It’s been a busy year so far for Energy Impact Partners (EIP.)
In January, the company invested $5.7 million in a Series A funding round for Dutch cleantech startup ViriCiti, which provides an online telematics platform to optimize battery and vehicle performance of electric and mixed bus fleets.
That same month, EIP announced that Shell had bought its portfolio company Greenlots, which develops EV charging stations combined with software and behind-the-meter energy storage. EIP invested $10.3 million in the Los Angeles- based startup’s Series A funding round in 2017.
In February, EIP led a $15 million Series B round for San Francisco-based Remix, a cloud-based platform working to change how cities plan, view and manage transportation and improve their mobility infrastructure. Later that month, the firm’s credit platform, the Energy Impact Credit Fund, provided up to $20 million in financing to Palmetto Clean Technology. The Charleston, SC-based company develops and operates residential solar systems, and offers financing solutions to homeowners to streamline their deployment.
And in March, EIP continued its busy year by participating in the Series C funding of Attivo Networks, a startup focused on cybersecurity software for the energy industry.
EIP founder and CEO Hans Kobler spoke with CleantechIQ recently to talk about his firm’s past, present and future.
Background of the Fund & Fundraising
Kobler, whose career includes time spent at Bain and GE Capital, among other companies, started New York-based EIP in 2015 with the thesis that the energy world is changing dramatically and “moving towards a “digitalized, decarbonized, decentralized, electrified future,” he says.
The firm has raised $681 million in total, including $531 million for its Flagship Fund and $150 million in debt from the U.S. Small Business Administration for its Energy Impact Credit Fund.
The credit fund, which launched last year, offers debt financing to US-based cleantech businesses that are too mature for EIP’s equity fund to invest in, Kobler says. Its first credit deal was Tendril Networks, which provides residential energy analytics to utilities. Tendril secured a majority investment in December from private equity firm Rubicon Technology Partners, with participation from Morgan Stanley Alternative Investments and Zoma Capital.
EIP has invested over $200 million into 25 cleantech startups and has had two exits, including Ring, the wireless doorbell and home automation vendor that Amazon acquired for more than $1 billion in 2018, and the previously mentioned Greenlots.
Kobler is seeing a lot of deal flow in the flagship fund. At year-end 2018, he expected to make up to eight new investments in 2019; by early May, the fund had already invested in five startups year-to-date. He has been hiring, too — the firm now has 27 employees — and says EIP will probably look to raise more capital in the near future.
The core of the fund’s investors are corporate utilities including Southern Company, National Grid and Xcel Energy. The fund has a total of 16 energy company backers, or “partners”, who have contributed 80% of the capital EIP has raised; the rest of the capital has come from high-net-worth individuals and small pensions.
The fund shares its market insight with its investors and promotes business relationships between its portfolio companies and corporate backers, Kobler says. Its corporate partners like EIP’s collaborative model, he says, because they are able to gain first-hand insight into the latest energy innovations and can essentially outsource their corporate venturing activities to EIP.
Through his fundraising efforts, he also had conversations with big U.S. pension funds, many of whom still see early-stage clean technology investing as being too risky, he recounts.
On the other hand, he points out that there’s a growing level of interest from these institutional investors in making a positive impact on the environment through their portfolios. This includes an increasing desire for data such as reductions in greenhouse gas emissions their investments are having. EIP tracks such data points and shares them with its limited partners in annual reports.
He says the big pension funds he has spoken to with are looking for clean energy investments with lower risk profiles. Kobler says he’s certain that more institutional investor capital will enter the clean energy sector as the market develops further.
Key Investment Themes
The fund identifies the key themes it focuses on by working closely with its corporate partners to understand the areas of the market that are of the most importance to them.
The greatest area of focus right now is electrification, with electric vehicles representing the single biggest opportunity, Kobler says. Indeed, recent forecasts say electricity’s share of total energy consumption will double to 41% by 2050 (link) and that aggressive electrification is necessary to reduce CO2 emissions from the world’s increasing energy consumption (link).
Another emerging opportunity for the fund under this theme is “heat conversion processes,” Kobler says. This process uses thermoelectric devices to convert low-level waste heat into electricity, improving the efficiency of systems such as traditional power plants and buildings.
The fund’s second major theme is “using intelligence and smarts to make the overall systems cleaner and more efficient,” Kobler says. This includes machine learning, artificial intelligence (AI) and smarter sensors.
In fact, using AI and sensors to shift the timing of demand-side load is an area EIP is currently spending a lot of time on, he adds. He says that demand-side load shifting can help avoid the need to build traditional power plants and play a big role in making systems more energy efficient and cleaner, since the load is shifted to correspond with the growing availability of distributed energy resources like renewables and energy storage.
One EIP portfolio company working on this is Autogrid, a software integrator for controlling distributed energy resources. EIP took part in the startup’s Series D round, which closed in January, alongside corporates Shell Ventures, National Grid and Total Energy Ventures.
The fund’s third major theme is the development of new business models that open up financing of distributed generation and energy efficiency assets.
Within this theme, Kobler points to SparkFund, an “energy efficiency-as-a-service” startup that provides financing for commercial and industrial (C&I) efficiency projects. Its model lets businesses pay over time for energy efficiency products and services, such as replacing existing lights with more efficient LEDs. EIP led the company’s $7 million Series B funding round in 2017.
Another example is CIMCON Lighting, which provides municipalities with the ability to upgrade street lights from conventional lighting to LEDs. The startup uses IoT software to enable municipalities to provide other services, such as EV charging and WiFi, that cover the cost of the LED upgrades. EIP led a $15 million Series B funding for the startup in 2017.
On the clean energy side, Kobler points to another EIP investment, Mosaic, which partners with banks to offer loans for residential rooftop solar systems through its online platform. Mosaic has raised $460 million in debt and $200 million in private equity funding.
In addition to its venture investment portfolio, EIP is investigating how it can play a greater role in the financing of cleantech infrastructure projects by working alongside traditional infrastructure investors. Kobler sees the growing availability of project financing for distributed energy generation projects that utilize clean technologies as a major market opportunity.
Traditional infrastructure financiers are increasingly looking to back innovative distributed generation projects that can generate higher returns compared to more mature renewable energy projects like large-scale solar, he says.
Microgrids, which combine behind-the-meter clean energy technologies to enable companies to operate independently from the electrical grid, present a promising opportunity for traditional financiers, Kobler says.
With a growing number of extreme storms leading to extended electrical outages, resiliency has become a priority for many businesses. And the cost of installing microgrids has been coming down, making these projects more economical to adopt. Kobler says these factors are leading to a lot of new corporate microgrid projects — and most of them need financing.
However, there are challenges that need to be solved before more capital flows into such projects. A major one, Kobler says, is the need for more standardization. Currently, these projects tend to be small and customized, but traditional financiers are looking to deploy large amounts of capital across many similar projects and aggregate them together in a portfolio. If microgrid projects become more standardized, they can be repeated multiple times with a single project developer and attract more financing.
One of EIP’s portfolio companies, Enchanted Rock, is an example of a developer that has been standardizing its microgrid projects and working with financing partners to develop multiple projects, he says. In 2017, EIP invested $10 million in Enchanted Rock.
Enchanted Rock operates and maintains resiliency microgrids for C&I customers and federal agencies in Texas. Having a focus on specific types of microgrids allows the company to create more standardized projects, which makes it much easier to attract project financing.
In 2016, the company received an undisclosed amount of equity financing from Balfour Beatty Infrastructure Partners, an independent infrastructure investment firm, to fund the construction of its microgrids. Last July, Enchanted Rock raised another $23.6 million in equity funding from an undisclosed source, according to an SEC filing.
Another developer working with large financing partners to deploy behind-the-meter systems is Advanced Microgrid Systems, or AMS, which EIP invested in as part of its $34 million Series B funding round in 2017. The company uses batteries and a proprietary software system to aggregate and operate customer-sited batteries as a “fleet” that can be used as a grid resource, which it calls a Virtual Power Plant (VPP).
In 2017, AMS closed on $200 million in equity and debt funding from Macquarie Capital and CIT Group, using the money to finance 50 MW of behind-the-meter energy storage at commercial and industrial sites in Southern California.
Utility Southern California Edison said it would buy power from the batteries through 10-year PPA contracts for capacity; this contract was the key to attracting financing. It was reportedly the first non-recourse debt financing of battery-based energy storage systems.
In March, AMS announced that the first phase of its VPP deployments in had supplied 2 GWh of grid services in 2018, its first year of operation. At about the same time, it closed on an additional $100 million in debt financing from CIT Group, Rabobank, Sumitomo Mitsui Banking and ING to fund the final 97 MWh of its remaining 340 MWh pipeline.
AMS is a good example of how developers can attract traditional financing to build behind-the-meter projects, and should pave the way for more debt financing to enter this market.
Another emerging sector that Kobler believes has great potential to attract project financing is EV charging infrastructure. Thousands of DC fast-chargers will need to be deployed across the US, which will drive the launch of new financing vehicles that will open up the availability of capital needed to build this infrastructure, he says.