218. Climate Tech Battle Royale (Shayle Kann vs. Gerard Reid) - Mar26

founder Lisa Rubinstein Manamoud. Originally there was their guest with the turn of Johan Venture, but we have fully edited his contribution in order to keep the length at reasonable thirty minutes. Our produgies to Will and to your listeners enjoy the better Rayale for climate tech. But first of all from our partner.

about four hundred million assil managements. We are working with thirty investment managers so far, and in total we'd helped fund two hundred and seventy five companies. First, we'll quickly talk about twenty twenty five highlights, and then we'll talk a little bit about the drivers of climate tech, go a bit into funding, what's been happening, what we think will happen, and then all the families prepare some hot takes, some strong opinions on what might happen in twenty twenty six.

Now with me here today with the incredible guests, I'm so honored to have them first there. Shill can he leads the EERP Frontier Fund, which is one of the first ones we invested in doing really exciting deep tech, mostly in US and a bit in Europe. And he also hosts one of my favorite podcasts, Catalysts, which is really for the climate tech nerds amongst us, diving in

deep and all sorts of technologies. There with Gerard Reed, really pronounced energy expert, works with a few of the big instituced world economic form Energy Transition Forum, also does a lot of advisory for founders and investors on fundraising and how to scale up. And he has another incredible podcast called Redefining Energy, which I think is really the best European energy transition podcasts out there. So Gerard Shill,

so glad to have you here. Let's start with a few hot quick takes on what happened in twenty twenty five. So first of all, let's go to Shill. What was and according to you, the biggest technological breakthrough in twenty twenty five in climate.

to run more power through existing transmission lines. And the context is that, like, we need an enormous amount of additional power and transmission, both to deal with all of the increased load that we're seeing from electrification and from AI data centers, but also just to integrate all the new renewables, largely that we're building on the grid. Building new transmission in both the US and Europe has become a really hard problem and one that's difficult to solve

a technology alone. But this class of technologies that are called gets allow you to get significant, sometimes up to thirty percent more capacity on an existing line with pretty low cost solutions. We have one company in our portfolio that is called asset Cool, which deploys robots to deploy a line coding on transmission lines that makes them more reflective and that basically allows them not to heat up as much, and you can run fifteen to thirty percent

core capacity on an existing line. It's super simple when you think about it, and it's basically a no brainer

from an economic perspective. The reason for me, it's that twenty twenty five technological breakthrough is just that a class of these technologies that one included, but a few others as well, really all reached a pretty critical proof point, Like they all deployed on act of lines, showed that they could increase capacity, and so basically all of them are exiting the pilot phase and entering the full scale

commercial phase. And it's hard to overstate the impact. If you could deploy those things widely, it would just get you the equivalent of tens of thousands kilometers of additional transmission without actually having to build more transmission.

to expand our transmission capacity nearly as much. It's also it takes a long time to kind of restart that momentum, and so now we're in the phase where clearly we do need to expand it, but it's going to take a long time before we actually candled new transmission. So we're just at a sweet back from a timing perspective. The other thing is robotics because a lot of these things they're hard to deploy with manual labor for a

variety of reasons, especially on energized lines. So the technology of robotics is coincided with the need in a way that's sort of a perfect storm.

huge amounts of model dot into that space. And then there's certain areas software area where again huge amounts of money going on. But I would also say I'm portionately aside and I'm really put my Europeanto that on here. What you do see is an not of stress in the climate change area. And this is not a political thing. This is reading with the businesses just not being able to scale, and I see a lot of European venture capitals.

If I many say under pressure, Listen, I'm att E World, which is the biggest electrical energy conference for a trade show in Europe, and that's what I'm getting out of this as well. It's just stress. And actually the stress is an interesting thing to talk Then why is it the system stressed? In the European perspective, that stressed because

we've got too much renewables in the system. There's too much renewables on the large scale system, which means you sort of go from a financing perspective, why would I build more solar when I'm going to get negative prices first. And actually there's another thing happening, which is that we're building so much renewable in the middle that that's also

stress in the system as well. And it's actually back to the whole point that that's why I actually really please technology, which is from the wings the system, because

of the fact that system stress. And so I wouldn't single out one big cap on thevent last year, but I would say that you also have to look at that the money that is going in in general into infrastructure that I know we're not just talking about infrastructure, but what he saw last year was record on stalls the solar across the world, record and solved the PAS storage across the world. And it looks like we also had record install the wind across the world. Why is

this happening? This has happened just because the cost production that you're seeing particular and solar are literally off the chart. So we talked about the best technology change last year, but we're done for me, I go and I say, it's the ongoing continuous reduction in prices and solar and storage and also then the pieces of performance and if I was he asked me, what's the technology of the year. The technology of the year for me is Balcony solar.

And for those who don't know what Falcony solar is, Balcony solar is plugging play sol. You don't need an electrician, you don't need to put it in your roof. You can plug it in anywhere. And in Europe this has been regulated at an email level and certain countries have putting in. One of them is Germany. And so to give you an idea, what you're doing is when you

put Balcony solar in, you're generating electricsitm below the wholesale POWERUS. Okay, this is a revolution because this technology cannot be stopped. And so they asked me to look at what really has excited me. It's that it's really the beginning of this plug and play solar. And also you'll have to plug and play storage at touched it and those two technologies will revolutionize our world. Yeah.

expect that stress to continue? Very specifically, what do you think will be the biggest headwind and we'll will be the biggest tailwind for climate tech?

EPA or Environmental Protection Agency regulating carbon emissions. That's obviously one of many, many things that this administration has done to try to tamp down on the concept of climate change is something that needs policy action in the first place.

That's a headwind in the US. Certainly it's a bigger headwind for some subcategories of climate tech than others, and so I think it's important not to paint climate tech with too broad a brush here, because we really are seeing the tale of two cities right now, where if you are in one of the subcategories in the US that is completely reliant on either sort of new government policy or voluntary corporate action, which is kind of downstream

of policy in the US, that's challenged. On the other hand, we have and this will be the tailwind. I guess for me, we have by far the most dynamic and rapidly evolving energy sector that we have had in decades. The amount of demand growth, the need to get. Term of art in this industry right now is speed to power. That's basically all that matters. It just so happens that a lot of the technology that can deliver speed to

power are the ones that you've been talking about. The fastest new generation to get online is solar, and fastest

new capacity to get online as batteries. Actually, anything that is attached to that trend, whether it be generation, storage, transmission, distribution, load side management, all these things sees this enormous tailwind that is sort of it's not driven by the fact that it is decarbonized, but it benefits from that fact because a lot of the biggest customers in that market, Google it probably the forefront, but including the other Hyperscale

do still have these commitments that they intend to keep to the extent that they can. So there's a headwind for companies that are not attached to this macro factor, and there's a tailwind for any company that is.

never been this kind of a capex build out. And that capex build up happens to be very energy oriented, right, It's not a coincidence that the size of a data center is measured in megawatts. That's an energy term. So the entire world of tech and AI and all the financial infrastructure that underpins it has woken up to energy being basically the core challenge to get this capacity online.

And that means if you have a solution that has something to offer, you can just ride onto this wave and it's an enormously powerful force.

really quick So that's the revolution. But the revolution is that it doesn't just impact the way the energy world. It all is going to radically impact the way we work and the way our lives are run in the future. It's also going to impact I call that the economic power of countries. It's already impacted geopolitics across the world, so it's far ranging That's really what we're in the

positive about it is it's a technological revolution. And what happens with technologies is they get cheaper otherwise they're not good. Technology will look to market and we've got great technologies. And again AI is also in a neighbor of electrification, and AI also leeds electricity. I'm not actually worried about the AI local. The reason or not is because we're

going to electrify everything going forward anyway. So guess what if it's not used for AI and was a bubble in it, then electricity will be used for other things going forward. But I would add that the revolution go back to the technological revolution. It's solar storage. And there's another technology as well, which is semis because all of this AI revolution would not be possible with the revolution

that we're seeing in and around and video chips, etcetera, etcetera. Yes, they use massive amounts of power, but if you look at the amount maid amounts data that is being processed on a daily basis. If you look at Google and you compare Google what they're processing today to a year and a half ago, it's like one hundred times more. This is like we've never seen anything like that at it.

And so the point I'm making is I look at it quite positive as these technologies you can't block them because the low cost of them is such that we are going to electrify our system. And by electrifying our system, this is how you're going to decarbonize quickly. And you're going to do this because electricity is the cheapest way to do it, and we have these technologies that are also cheap and becoming cheaper. So I actually look really

positively about it. But it's not an easy revolution because the revolutions, people die, and what I mean by that is incumbnance die, and other businesses won't to buy. The biggest tailwind I'll go to say what I say, and being a little bit controversial is China. And the reason I say to China is the is the tail rent is because China is at the full hunt of developing

all these technologies. Again, those three cork technologies I talked about, and they're not far behind an AI as well, and they're pushing these products to market in their own market and pushing them abroad at a scale that we've never seen. We have never seen, you know, an energy technology again, come to markets quickly a solar and I'm very positive about all common energy, but just comparing nuclear solar, good luck, chill.

The first SMR comes on in twenty twenty nine. By twenty thirty three, the amount of solar that's put on the system is enough to power in the United States and South America put together, right, just to pull the scale. That's the technology for me. So again I just want to make that point is that we are that technology revolution and it's very difficult to predict what happen. That's the concern I would.

but still we hit forty and a half billion. At the same time, we saw the deal coon was down, and that's because much more capital is going to growth versus early stage. And we also see quite a bit of concentration of capital in a few sectors, specifically nuclear batteries, great tech evs. Schill, I'd love to hear from you. How are you reading these trends and is this good news or bad news?

in and around like twenty twenty. A lot of them disappeared because AI showed up and it was sexier, and climate tech was in the sort of downcycle part of the hype curve, So they disappeared from climate tech and they would still tell you they don't do climate tech, but they would also tell you that they definitely do energy. Classic example of that in the US Base Power. It's a company that's run by Zachdel, who's the son of

Michael delf Throader of Dell Computer. They are basically a combination of a residential electricity retailer and a virtual power plant company, so they deploy big batteries at people's homes. They're only in Texas so far today. They've been scaling very quickly. They raised a billion dollar venture capital around in twenty twenty five from actually almost no energy investors.

There's an interesting dynamic in this market. If you look at the list, it's basically a who's who in Silicon Valley, and none of the energy specialists were in that cap team. So that tells you something kind of interesting about how the market is playing, which is to say that again, if you are attached to that trend, the pool of capital is broader for you, valuations are higher, There's a lot that you can benefit from. If you are not

attached to that trend. I still think it's actually a pretty tough market to fundraising.

just say there's definitely a change. You see this from the political level, That's the first thing i'd say. The second thing I would say from a European perspective is that Europe what's happened is the venture capitalist in Europe have had it really easy for a decade because what's happening is there's been more capitalive from the into climate areas and prices can go up and up and up.

And now what we're seeing is businesses not performing and we're seeing down rounds, restructure of business and stuff like this. And if I go and just take the wider situation, which is definitely do have certain times of the day too much solar, too much renewable, it's too much electricity in the system. You know, you need to build batteries.

He's changed laws to be able to make flexibility come into the market, and that takes a little bit of a while, which means a lot of the climate tech businesses just and scale and so what you're seeing is valuations from the pressure. So I think this year is going to be a difficult year, I would say from a certainly from a European.

But again, if you look at the sectors that are benefiting from this AI wave, and I think the money that's flowing is going to surprise everybody.

I think that's going to be very difficult. So it's there's no doubt the certain areas where and anything related to AI there's massive money going, there's no doubt about that. But there's a whole part of other areas where there's just got a very little capital.

few months. They're a bunch more sitting behind them that are likely to go as well. And even you know, we've re entered twenty twenty one and there are a bunch of SPACs that have been announced with companies that are looking to d SPAC that are in the climate tech world. You could discount those to some extent, but even just in a traditional IPOs context, there's a line. And as long as the market's hold up and remain favorable to this trend, we'll see a lot of exit activity.

my twenty twenty six trend. I mean, we've already seen one of the company's Starcloud already deployed a GPU and Nvidia GPU into space and they made, you know, like it's not a real data center, but it's a proof of concept. By the end of the year, we might see something that actually can do some compute in the you know, hundreds of killowatts type scale. It's going to take quite a while before you could do math on this.

it's going to happen that quickly. Can I make one additional points on this as exciting and hype as it is in the long term. The reality is that the predominant driver of the cost of an orbital data center ends up being launched cost get delivering something into space is the cost. As you said, op X could be really low, though I should know operations and maintenance is an unsolved problem these things. Stuff breaks inside terrestrial data

centers all the time. We have no idea how to fix that in space at this point, So let's kick that can down the road. Launch cost is what matters. In order for orbital data centers to be on the same order of magnitude in terms of total costs as terrestrial data centers are today, we need launch costs to be down in the like one hundred dollars per kilogram range, which is where SpaceX intends to be from a cost perspective,

I should say, not from a price perspective. By the end of the decade or so, it's where they say they're going to be. So any data centers that we launch in this space right now, we're going to be

purely uneconomic. It's like worth noting that, and so the only argument to do it is sort of to your point, will we have to hit such a ceiling we have to be so limited in terms of terrestrial data centers that we're forced and it relative to demand for compute, that we have to send this stuff into space, and we definitely have a problem in getting new data center

capacity online terrestrially on the grid. But my twenty twenty six trend was going to be I think there will be a trifecta of potential solutions to that that are all going to gain lots of attention this year. One is orbital data centers, but that to me is third in line. The other two are edge data centers, where you build a network of small nodes that take advantage of access capacity that already exists on the grid, and that's not going to get you one hundred gigawatts right away,

but it's going to get you something relatively meaningful. And then off grid, you can build off grid data centers much cheaper than you can build an orbital data center. We have no shortage of land, so it's not clear to me why we need to go off world rather than off grid.

models get commoditized. So if they get commoditized, there could be a view in the world that actually they get commoditized, And actually what really happens is everything becomes open source and then companies basically develop their own models, which means that all these data centers are not big centralized AI data centers the way we're anything in the US, but

actually become grid age. Now this is very interesting because the European perspective will be we've actually got a really good electricity system, very good grid, and we've got spare capacity across a lot of it. So could be Europe's chance to actually really jump on AI if it does go that decentralized route. Now I'm not sure we're going to go that route. It's an interesting question to do that, and I will say the point about the US, there's no doubt when you say we're going off with it,

they're not going off with it. What they're doing is they're going off the electricity grid, right, because that what you do is you have to connect to ask for it, because you need to make sure these are twenty four seven. What the big thrash like to ask is do you see Llm's moodetizing? And then we move to that decentralized world where it is all about if I'm a government, I'm going to go I want to have my own AI system and I want to have it close to where I am. I don't want to have it sitting

in another country, etcetera, etcetera. You know, because it's an interesting question about the future of how AI bose.

a twenty thirty eight estimated interconnection timeline. So I worry about time more than I worry about cost.

had at the federal level. Meanwhile, Europe is still seeing EV penetration that it spans well beyond anything that we've seen here in the US in some countries obviously in the Nordics, like really really high penetration, So that seems to me like an area. And then like all the business models that surround that as well, I think are more mature in Europe than they are in the US.

one hundred kilot hour battery in it. I mean I have like, what is a five Tesla power walls worth of power sitting in garage right now, and I currently can't use it to power my home if I have an outage. And I live in northern California where we have wildfires and outages, so it sure would be valuable for me, exactly.

an idea, this is all automized, it's all AI. This is not human beings sitting there because you can't manage to move this electricity around and trade it without technology. So that's where Europe leads and Europe needs to really build on that and going back to the grid space so I not to charge it to I'm certainly here this conference area. The global leader in vehicles good is

called Mobility House. They've been doing it for many, many years and pole big roll out in France with Renold, and this is the type of thing that Europe is really big and the business models that come around that, because that's the interesting thing is the business models that come around it. And these are next generation energy services businesses, technology enable service platforms, all this type of stuff. You

take the case of renewables. What we need to be able to do is to make sure the good is balanced. You need to be able to predict what the wind is going to be like the next day. Well guess what the leading whether prediction countrypanies are in Europe. That's where Europe is really good. In Europe needs to really focus on those core areas rather than trying to chase and compete with the Chinese five years after they need a particular area that doesn't make sense.

You can actually do other stuff around and you can do food processing or something where they need that heat and you can integrate it in. So I definitely see the AI aification of our world allows us to actually industrialize in a different way than before. I'd be very very positive. And I see a lot of projects starting with this, and now, don't get me wrong, they take a few years to come to fruition, but that's definitely

very exciting. And the next thing I would say as well is that from a European perspective, we have to get away from gas. And this is just it's the addiction to gas is not good for economy, whether it's the Russian gas we all know that, or expensive LG gas that doesn't help us either. So the alternative is to electrified. And what you're going to see is more and more government incentifies an expectation for industry. So take the case of Germany. A heavy industry in Germany does

not pay any good charge. Okay, that's a clear incentive for them to electrify. They're saying, guys, electrify that, let's to do so. I can see more and more countries in Europe doing that, because that's the way forward from a geopolitical perspective, but also from an economic perspective and also from an environment.

of the Internet and build an incredibly powerful model. And the next thing that is a harder problem, but there are a lot of smart folks working on it right now, is trying to build sufficient training data to be able to do things in the real world and the physical world. And that's where it starts to matter in the categories that I spend time on and focus on. So lots of opportunities there. We've made a few investments already in robotics companies. I think there's a lot more to be done.

that it's really the big changes. People are getting their heads around the business models and how it works. And I think this is very, very important because batteries are are critical enabler of future electricity system and also getting electricity fast to bat centers and the like. So that's what I would say.

climate tech. I should say that doesn't really have any direct impact on the actual markets.