Follow The #Climatetech Money - Week 6

FTCM - 25th to 31st JULY, 2022

This week I take a look at some exciting developments in the world of Heating Ventilation and Air Conditioning (HVAC). Through a combination of science, engineering and artificial intelligence we're on the verge of a step-change in the efficiency of HVAC systems in commercial buildings.

Now, read on for coverage of all the deals that mattered last week in #cleantech , #climatetech and the #energytransition . Please remember, if you enjoy this newsletter, LIKE or COMMENT to share with your colleagues.

DEAL OF THE WEEK - BLUE FRONTIER

Blue Frontier is developing and commercialising a next-generation commercial Air Conditioning (AC) technology. AC is the component within a Heating Ventilation and Air Conditioning (HVAC) unit that is responsible for dehumidifying the air and cooling it. HVAC usage is a major contributor to greenhouse gas emissions, through both energy consumption and leakage of fluorocarbons into the atmosphere. By some estimates AC is responsible for 9% of global electricity demand and 4% of global greenhouse gas emissions across both residential and commercial usage. As our world gets warmer and wealthier, demand for AC is expected to grow rapidly. A better AC solution is urgently required.

What's the deal?

The company raised a $20 million Series A round , led by Breakthrough Energy Ventures, 2150 Tech Sustainability Fund and VoLo Earth Ventures (who also led the seed round). The company will use the fund to install their first pilot installations in commercial buildings, and to continue development of the first product; a drop-in replacement for a 5-10 ton commercial packaged rooftop unit. Over the next few years the company is aiming to install the first 1,000 units.

Why is this interesting?

• Integrated energy storage - a traditional AC unit uses a vapor compression cycle to cool air down sufficiently to remove moisture. Blue Frontier have developed a technology that splits the cooling and humidity control problem into two processes. The unit uses a liquid desiccant to reduce the humidity of indoor air by absorbing water and drying the air, which is then cooled to the required temperature and humidity via indirect evaporative cooling. The desiccant is regenerated with heat so that it can absorb more humidity. Desiccant regeneration is the energy-intensive step, but because it does not occur at the same time as dehumidification it creates the capability to create and store several hours of cooling potential by running at times of low energy prices.
• Step change energy efficiency - Blue Frontier’s system reduces electricity consumption in the AC unit by 50% (humid conditions) to 90% (arid conditions). Fan usage in a commercial system typically consumes a similar amount of energy as the AC function. As demonstrated by Brainbox AI (see below), an improved control system can reduce energy consumption of the entire HVAC system by 20-30%. I wonder what the total HVAC efficiency gain from pairing a Blue Frontier unit (for efficient cooling) with a Brainbox unit (for efficient ventilation) would be.
• Step change reduction in use of refrigerants - the hole in the ozone layer is largely attributed to the use of chlorofluorocarbons (CFCs) that were commonly used in AC systems. These have been substituted for alternative refrigerants that don't harm the ozone layer but are still greenhouse gases. Blue Frontier uses 60-80% less refrigerants and has been designed to use a refrigerant with a lower global warming potential, resulting in an 85% reduction in the system's greenhouse gas footprint associated with leakage of refrigerant.
• A new business model for HVAC supply - according to a report from late 2021, the company plans to release its first units in 2023. They aim to be cost-competitive with a conventional unit, but rather than sell the hardware they plan to own and operate the units, providing HVAC as a Service. This is perhaps the riskiest part of the Blue Frontier investment. Next generation hardware is usually attractive to buyers, but 'as a service' business models in a multi-stakeholder environment like commercial buildings, is challenging. I hope they are successful, because hardware-only companies rarely attract valuations that represent the full value created by their invention.

Further reading

Check out this video from the CEO and founder, Daniel Betts. This interview describes some of the benefits of the technology and this interview is also insightful.

OTHER NOTABLE #CLEANTECH AND #CLIMATETECH DEALS

??? BrainBox AI - Continuing the theme of HVAC optimisation, Brainbox is taking a different approach, offering an easy-to-install hardware controller for HVAC optimisation in commercial buildings. The company have raised a further $6 million in funding to close out their $30 million Series A round . HVAC energy reduction of up to 25% is claimed, with the life of HVAC equipment extended by up to 50% due to smoother operations based on dynamic programming of the control systems. BrainBox have achieved rapid growth, with the company now managing over 100 million square feet of commercial building space across 20 countries. It would seem that energy efficiency is only the first value stream that Brainbox is able to offer. There are natural product extensions into predictive maintenance and operation of an aggregated virtual power plant. These are both potentially huge markets that would allow Brainbox to capture increasing margins. One to watch!

?? Octopus Energy - never has a company name been more appropriate. Octopus Energy has tentacles that are reaching into every part of the energy transition, and is itself just one arm of Octopus Group. Octopus Energy Group is made up a fast-growing multi-national energy retailer, a technology platform (Kraken), a renewable energy generation portfolio (3GW of onshore wind and solar) and many other limbs. With more than 3 million retail customers and a further 20 million customers served by their technology across 14 countries, Octopus Energy is a big player in the global energy markets. Not bad for a company that was founded in only 2015! Interestingly, Octopus is pushing further into the technology space with two arms - Kraken Flex and Kraken Utilities. The first is a distributed energy asset management platform, formed from the acquired Upside Energy. The second is further investment in the Kraken platform to extend into other utilities (e.g. water and telecommunications) and reach 100 million customers by 2027. Existing investors have pumped an additional $550 million into Octopus Energy to help them achieve these ambitious goals. The easy conclusion to draw from this is that technology can offer a compelling competitive advantage in utility markets. I'm more interested in how vulnerable companies like SAP are to having market segments snatched away by focussed competitors. I'm not sure if Kraken Utilities will be successful, but after their success in the energy market who would bet against them? It's the part of the business to watch most closely for the next 10x growth in this unicorn.

?? Onto - when the time comes to get a new car, the easiest choice is to buy another car just like your last one. For most drivers, they will be considering an electric vehicle (EV) for the first time. To make the transition easier, electric car subscription services provide an easy path to "try before you buy". Onto is a market leader and one of the few vehicle subscription platforms to exclusively offer EVs. Onto have raised a EUR 59 million Series C round , led by insurance company Legal & General. The funding will be used to launch the product across Europe, beginning with Germany in 2023. With European markets rapidly mandating an end to sales of vehicles with an internal combustion engine, Onto seems well placed to provide an accessible on-ramp to EV ownership.

?? EnZinc - the thermal runaway risk for lithium ion batteries creates markets for alternatives (like zinc batteries) that do not carry this risk. Zinc batteries are not new technology, but issues relating to dendrite formation and anode cracking restricted the operating regime to high energy and low power. EnZinc has developed a rechargeable zinc micro-sponge anode that addresses these problems, allowing high energy and power to be achieved in a battery with hundreds of cycles. EnZinc hopes to displace lead-acid batteries in applications such as data centres. What makes this company particularly interesting is the expected low cost to convert lead-acid battery production facilities to zinc battery production. If this is able to be demonstrated, production in a familiar form-factor could be scaled up quickly and provide a safer, greener and lower cost energy storage solution. The company has raised a $4.5 million seed round to develop a nickel-zinc battery.

?? Altruistiq - another week, another funding round for an ESG platform. Altruistiq have raised a GBP 15 million seed round , with Norrsken and Greg Jackson (founder of Octopus Energy, see above) amongst the notable investors. How many ESG platforms does it take to find a new lightbulb supplier? I count 53 equity investments totalling $1.3 billion in 40 unique ESG platform companies over the last year. In all prior years (back to 2015) total equity funding was only $400 million. There is a framework for innovation known as DFV; it tests desirability (customer demand), feasibility (technical) and viability (financial). It is clear that investors now believe that desirability and feasibility have been solved, so the only remaining question is financial viability. Can a company make money? With dozens of platforms competing for market share, only the strongest will survive and thrive.

?? Gravity Climate - see above. Gravity is catering to industries that have significant physical operations and infrastructure (examples given are construction, metals, and energy services). They have raised $5 million in seed funding from Eclipse Ventures.

UNTIL NEXT WEEK.

Thanks for reading. Don't forget to LIKE or COMMENT.

David Pethick