The Brief | December 13, 2022

The Brief: Jigar Shah’s $140 billion bridge to bankability, narrowing the racial wealth gap, commercializing fusion power, tracking Scope 3 emissions

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Greetings, Agents of Impact!

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Jigar Shah on building a $140 billion ‘bridge to bankability’ for the energy transition (podcast). Talk about catalytic capital. With a fresh $100 billion in funding from the Inflation Reduction Act bringing its financing capacity to $140 billion, Jigar Shah says the Department of Energy’s Loans Program Office is ready to roll. The office provides loan guarantees to help commercialize promising climate innovations that are considered too risky by banks and private sector lenders. Just this week, the office arranged a $2.5 billion loan to Ultium Cells, a joint venture of General Motors and LG Energy, to build new lithium-ion battery plants in Ohio, Tennessee and Michigan that could create 5,100 permanent jobs in the Rust Belt states. The Loan Programs Office provides what Shah likes to call a “bridge to bankability.” Even climate tech companies that have raised large amounts of venture funding can struggle to get loans to finance first or even second- and third-of-a-kind projects. New approaches such as 120-meter hub heights for onshore wind, or offshore turbines with generating capacity over 14 megawatts, remain risky. The office has nearly 100 active applications seeking more than $100 billion in loans, Shah says on the latest episode of ImpactAlpha’s Agents of Impact podcast. “Now we’ve got to get those things out the door.”

Shah is known for being a step ahead in the low-carbon transition. He founded SunEdison, which pioneered no-money-down solar, and went on to co-found Generate Capital, an investor, owner and operator in microgrids, HVAC systems, biogas converters and other sustainable infrastructure. He joined the Biden administration in March 2021 to head the office that had famously backed Solyndra and also helped Tesla build its first factory. Revitalized as part of President Biden’s climate agenda, Shah is going where banks don’t yet go. At the Intermountain Power Project in Delta, Utah, the office is providing a loan to retrofit an old coal plant to create green hydrogen generated from excess wind and solar power, and store it in massive underground caverns. In Nebraska, Monolith Energy was conditionally approved for more than $1 billion last December to expand clean hydrogen and carbon black production facilities. By funding projects and technologies on the verge of commercialization, Shah hopes to whip up a sense of FOMO among banks. “We need another two years to develop that systemic jealousy from all those banks to come in and say, ‘Hey, wait a second Jigar. We want that loan volume. We’re gonna steal it from you,’” he says. “And I’m going to say, ‘Please steal it from me. The government doesn’t want to do this role.’” 

Sponsored by Mission Investors Exchange

Investing in financial innovation to narrow the racial wealth gap. “What if you made it much easier for workers of color to become business owners, and thus build wealth much faster?” asks Rockefeller Foundation’s Maria Kozloski in a guest post in ImpactAlpha’s series with Mission Investors Exchange. “What if you offered creative, revenue-based loans to underserved business owners to help them hire more workers and grow?” Last year, Rockefeller’s Zero Gap Fund invested in two innovative models to address the racial wealth gap, one of the most persistent signs of inequity in the U.S.

  • Worker ownership. Washington, D.C.-based Apis & Heritage Capital Partners aims to transition at least eight companies to worker ownership in its first five years, turning 500 workers at those companies into owners. Apis & Heritage is targeting companies where at least one third of the workforce is workers of color.
  • Revenue-based financing. San Diego-based Founders First Capital Partners provides direct revenue-based lending and training support to underserved founders. “Nothing helps create and solidify lasting wealth like ownership of a house or a business,” Kozloski writes.
  • Keep reading, “Investing in financial innovations to narrow the racial wealth gap,” by Maria Kozloski. ImpactAlpha was the media partner for MIE’s national conference in Baltimore last week.

Dealflow: Fusion Frenzy

‘Net energy’ breakthrough fuels the race to commercialize fusion power. The race for commercial fusion energy is on, now that creating a net energy gain in a fusion reaction has finally been achieved. At the Lawrence Livermore National Laboratory, a research lab of the U.S. Department of Energy, a fusion reaction created by high-powered lasers, produced about 2.5 megajoules of energy, compared to the 2.1 megajoules used to power the lasers, the Financial Times reported. The breakthrough opens a pathway to a scalable, zero-carbon source of power with few of the drawbacks of other energy sources. Nipping at the heels of the government-funded prototypes are a crop of venture-backed startups that collectively have raised more than $5 billion to make fusion feasible, not just technologically, but commercially. “These exciting results are the culmination of years of work demonstrating that fusion science is worth the investment,” Bob Mumgaard of Commonwealth Fusion Systems told ImpactAlpha. 

  • Fusion frenzy. Commonwealth raised a staggering $1.8 billion last year from investors including Bill Gates, Marc Benioff’s TIME Ventures, Emerson Collective, Footprint Coalition and Google. It expects to begin generating commercial power by early next decade. The M.I.T. spin-off is one of several contenders racing to harness the process used by the sun to create abundant, clean energy here on Earth. Producing net energy will be energy’s “Kitty Hawk moment,” declared Lowercarbon Capital’s Chris Sacca in announcing his $250 million Q>1 fusion fund this fall. That milestone would “dramatically accelerate flows of talent, capital, and attention into the industry.” Sacca has invested in Commonwealth Fusion, ZAP Energy and Avalanche Energy. Other fusion contenders include TAE Technologies in Orange County, Calif., Helion Energy in Redmond, Wash., and General Fusion in Vancouver.
  • Planetary scale. “I hope this is true and I super applaud it,” Sam Altman of OpenAI and a longtime fusion booster, tweeted about the net energy breakthrough. “But what will matter for fusion is cost per kilowatt-hour, ability to manufacture capacity at planetary scale, and reliability.”
  • Feel the heat

Avarni clinches funding to help companies track Scope 3 emissions. As regulators and investors push companies to report their emissions, startups are coming to market with new carbon accounting and measurement tools. Avarni raised $3 million to help companies track their indirect, or Scope 3, emissions, which typically make up the bulk of their carbon footprints. Avarni’s software uses artificial intelligence and procurement data to build “a comprehensive picture of carbon emissions in value chains” and help companies manage carbon offsets and prepare compliance reports.

  • Scope 3 intel. Sydney-based Avarni says it has analyzed more than $100 billion in corporate spending data and 150 million metric tons of CO2-equivalent emissions in companies’ supply chains. “This is the intelligence businesses need to inform their decarbonization strategies,” said Field Pickering of Vulpes Ventures, which backed Avarni’s seed round alongside Main Sequence and Common Sense Ventures. Other startups offering carbon accounting software Persefoni, Sphera, Greenly, Sweep and Sustain.Life.
  • Regulatory shift. Scope 3 emissions reporting is not broadly required in Australia, but new Prime Pinister Anthony Albanese has promised more climate action. The International Sustainability Standards Board voted to require companies to disclose Scope 3 emissions. In the U.S., the S.E.C. has proposed mandatory climate-risk disclosure, including some Scope 3 emissions (for context, see, “SEC disclosure rules signal the arrival of climate accountability“). The Biden administration may also require government contractors to report direct emissions (Scope 1 and 2) and Scope 3 emissions.
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Dealflow overflow. Other investment news crossing our desks:

  • Nigerian gender-lens investor Aruwa Capital backed local furniture manufacturer Taeillo to create jobs and curb imports from Europe. Aruwa recently closed its first fund at more than $20 million.
  • Union Square Ventures raised $200 million for its latest climate fund, which will invest in early-stage companies that cut and remove carbon and support climate adaptation.
  • Women-led Beyond Capital Ventures closed its second fund to invest in early-stage impact startups in India and East Africa with a fund model that shares a cut of its profits with founders. (Beyond Capital Ventures was featured in November’s Liist.)
  • Mexico-based Plenna raised $4.4 million from Urban Innovation Fund, Canary VC and others to provide subscription-based online and in-person women’s health services.
  • Gridless in Kenya raised $2 million from Twitter founder Jack Dorsey’s digital payments company Block and others to use hydropower to mine Bitcoin.

Six Short Signals: What We’re Reading

💰 Catalyzing BIPOC wealth creation. Reprice (overstated) risk, invest in community and place-based wealth-building assets, and back funds led by BIPOC managers at scale, states “Catalytic Capital for BIPOC Wealth Creation.” (New Growth Innovation Network

🕵️ Corporate accountability. Candide Group led a successful campaign to pressure banks against financing private prisons involved in the family separation crisis at the U.S.-Mexico border. Private prison company Core Civic sued the firm and cofounder Morgan Simon alleging the campaigns were illegal. Courts last week ruled in favor of the activists. (Candide Group)

🇮🇳 Indian bumper crop. India’s farmtech startups raised $1.5 billion in 2022, a 185% increase from last year. (AgFunder)

👨‍🌾 Rebel farmers. Curbing the environmental impact of agriculture will put farmers from the Netherlands to New Zealand out of business. They’re resisting. (Bloomberg)

💲 Climate capital stack. A variety of equity options have emerged to fund climate startups. But climate founders also need to understand grants, credit, partnerships and incentives to ensure they can maximize their access to funding and increase their probability of success. (Third Sphere)

🌱 ESG trends to watch in 2023. Increased scrutiny of net-zero targets and decarbonizing industrial real estate; emerging regulations in the U.S. and E.U.; striking rail workers, poor air quality; and new ground rules for Internet companies. (MSCI)

Agents of Impact: Follow the Talent

Friends and colleagues are mourning the loss of corporate responsibility and responsible investing champion Patricia Daly of the Sisters of St. Dominic of Caldwell, N.J. Daly advocated for corporations in the U.S. to adopt climate change strategies, and co-founded Campaign ExxonMobil to call out the oil giant’s climate-change track record. 

The Global Alliance for Green and Gender Action is hiring a communications strategist… World Resources Institute is recruiting a strategy director for responsible supply chains… A new edtech accelerator supported by Reliance Foundation, UBS Optimus Foundation, USAID and others is accepting applications for startups and nonprofits supporting foundational learning for low-income children in India.

Thank you for your impact.

– Dec. 13, 2022