Historically, start-ups developing new renewable energy-enabling technologies or developing clean energy projects have experienced difficulty raising funds from institutional investors, in part because of long development timelines and sizable technical risk. But particularly on the project financing side of things, renewable-energy projects suffer from a lack of familiarity. Institutional fund managers simply don’t have a thorough understanding in the renewable energy industry and the potential returns to be had there.
“There are huge opportunities, but it looks completely unfamiliar if you’re a pension fund — it just doesn’t look like the project finance you’re used to,” said Rob Day, managing partner at Boston-based investment firm Spring Lane Capital. “They see these trends, and they take a step back and say ‘we have to figure out how to play this from a 30-year investment perspective.’
“And I would say they’re actually frustrated by the paucity of good options being shown to them right now,” he added. “There are literally trillions of dollars sitting on the sidelines trying to be shown a good way to be put to work.”
Deals are often too small, as well. For major funds looking to deploy $50 million at a time, financing a $5 million renewable energy project or sinking $12 million into a grid storage start-up can seem trifling. Firms like Spring Lane Capital use their expertise to help connect financing dollars with meaningful projects, Day says, but a fundamental disconnect remains, necessitating new funding models. “If you have some of the world’s fastest-growing markets, and the existing investment models haven’t show that they can reliably make great returns off of that, you have to blame the investment models and not the markets.”
The models are coming around, however. Earlier this month, BEV invested $12.5 million in Baseload Capital, itself a project investment firm that provides financing to develop geothermal energy projects using new modular technology developed by Baseload’s Swedish parent company, Climeon.