Green hydrogen, recycling, and next-gen batteries: Checking in on ‘Cleantech 2.0’

[Music] You need a different kind of capital, capital stack to more efficiently capitalize these companies and hopefully avoid some of the mistakes made in Contact 1.0. A new era of clean tech innovation is here and it's a good time to take stock of what's in the pipeline. Green hydrogens, circular economies and next-gen batteries are at the heart of clean tech 2.0. These innovations could take the clean economy to new heights when paired with fresh federal incentives or finding climate change. I'm John Engel, Content Director for Renewable Energy World. This week on Factor This, I'm joined by a look-sinder, a partner at the venture capital firm Fifth Wall, to break down what's on the way and whose position to cash in. Fifth Wall is one of the largest VCs driving clean tech innovation with $2.9 billion under management. The firm recently led the $30 million Series A round for solar module recycling startup Solar Cycle. That's all next on Factor This from Renewable Energy World. A look-sinder, thanks for joining the Factor This podcast. Great to see you. Great to see you. Great, I'd like to join you today, John. A fan of the podcast. Yeah, I'm glad you're here. It's great to have you here to help us understand this new era of clean tech that is taking shape. I know we'll get to that more in a minute, but I really appreciate your vision on this, especially given that you have prior experience in the clean infrastructure world and now in the venture capital world. It's the right time to be having the conversation because a lot of developers, asset owners that have been more pure play involved in this first generation technology of solar storage wind are starting to get a little creative. So we know that we have the promise of the inflation reduction act. So it's exciting times before we go down that road. Why don't you tell us a little bit about yourself and how you got to this position now at fifth wall. Happy to. So John, I've spent my entire career in energy started off in the fossil fuel traditional conventional energy world down in Houston working for the likes of Penn's oil and Shell. I'm at JP Morgan in the M and A team in power utilities working on transactions and nuclear coal again gas. It a tremendous foundation learning experience. I worked on when I was at JP Morgan Duke energies acquisition of progress energy back then and may still be the largest utility transaction in US history at 65 billion dollars of enterprise value. Remember then they had a whole entire fleet of assets that everything right nuclear coal gas, but they also had an emerging wind pipeline and assets as well as solar and that was my first real exposure to evaluating these assets and remember thinking hey look. I've covered utilities I've covered IPPs especially the IPP space. There was a history of bankruptcies with the kind of the old school versions of NRG Calpine. And I came across these projects and wind more wind at that time than solar and I realized hey these don't have that same commodity exposure with the rights with the right PPA et cetera these things are producing. And I think it's still reliable and I began to think there's a real potential here especially to integrate with the grid and obviously that foundation in the traditional infrastructure. I began to think hey there's real opportunity for a new generation of power plants effectively and ones that are renewable and focus on decarbonization. And I think that's where it started about 2012 I got an opportunity to join D e Shaw. This is the D e Shaw private equity team in energy and infrastructure and we had a number of portfolio companies at the time first wind, which was primarily wind developer but also went into solar. And so that the sun Edison in 2014 also deep water wind which was an offshore wind developer and that was an amazing team that built the first offshore wind farm off the coast of Rhode Island the block island project that's 30 megawatts. Actually today I think it's still the largest operating offshore wind farm in in the country. Hopefully enough for long because there's a lot of interesting projects and development and all through that process I began to realize that this first generation of what I call energy renewable energy infrastructure climate infrastructure if you will is integrating with the grid decarbonizing but it's focused in on producing electricity. When I began to think about and my story here going to fifth wall it was all about well what else are we going to do in the built world how are we going to also decarbonize our buildings our cities these urban environments these suburbs that became a key component as to how I was thinking about the how what the future will hold. I can expect the call out of my home utility to so that was pretty cool North Carolina here Duke energy progress so they'll be they'll be happy to hear that there are utility contingency within the audience. So dive into that a little bit more then so you've watched this progression you came from the conventional background then went into the renewables front where do we go from here and what is the role of venture capital firms like fifth wall to get us to that next evolution of technology where we've proven to be a lot of technology. Where we've proven out you know how to build a solar project that's well understood we can scale it where do you see us going next and what's most interesting of what you're seeing in the changing dynamic that's great question john let me take a step back and talk a little bit about what I loosely call this first generation. Of renewable energy infrastructure climate infrastructure and this goes back to my days at the show I remember in 2012 we were working on a utility scale solar facility in Nevada and back then solar was considered risky in 2011 salundra had gone bankrupt which made a lot of news there are a number of companies that were funded by what we kind of call clean tech 1.0 in the BC world. Where they were extremely capital intensive businesses very interesting and promising technologies but many didn't land and there are a number of losses there from an investment standpoint and going into this environment in 2012 there was I think a lot of fear and concern and. When we at D show looked at it we also saw an opportunity and I remember that facility in Nevada and thinking well there's a lot of things here that are relatively improving we had jinkle panels back when jinkle was a relatively unproven product i remember going through their bank ability reports. But now I think jinkos the largest solar panel manufacturer in the world we were working with at the time which is now one of the largest market share trackers in the world and now public company back then trackers were still relatively new technology and occurred to me as we move on to fifth wall and I talk about what's going to happen in this next generation there's a natural progression of technologies evolving mature and reaching. And reaching that kind of commercial scale where they they have access to capital and these are inherently capital intensive businesses so whether it's a solar project or some of the newer technologies such as green hydrogen director capture that are emerging they're going to need a tremendous amount of capital the need folks who understand those businesses and going back you know going back to the project in Nevada. And I believe in the solution we we we structured a solution that dearest the returns for our investors and we dove in with jingo at eye and ultimately solar as an asset class matured and today it has access to capital from various forms it has access to what I call cash equity it has access to tax equity of course and then it has access to various forms of debt as well at the project level. At the project level at hold co levels and it's a robust ecosystem that you see not just in utility space but commercial and residential what I see now and I think the venture capital ecosystem is critical to this is this next wave of climate infrastructure can see a repeat of that solar that solar story and frankly something similar also in wind how so what do you mean by that what do you what do you see is that repeat and how would you characterize the app. To take some of those risks on new technology compared you know when comparing clean tech 1.0 and whatever we're calling today clean clean tech 2.0 I mean is that that simple do you guys have a phrase yet in Silicon Valley. Yeah I call the next generation of climate infrastructure kind of focus on you can even call it net zero infrastructure the goal to decarbonize and hit various goals that corporations have set whether it's 2030 to 40 to 2050 a number of companies have now come out with goals of achieving that zero over the next several decades and what it takes now and I'll step back again to solar and win for a moment and then I'll go to your question which is a lot of the solar and wind projects they were you know Arizona desert Nevada desert they were in the Texas panhandle land is cheap the key was good interconnection access you built the facility and you're you're immediately having an impact on the great and you're decarbonizing a key component now that look at that the now that look to the future I do think you'll see more that there's still a lot of growth in that sector we need more utility scale renewables we need more commercial renewables and of course residential however I think you need more emphasis on where we live in the urban environment the cities the suburbs and in that regard you now have to deal with existing infrastructure what I call the built world and fifth wall in particular as focus on this space. Fifth wall is the largest asset manager focused on improving future proofing and decarbonizing the built world I think we have an a.m. around three billion with the network of 110 investors and we have 125 portfolio companies of which 30 are focused on the climate space and these portfolio companies focus on various new and and the kind of the next generation of climate technologies that are focused on green hydrogen emerging battery technologies and the other industries that that pushed the boundaries of your traditional NMC and LFP chemistries you have circular economy and and you know with battery recycling with the send elements and of course solar panel recycling with solar cycle and all these companies they're now focusing on more than power than renewable energy itself in fact one of the things that I would say is a key takeaway of how I think about things and and maybe for the audience is that you know the electron or electricity is in some ways means to a much more much larger decarbonization ecosystem it's it's there not just to send power to the grid but to achieve decarbonization as a whole. And we've seen a lot of growing interest in these technologies to especially from you know some of the larger developers AES and intersect power being a couple that are really laying the foundation for development of green hydrogen facilities and where to best place these to accommodate whatever industry we're going to be serving with that whether it's you know industrial heat applications or maritime or green fuels whatever but these were primarily pure play like solar and storage companies just a couple of years ago so that shift is happening rather quickly and it seems like some very serious players are aligning themselves together to meet this opportunity how would you characterize the current capital market availability of funds for these kinds of efforts like we always kind of joke that money in the climate space is just you could reach out and grab it at the end of the day. And reach out and grab it as you're walking down the street because there's such interest from the consumer level all the way to the investor class is it is rosy as we perceive it to be I think the answer is that in certain asset classes yes there is access ready access to capital. You know dry powder investment interest globally not just the United States obviously it's to significant legislative tailwinds in the United States from the inflation reduction act and other legislation the issue is it's there for the mature technologies solar wind portions of the battery sector but not all and then there's a giant drop off and this goes back to I think the initial comment about what we call this next generation of climate infrastructure and the involvement of venture capital which I think is critical but I also think it's going to be a little bit different than the version that happened in in 1.0 let me take a moment to explain that venture capital is designed for young companies that have differentiated and proprietary technology but oftentimes they're still necessary I R&D they've got a higher staff they've got to hit product market fit this is seed stage this is series a and venture capital is absolutely the right fit for this however the traditional versions of it you know word design more for a software ecosystem and where I think the climate space in particular differs is that most of these companies are are going to be in the physical world they're going to be in the built world and they're going to end up you know these technologies will be applied to build build fact that require factories they'll turn into power plants and kind of the way I call it it's bits versus atoms bits being the software atoms is the built world it's the it's the climate infrastructure space and you need a different kind of capital capital stack to more efficiently capitalize these companies and hopefully avoid some of the mistakes made in clean tech 1.0 you want to be able to provide the venture capital at like I said seed stage series a stage and and beyond at growth stage but instead of saying let's say a 3 4 500 million dollar series D round that I think we saw several of those we've seen those of course in the typical tech sector as well as the clean tech sector you know over the years it may be better to have some growth capital at the corporate level what do I call the top co but then also provide capital at the factory level or the power plant level and I think a lot of your audience is going to be very familiar with this because this is going back to the concept that we're familiar with with solar projects where you do have tax equity which we call class a you have your cash equity which we call class B and you'll have these various forms of project finance with debt at the project level maybe at the whole level and so you have these layered capital structures for mature businesses and it goes back to your point capitals readily available in sectors that are considered quote unquote bankable right and that word bankable you know I loosely made it to mean significant operating history a lot of the teething issues are already figured out reliable ecosystem of independent engineers and various testing companies out there that that help de-risk the entire solution well for these emerging technologies that ecosystem is still evolving these companies have this proprietary technology they're doing something advanced but they're building what I call these first of a kind factories and power plants using new whether it's green hydrogen hyper efficient electrolyzers like one of our portfolio companies electric hydrogen or if it's in the direct direct or capture space again they're using proprietary new technology that doesn't have years of operating history and we can provide funding in the venture capital space and what I hope to do here at fifth wall by launching a new climate infrastructure platform is provide capital that is adjacent and synergistic to that corporate level venture capital but at that factory level at that power plant plant level that is addressing these first of a kind facilities these are facilities that they're not lab scale they move beyond that that was for the venture capital they're beyond pilot scale to they're now at this point where they're small scale commercial they're building that first plant that's going to generate revenue and it doesn't have the operating history but it's ready to it's ready to scale it's ready to grow and there's that gap in capital where things are somewhat unproven and I think you know look the financial sector as a whole is relatively risk averse like an understand their thought process but if you look intelligently at these technologies if you spend the time to understand the management team the product market fit where they have a competitive and comparative advantage you can fund these companies and a relatively de-risk and structured manner and it goes back to what we did back in solar in 2012 and it's almost you know the goal is to repeat that cycle. I'll point people back a few episodes ago when we had scale micro grids co founder Tim Hade on the podcast and he had some great great comments about the challenges of scaling a clean tech company especially a clean tech hardware company that's dealing with you know batteries and panels and has supply chain headaches that stretch globally and it's tougher for maybe the venture community to hitch their wagon to companies like that because they have to build stuff and it's really expensive to go out and build stuff and one of the comments that Tim made was getting your first few million even less than 10 million that's a walk in the park in this sector right now but getting that next 50 to 100 million is really really challenging and the only way that scale was able to build up the scale that scale was able to achieve that and to secure that capital was to cobble together what funds they could and just go out and build projects because the appetite for that risk on the hardware side was difficult to convey to the venture community due to their you know more comfortable approach to software versus like these hardware platforms is that what you're looking to address with this clean tech infrastructure platform and am I getting that right John your spot on I think that's an excellent example there's that gap that they had to cross and that 50 million dollar check which doesn't seem like a lot but for where they are there's just a lack of capital available even though there's an absurd amount of capital available for other solutions and at fifth wall you know we have the venture expertise we've gone through these technologies and portfolio companies obviously we've invested in them at that earlier stage and so we understand them I think we can help differentiate between those who have the right product market fit in fact we continuously work with our LPs many of which are corporations that are potential customers of this technology asking them look would you buy this product if not what is it that you would like to see I think that feedback feedback loop is critical as well and that's what we aim to do here with this new climate infrastructure platform is fun those first of a kind facilities help these entrepreneurs achieve scale and truly unlock the potential of their platform yeah that super helpful thanks for explaining that and speaking of those first movers and those first plants you're right in there with solar cycle we've had to be sure on this podcast before talking about solar cycles approach to recycling I think 95% of the critical materials from a module and the things that suvi has done in this industry or astounding but I think the solar cycle story is really really interesting and fifth wall just led that that most recent series a 30 million dollar raise the reason I go to the solar cycle example is because the VC community is quite important to our developer asset owner audience maybe with a level of separation because you are supporting those companies that we know we will need in the next 10 15 20 years meaning recycling and meeting that imperative to deal with modules and keep them out of landfills but the market really doesn't exist today and and it's not scalable today but by investing in companies like solar cycle and investing in people like suvi you guys are really helping lay the groundwork for that next challenge that will have to be addressed what was attractive about the solar cycle deal and maybe some insight into how that all came together in your vision with that. Yeah happy to very excited about this solar cycle investment and let me take a step back and talk about kind of how I viewed this opportunity first through just a personal experience in 2018 one of our projects a D Shaw had a hill storm event it was in Texas and hundreds of thousands of panels were damaged. I remember going through the process there's many things you are going to get new panels you're going to go out there and repower the site effectively however one of the biggest problems was what are we going to do with all the damage panels you want to do in an environmentally conscious way you want to be efficient and we talk to a number of operators where honestly my reaction was this isn't recycling they called it recycling but it isn't it was mostly crushing into land right is probably the right way to do it. And I was frankly disappointed now fast forward a few years and I get introduced to this company solar cycle and first it's suvi Sharma as you mentioned and a couple of other really talented co founders and Jesse Simon's and public Diaz so very credible team and you you go okay that that's that's great these guys know what they're doing these are solar industry veterans but honestly I was still skeptical so what I did is I went down to a desa Texas for the first time I was going to do this. I was going to do a desa Texas for their facility and I saw it with my own eyes I saw facility that was recycling these panels at a much more efficient way and true recycling in a manner that would be consistent with what we think of it as their their you know they're not just crushing that glass and getting access to the aluminum frame but they're getting to these core critical materials that are actually limited silver copper and and if you think about it silver I think 15% of all silver in the world is now used for solar panels and it's only expected to rise some of the projections go up to as much as 50% and like many things in order to get to you know kind of you know new silver virgin silver you've got to go through an environmentally damaging mining process these are things that you'd like to avoid this is goes back to that circular economy that we're going to decarbonize our world we need to reuse what we already did and do so efficiently. And so cycle has this proprietary technology it's working in their facility in a desa Texas however it doesn't have multiple years of operating history they're just getting started now look there's even some teething issues they're going to get more efficient as time goes on. So when I saw this and I saw the real commercial potential I know there's a market need because I felt it and I think that's one of the advantages of being in the space for 20 years from the traditional energy sector to renewable energy is as I have a good grasp of okay here's here are things that I would need and I needed as a as a project developer and a project owner. And here's this wonderful solution with an experience team and now the question is well what do we do to make sure that this can expand and grow and so we provide a capital and it's somewhat unique way. So here we provided a series a investment again at the corporate level traditional venture capital because so cycle is still going to hire more a larger team they're going to do more R&D in their in their area and and maybe build out new business models that's all perfect fit for venture capital however they have this Odessa facility and it was running one line at the time and we can expand that facility to increases capacity to believe up to about a million panels per year and then you know recycling is a inherently regional business these panels are heavy so transportation ideally you'd have these recycle recycling facilities all over the country west coast east coast not just in in Texas and so you can see that this capital at the factory level can be used to expand their footprint across the US and then hopefully globally. And when you think about market potential and this goes back to your very first point John about well is this 10 years in the future or 20 years in the future well it is absolutely out there in the future because the solar industry is just going to get bigger and bigger but I believe about half there's about half a billion or 500 million panels installed to date into United States alone and the next four to five years another half a billion panels are expected to be installed and many of these panels especially the over the last 10 15 years there 200 watt or small or less module sometimes 300 watt and and you've I've seen this on several your podcasts we're seeing just a tremendous evolution of solar panel efficiency and technology from perk to heterodjunction and and these these these modules now you know 500 watt 600 watt modules and they're they're they're physically bigger to their more efficient and they're bigger and and and then there's obviously we have a tremendous with with legislative tail winds with the IRA there's the ITC extension PTC of course you're going to see more more facilities build so what I see is a chance for repowering in some instances being pulled forward even though a site maybe 10 years old eight years old I can see in the next few years project owners and developers thinking hey look I can put on a much more efficient panel than that 250 watt module from years ago and the beauty is that site has existing interconnection and you know this again from many of the folks in your audience does we have a key problem here where we have interconnection cues as a bottleneck for projects and I think this is one way for project developers to find a way to decarbonize and build better more efficient projects but sometimes on the existing footprint what are some lessons learned from clean tech 1.0 that you're taking into this new era and what do you think we should or are doing differently at this stage in approach to you know those different battery chemistries and green hydrogen and circular economies and all of that does anything stand out I do think the entire BC community has learned from those past generation especially in thinking about how you allocate capital and and and working with companies earlier for product market fit. I do think it's very important for these existing technologies to integrate with the existing infrastructure you know like I said when you're in the cities the land is spoken for so you're going to be retrofitting buildings you build new ones to don't get me wrong but in a place like New York City if you're going to really decarbonize that build world you're you need to make the buildings more efficient that it with existing software controls HVAC etc you're not going to tear every single one down and rebuild and I think that understanding that we have to we have to be integrated with the existing infrastructure hopefully be more capital efficient and providing that capital at the power plant level or the factory level leads to more success there's stronger legislative tailwinds here as well and so a lot of potential I'm definitely optimistic as we wrap up here you know I can't talk to someone from the Vc world without asking them about you know the fallout from the Silicon Valley bank situation and the impact that that's having on the broader venture community but really drilling down into clean tech and climate tech can you take me through maybe even your personal experience of watching that news unfold and what if any you know impact there was at 5th wall and if you think there's any kind of lasting scar in the space. John it's definitely been an interesting few weeks honestly I think it's a little too soon to know the long term impact I do think there's some short term learnings we have first is you know bank runs in some ways are not uncommon they happen all the time in the 1800s that's why FDIC was created however this may be that first bank run that happened in this world of instant messaging and social media linked in Twitter where people can reach not just their neighbor but honestly tens of thousands of not millions of people and so that led to just this extremely fast 24 hour cycle where SVB is you know alive and then it's it's you know in receivers ship that was an incredible you know kind of quick turnaround I think the second thing is that you're going to see companies that had tremendously large cash balances at SVB diversify and look to make sure that they don't have exposure in the same way anymore and that's a growing trend and that's a maturation that you know I think is actually necessary. When I look at the future I do think that you know and I'm just as curious as you are to see what kind of regulation comes down and and what are the future events let's end on something a little happier than instead of bank runs and that scary situation. What excites you most about what you're working on today the companies you're engaging with today that you know the founders you're hearing from that are either you know coming up with this new technology or finding ways to to scale it you mentioned the optimism but when you think about the next five to 10 years what do you think will be the biggest change that we see play out. Yeah so I'm going to go back to something I said earlier and elaborate a little more what I the message out saying the biggest takeaway is that we we've especially in the renewable energy ecosystem we are experienced solar developers wind batteries you know this is electrons this is renewable power and we think that the logical place for it is to go to place like the grid and and you already mentioned this companies are beginning to be a lot of energy. And then we're going to go back to the question this companies are beginning to expand that aperture and think beyond that for decarbonization solutions that the electricity powers a whole new set of ecosystems and so what I'm excited about when you take something like green hydrogen is now that renewable energy is powering an electrolyzer which creates that hydrogen and that hydrogen becomes an ingredient into sustainable aviation fuels and you can see this entire decarbonization ecosystem solar and wind and other forms renewable energy are going to be critical to that but they're not necessarily stuck in that queue position at my so or PJM they're actually going right into other products I can see that happening with green steel production with electric or furnaces I can see that happening with fleet charging with commercial vehicles obviously we have a well growing passenger charging network and what you'll see now is a much easier to do with the energy that we're going to be able to do that. So what you'll see now is a much larger network for commercial vehicles such as well the Amazon Rivian delivery trucks that we've heard of then the United States Postal Service is electrifying their fleet you've seen advances in electric buses and eventually electric semis and so all these these decarbonization vehicles and infrastructure is going to need a whole new set of solutions. So what I'm going to show you is that the most important thing is that some of the best entrepreneurs that we see and some of the best ideas are folks that are folks are from the solar and wind space they they built they got their experience they built their chops in that space one of our portfolio companies Evie Realty the team is a group of season solar developers and so I keep going back to you know folks who are looking at the space. There's a tremendous amount of opportunity tremendous legislative tailwinds and think of it as you know your development expertise can be leveraged in all these different ways over the coming years and obviously the IRA has a number of different opportunities there from tax credits to 45 to you and what. Aloak Sender thanks for joining the fact of this podcast this is fun yeah absolutely John thank you for having. Thanks again to a loc center for joining the podcast factor this is a production of renewable energy world and clearing on energy join us every Monday as we break down solar's most important topics with industry leaders who actually move the needle and please leave us a rating and review wherever you get your podcasts thanks for listening and we'll see you next time on factor this from renewable energy world.