Challenges of First-Of-A-Kind Climate Projects

Last month, I talked to 40+ finance professionals working across the climate capital stack. Here are the most pressing challenges, opportunities, and insights that emerged: ⚙️ Hard Problems - Even proven tech struggles to scale: EV chargers and energy storage are mature technologies, but their merchant risk makes traditional project finance models break down. - First-of-kind (FOAK) projects remain fundamentally hard: LPO funding is likely ending, and few alternatives exist. The good news? Several new funds are targeting this gap - worth watching closely. 💬 Communication Challenges - The climate finance ecosystem speaks multiple languages: VCs talk TAM and dreams, project finance talks DSCR, insurers talk actuarial risk. Getting deals done requires translating between all of them. - Risk/reward misalignment plagues deals: Startups and VCs chase upside, but deployment partners bear downside risk. This fundamental tension delays scaling. - Climate still fights for credibility: "Senior stakeholders don't even understand Scope 1, 2, and 3," one banker shared. "Anything labeled climate gets immediately written off as concessionary." 📚 Knowledge Gaps - Deal structures remain bespoke: While startups have SAFEs and mature sectors have established project finance precedents, new climate technologies lack standardized financing models. Knowledge sharing between successful deals is almost non-existent. - The "finance-ready" paradox: Capital exists, but most projects aren't structured to receive it. Companies often start thinking about project finance years too late. 🌡️ Climate Risk - Insurance is the canary: Companies are pulling out of high-risk regions and wildly hiking rates. - Markets haven't caught up: This risk repricing isn't reflected in broader valuations...yet. - This disconnect is both terrifying and the biggest opportunity in the space. 🔥 Hot Topics - Nature & Biodiversity: Hard to quantify but drawing serious LP interest - Resilience & Adaptation: Finding new momentum as climate impacts accelerate and we prepare for a "don't-say-climate" presidency - Data Centers: Energy use + AI boom = unavoidable focus - Geothermal: Rising star for baseload power, especially post-Fervo - Global Standards: EU's CSRD and Carbon Border Adjustment Mechanism will reshape supply chains regardless of US policy, with real ramifications for manufacturers in Asia and beyond. These conversations revealed just how hard—but also how essential—it is to align incentives, build trust, and bridge knowledge gaps across the climate finance ecosystem. As Eugene Kirpichov just wrote—we need systems thinking if we're going to tackle these wider problems. Anything missing here? What's on the top of your mind for 2025?

Some hard truths about scaling Climate companies. And your Cheat Sheet to tackle them 👇 Building a First of a Kind (FOAK) projects and scaling them is extremely tricky. Here’s how to think about them the right way: 1️⃣ Think Fork, Not Chasm First-of-a-kind projects aren’t “bigger pilots.”  They’re standalone business with real-world chaos, P&Ls, and de-risk enough to unlock low-cost project finance.  It’s not science: it’s operations. 2️⃣ Financing Reality Check Don’t do VC Mega-rounds and dilute founders + mis-price risk.  Instead, blend your capital stack: → Under $50M? Combine: VC equity + equipment finance + venture debt. → Over $50M? Use structured equity + short-tenor debt + strategic offtake commitments Your goal❓ Position risk with capital that understands it. Venture loves upside, infrastructure hates novelty. 3️⃣ Bridging the Capital Canyon There’s a new asset class: development equity.  Angels, family offices, and catalytic funds are stepping into the no-man’s-land between VC and infrastructure. 4️⃣ Project = Company The team that built the prototype. Is rarely the team that scales the factory.  Treat the project as its own startup: lean, fail-fast, contractors early. Only go with deep domain specialists once each risk shrinks down. Big shout out to Rushad Nanavatty, Deanna Zhang, Tim Woodcock and Nik Baumann (follow them!). For sharing all their FOAK insight with the Climate Drift community during our latest Open Climate Session. Join 4,000+ subscribers and read the entire cheat sheet on the Climate Drift newsletter. (link in comments) Let’s go 🙌

FOAK (first of a kind) climate projects are all the rage right now - and it makes sense why. They're desperately needed. I've spent the last few months digging into this big opportunity for climate startups, the challenges that come with it, and the organizations who are working to fill the gaps. Here are the spark notes on what I’ve learned so far: Climate startups are facing a bottleneck. Many have built prototypes and shown proof of concept, mostly on the back of VC dollars, but taking the necessary next step of piloting and deploying their tech at a commercial scale is more akin to a massive leap. Challenges include… Funding - VC dollars are no longer enough. Building capital intensive infrastructure requires risk tolerant project finance, non-dilutive funding, and often philanthropy, all working in tandem. Expertise - Startup founders are innovators, not developers or financiers. Nor should they try to become those things. Rather, they can succeed by pulling in support from experts in these areas. Partnerships - This is the biggest one, in my opinion. Commercial-scale tech deployment by growth stage startups is a hugely multifaceted process. In addition to the startup team, the financial stakeholders, and the development experts, you also need buy-in from market incumbents (public or private) who can champion the technology within the market and serve as initial customers, as well as community-based organizations where projects will be built. And you need all of these stakeholders aligned and collaborating smoothly. Talk about herding cats! I will be focusing my efforts in 2024 on building more collaboration and better partnerships within this space, so that we can drive climate impact and get these amazing technologies to market. Here is a list of some companies I’ve come across who are already doing amazing work in this space: Elemental Excelerator is playing a big role as a convener with leadership from folks like Dawn Lippert, Saritha Peruri, and Danya Hakeem. Many orgs are focused on funding scale up projects, like Breakthrough Energy’s Catalyst group, Prime Coalition, Trent Yang’s Galway Sustainable Capital, Inc, Generate, FullCycle, Keyframe, and Wavelength Infra (Caroline McGeough). Third Sphere is making it easier for startups to understand the process and access capital (Shaun Abrahamson, Shilpi Kumar, Stonly Blue) Others are running programs to help connect growth stage startups with market incumbents for pilot projects, like Newlab (Shaina Horowitz, Carlos E. Trevino, Liz Keen), Uptake Alliance (Chris Richardson), Black & Veatch’s Ignite Program, Accenture (Jonathan Weitz), and Deep Science Ventures’s FOAXIAL Accelerator (Ahmad Butt). Sightline Climate (CTVC) wrote an awesome article recently about two successful FOAKs with LanzaTech and H2 Green Steel. I can’t list them all and even if I could, I’m sure there are so many who I’ve missed. So I’ll ask you: who are the orgs leading the way on FOAK climate projects?

This investor and gov't exec led $107 billion of investment in advanced energy projects and catalyzed investment in 2,000 projects. What's his next job? Advice for cleantech CEOs? 🎙️ My recent guest on the Entrepreneurs for Impact (EFI) podcast was Jigar Shah. He's the former Director of the Loan Program Office (LPO) at the US Department of Energy, co-founder and President at Generate Capital, and founder of SunEdison, among many other roles. ☑️ Here are six things we talked about in the podcast: 1. Post-LPO Reset After managing $107B in deals at DOE’s Loan Programs Office, Jigar Shah teamed up with Jonathan Silver to launch Multiplier, an advisory firm for green startups. 2. Climate VC Is Broken Shah says the 100x-return VC model doesn’t fit climate tech’s reality. He pushes for an “East Coast” model: aim for 18% IRR, win 7 of 10 bets, and skip the moonshot. 3. Evergreen Capital > 2-and-20 At Generate Capital, Shah turned down big checks to build an evergreen structure that aligns with long-term climate infrastructure. It’s less lucrative for managers, but way better for founders. 4. FOAK Risk, Explained He breaks project finance into five risks: tech, feedstock, offtake, construction, and ops. LPO, unlike most investors, can stomach execution risk, like 12 methane pyrolysis reactors, not just one. (FOAK = First of a Kind) 5. Think Like a Developer Clean tech needs dev capital like real estate: risky early bets, then stable returns once built. It's not “risk-free,” just “risk-you-can-understand.” 6. Deep Tech’s Fatal Flaw Too many founders chase giant, low-margin markets. Shah says to start with high-margin niches (like InventWood selling to data centers) and then scale. – 🎯 LISTEN TO THE PODCAST: See the link below to the Entrepreneurs for Impact (EFI) podcast with Jigar. – 🙏 Please give Jigar and Multiplier a shout-out on LinkedIn, Slack, or X by sharing this podcast with your people.

🌍 𝐎&𝐆 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐢𝐧 𝐋𝐨𝐰 𝐂𝐚𝐫𝐛𝐨𝐧 𝐒𝐨𝐥𝐮𝐭𝐢𝐨𝐧𝐬: 𝐏𝐫𝐨𝐠𝐫𝐞𝐬𝐬 𝐚𝐧𝐝 𝐂𝐡𝐚𝐥𝐥𝐞𝐧𝐠𝐞𝐬 𝐢𝐧 𝟐𝟎𝟐𝟒 In a time when the need for sustainable energy is more urgent than ever, oil and gas (O&G) companies are stepping up with increased commitments toward low carbon solutions (LCS). This is the first in a two-part series based on BCG’s 3rd Annual O&G Benchmark on Low Carbon Solutions, examining the industry's investment trends, hurdles, and future opportunities in the shift toward sustainability. 🔍 𝐖𝐡𝐚𝐭 𝐖𝐞'𝐯𝐞 𝐅𝐨𝐮𝐧𝐝 𝐒𝐨 𝐅𝐚𝐫: 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐢𝐧 𝐋𝐂𝐒 𝐑𝐞𝐦𝐚𝐢𝐧𝐬 𝐒𝐭𝐞𝐚𝐝𝐲: From 2022 to 2024, O&G players, especially European majors, have increased or maintained their LCS investment as a percentage of total capital expenditure. Carbon capture, hydrogen, and bioenergy are leading the way, as seen in rising mergers, acquisitions, and partnerships. 𝐅𝐨𝐜𝐮𝐬 𝐨𝐧 𝐏𝐨𝐰𝐞𝐫 𝐚𝐧𝐝 𝐌𝐨𝐥𝐞𝐜𝐮𝐥𝐞𝐬: 33% of LCS M&A activity is in power, with a notable pivot toward solutions like natural gas CCGT with CCUS. Investment in clean molecules has surged, now representing up to 50% of LCS-related deals for some key players. 𝐀 𝐏𝐫𝐞-𝐅𝐈𝐃 𝐁𝐨𝐭𝐭𝐥𝐞𝐧𝐞𝐜𝐤: While commitments are strong, over 90% of project capacity (notably CCUS and hydrogen) remains pre-FID, signaling a significant challenge to achieving commercial scale. 💡 𝐓𝐡𝐞 𝐈𝐧𝐝𝐮𝐬𝐭𝐫𝐲’𝐬 𝐑𝐨𝐥𝐞 𝐢𝐧 𝐭𝐡𝐞 𝐄𝐧𝐞𝐫𝐠𝐲 𝐓𝐫𝐚𝐧𝐬𝐢𝐭𝐢𝐨𝐧: Challenges like first-of-a-kind project costs, supply chain constraints, and policy gaps are hindering investment acceleration. However, the O&G industry can drive meaningful progress with continued support and innovation. Part 2 (out today!) will cover how O&G companies can build resilient low-carbon organizations and manage project risk from conception to completion. Stay tuned for insights on overcoming today’s investment bottlenecks. ➡️ Read Part 1 for a full breakdown on where O&G stands in the low-carbon shift and the forces at play. Authors: Ilshat Haris, Emmanuel Ricolfi, Vasilii Triandafilidi, PhD, Rebecca Fitz, Ann Elise DeBelina, Sumit Verma #EnergyTransition #LowCarbonSolutions #OilandGas #Sustainability #EnergyInnovation #BCG

"The scale of the new round reflects the challenges that many hardware-based climate tech companies face when attempting to scale up to meet commercial demand. Building the first-of-a-kind factory is often expensive, but the risks involved mean that infrastructure funds hesitate to offer the necessary credit. As a result, startups often have to raise large sums from venture firms, trading equity for the money needed to build large projects. Finding firms willing to take the risk is a hurdle in and of itself."