229. Climate Tech reinvented: from green molecules to green electrons - May26

With La Launce Segle and from London and Gerard read from Berlin. This is redefining energy Today. On Redefending Energy Joad, we're going to talk about climate tech. Whether it's alive, dead or it's gone through a huge transformation.

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Make your life easier, make your business more flexible. Back to the show, and for that we have a fantastic guest, a person we've been following four years, Tim Zoo. She's a leading climate tech analyst, founder, investor, and she has co founded Sideline Climate formerly called CTVC, which provides data research and market intelligence to tens of thousands of organizations. Fantastic guests.

Yeah, let us and I've been following them since they started up and they did great analysis, great reports, and it's a pleasure to have her on board. Let's bring it on the show. Where came listen, It's a pleasure having you on the show. Really looking forward to this conversation.

Excited to be on the show. Longtime listeners, Kim, I'm. Going to ask a very simple question, what is climate tech into twenty six? Simple question, not so simple answer.

We started a newsletter on climate tech at the beginning of twenty twenty, right before the pandemic, where I would say the definition for climate tech is quite different. Historically, the way we've looked at it is technology solutions mitigating the climate crisis from mitigation, adaptation, removal standpoint, with the understanding that the demand driver is really around decarb getting to net zero. That definition as a whole hasn't necessarily changed, But I think the underlying demand driver for what's driving a lot of these verticals and sectors that we call climate tech.

We really think of climate tech as a theme, not an industry. It's energy, it's builds environment, it's transport, it's food and ad, it's a lot of these core verticals. But now the demand driver for these solutions are no longer purely net zero purely decarb. In my mind, the demand drivers really come down to where we see physical supply shortages relative to demand, and that today is happening in primarily power driven by AI and data centers.

We're seeing that in some manufacturing and resources related sectors like crotopriminerals, and we're also seeing that in areas like manufacturing robot and we're actually seeing a lot of investment going into those solutions like nuclear, like grid tech, but it's no longer because of decarb net zero that's driving those investments. Begs the question why do we even use the phrase climate anymore? I mean, it's a question I ask myself not every day, but often, because I do think we helped coin this term climate tech back at the start of twenty twenty.

There's been clean tech one point zero. There's been many iterations of clean and climate tech, and I think often this word climate tech can isolate the key players that we need to drive these industries forward. There's an inherent assumption that in climate tech, the reason we're talking about these technologies, these solutions is because of climate, when in reality, the way the world works, these solutions that fall under this climate tech umbrella it's not driven because of climate.

It's driven because there's a need from a security standpoint, from an affordability standpoint, and also from a sustainability standpoint cheaper, better, faster, cleaner, and just having that climate label on it all, just having the assumption that everything is because of cleaner can sometimes isolate a lot of the investors, the corporates, the policymakers who want these solutions to scale. That's a lot of what the industry that we've been tracking has been coming to terms with over the last two years that just purely looking at this from a climate standpoint no longer really helps the solutions scale.

In fact, sometimes it harms these solutions. Well, I'm sort of hearing and I don't have the answer, but I'm going to give you a challenge, which has come up with a new phrase, we move from clean tech to climate tech. And I think it's just you set it yourself there there's a need for a new phrase. If I look at the story of investing in that there are my perception and you're going to tell me, because you are doing the research with the ring numbers, if my perception is good or not.

Is that in the capital location people used to go big on green molecules, so they would put money in biofuels, or in hydrogen or the most absurd and stupid and ridiculous and one hundred percent share of burning money carbon management, whether it's burning shareholders money or burning government money, because this is a continuous scam. Two green electrons. So that's my perception. So you have the numbers or just just me babbling.

When we look at climate tech investment in twenty twenty five relative to the prior years, a pretty surprising, at least on paper surprising start is there is a big increase in climate tech investment. And when I say climate tech investment, I'm talking mostly about venture and growth a police in mostly looking at private markets. Twenty twenty twenty twenty two, we saw a massive boom from like thirty billion up to sixty billion, doubled year every year. Then twenty three onwards that investment has really decreased, come back down to kind of thirty forty billion.

Surprisingly, in twenty twenty five, we saw an eight percent uptick from twenty twenty four, which on paper, you're like, wait, a second policy has not been favorable to climate. How has investment in climate tech increase, and the majority of that increase has come from the energy and specifically the electrons side of the equation. It's coming from this new demand driver AI data centers, six hundred and sixty billion dollars of hyperscalar capex going into needing to build out the data center and compute layer, which means that we need more electrons both from a generation and from a transmission distribution standpoint.

And so we're seeing all of that uptick right now in climate tech investment coming from the green electron side. Historically there was a lot coming from the green molecule side, hydrogen, low carbon fuels, really focusing on the transfer rotation side of energy. Now it's all flowing into the electron side of energies. So I think we've seen a real shift.

And my personal take here is it also just makes a lot more sense. If we're using this framework of better, cheaper, faster, cleaner electrons, you can check a lot of those boxes a lot faster than molecules. By the way, you mentioned the hydrogen there did not not blow up about one hundred years ago with the Hinden work. Oh man, I think we're in like every ten years due to the hydrogen.

Hydrogen it kind of dissipated, let's call it in twenty twenty five. So yeah, twenty thirty five, we could have a looking forward, all right, we'll have a tenure date. For hydrogen right now. There is one project that makes a lot of sense.

It's in Paraguay, is to make green ammonia from the Equosu dam because I know the story of the construction and the financying of the equest Sudam. In fact, Paraguay as an allotment of that dam, but they never use it because it's such a small economy and they're going to produce really rereneumonia there and they have a bush and everything that's very serious and that's going to replace fertilizer. But that's the exception. Will most confirm the rule now question and regard numbers because we're going to talk about numbers.

We love numbers here. But for instance, when you have twenty thousand R and D engineers at COTL, when you have one hundred and ten thousand engineers at BYD, do you account for their R and D budget or what you're tracking. It's really like more external sources because there's a lot of research in climate tech going inside those Chinese giants. We're doing a lot more coverage on China.

I'm also Chinese, so I do feel personally interested in this topic. Last November went on a trip and visited this atl MBID companies and factories, and you go to these factories and they have walls and walls of patents that they've developed across batteries, across solar, across evs, all these things. And even to me, like last time I was in China was in twenty eighteen, that was a surprise. Historically, the Western narration of clean tech and climate tech has been all the innovation happens in the West and then China takes it and scales it or copies it, depending on who you speak to.

That to me has fundamentally changed. China is no longer just the world's factory focusing on the kind of ten to one hundred. They're making a very dedicated effort and they're succeeding, especially in a lot of these clean tech climate tech sectors and going further upstream into the zero to one. And to your point, it's not venture capital, it's not VC investors in China that are funding most of this, it's a combination of government capital, local government capital, industry funds that they'd set up.

It's a combination of state owned enterprises and a combination of these corporates plus some private markets capital that's really funding this stuff. So in our climate tech investment numbers, we're not tracking corporate R and D, we're not tracking that type of capital. We're mostly looking at private markets investment, so we're not looking at government capital at least in those numbers. But if you were to look at where a lot of the innovation in China is happening, it's really stemming down from the five year plans.

The government at the top is setting the national goals over the next five years, and from twenty twenty to twenty twenty five, during the pandemic years, there were a lot of dedicated goals centered around new energy EVS, solar batteries, those are the big three, and from twenty twenty to twenty twenty five, the Chinese private markets, Chinese vcs had some of the best outcomes, the best exits with COTL, with a couple other companies including a battery storage company, and to them that was the big clean tech climate tech years.

And most of that innovation has now been happening at these companies like CTL and Buid and others, as opposed to startups that are necessarily building the innovation. Can we jump on that point? There is an interesting one because if I look at say Europe, we actually formerly probably had the Chinese approach, which was innovation took place in these big businesses and big institutes. That model as sort of I don't know, as maybe it's broken down and we're now moving to this I call it this American approach, but that ain't working for us either.

So I'd be very interested just to hear your approach on Europe and how you see Europe in between that, the American approach to innovation and the Chinese approach. It's funny because I've been privileged to be able to straddle some of these geographies, like born and raised in the US, have lived in London for the last three years, and then parents and family from Asia, so have been able to kind of get a glimpset at these different markets and how they operate. I think the advantage of the US is capital, no doubt, right.

The advantage of the US is that there's just a lot of capital there. There's a lot of private markets capital there. In particular, the birth of private equity was in the US, and so that's their advantage, along with Silicon Valley and bottoms of innovation. I think unless you have that advantage of endless capital, it's really hard to go only the kind of purely capitalistic private markets route, private innovation route.

On the other hand, China is the other end of the spectrum, where it's more socialist, communist in nature, and they can go the top down government approach where they say, okay, over the next ten years, we're just going to focus on doing these three things really well, and then everyone underneath bottom up will kind of rise to the moment. But it doesn't create that more organic innovation, that more organic scientific R and D. And that's why I think some of these Chinese markets have struggled to do that zero to one because it's been so top down that there isn't that encouragement of that scientific, almost academic R and D that you do have in US and that you do have in Europe that don't always meet the goals of what the governments, what the national has said.

I think Europe's advantage here is that it can bridge between these two. It doesn't have to pick one or the other. I think Europe has the advantage of really fantastic academic innovation, really fantastic scientific innovation. You look at some of the universities here in the UK, Cambridge, Oxford, Imperial, you look at EAT Zurich.

There's a ton of incredible innovation happening at these universities. There is the private markets here as well, although it's not as scaled up as the US. But I also think there's a lot more to have that top down, longer term government focus than in the US, which is kind of behold into these four year election cycles that now swing back and forth. So in my mind, can eure ap step up to seeing the advantages of how the China model has worked as well as seeing the advantages of that bottoms up innovation and sort of academic ecosystem that the US has midwork and come up with its own version that takes the best of both worlds.

I like the way you think, and you introduced without even knowing it the powerful driver of serend deputy, and there's a lot of R and D which comes a bit by accident or just people meeting each other and not necessarily a dog cut. How clever it is. You know in the ministry say okay, we're going to do this, We're going to do that. But even sera deputy works in China because you know, we took to a Chinese expert and they said that the electric two and three wheelers were not in the plan.

So they say, okay, we're not doing it. But some guys, entrepreneurs, they found out that the economics were great and it was developed outside the plan. And sometimes I mean you see the plan for new Care and they are five years late, and you see the plan for if it's there are five years ahead. So I mean the plan, yeah, we can debate for hours.

Now you talk about players, okay, because we are talking about hundreds of billions of dollars. So what are the players? Always the same new names? So what's the ecosystem?

The players that have been driving this climate tech innovation and deployment cycle has definitely shifted over the last six years. When we started tracking the space in twenty twenty, we were really looking at the emergence of these climate tech vcs. I mean we literally called the newsletter Climate Tech vc back in twenty twenty to twenty twenty two, we saw this big emergence of this new kind of player that came to the table of venture investors, primarily early stage venture investors who wanted to back companies, startup solutions that were working on this climate challenge.

Then twenty twenty two to twenty twenty four, i'd say we saw the emergence of the growth and more infrastructure stage emerging for this category investors like just Climate General Atlantics, Beyond zero fund Decarbonization Partners between Tamassa and Black Rock tpgu guys. So you started to see this emergence of the more growth infrastructure asset class. Brookfield included in that that weren't just investing in solar and wind, but looking at some of these more emerging solutions.

And that was also when we started Siteline, when we went from just being a newsletter to being a broader market intelligence company tracking these capital flows, helping to advise a lot of these investors. But also increasingly now this new wave we're seeing is more of the corporate and also government stack coming into play. We're at this period in climate tech where it's less about backing a lot more of the same innovation. Do we need another SMR reactor type?

Do we need another hydrogen electrilizer? Right? Like we've been at it for six years, it's less about funding early stage investment and innovation in some of these existing solutions that have been able to scale over the last six years, and it's more about, Okay, what of these markets are actually needed, Where is their demand, where is their willingness to pay, and what of these solutions actually have the cost curve, the scalability, the deployment models to meet the problems we have today.

And so where we're seeing the players come to it's more the corporates, the policy makers, the infrastructure investors that are needed to take these solutions to scale. And that's actually what we saw in our recent Capital Staff report, where we oftentimes track the capital allocators and how LPs are starting to deploy capital inn to these gps. And one really interesting step that came out of that was in twenty twenty five, we saw that pool of overall funding the asset allocators go from twenty percent to VCS to then eight percent to VCS, So a lot more capital now is flowing into the infrastructure side of the equation than the early stage innovation and VC side of the equation.

These infrastructure investors aren't just looking at solar and wind anymore. They're looking at nuclear, They're looking at things adjacent to data centers. And so it's not that everything's going to get funded from climate tech from what the VC is backed, but we're going to see some solutions emerge. Geothermal is a good example of that as well.

OK. I like what you say here because that's what I see in practice. What I see is. It's not about technologies anymore.

It's about scaling these technologies. And actually the good news is because Iron myself with Lurano being veterans in this space, and I've obviously seen the seen tech one point zero and the blow up of that. But the difference now is really these technologies are low cost obviously batteries solar, but there's a whole pile of other technologies in and around that that are doing that. I'd love to get your view on what excites your most about these Like, if you look at technologies, which one you sort of say the one to look at the next five years is this?

What is it? Please before you answer, don't say the one that excites job the most which Areta center in space. Love it. In my mind, those were cool.

I don't know if it excites me just yet. Here's my thesis over the next couple of years, when we look at the clean tech wave solar wind batteries, it's amazing how those have come down the cost curve and in a way like that was the lower hanging fruit when we think about overall decarbonization and net zero. Now we're in a period of not just decarbonization net zero, but we're also in a period of growth or not just trying to bring this stuff down or trying to bring this stuff down while so growing the overall pie, nuclear geothermal, those are exciting because you have like new interest in clean firm generation sources.

But where I get really excited is not just the generation side of the pie, but really the transmission, distribution and demand side of the pie. And before starting SITELINE and CTBC, I was an investor at Energy Impect Partners, which has a coalition of primarily utilities that they work with in order to invest in this space. And I remember five years ago bringing technologies like advanced conductors VPPs to ers, dynamic line ratings like stuff that weren't that cool back in the day to the utilities and they would say, this is cool, but the risk return ratio isn't here for me.

Why would I deploy or do a pilot with a new grid tech company or a new conductor technology when I'm just worried about keeping the light Now they're worried about keeping them lights on, but they're also worried about all this demand coming to the table, primarily driven by data centers in AI, and they have a higher return ratio and a higher risk ratio. So they're actually interested now in piloting some of this demand flexibility grid tech type technology because there's just so much capacity coming online and they don't want to have to spend only billions of CAPEX to build out all the transmission and distribution infrastructure, and that also obviously increases electricity prices, increases rates.

That's what accts me right now. It's this demand and distribution side of the electronic equation that I think people care about now because they have. To Kim Sideline is following the growth of data center on a very granular basis. So you have like so much fantastic data, what do you see opening in the next eighteen months because we've seen crazy number of flowing you know the rat what is the railt?

The reality is, so we've been tracking at a very granular level every single data center globally coming online, with a pretty big focus candidly on the US because that is where a lot of the growth is right now. And we have tracked in twenty twenty six about sixteen gigawatts of announced data center load supposed to come online. Now twenty twenty five, we tracked five gigawatts of data center load that actually came online. When you look at that sixteen gigawatte pipeline though for twenty twenty six, about six gigawatts is actually under construction today, and know that it takes at least twelve to eighteen months to fully construct a data center, even after you had the interconnection in the permitting.

So how realistic is it really for all sixteen gi wots to come online? A three x increase really in the pipeline. When we did our own analysis building a d REST methodology for all the components you need to bring data center online, the powering, the permitting, secure and credible tenants, we've estimated that out until twenty thirty, about roughly forty percent are actually likely to come online. There's a lot of speculative announcements today.

Everyone is trying to sell to the hyperscalers, and so there's a lot of paper projects, we call them, where people have said we're going to do a data center, or people have filed to go into the interconnection queue. That being said, the thing that is most important right now is speed speed, speed, speed, then cost, then sustainability when it comes to data centers, and so the gating factor isn't demand. The gating factor is power constraints, speed to power, and we're seeing a lot of creative strategies right now amongst the data centers, especially in the US, to bring these things online as fast as possible, So things like bridging power literally rolling in mobile gas generators because they can't get the greater interconnection and using that as a way to kind of bridge to getting that great interconnection, or leaning on things like batteries to help speed up their place in the interconnection cues.

I personally don't think all the data center demand we're seeing will actually materialize all of the load that's been announced, But at the same time, a lot of these developers, hyperscalers are getting quite creative about how do we speed to power faster than we have before. You even see Google and Amazon now getting into the power developer gate. Right before they were just signing Rex and now Google bought Intersect Power for four point seventy five billion. Amazon bought up one of Pinegate renewables projects.

So that's going to be the dynamic we'll start to see over the next eighteen months. When I look, I've just have something to say before do you ask the best question? Yeah, okay, speed sustainability has been thrown in the garbage by Sultan Eposcadoes. Or are advocating for masculine energy.

Masculine energy, and when you advocate for masculine energy, I'm quoting mister Zukerberg and d Organ. Aggression is good. That's what he said. So I'm gonna give them a taste of their own medicine and Meta, you're just a bunch of scoundrels.

You're gonna triple your emissions, because that's what's gonna happen with their Louisiana campus. They're gonna triple their emissions. They don't want to report for it. They're gonna use whatever loopholes they can imagine.

They're going to do their own accounting system. And at the same time they are lobbying to block any revision of the Greeners Gas Protocol. But that's skullduggery. Meta, you are a disgrace.

You should not have an ESG department. Oh, Meta is confirming the system meticals, they don't give a rat sass. And at the end they invest one hundred eighty five billion, one hundred eighty five bion of AI, seven times the budget of the NASA. With that budget, NASA can go to the seven times okay, and they say, oh, we don't know how to track our emission on an hourly basis, scoundrels.

I said it, Sorry, I had my rant. Job. Your last question came. I'm blaming you because you wanted to talk about data centers and that's what you do when you talk with data centers with Lauren's got to go around.

No. I mean, you can put you as much as you want, that's your choice, but at least you need to report. That's the only thing I'm saying. Job lies, dumb lies, and carbon I think that's.

Kim last question. You set up this business, and you set up this business, and I remember we had a chat. When you set the business up. You had this passion.

You still have this passion. So what's this passion that's driving you? And give us a view of how you see the future that you're trying to create. When I first started the newsletter, we first started covering climate tech, my personal passion for all this always and always won't be around.

How do we get to a better, more sustainable future for everyone. The thing that's driving me now despite all of the headwinds, policy challenges, geopolitical challenges, is that we need to continue, especially this climate and energy transition community, we need to continue to focus on the overall goal, which is better, faster, cheaper, cleaner. And sometimes when we focus too much on just the clean side of the equation, we lose sight of the better and cheaper and the way the world works, especially the way a lot of regions that aren't just the US and Europe, they need to think about energy holistically.

And so what excites me is that there are now solutions that can tick off all four of those boxes. We have been funding solutions that can tick off more and more of those boxes that might not be ready today. Some of this like nuclear geothermal stuff might not be ready today, they could be scaling in three to five years. That is what excites me is that we actually have a path to solving some of these energy trilemma energy security challenges that we've talked about.

It's not going to be easy, it's not going to be clean. There's going to be the metas of the world who are continuing to use solutions that exist today because they want to hit their AI targets. But we do have a path, and I think so much of what we've been tracking on the climate tech side of the equation has been the innovation has been the venture capital has been the early side. And not all of these solutions are going to work.

Hydrogen is going through its bubble burst. Other things like battery or recycling, industrial decarbonization, carbon management are going through their bubble burst right now. But there are things that are emerging that I think will be the next solar wind dv's batteries in this current wave, and there are going to be solving problems that we haven't been able to address with our existing mature technology. So our job, our goal out siteline is not to just only track the innovation and BC side of the equation, but be pragmatic about the mature deployment of these solutions.

What will work, what won't work? How will new demand drivers coming to the table influence this? And one thing me and my co founder always say is we want to be analysts, not advocates. But genuinely, I think there are pads for us to get there in the long run, even if it might happen a little slower than we all want.

Well, Kim, thank you very much for all your hard work coming on the show and sharing your passion and your data. I encourage all our listeners who are not already following sideline to check on you. We're going to put some great links in the show notes and yeah, and we shure the best. Awesome, thank you, it's great joining.

Yeah, And as I said, I'm much because I thank you very much. Again, it was superb. Yeah, I know this is a lot of fun. So John, now I'm still laughing, my friend, because I'm laughing at your runt, you know, but I agree with your rant, so I'm not going to disagree with it.

I agree with your round. I agree. Look, thanks to Kim's statistics are already one of my three predictions from the beginning of the year, which is that half of the data centers will never be built. Look, I say things, but she's tracking them one by one.

So that's pretty remarkable. And we've seen recently the meltdown of Fermi that was a pump end up of an epic perspective. They managed to burn through one billion the guide they left to his one hundred million each. I mean, that is really a disgraceful data center industry, straight.

For the public markets as well around. But you know, I will say, I keep making a point where we are definitely in a revolution and revolution lots of money to be made, and there was also lots of money that's going to be lost. And that's particularly the case I think we're saying in the data center of the AI space, you need to be careful. Right, Yeah, And again we can see half of the data centers that never going to be built, or we can see the success of half of the at the centers which are being built despite the fact that people are missing transformers, people are missing to our byes, and still they manage to build them.

That's where there's a lot of rethinking of how grits should be managed and all the reinvention around thers and VPPs and it's a fantastic moment for those technologies. I am totally rich I've heard and I particularly I think what we need to do is keep an eye on what's going on Texas, just because it's at the forefront of obviously fossil fuels in terms of gas massives are great soul and wind resources and a building data centers like nobody else. Of the world. Kimi is looking for a new name for climate tech.

What I can tell you it exists already. It was gone by MBA. It's Eliqo Tech. Yeah, I think you're probably right on that ron.

The tiny hesitation I had in that was the fact that it isn't just about electrification. There was also a clean element of stuff. And our part of it was thinking, you go back to clean tech, but you can you can never go back. We can come back, so clean electro tech and all the rest, all the green molecules.

It's called money bonfire tech because the only question is who's going to lose money with green modicules. Is it going to be governments? It's going to be his shoulders is because the economics don't work, so somebody has to pay. Was electro tech pays for itself?

That's true, well said. Okay, my friend, have a great week and look forward to chat next week. Absolutely you will. Cheers.

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