Financing first-of-a-kind climate assets

Yeh starts from why it matters, which is the part usually skipped. Hard-tech climate companies abate nothing until they become infrastructure, until they are bending steel and laying concrete, and you cannot deploy at the scale of billions until you have done the first one. That makes first-of-a-kind financing, in his framing, less a bottleneck than a climate solution in its own right: a horizontal answer that applies to geothermal, storage, cement and hydrogen alike, rather than another technology vertical to argue about. Kann agrees on the scale of the need, putting it at dozens to hundreds of new technologies over the coming decades, each of which has to cross this same gap at least once.

The gap exists because the two obvious sources of money have incompatible shapes. Venture capital is the most expensive money available and the check is too large and too dilutive, since a first plant typically runs into the hundreds of millions. Project finance and infrastructure investors have the right size of balance sheet and the wrong risk tolerance: their return is principal plus interest, so they see none of the upside if they happen to fund the next Tesla. Yeh’s summary is that you are offering them debt-level returns for equity-level risk. On top of that sits a genuine cultural divide, which he illustrates with an infrastructure investor who told him that the words “disruptive” or “innovative” in a pitch automatically disqualify the deal, exactly the words a venture investor wants to hear. Kann adds two structural problems that sharpen it. First, the first-of-a-kind sits at the top of the cost curve, so it is the most expensive unit the company will ever build and rarely has a customer willing to pay several times the eventual price, which means the risk goes up without the return going up to match. Second, infrastructure capital wants to deploy large sums repeatably without underwriting each asset individually, but a first-of-a-kind is by definition a unique snowflake, so the reward for all that bespoke diligence is a single deal.

Yeh’s response to that is not a structure but a posture: an anchor investor has to be “long-term greedy,” treating the first project as the price of access to the second, third and fourth. That reframing is what makes the practical menu cohere, because every option on it is a way of buying down the risk of a project that is not, by itself, an attractive trade. Balance-sheet financing is the brute force version, and he uses Climeworks raising a $600 million-plus round to build Orca and then Mammoth; it works, but few companies can raise that, and a round that size dilutes founders and existing investors heavily, which he calls a double-edged sword and a real risk. Government has become the big change, measured in hundreds of billions, with the Loan Programs Office holding roughly $400 billion in resources after the Inflation Reduction Act and hub programs for direct air capture and hydrogen in the tens of billions, and with the private sector now willing to treat government as a strategic partner rather than a last resort. Catalytic capital fills the awkward middle: Breakthrough’s Catalyst program putting $50 million of grant money into LanzaJet’s Freedom Pines sustainable aviation fuel plant, Just Climate, and family offices such as the CREO syndicate that say plainly that returns are secondary. Kann characterizes the category as semi-concessionary, return-seeking but not promising above-market returns, sitting between purely commercial money and government. And strategics and customers are the oldest answer of all: Yeh notes the earliest first-of-a-kind deals were done this way, with LanzaTech licensing to Chinese steel companies for its first three or four plants, and points to liquefied natural gas a decade ago, where strategics acted as sponsor, developer, offtaker and sometimes supplier at once.

None of that works without preparation, which is where the episode turns from capital to company-building. Start at the Series A, because these projects take years to get ready and years more to finance and build, so it belongs in the business plan and the board discussion early. Hire project finance and project development people into the company, the way Sublime hired a solar and wind development veteran into its green cement business. De-risk with pilots, plural, because attempting a 30x or 100x jump from lab to commercial scale is very hard to make bankable. And solve offtake, which is where the hardest creativity lives. Every financier wants the equivalent of a 20-year power purchase agreement, but most of the markets that need decarbonizing, cement and ammonia and fuels, trade spot and merchant. So companies manufacture contracted revenue instead: premium buyers willing to sign long-term for green cement, unbundling the carbon attribute from the physical product and selling each to a different buyer, or the trilateral aviation fuel deals where a corporate buyer chasing its own supply-chain emissions supplies price visibility the jet fuel market does not. Even after all that, the first plant is only the start, because mainstream infrastructure investors may not engage until the third project, at which point they can write $500 million to $1 billion checks for plants four, five and six. Yeh’s closing point is that the exit most climate founders never consider is neither an initial public offering nor a strategic sale but a development company, the model behind large independent power producers.