emissions fell nearly 9% y/y, meaning we were finally on track to delivering the emissions reduction needed year to year for our 1.5C goal. But as we saw, that reduction did not come without massive disruption and economic fallout. 2020 demonstrated that getting to our green paradigm near term may only be possible alongside enormous sacrifice. 
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