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The Hardest Working $27 Billion in the IRA

Inside season 2, episode 7 of Shift Key.

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It’s potentially one of the most important — but least understood — provisions in the Inflation Reduction Act, and it’s finally out in the world. Last month, the Environmental Protection Agency spent $27 billion to set up new green banks across the country.

These new lending institutions could direct billions of dollars to supercharging decarbonization nationwide, financing new solar farms, geothermal projects, EV chargers, and more. They’ll also recycle their funding indefinitely, meaning they will likely last longer than any other provision in the law.

On this week’s show, Rob and Jesse bring you a user’s guide to these new green banks and what they might mean for decarbonization. The episode features two conversations: First, Rob speaks with Jahi Wise, the former director for the Greenhouse Gas Reduction Fund program at the Environmental Protection Agency. Second, Rob and Jesse chat with Dawn Lippert, the founder and CEO of Elemental Impact, a climate tech investment and nonprofit organization. Shift Key is hosted by Robinson Meyer, the founding executive editor of Heatmap, and Jesse Jenkins, a professor of energy systems engineering at Princeton University.

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Here is an excerpt from our conversation:

Jesse Jenkins: We’ve talked for a long time about this “valley of death” that companies face as they reach that scale-up phase where they’re coming out of the phase where they’re trying to just prove the technology works and de-risk it and into the phase where they have to deploy at scale and need project financing for that, or they need to build factories to get to economies of scale to produce their product at a competitive cost. And that burns a lot of capital, both, direct equity investment in the company and project finance and loans to get projects built and online. Is that the real gap that you’re seeing right now?

It seems like we’ve had such a big wave of venture capital coming into this space over the last few years that there are a lot of really well capitalized companies through series A or B, but now they’re … you know, if they were stood up two, three, four years ago, now they’re coming into this new phase. Is that where you’re trying to position your fund? And maybe more broadly, the green banks that were supported by GGRF?

Dawn Lippert: Yes — I think, overall, yes. And it’s nuanced. So what we’re seeing is, we published a report earlier this year that there’s essentially this financing gap, if you can think of it that way, or the valley is at least $150 billion, where companies are going from exactly what you said of venture capital-backed and then need other kinds of financing.

And then on the other side of the gap, there’s actually a lot more financing than ever.

Jenkins: Yeah, tons. Infrastructure funds and others, right?

Lippert: Yes, absolutely. And so it’s really about building this bridge and being really smart about that. So I would say there’s a couple of things. One is that we see three main issues to crossing the bridge. One is capital. We’ve talked about that, and I’ll talk about a little bit more. The second is project expertise — companies going from technology companies to project companies. I would say that’s one of the key things that we see as being a real challenge and also a huge opportunity.

And Rob, you talked about talent coming into this space. That tidal wave really changed in 2018 when the skies turned orange over San Francisco. We just saw so much talent coming in from tech, and it just hasn’t stopped. It really kept flowing. But this project expertise of operational expertise — how you develop, how you permit and get entitlements, how you structure the financing, but also just do the actual construction of projects — we need to build so many things. That’s where we see a huge need. And we did a recent analysis with our partners at Vibrant Data Labs and found that only about less than 30% of companies in climate right now have project expertise or deep project expertise on their team to build stuff.

So that’s a place where Elemental has leaned in a ton where we were dropping CFOs and fractional CFOs and developers and residents and all kinds of folks to help fill that gap. But there’s a huge amount of work that needs to be done there.

This episode of Shift Key is sponsored by …

Watershed’s climate data engine helps companies measure and reduce their emissions, turning the data they already have into an audit-ready carbon footprint backed by the latest climate science. Get the sustainability data you need in weeks, not months. Learn more at watershed.com.

As a global leader in PV and ESS solutions, Sungrow invests heavily in research and development, constantly pushing the boundaries of solar and battery inverter technology. Discover why Sungrow is the essential component of the clean energy transition by visiting sungrowpower.com.

Antenna Group helps you connect with customers, policymakers, investors, and strategic partners to influence markets and accelerate adoption. Visit antennagroup.com to learn more.

Music for Shift Key is by Adam Kromelow.

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