Energizing The US Resource Innovation Ecosystem: The Case for an Aligned Intermediary to Accelerate GHG Emissions Reduction

Financing Energy Innovation: The Need for New Intermediaries in Clean Energy

“…For instance, researchers studying institutional investors find that while LTIs are theoretically well-suited to provide catalytic capital at scale in the long-term, they remain, in practice, untapped. LTIs should be willing partners in clean energy investments thanks to their long horizon and capacity and indeed desire to manage illiquidity risks, which is particularly well suited to the lifespan of clean energy projects [4,16,17,59,60]. Moreover, LTIs increasingly seek investment opportunities in real asset classes because they can provide steady cash flows that are less correlated to the returns from other existing investments and are also adjusted for inflation.…”

“…Entrepreneurs who fail to connect with aligned, long-term capital sources confront a severe funding shortage, which is often referred to as a "valley of death" (VoD) [1,2]. Crossing the VoD is often the most intractable and poorly understood challenge faced by entrepreneurs in the energy sector, because scaling up an energy technology to full-sized deployment tends to require particularly large-scaled and long-term investments long before the technology's commercial viability has been fully proven [3][4][5]. Yet, without bridging the VoD, the renewable energy industry cannot innovate quickly enough to compete with conventional sources of energy and drive the global energy transformation [6].…”

“…Investors should instead understand that the key lesson here is that investors were not connected to clean energy opportunities through the appropriate financing vehicles, investment products, and asset managers to deliver the requisite long-term alignment of interests. The capital that flows into these clean technology projects mostly came out of traditional VC/PE fund structures, and that capital is often too expensive to support the long duration needed to develop these projects [4]. Hull, Lo, and Stein (2019) [11] argue that the VC/PE industry has historically had a disproportionate influence on technological innovation, particularly in the sectors that require an ability to undertake long shots.…”

“…Yet, this is the structure utilized by most long-term institutional investors (LTIs), such as pensions, endowments, sovereign funds, family offices, and foundations. As a result, despite their large-scale and long-term capital, LTIs remain largely untapped [4,17].…”

“…Investment opportunities (and risks) are not effectively assigned to the appropriate investors due to the fragmented nature of investor networks and the large information asymmetries among different investor categories and companies. The existing clean energy investment opportunities are only accessible to those who have already developed expert investment knowledge and strategies [4,13].…”