You're listening to Redefining Energy. Your co hosts from Berlin, Gerard Read and from London Laurent Saga.
Today on Redefining Energy, Laurent, we're going to talk about the decarbonization of industry and the solutions that we need in the future to do that.
Yeah, the so called hard to abate sector. And there's been several trailblazer in that segment. Of course, we took about breakthrough energy venture energy impat partners in a certain way, Predu ad Ventures who really coined the term climate tech. And now the approach is how do we go from a VC all up to a first factory And that's what our guest is doing.
Yeah, so listen. I know Sean Kingspike many years and obviously spent a long time in the whole financing renewables, particularly in the UK, and you know he's a chief investment officer Just Climate, just start up by Generation Capital really, which has been one of the four runners of investing in climate the last I don't know how long they've been,
around fifteen years something like that. At this point in time, I think it's great to have him talk about what Just Climate is doing and also about industrial climate solutions from why they're important.
Sean Kingsbury has been instrumental in the development of the na of show win industry when he was at the head of the UK Green Investment Bank. So let's bring Sean on the show. Sean, welcome to the show.
Thank you very much both to you for having me. I'm looking forward to the discussion.
So Sean, maybe just we kick off a little bit by talking a little bit about what you do.
It's a nice easy one to start, Jared, isn't it. It's like, we do the hard stuff. That's really what we do with just climate. We try to focus in on the high emitting and most off track areas of climate. Why do we do the hard stuff? That's where the emissions are. So we look at those areas which produce maybe fifty or sixty percent of the emissions, but get very little of the capital flows that are moving to sort these things out. The middle of the investment flow
maybe less than twenty percent. And you might say, well, why is that If these are the areas producing the most emissions, why does the money not flow to them. Surely that's what we should be doing. Targeting the art areas and The reason I think the money doesn't flow is because the buckets at the capitol comes in don't
necessarily meet the requirements of what the investments need. You and I've both spent many times sitting at a conference hosting a round table discussion, and maybe on my right I've got banks, and on my left I've got the project developers and the technology companies. Another look at the banks and they all say, you know, we've got one hundred bizillion dollars to invest in this area. We're going to really move some capital, but we can't find the
right opportunities. And I look to my left and I've got lots of project developers or technology companies, and they're saying, we've got an amazing green technology or a fantastic project we'd like you to invest in. And you feel like saying, haven't you guys met But of course they have met it. But the reason that they haven't been able to do something is finance typically comes in buckets. There's venture capital,
there's growth capital, there's biod capital, there's infrastructure capital. We've got very very clever names for all the different types of capital, but these transactions are typically too big for venture Two asset heavy for growth certainly not yet infrastructure. Maybe real assets, but not infrastructure, and they're not biot. So the buckets are capital don't meet the opportunity set
and that's what we do with just Climate. We try to provide a flexible capital stack to lean into those areas that are most off track, that are usually asset heavy, and try and provide the capitals. That's what just climates all about. We call it climate lant investing.
And Jean, can you give a practical example of that so our listener really sort of understands what you're talking about there.
Let me use an example one that many people will know, and it's one that I learned about maybe twelve or fourteen years ago when we were running the Green Investment Bank. When we set that up, we wanted to build usher wind here in the UK, and people would look at me kind of strange and say, you're going to be in wind turbines in the sea. And in those days, there wasn't a track record of building those projects and delivering them long time and on budget, and they required
a very significant green premium. I think some of the first projects we did required about one hundred and fifty five pounds and I go whatever. When the market price was about fifty so three times the cost of conventional power. Over the next four or five years we started to fund those. We delivered nine or ten projects that we invested in all time on budget. The market did another nine or ten. We came down the cost curve and the bits on offshore wind were thirty nine pounds of
mega one hour. So we went from three times a conventional price to twenty percent below and we created an asset class and then people could invest because it was proven. Now we need to do that in green steel, low carbon cement, green chemicals, plastic, SAFT, long duration energy stores. I could give you the list for the next five minutes. You know what they are. And that's the kind of
track reck coord that we need to create. And we need to find these technologies and drive them down the cost curve and make them investable.
I like that from the outside looking in, it sounds a bit like what Jigasha is trying to do at Dewey Long Program Office, but more onnbiquity side.
In one sense, loan it's a private markets version of that. When I had the grit prove to be asked to set up the Green Vestment Bank in the UK. It was the world's first. We didn't have a business model, but we created one, something that was admired and copied around the world. They're now forty or fifty of these kind of institutions stay by stated mostly in the US country by country. But there are two flaws. Without business model,
it works really well, but there limitations. And those two limitations are, as you all know, climate is not defined by national boundaries. It's a global problem, and so the capital needs to be global. And while governments, particularly the US government that you mentioned with Jiggershaw on Thede, can move large amounts of money, they can't move enough money
to solve this problem. So we need a private markets version, and we need an international version, a private markets version that taps into the deepest pools of institutional capital and gets that money to work, but using the same principles that you've seen with something like the due, leaning in to the hardbits, proving a track record. So in one sense, just climate is a private markets, institutional quality version of a green bag. You're very very close.
I look at your portfolio and for instance, you have h two green Steeler. So that's the decombanization of the steel industry. So can you elaborate to bit on green steel because we hear everything and it's opposite.
That's a really good example. And of course we've just renamed the company's Stegro, so why you use that it's You could use it interchangeably with it's two green steel. But the story there follows the kind of approach we take at just Climate when we look for these investment opportunities. We start with road maps. We don't get up in the morning and figure out there's the transaction that looks interesting.
Is it sustainable enough to go into our fund? We get up in the morning and we say where do the emissions come from climate led investing? And of course if you go through that, number one on that list is cement and concrete production to a steel. So you quickly get the steel and you say, okay, what are the technologies that might decarbonize this, what are the companies that are leading on this and where are they making
things work? And so we looked at hydrogen for the decarbonization of the steel process, and we really liked what they were doing. Advantage to green steel niz Stagra in terms of developing a project that was world scale. This is the first steel plan, never mind green steel plan, the first steel plant built in Europe in nearly thirty years.
And if you can build it at scale, you can come downe that cost curve and you can integrate all of the various pieces from the production of hydrogen through the direct production tower, the dri tower, through to the electric ark furnace, all running and renewables, and you can get done that cost curve and you can offer it really at scale inside the perimeters of Europe where a seabam applies, and that gives you an extra additional bump. And then the key question is how do you project
finance this thing. This is a very large project including all of the financing calls well over six billion euros. It's a big project. And so in order to get project finance to work, and this is the kind of stuff that you do all day long, you need high quality off take arrangements that are multiple years with credit worthy countreparties. So they had set abite putting in players forty to fifty percent of the off tick locked up
over five to seven years. And what we find is there are a number of customers who are willing to pay what's a reasonably modest premium for that great steel. And why is that. Maybe they're using it in trucks, maybe they're using it in cars. And whenever you're producing an elected car, you really want something with the lowest possible embedded carbon as well as zero till pipe permissions. And so today many of the companies buy steal steals about sixty percent of the win of a car, and
then they buy carbonov sets for that. So they're already paying a premium over the cost of regular steel. And so if you can sell them green steel, they're really keen to do that to have a proper decarbonization. And so what we wanted to do was build a project which would then have a real perimeter that would produce the steel from the factory gate. All it was in is iron ore and green electricity, and what comes out is green steel, and that's what we've been able to finance.
It was the biggest private markets transaction last year. So as we think about how difficult the market is at the moment, we are still getting transactions like that away and done in our sector. And that's why we did it. We started with the carbon emissions. They calculated where those were coming from, and we went and found a company ready to build a worst of the.
Kindlad John, can I ask you about cement because there seems to be a lot.
Happening in that area, right and obviously you're looking at that whole lockers.
Could you just give your views on how you see that go forward.
It's perhaps one of the more difficult markets. First of all, it's the biggest emitter. You have emissions not just from the heat or the energy needed in the kilns, but you have process emissions when you drive off the CO two from the limestone, and so you can look at ways of decarbonizing the heat source using renewable energy. So an electric kiln does something. You can look at carbon capture and storage, or you can look at other processes.
Maybe you don't start with limestone, but start with another rock that you can then use as a substitution in the concrete and cement mix that you produce, which is less embedded carbon emissions. But it's very hard because the unit value of cement and concrete is actually very low. It's very expensive to ship. It doesn't go very far, you know, maybe one hundred miles maybe two hundred miles at most, and the margins in it are much lower
than the margins for example, in steel production. No one has yet merge with a leading technology and a leading solution, but lots of people, as you say, are very active in finding different ways to significantly reduce the footprint, and I expect to see companies emerge using a variety of those different solutions, from decarbonizing the heat source to substitution of ordinary Portland cement over the next few years that will actually make an impact. We have to do something.
When you look at where the emissions come from. Sixty percent of cement concrete is going into new cities, mostly in Asia, and we really have to do something. Nw We've worked on a concept of time value of carbon. We all understand time value of money, but removing carbon from the atmosphere now is more valuable than removing in a twenty thirty or twenty thirty five. So making progress on these sorts of things now is really important.
Guys, you are the great thinkers, and me I'm just a guy with a calculator in front of a trading screen. So I'm going to tell you sim is one hundred dollar paton okay, and steel is eight hundred dollar paton. It's a very simply calculation cement, super high volume and super low margins. The energy feed cement is the waste of refineries. They almost get the powerful free petcock is what.
It's all full petcock. But it's a volume game. So decogonization, you're going to find a lot of great techniques and so. But the price are so low. It's a tough one.
It's a tough one. It's exactly right. You're right about the point about the unit price. You're also right that it's not just the price. It's two other things that impact that. It's a low margin business compared to steel, and it's a very heavy and difficult and expensive product to move. So whatever you do, it can't be very much more expensive or the adoption will be very low.
And whatever you do, you have to be able to do it in lots of locations because you can't have a big centralized planet that you ship the stuff licens and miles. It moves very distances. Those are the challenges with it. But I have to say we have seen some interesting technologies and we've seen some interesting companies that all come from the research the climate let research we do, and I would hope in our first fund, we're about seven hundred million advasted of our fund before we have
completed that. I would hope that we can find something that can make a significant contribution. Maybe I can come on and talk to you about it and how it works and how you get over it exactly those critical issues that you'veidelined, that's what makes it difficult.
You're also invested in immobility. So what's the segment Because the value chain is ginomos, So how do you position yourself?
Why is transportation important? First of all, twenty five to thirty percent of the emissions to each country is a little bit different, and we see electrification as the main way in which almost all of the transport emissions will be reduced over time. You could do it for two whellers, you can do it for three whe you can do it for cars. You can do it for light trucks, increasingly heavier trucks, but the heaviest trucks are still very
hard to decarbonize with power. And so if you look at the supply chainel that the area that we thought was one of the pinch points was the ability to rule out the highest powered chargers, the ones that you would use not at destinations or at your home, but I've been transit at scale and to do that on a global basis, and so the reason we selected to invest in Abbe Mobility is we think they are one of the only providers who can deliver those high power
chargers to global CTOs around the world. We have customers and are delivering in over seventy countries. Fixing that pinch point would enable a faster decarbonization and electrification of transport. We also want to get to the higher powered chargers because we want to get to bigger and bigger trucks because if you look at where thetions come from, disproportionately, they come from the largest vehicles on our roads today
and those will meet the fastest possible charging. Today, the company has a new product out there which is four hundred killowts, but over time we can imagine with liquid cooling and with the product development suite, we have getting up to a megawat of charging and that will enable the juty cycles on those larger trucks to work. And that's why we're particularly interested in emobility and made the investment.
So Sean slightly different topic, which is I'm listening very clearly to you and I'm wondering if you're going to make money doing this.
If we don't make money, we will failed. Our job is to bring that institutional quality, deep pools of capital to these areas, these areas where the missions are highest than their most off track. And it's till very well be talking about climate lane investing, but I should make really clear there is nothing about climate led investing that isn't one hundred percent commercial. It's fully caffemated at investing.
If we are going to move the large amounts of capital that are required to solve these challenges, they will move when they conceive profit opportunities. I have experience of doing this before, looking for in the hard to abit areas and showing that you can make great money, I mean the great opportunities. There is a much less competition in those areas. But of course you have to be thoughtful and you need a different set of skill sets to have a strategy like this and be successful in it.
Activity what you do and you work with many people they have a very similar kind of investment banking kind of team. But we needed a team who were purposely very diverse in terms of their background and experience. Because we're building real assets. We needed a team that understood building companies and growth styles investing. We needed people in
that team who understood infrastructure style investing real assets. We needed on that team people who understood project financing, impact, engineering operations, and bringing them all together under the umbrella of just climate. We purposely set the team up to integrate those sorts of skills because I think if you haven't got those skills, this becomes a very very difficult investment Manda. Of course, the proof of the pudding will
be in the eating, and it's a hard manded. But having done this before, having led this sort of an integrated team to look at the things that other people find difficult and proven that that works, I think within the team we have a track record to be able
to deliver that. But let me be really clear. If we're going to succeed in making climate lead and investing something that is admired and copied around the world, much like the green investment bank model was admired and copied around the world, have to deliver attractive returns and highest level of impact and deliver them both at the same time or will fail enor mess.
Jean, thank you very very much for that.
Again, just I want to maybe go.
A little bit back to the market environment if you look at it, I think, if I go back in my career, we've seen sort of three clean.
Tech bubbles and all of them have blown up, and I feel we're in a third one now. You see all the spoks in the US that like down, you see dal rounds taking place everywhere.
It's just over capacity. It seems to be from investor part of a mess. I'd be interested to hear.
Your thoughts on the market environment and how you see it going forward.
Basically, I guess one of the few joys of being older is you see pattern recognition. And indeed we've seen some of this before. There's a sudden wave of enthusiasm followed by a crash of reality. But what happens after
that is a steady, solid growth. If you think through wind on shore, if you think through wind offshore, you think through batteries, if you think through solar for example, we've all gone through this initial wave of enthusiasm, maybe some excitable inflated values, a crash of reality, and then a steady growth That's what I expect we will see here, and we will see waves of enthusiasm and volatility I suspect over the next twenty years as we continue to
invest in these things. But if you can create investible and repeatable business models where you can get the first signs of success in each of these subsectors and then go for the sam rinse and repeat program that we've seen in wind and solar in batteries, I think you can create acid classes just like we were able to create around offshore wind, in things like SAP, in things like steel, in things like cement, where at the very early stages of that. But we shouldn't get too excited
when the market gets frothy or too depressed. When the market's done and look for that wave of standard growth that typically comes after these periods of volatile We need a deliver chart, we need to deliver which.
Shorty show absolutely needs to deliver.
I agree on the principle, which is in the short term pessimist always right and in the long term optimist deliver change that I agree.
Now now I think you should just stop there. I agree with you.
Now. When Trump got elected, everything in the market when except when obles went down, and look, that's very sad. And sometimes I wonder if a lot of pine the sky who could five years ago raised hundreds of millions
based on a power point. The purject is still not finished, the quantum scape for solid state battery and the energy war for gravity storage, because what we've seen in the solar industry is first you have like a multitude of potential different technology csp on crystalline, and then one technology emerged and literally kills the rest. And I know it's almost impossible to time the market. I see a great future five ten years, no problem, but I'm really concerned about the next eighteen months.
A lot of the stuff arived renewables is done by the states, each of the individual states in the US those targets, and I don't think those will change. In the last period that we had President around War, wind and solar was built in the US than at any time before that, and I expect that to continue. This transition will continue to happen. It's a matter of physics, it's a matter of chemistry, it's a matter of biology. We need to fix these things and fix the pilot.
And it's a matter of economics. Many of these technologies are cheaper today than the altarnids. They will be adopted, whether there's a large amount of political support or a little bit of political support. Their job creating, and they give economic advantages to those who invest in them. That's not going to change. I am an optimist about this. I think we're going to deliver this, and there will be bumps along the way. There will be periods of
frothy markets and declining markets. There will be periods of political headwinds and periods of political tilwoods. But the fundamentals of what we're doing and why we're doing it are driven by physics and chemistry and biology and economics, and those are going to continue. So I am an optimist, and I remain enthusiastic about the mission and about the probability of making a real change.
Great way to a very good, very superb, very much.
It was good. I enjoyed it. Thank you both very much for inviting.
That's great.
Thank you Sean, well Laurent. The key question that's it comes into my head is whether they're going to make any money and make any of these investments. It's an investment, but now you might say it's not an investment of but it's a philanthropy adventure and that's okay. But I'm doubting wh they're gonna make money from this.
The most embarrassing moment was eighteen minutes inside the interview, you asked the question about the climatic bubble and his answer was a big si, a sigh of powerlessness.
That was brutal.
Yeah, it was. It was a little bit of frustration with everything. And I understand that. I understand that we've been through these bubbles with Laurent, so it's just it's not easier.
You said, third bubble for our young listeners, can you remind us what were the first birds.
In the Internet bubble in nineteen nineteen nine, two thousand. You also had a clean tech bole that was there was a huge amount of hype in particularly in around field seal companies and a lot of IPOs in those years,
and all the share prices collapsed. So that was the first one, and then the second one really was to eight two thousand and nine, where we had all pile of IPOs of solar companies, German companies, Chinese companies, and huge amounts of new funds going into that whole space and then that blew up as well.
I remember you had the cos Laventuez, you had the kind of bio fue funds one billion, you had to write down one hundred percent of it.
Yeah, yeah, exactly exactly. So it was just it was tough from what we've seen as another one. Again, we saw obviously the peak of it being about whatever two years ago, I suppose, and we had all these SPACs being put on the market in the US really really outrageous valuations, and obviously they collapsed and you know a lot of them went bankrupt, and yeah, they brought down
the whole sector with them. And we're talking to the public markets, but I just want to say it's also in the private markets at the same thing, because what we're living through right now in Europe and North America is a whole pile of down rounds and restructuring of climate business. That's what we're saying. It's not a pre market environment out there still.
Even before taking into account the impact of Trump's election.
Exactly, without a doubt, without there absolutely.
Now, if we talk about green Steel, a Stekar is a big project five billion. They're really invested heavy into it. Wow, green Steel, if you look Arcelo Metal. They just announced that they are almost stopping their new green steel development despite receiving hundreds of millions of subsidies. We just saw to Saint Groupe slashing forty percent of their workforce. It's very difficult to turn into green steel when the market is massively over supplied, and that's a consequence of what's
going on in China. In China, there's so much steel of a supplied, but the problem is they are closing the electric afflness. They're not even closing the blastphones, so they are closing the greener plants. It's a very very difficult environment for green steel.
It is a very difficult environment. And actually what you need to add to that is that the customers, in other words, the automobile manufacturers, these guys are all the pressure too. That makes it difficult. I'm also be at of reflection around. You might think a map when I say this, but the reflection I had is that Europe can't go alone. So in the sense that if Europe goes and puts carbon taxes on stuff coming into Europe and making europe being products more expensive, we just can't compete.
And that's not going to work. So I'm a little bit cautious about all this type of project going forward.
Green steel, cement e fuels. I weigh my words very carefully, but it's been almost a theological approach that we need to go to net zero and the only way is through podcore engineering, which might not succeed with the row of thermodynamics and the low of economics. And there has been a movement to go after carbon of sets because
you can shoot and so on. But you know what, if we can use the forest three and a certain number of natural investment, which by the way, are much cheaper and which can deliver not in fifteen years, but in the next two or three years, why don't we use more carbon upsets provided they have high level integrity, which we can do now we satellites and everything. We
just had articles six past at COP twenty nine. So at some point, why banging your head to just try to do green cement or green steel and ignore carbon upsets which are not perfect, but you know that's what they are for. They are for the so called how to abate sector, and it's it's much cheaper.
I would say.
Also, what you're doing is you're helping them develop world because a lot of these projects are in those areas and we ad at the end of the day, we need them to learn from our mistakes. We built an economy based on fossil fuels. They don't need to do this in the future, so we need to provide them the financing to do this. In the carbon credit mechanism is one way to do that. So I'm wich macha.
The conclusion is a bit brace for impact. And I want to finish on a pot by Matt Eggers, who's the managing director at Prelude Venture, super respected when it comes to climate tech, and he says AI has sucked all the oxygen in the room. Climate tech. Now there you know they raised a ten billion per quarter. That's
two or three days of crypto. That's it. Now, let's not confuse clean energy infrastructure investment, which is really going great, but that's with existing technology solar batteries, evis and so on, and trying to find the missing link in certain segments that's much tougher.
Agree, totally, my friend. Well listen, good charting.
Yeah, as always, and I talk to you next week the pot.
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