Author: Christopher Angelo


I recently wrote a book on technology project finance. It’s a subject that is critical to Cleantech 2.0’s success and has never been previously written about. While project finance is a well understood financing mechanism – in particular the financing of power generation assets, technology project finance related to first to early commercial process technologies is less understood. The post here is a first installment of a multi-part series related to technology project finance.

Cleantech 1.0: Valley of Death Survivors

Cleantech 1.0 from 2005 to 2015 had numerous examples of process technology companies that capitulated in the valley of death. A Greentech Media article including a list of deceased solar companies is here. The companies that did make it through had largely transitioned from manufacturing business models to those including installation and asset ownership. They all ‘owned’ the downstream customer. These companies’ business plans were also not dependent on temporary dislocations in raw material inputs commodity markets. The surviving companies included success stories such as Sunrun, Sunpower, Vivint Solar, Solar City (now Tesla), First Solar, Bloom Energy, and of course Tesla.

Cleantech 1.0: Survivor Common Traits

These companies all have a common characteristic which is not well known. They all utilized the debt capital markets in the form of securitization or project finance to scale their businesses operations.

Cleantech 2.0: Capital Efficiency Required

The reality is that Cleantech 2.0 companies including those in carbon capture, hydrogen, sustainable aviation fuels, etc. are more capital intensive than Cleantech 1.0 companies. This is especially true as equity funding from mega funds is limited as there are only so many sovereign wealth funds and private equity fund investment periods are too short relative to Cleantech 2.0 technology payback periods. Technologists and related developers will therefore need to consider alternative financing markets as well as opportunities to achieve greater capital efficiency to scale to profitability. This will take even greater amounts of debt capital than those typically provided in Cleantech 1.0.

Cleantech 2.0: Requirements to Achieve Capital Efficiency

But, what distinguishes a technology among others in the eyes of lenders whose capital is required to scale these technologies? Most of these companies will not be able to scale because they won’t be able to attract a credit worthy customer, otherwise known as an offtaker, to be able to attract the capital necessary to achieve economies of scale required to achieve profitability. And, there are only so many creditworthy / investment grade customers and they are greatly outnumbered by the universe of startups.

In the absence of a creditworthy offtake partner, how else can a company distinguish itself in the eyes of a lender?

Because lenders and investors see numerous technology transaction opportunities within individual industry verticals, the ability to demonstrate the comparative advantage and merits relative to the next best competing technology can make or break a lender or investor’s interest to work with a particular financing opportunity. Therefore, technology developers must demonstrate that their technology is both comparably (i) lower in capital intensity (i.e. $ invested/capacity output) and (ii) that their operating costs are on the low side of the industry production cost curve.

This is particularly true for assets which produce commodities. As, all else equal, technologies which are on the low side of the industry production cost curve will be able to withstand product commodity price volatility relative to alternative technologies. Additionally, all else equal, technologies which are lower in capital intensity will have a dominant internal rate of return (IRR) relative to alternative technologies. Thus, technologies with lower capital intensities will have the ability to pay a loan back faster or have a superior cashflow and loan repayment profile.

Consider these factors as you scale or invest in a Cleantech 2.0 technology.