Follow The #Climatetech Money - Week 4

FTCM - 11th July to 17th July

Will the future production of fuels be centralised or decentralised?

That's a question I had to grapple with this week, as companies with both approaches received venture funding. Large investments are flowing to companies such as Monolith and Electric Hydrogen (see episode 1), who are building industrial scale hydrogen and ammonia production facilities that utilise renewable energy. But earlier stage funding is also flowing to distributed production companies such as XFuel and ReMo Energy, who believe short supply chains and modular technologies will win the day.

I suspect the answer to my question will be both.

A small favour to ask

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Now, read on for coverage of all the deals that mattered last week in #cleantech, #climatetech and the #energytransition.

Deal of the week - XFuel

Xfuel is developing a drop-in substitute for diesel with a claimed 85% reduction in greenhouse gas emissions when compared to fossil fuel production. The feedstock for the Xfuel process is solid biomass from forestry, agriculture and construction waste. The biorefinery technology uses low temperature and mechanical catalytic conversion to break long chain hydrocarbons into liquid hydrocarbons such as diesel and potentially avgas. The fuels produce can be used in existing infrastructure and engines, either blended with conventional fuels or as a substitute.

What's the deal?

The company raised a EUR 8.2 million Series A funding round, led by AENU with participation from Union Square Ventures and SOSV. It's expected the funding will be used to commercialise the technology and scale up the company in preparation for development of the first commercial-scale operating plant.

Why is this interesting?

• Good enough decarbonisation - taking the 85% GHG reduction claim at face value, the benefits of cost-competitive low carbon fuels may outweigh the cost of the remaining carbon emissions. As we're discovering throughout this journey, the first 80% of decarbonisation is technically feasible and financially viable. The last 20% is often prohibitively difficult and expensive.
• Avoided infrastructure spending - biofuels (if produced at scale) will compete with hydrogen and ammonia in the next 10-20 years to win the race to decarbonise heavy transportation. The benefit of drop-in fuel substitutes or products that can be blended is the avoided capital investment in new infrastructure. I expect we'll see both approaches - substitute and blended fuels available at a large number of locations, alternative fuels available to the largest customers at transportation hubs.
• The question of scale - starting with the assumption that we want to avoid another ethanol, the question for Xfuel will be one of scale. Can enough feedstock be secured to produce enough biofuel for it to become a widely available alternative? It's beyond the scope of this newsletter to try and answer that question, but I suspect not. I do note that feedstock for four Xfuel projects has been secured through a deal with an (unnamed) waste wood consolidator operating in the UK and Ireland. Xfuel will compete with other use cases for wood waste (e.g. manufacturing of pulp, composite wood etc) but it appears that a low carbon diesel substitute would be a relatively high value product from this waste stream.
• Modular and distributed - similar to ReMo Energy, but the opposite of Monolith (see below for both), Xfuel is developing technology that is modular with a small unit size of 150 litres per hour. This can scale up by at least one order of magnitude but there is no information available on the optimal plant size. The benefit of small modular plant is that it can be co-located with other industry where value can be maximised. For example, colocation with a remote sawmill would allow continuous access to feedstock and reduced cost of operating a trucking fleet. In 2022 we've all come to understand the risk of centralised and "just in time" supply chains, so I expect to see increased investment in modular technologies that reduce this risk.

Further reading

USV, who is quietly building up a nice portfolio of climatetech companies, published a short memo on their investment. With support from ARENA, a feasibility study on the technology was completed in 2019.

Other notable #cleantech and #climatetech deals

1. ReMo Energy - along the same lines as Xfuel, ReMo Energy is also developing a distributed production technology for low-carbon ammonia and nitrogen fertilizer production. Traditional ammonia production using natural gas as feedstock is responsible for nearly 2% of CO2 emissions. ReMo Energy has redesigned the ammonia production processes to adapt it to the scale and intermittency of electricity supply from wind and solar farms. There isn't a lot of information available on the technology developed by ReMo Energy, but this article on green ammonia production via an electrolyser would seem to encompass all of the benefits described by ReMo. The company has raised a $5.25 million seed round led by AiiM Partners, with participation from Breakthrough Energy Ventures amongst others.
2. Monolith - late last year the US Department of Energy provided a $1 billion conditional loan guarantee to Monolith to scale up production of hydrogen, ammonia and carbon black using methane pyrolysis. Monolith has now raised a further $300 million in growth capital, led by TPG Rise Capital and with participation from strategic investors Mitsubishi Heavy Industries and NextEra. Pyrolysis uses less energy than electrolysis and has a lower carbon footprint than SMR. The company claims this technique has a tiny carbon footprint (0.45 kg CO2 / kg H2) compared to the traditional hydrogen production process known as Steam Methane Reforming (11.3 kg CO2 / kg H2). The massive benefit of this approach is the "by-product" of carbon black has a market value that materially subsidises the production cost of hydrogen. The new funding will be used to continue to develop the technology and mature the project pipeline. There is no doubt that this is industrial-scale production that is aligned with centralised energy hubs. The current plant (Olive Creek) is planning to ramp up production from its current level of 14,000 metric tons of carbon black to about 194,000 metric tons. Production of hydrogen will be upscaled and used for industrial-scale ammonia production, targeting annual production of 275,000 metric tons upon completion of the upgrade.
3. TerraCO2 - cement is the key ingredient in concrete that causes it to harden. Cement production accounts for 8% of global greenhouse gas emissions. Fly ash is critical in the production of concrete, as it reduces the use of Portland Cement by 10-30% in most common concrete mix designs. For every ton of cement produced, approximately a ton of CO2 is emitted in the manufacturing process. The problem is that fly ash is produced by burning coal to generate electricity. A nasty side effect of closing coal fired power stations is a reduction in the available supply of fly ash, driving up the use of Portland Cement (and hence carbon footprint) of concrete mixes. TerraCO2 has developed a cost-competitive drop-in substitute for fly ash that can be manufactured in large quantities. The company has raised a $46 million Series A round and the funds will be used to move from pilot plant to the first commercial plant. Notable investors include Breakthrough Energy Ventures and Lennar.
4. Blue Ocean Barns - most climatetech is focussed on carbon dioxide (CO2), but a far more potent greenhouse gas is methane. Methane is produced as a part of cattle’s digestive process, and cow emissions are a major contributor in any part of the world where beef is consumed. In the US, methane production from cow burps is ~21% of national methane emissions, second only to fugitive emissions from natural gas production. Blue Ocean Barns have developed a seaweed-based digestive aid that helps cows derive more nutritional value from their feed and reduce cow emissions by up to 80%. The company has completed a $20 million Series A funding round to scale up use of the product to the first 1 million cattle, with the aim of having 100 million cattle using the product by the end of the decade. The impact on global warming through cow feed additives is what caught my attention about this deal. If the dairy cows in California (less than 2% of U.S. cattle) used this feed additive, it would have the same annual climate impact as?Tesla's global fleet in 2021. Reducing cow burps is less sexy than the launch of a new Tesla model, but way more effective in stopping greenhouse gas emissions.
5. SiTration - an MIT spinoff that is seeking to deliver a radically more efficient battery recycling process, when compared to conventional chemical and thermal separation methods. SiTration claims that their electrified filtration membrane technology can reduce the energy used for recycling by as much as 10 times, while recovering over 95% of the critical materials in the battery. SiTration has raised $2.4 million in seed funding for continued development of this technology. Given the twin market pressures of short supply of raw materials and regulatory requirements for end-of-life management of batteries, this is one to watch.
6. CleanO2 - a distributed Carbon Capture Utilization and Storage (CCUS) company. CleanO2 has developed small-scale carbon capture systems that can be retrofitted onto existing heating appliances. The system absorbs CO2 and coverts it into a carbonate which sequesters it in a form of mineralized CO2, known as pearl ash. This is used to make soap and is sold to consumers One system captures six to eight tonnes of CO2 emissions annually, with an updated model to double the current system capacity. Premium products that involve carbon sequestration aren't going to solve the climate crisis, but they do raise awareness. CleanO2 raised $2.2 million in seed funding, in a round led by Regeneration.
7. Pexapark - it's often said that the operation of the world's financial markets rests entirely upon on Microsoft Excel. That has almost certainly been true when it comes to the question of risk and cost assessment for renewable energy Power Purchase Agreements (PPAs). Pexapark provides a platform for matching buyers and sellers of wind and solar PPAs, but this is not just a simple marketplace. Pexapark also offers complex asset modelling and ongoing monitoring for energy risk management. In short, they aspire to become the industry standard for underwriting PPAs. Pexapark have upsized their series B from EUR 8 million to EUR 14 million, bringing in S&P and Fluence as strategic investors and securing a loan guarantee from the Swiss government's Technology Fund. Their closest competitor is LevelTen Energy.
8. Nash Renewables - seeking to disrupt platforms such as Pexpark, Nash is a design platform for utility-scale wind farms. Nash claims its technology allows project developers to unlock "incremental asset value" in site and technology selection. According to Nash, wind farm asset owners could be getting up-to-15% higher risk-adjusted revenue if sites and technology were selected that optimised for value and time of energy production, not just a simple aggregate of annual energy production. Nash have raised seed funding (size unknown) from strategic investor TSG.
9. Naked Energy - solar energy reaches the earth's surface across a spectrum of wavelengths. Traditional photovoltaic cells solar thermal technology only captures a fraction of this electromagnetic energy. Naked Energy have produced a modular product that generates both electricity and heat from a single collector. The company claims to make the world’s highest energy density solar technology. It's a niche product, but one that may appeal in use-cases where production of low-grade heat (80-120 degrees C) represents a large proportion of electricity costs. Naked Energy have struck a deal with existing investors and a US-based distributor and are seeking to raise GBP 10 million to fund further product development and expansion into the US C&I market.

Until next week.

Thanks for reading. Don't forget to LIKE.

David Pethick