Even though the CDR “industry” is arguably quite different that the clean energy industry, CDR companies stand to learn a thing or two from the ups and downs that clean energy companies have experienced while commercializing over the past decades:
- Government incentives and mandates are critical for early projects. Efforts such as RPS mandates, tax incentives, feed-in-tariffs, loan guarantees, science and technology grants and net metering programs have been (and remain) critical in enabling renewable energy project developments. Notably absent from this list in many regions are carbon prices; this swath of clean energy incentives has pushed the industry forward and helped it “defy” predictions that renewable energy installations would not proliferate without strong carbon prices. Seeing how tenuous and unlikely large-scale carbon pricing seems over the next decade, CDR businesses and project developers would similarly benefit from a wide-ranging portfolio of government incentives and regulatory support; something that will only happen once regulators and policy makers acknowledge the urgency of the need to start developing CDR programs. Billion-dollar government loan guarantees help get solar projects in the US installed. Credit: Gigaom
- Corporate procurement and CSR departments can provide “early adopting” large customers, but offerings targeting large corporates need to have significant (and measurable) bottom line benefits. Many early clean energy startups have had success with B2B sales – especially in areas that help corporations reduce operational costs (such as by providing tools to help reduce building energy expenses). Frequently, these projects also feature prominently in corporate citizenship reports, providing the companies that purchase clean energy offerings added investor-relations and brand benefits. CDR companies can potentially help large corporations improve their bottom lines while enhancing their environmental image in many ways, as Audi shows us with their Direct Air Capture partnerships to create low-carbon fuels.
- Taking projects off-balance sheet helps improve B2B sales. Many of the greatest clean energy success stories have employed SaaS and technology-leasing models. CDR companies can take this lesson by seeking to provide “CDR-as-a-service” (or providing a CDR co-product as a service – like fertilizers, low carbon fuels, even agricultural products…). Such a model might be more difficult to finance initially as the CDR business will have to bear the up-front capital costs, but could help gain customer traction much more quickly.Technology-leasing has turned SolarCity into a clean energy powerhouse. Credit: SolarCity
- Individuals like well-designed technology with environmental benefits… even if environmental benefits are small. Many CDR companies with B2C sales potential would be wise to heed the Nest strategy of selling “boring” products in an enticing way. Industries with large CDR potential tend to sell traditional, commoditized offerings not typically known for their design and functionality. Simply trying to compete on price in these industries is a challenging proposition. If biochar/olivine companies, for example, can market their fertilizer products in ways that engage customers beyond the application in a home garden, they could simultaneously increase sales and the awareness/demand for CDR more generally. Customers will pay $250 for a thermostat? Nest’s design, functionality, and customer engagement features proves it’s possible (above). Credi: Nest
- Clean energy companies have pursued a range of alternative financing vehicles to reduce finance costs and increase access to capital. YieldCo, REIT, and MLP financing strategies have all recently gained traction in the renewable finance arena. Such innovations are likely to help the CDR industry scale up once technologies have de-risked further and the demand for CDR is more clear and predictable. Structuring initial project development efforts today in ways that enable future participation in these financing schemes is critical to preserve option value for CDR companies.
- To borrow Don Sadoway’s line: to make something cheap as dirt, use dirt. Thin-film solar PV development boomed during the 2000s not because thin-film was more efficient at converting solar energy into electricity, but rather because many thought that thin-film systems could be produced so cheaply that their per-unit energy costs would be considerably lower than silicon-based systems. While enhanced weathering systems might not be as thermodynamically efficient as fossil-fueled CCS systems for capturing CO2 emissions, their readily-available inputs could provide economically competitive, carbon negative alternatives. Thin-film solar PV panels (shown above) gained popularity not based on their physical efficiency, but rather on their economic efficiency. Credi: Wikipedia
- High Net Worth individuals that believe in the greater mission of the company can be critical for early financing. First Solar, for example, relied on investors that truly believed in the long-run need and benefits for their technology – like Walmart heir John T. Walton – to survive early commercialization obstacles. Where other venture funds might have forced First Solar to liquidate in order to stem potential losses, Walton was able to re-invest in the company to help it weather tough financial times. In the coming years, CDR companies will likely face similar stormy seas that solar companies faced in the 1990s. As a result, finding the right investors with patient capital, deep pockets, and a belief in the potential of CDR (not typical descriptions of the venture capital and private equity world…) will serve CDR startups particularly well.
- Good entrepreneurs have to pivot away from their initial mission if the time isn’t right. C12 Energy provides a great example of this principle. At the company’s founding, C12 set out to monetize the carbon abatement value of CO2 capture and storage services. As the prospect of carbon markets in the US crumbled, C12 faced a choice: a) shut down until carbon prices strengthened, or b) pivot to provide similar (but less environmentally beneficial) services for enhanced oil recovery businesses. By deciding to take the second option, C12 continues to innovate its technology that one day can be used for pure-play CO2 sequestration, employ the human capital drawn to its mission, and help shape dialogues around developing carbon markets. If companies find pure-play CDR offerings too economically challenging in today’s macroeconomic/political climate, then finding similar non-CDR offerings to pursue today can be a good interim solution so long as those offerings do not preclude the companies from pivoting back to CDR once market conditions improve.