A massive Alaskan fund created by oil revenues is funneling millions of dollars into a young company that finances and owns clean energy projects.Generate Capital
-- a company launched in 2014 and based in San Francisco -- announced today it has raised $200 million in equity funding to provide capital for energy, water and food infrastructure assets. The Alaska Permanent Fund Corporation, one of the largest sovereign wealth funds in the U.S. and valued at $62 billion, led the round.
The move shows how as clean energy technologies drop in price and grow in scale, major institutional investors are increasingly being attracted. While there’s no shortage of investors for solar and wind projects these days, Generate Capital finances and owns more alternative and smaller distributed energy assets like battery projects, biogas installations, and community solar farms.
The company’s success also shows how innovations in financing can lead to the deployment of clean technologies, whereas other forms of financing, like venture capital, have fallen short.
Generate Capital puts up the capital to get an energy infrastructure project installed and also owns the asset. As the infrastructure delivers revenue over time (as a community pays its solar bill, for example) and potentially saves the customer money (the community has a smaller energy bill), Generate Capital makes a return off of the cash flow.
The company’s investors can get monthly dividends. One day, Generate could potentially exit by going public or getting acquired.
Entrepreneurial investors Scott Jacobs, Jigar Shah and Matan Friedman launched the company in an effort to create a new way to fund emerging energy infrastructure. In just three years, the partners say they've done $500 million in deals.
Generate has worked with partners like solar companies, battery project developers and fuel cell makers. It can issue various types of financing from equity to debt to loans. Since Generate was formed as a company, instead of a fund, it isn't restricted by the typical VC type of 10-year timeline.
They’ve backed community solar farms in Minnesota, water treatment and biogas generating systems at Lagunitas Brewing Company in Northern California, and investments in fuel-cell-powered forklifts at Walmart. Generate Capital is also one of the largest non-utility investors in battery energy storage projects and has worked with battery project developers like Stem.
Shah founded solar project developer SunEdison, and more than a decade ago helped spearhead the business model of investing in what the industry started calling solar-as-a-service. Generate Capital is moving that model beyond solar and into other forms of distributed energy, which the company calls “infrastructure-as-a-service.”
Jacobs, co-founder of EFW Partners and McKinsey’s cleantech practice, described the company as “a mega balance sheet for distributed energy.” Generate Capital chose the Alaska Permanent Fund Corporation as one of its lead investors because the fund’s “vision and values aligned," said Jacobs.
With the new financing, Generate Capital is looking to work with partners that have a bigger pipeline of customers, said Jacobs. The $200 million in equity can unlock $1 billion in investment capacity for distributed energy projects, he said. The company’s original financing came from foundations and endowments.
The Alaska Permanent Fund was created in the mid-1970s by a state constitutional amendment that called for a quarter of the state’s oil money to go into a fund to be used for future generations. That was around the time that the Alaska pipeline was nearing construction.
That such a large state-managed fund has chosen to invest in Generate’s model suggests it has reasonably low risk and stable returns. “It’s a very lucrative place to be if you have the expertise, the mandate, the business model and the right partners,” said Jacobs.
Generate Capital has 27 employees, two-thirds of which make energy infrastructure investments. Jacobs said the “eclectic group” is made up of a mix of former investors in private equity, credit and hard asserts, as well as tech companies.
Over the past few years, cleantech entrepreneurs and investors have been trying to create new models to help deploy technologies to fight climate change. Financing innovation has proven to be one of the more successful.