At EIP, the entire investment focus of our coalition is accelerating the clean energy transition. For our 33 coalition partners, which include utilities, tech firms, real estate owners and others, our technologies are more than investment opportunities – they are critical to helping them navigate and lead the transition while ensuring high-quality, customer-centric service.
Here’s a brief review of some of our investment activities last year and what we expect to see more of in 2022.
Like many others, we believe that wind and solar power will be much of the backbone of the clean electricity transition. Although they account for just 2% of global primary energy today, wind and solar are rapidly becoming the most cost-effective sources of zero-carbon energy in most of the world. At the same time, incorporating high levels of variable resources is one of the most fundamental challenges facing the electricity sector today.
To make this shift rapid, cost-effective and operationally feasible, we are targeting complementary solutions that enable the power sector to harness as much of these resources as possible. One of our first investments this year was in Powin Energy, a leader in the integration of grid storage solutions, with a knack for squeezing cost out of every inch of a storage project while maintaining safety & reliability. Later, we invested in Zitara, a software tool for optimizing batteries in grid applications as well as nearly any other application in which battery storage is a critical component.
We also know that wind and solar alone won’t do the trick. Another essential building block that is starting to receive the attention it deserves is storage technology that can be deployed with ultra-long-duration capacity – meaning the ability to store energy at a reasonable cost for days or even months at a time. A typical solar farm in North Carolina produces nearly 50% more energy in July than in January, for example, while a wind farm in Oklahoma produces 70% more in January than July.
We believe that lithium-ion batteries are on track to addressing most intra-day imbalances in electricity supply, but the seasonal storage problem is far out of reach for commercially available battery technology. That drove our investment in Form Energy, a novel battery with a clear pathway to 90% lower total installed cost than lithium-ion batteries for multiple days of storage. Other forms of medium- and long-duration storage are also emerging, and the area remains a critical investment focus for everyone committed to a zero-carbon grid.
The next frontier
While storage can solve the temporal gaps left by renewable generation, wind & solar also face geographical and transmission constraints, including limited line rights-of-way, new facility permitting delays, and NIMBY opposition. These factors could significantly limit the deployment of wind and solar. This belief has led us to pursue additional sources of firm dispatchable zero-carbon generation – i.e. the types of power plants that could occupy the sites off today’s coal and natural gas fired facilities – as a complement to far-flung renewables.
We and our coalition members expect that some of these new clean alternatives will succeed at scale and thereby fill a critical gap in the transition. Several small modular and microreactors, compact fusion technologies, and other new types of reactors continued to move slowly towards commercial viability. We invested in the compact fusion company Zap Energy. Zap is fairly widely acknowledged among fusion experts as the dark horse candidate to win the race to ‘energy break even’ – a long sought after technical milestone for fusion energy. Even more importantly, Zap’s solution is perhaps the only one that, if proven to work, has a clear path to achieving a reasonable levelized cost of energy.
In addition, as strongly as we believe in the potential of renewables and electrification, there is probably just not enough time to displace fossil fuel everywhere in the energy system while sticking to any reasonable carbon budget. Scientists and policymakers widely recognize the need for solutions that can most easily retrofit existing fossil fuels for carbon capture & sequestration (CCS) and remove carbon dioxide from the atmosphere at game-changingly low cost. This year we saw a burst of innovation in carbon capture and storage (CCS, which doubled investment in 2020) and new nuclear technologies, among others, that can add important options to decarbonized supply. We made our first investment in carbon capture & sequestration: Carbon America. The Colorado-based company is on the frontier of CCS project development, with one of the largest credible pipelines of near-term projects in the US market.
Carbon America’s first targets are those that are generally considered the ‘low hanging fruit’ of CCS: i.e. industrial facilities with very high CO2 concentration effluent (such as ethanol plants) where minimal concentration and purification is needed. Meanwhile, the company is also developing its own next generation carbon capture technology. Looking forward we expect investment in both nuclear and carbon capture and management technologies to continue apace, aided by both new U.S. legislation and private investment.
The Electrifying Future
Last year was also a new peak for electrification, including – among many other developments – the launch of Rewiring America and the creation of an electrification caucus in the U.S. Congress. The need to bring clean electricity to the myriad end uses that aren’t currently electrified has led us in many directions. For example, we discovered Moxion, a mobile battery storage solution and service model that enables cost-effective electrification of construction equipment – displacing carbon-intensive (not to mention foul and noisy) portable diesel generators.
Decarbonizing hard-to-abate industrial processes through electrification became a major trend last year, with a much larger focus in climate policy circles and at COP26. In industrial electrification, the breadth and uniqueness of the opportunities and challenges is enormous. Our portfolio now includes: Boston Metal, the only known solution for electrifying virgin steel manufacturing; Sublime Systems, the only known solution for fully decarbonizing cement production through electrification; and Nitricity, a modular system that can transform air, water, and electricity into fertilizer, right on the farms where it’s needed.
Sustainable Investing is the New Norm
We can’t close this recap without noting one last trend: the large and continuing growth in ESG and impact investing. ESG and sustainability-themed AUM is growing about 30% a year and is expected to hit $50 trillion by 2025. ESG factors are fast becoming an integral part of every investment decision, a major shift to “stakeholder capitalism.”
Much of this investment is aimed squarely at clean energy, which received over $500 billion in capital last year. At the COP26 global climate summit this past fall, U.N. Special Representative for Climate Finance Mark Carney announced that asset owners and managers with a total of $130 Trillion AUM had joined the Glasgow Finance Alliance for Net Zero, putting their portfolios on track to achieve net zero by 2050. This movement, which we’re proud to be part of, will ensure that the financial markets can do their part to deliver a clean global energy infrastructure.
What’s ahead in 2022 and beyond? Expect many of these same investment themes: clean power generation complements to wind & solar; electrification of…well, everything; and carbon management. We plan to spend more time closer to home – meaning, in the world of heating & cooling for residential and commercial buildings; and in the next-generation of vehicle electrification & charging technology. We’re also looking into materials and the supply chain for critical building blocks of the energy transition, such as batteries and low carbon replacements for today’s most important materials, such as plastic. We also hope for continued progress on energy infrastructure planning and financing, decarbonized fuels, and industrial and agricultural decarbonization.
2022, let it rip!
Dr. Peter Fox-Penner is Partner & Chief Impact Officer and Andy Lubershane is Managing Director of Research at Energy Impact Partners.