The clean energy transition is bigger than Silicon Valley Bank
BY: PETER DAVIDSON Peter Davidson is the CEO of Aligned Climate Capital and ran the Energy Department’s Loan Programs Office during the Obama administration. You can reach him at peter@alignedclimatecapital.com.
A harmful and misguided narrative is taking shape that Silicon Valley Bank’s collapse could derail our progress in fighting climate change.
From where I sit, I see no connection.
Last year, more than $1 trillion were invested globally in clean energy and other climate solutions. These ran the gamut from investments in some of the world’s largest publicly traded companies to multi-billion-dollar debt syndications in huge renewable energy projects to venture investments in early-stage innovators.
The clean energy economy is now one of the most dynamic industries on the planet, and it is bigger than one bank.
That wasn’t always the case. When I ran the United States Energy Department’s Loan Programs Office during the Obama administration, we placed bets on what are now trusted and proven clean technologies like wind, solar and electric vehicles.
Under President Obama, the loan office made the first such government loan to Tesla, financed the nation’s first utility-scale solar projects and executed many first-of-their-kind clean energy investments that are now commonplace.
At that time, convincing institutional investors to commit to the clean energy sector was a major challenge. Exxon Mobil sat atop the Dow Jones, and many remained dubious an actual energy transition was on the horizon and unsure about which technologies could succeed.
A lot has changed in ten years. Today, we know which technologies work at scale, and the cost of clean energy has plummeted. Our confidence is supported by a decade of regulatory certainty and the federal government taking definitive action through legislation like the Inflation Reduction Act and the Infrastructure Investment and Jobs Act.
Three incontrovertible facts highlight clean energy’s momentum: 1) wind and solar accounted for 81% of all new power generation built worldwide in 2021. That sector employs three million people in the U.S. alone—nearly half of all American energy jobs, according to the U.S. Energy Department. 2) Every major automaker has committed to stop making cars with internal combustion engines after 2040. 3) Finally, heat pumps outsold gas furnaces in the U.S. last year thanks to electrification efforts.
We don’t need to wait for new breakthroughs and discoveries to achieve our climate goals. Future innovations and inventions will play an important role in our future, but this next decade must be dedicated to scaling technologies we already know work—solar, wind, batteries and electric vehicles—and deploying them as fast as possible to save our planet, keep energy costs low and achieve energy independence from petrostates like Russia and Iran.
I don’t mean to dismiss the potential fallout from SVB’s collapse had the FDIC not stepped in, and I know SVB has supported entrepreneurs of all kinds in the tech sector. The banking sector's stability is critical to the entire economy, clean energy included.
But we need to guard against being too pessimistic. Yes, SVB was a pioneer when it started making clean energy loans in 1980. Today, every major bank worldwide has sizable investments in clean energy, because it is the cheapest and fastest-growing energy source on the planet.
The world and global economy are barreling towards a low-carbon future. SVB’s demise will not derail this momentum.
Lunchtime Reads and Hot Takes
How AI could upend the world even more than electricity or the internet — Tech Xplore and The Age of AI has begun — GatesNotes Amy’s take: These articles helped make the significance of AI click for me. Like climate, AI changes everything in its own way.
Geothermal Power, Cheap and Clean, Could Help Run Japan. So Why Doesn’t It? — The New York Times Amena’s take: I couldn’t quite figure out whether the opposition to geothermal is rooted in culture or skepticism of large-scale development.
A Different Kind of Pipeline Project Scrambles Midwest Politics — The New York Times Amy’s take: This does not bode well for other hard climate tech, though pipelines are a unique challenge. Two key questions the article didn’t address: how dangerous are carbon pipelines and what is next in the review process?
Carbon-Sucking Tech Could Need More Energy Than All Homes Use — Bloomberg Anca’s take: That’s scary and daunting, right? Hard to know how technologies will develop mid-century; luckily, there’s a mix of climate solutions in the works.
Tiny Energy-Funded Office Turbocharges Clean Tech Businesses — Bloomberg Amena’s take: This article highlights an Energy Department office helping cleantech companies reduce the building sector’s carbon footprint.
Republicans Propose Nationwide Offshore Wind Ban, Citing Unsubstantiated Links to Whale Deaths — Inside Climate News Amena’s take: A well-researched article that places whale deaths in context with political messaging at play in the U.S. House of Representatives.
How two weather balloons led Mexico to ban solar geoengineering — Reuters Anca’s take: This is not about taking a position for or against geoengineering. Instead, the story sheds light on something we often don’t think about: finding the right environment for experimentation can shape the future of that technology.
More of what we're reading:
Green Hydrogen Equipment Makers Poised for Rapid Growth in China — Bloomberg
This startup has a smarter way to make solar work for apartments — Canary Media
VOICES
The Silicon Valley Bank collapse can be a catalyst for climate tech
Katie Rae is CEO and managing partner of The Engine, a venture capital firm built by MIT that focuses on transformative technologies. You can find contact info for Katie at https://engine.xyz/.
The collapse of Silicon Valley Bank created a significant void in the world of climate finance, but it's now providing an opportunity for new support to emerge and for the industry to continue to grow and thrive.
As the dust is now settling and we take stock of lessons learned, three observations leave me optimistic about the path forward.
First, the crisis differs significantly from the bank failures in 2008, which were much larger and had objectively different root causes with correspondingly different implications for the startup world. The emerging companies in the climate space right now have real, fundamental strength. They are developed on top of scientific breakthroughs and engineering platforms that are proven and have quantifiable value for the energy transition.
While we can trace the collapse of SVB in part to high interest rates, the current financial climate also means it’s attractive to invest in companies building foundational infrastructure. Investing and developing breakthrough science is an efficient use of capital to create highly durable assets, which will hold their value through market uncertainty.
Given all this, it seems like new financial models and support will emerge, perhaps even from within the ecosystem itself.
Second, we saw the community pull together in the face of crisis. While the image presented on social media and television news may have at times seemed chaotic or misinformed, behind the scenes we had conference calls between investors to figure out how to best support portfolio companies, CEOs on group chats helping each other figure out the fastest way to open new accounts and seasoned chief financial officers volunteering their time to share their approach and best practices.
This kind of collective effort strengthens the ties within the climate community and reminds us that the energy transition is truly an ecosystem-wide, collective effort. If we succeed, it will be by working together.
Lastly, this crisis underscored the urgency of our mission. For climate investors especially, the weekend after SVB’s collapse was a weekend of work driven by a clear mental picture of the collective progress made across our portfolios and the founders who’ve worked so hard to get where they are now.
The public reaction — which has often been quite negative towards venture capital and “tech” — was also an urgent reminder of the real purpose of our roles. We need to, as a community, lift up and support founders in a dialogue about how their companies are creating solutions and a vitalized economy for everyday Americans.
With gratitude for the systems and people in the federal government who quickly implemented a solution (without any tax dollars spent or at risk), the climate and broader Tough Tech sectors can, and I believe will, use this “near-death” experience as a catalyst to redouble our efforts.
DATA DIVE
Demand for key minerals grows in net zero scenarios
Source:BloombergNEF Transition Metals Outlook• ETS = Economic Transition Scenario; NZS = Net Zero Scenario. Energy transition includes power generation, battery storage, power grids and transport sectors.
The world’s journey to a cleaner energy future will require a lot of metals and minerals. By mid-century, we will see a significant uptick in the amount of metals needed, as the chart based on BloombergNEF data above shows.
In a recent two-part explainer, we wrote about the critical minerals needed to power the clean energy transition and how to get them in a responsible and sustainable way.
Volumes—represented by the different sizes of each of these bubbles—tell only one side of the story. The other side is how big of a role each metal plays in the transition itself.
For example, while clean energy technologies, such as power generation infrastructure, battery and storage equipment, require a high volume of steel, its use in this sector represents a small share compared to steel’s total demand in the overall economy.
In contrast, lithium volumes in the economy writ large are smaller, but most demand for the mineral by 2050 will be for the energy transition under a net zero scenario.
AND FINALLY...
Rainforest towers
Nature lover and amateur photographer Daniel Lock took these photos of an energy transmission line running above the rainforest outside of Cairns, Australia. The towers, built in 1997, are over 200 feet tall (taller than the Statue of Liberty!), which ensures they clear the canopy below. Some have platforms so they can be serviced from the air.
Each week, we feature a photo that is somehow related to energy, the thing we all need but don’t notice until it’s expensive or gone. Email your ideas and photos to news@ciphernews.com.
Editor’s note: In addition to supporting Cipher, Breakthrough Energy also supports and partners with a range of entities working to tackle climate change, including nonprofits, corporations, startups and research firms. For more information on Cipher’s editorial policy, click here.
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