Catalyzing Development of First-of-a-Kind Climate Projects
In 2022, Prime Coalition reported on the scaling challenges faced by climate startups, with a specific emphasis on access to infrastructure finance, in “Barriers to the Timely Deployment of Climate Infrastructure.” The report substantiated a scarcity of capital available to commercialize novel climate technologies, including a dearth of development capital—that is, funding to conduct engineering studies, site development, permitting, and other activities that are required before projects seek construction financing. In 2023, Trellis Climate continued its assessment of the development capital gap, resulting in two catalytic capital deployments to demonstrate philanthropic catalytic capital as a solution. This research note summarizes the insights gained by the Trellis team through this work.
Learn more about Trellis Climate and our phased approach.
Executive Summary
Excitingly, over the last decade, several climate technology companies have successfully formed, fundraised, and demonstrated technical success for their climate solutions. These companies are ready for commercialization and scale. However, transitioning from a technology development company to a project developer is challenging. These companies face two primary constraints: a scarcity of capital available with the mandate to pursue the risk-return profile of first-of-a-kind (FOAK) climate projects, and a lack of project development experience among many climate technology companies.
Investors often hesitate to fund FOAK commercial projects due to the risks associated with engineering scaleup, changes compared to previous demonstration projects, and supply chain and offtake uncertainty. It's vitally important, therefore, that climate technology companies do as much as possible to reduce risks inherent in first projects. A robust development process is critical to ensure that key risks are mitigated before companies seek construction financing. Project development is always an essential precursor to project construction—perhaps more so when these projects are first-of-a-kind. Attempting to shortcut this step risks project underperformance and failure. Philanthropies, investors, government agencies, and industry groups must acknowledge the need for robust funding and support for this step. Specific actions they can take to ensure appropriate resourcing and derisking at the project development stage include:
Funding project development, with traditional capital sources wherever possible, and catalytically (e.g., with impact-first capital and grants) where needed to accelerate high-impact climate solutions;
Publishing case studies and data on how robustly funded project development affects company success; and
Supporting companies in the hiring and training of staff and advisors experienced in project development.
