November 22

Clean Energy start-ups are struggling as they wait for government aid

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Oil Price

Some American clean energy and technology startups are struggling to keep afloat while waiting for the U.S. Administration to disburse the pledged loans and funds under the landmark Inflation Reduction Act (IRA).

Source: Oil Price

Several startups have already filed for bankruptcy, others have flagged the ability to continue as a going concern or hired advisors to evaluate financing and strategic alternatives as soaring construction costs and high interest rates challenge their initial plans and timelines for having production sites up and running.

The IRA, passed in August last year, has nearly $370 billion in climate and clean energy provisions, including investment and production credits for solar, wind, energy storage, critical minerals, funding for energy research, and credits for clean energy technology manufacturing such as wind turbines and solar panels.

However, many developers and manufacturers are still waiting for guidance on which specific technologies – including in the hydrogen and low-carbon fuels industries – would qualify for tax credits under the IRA.

Large diversified companies with deep pockets – including fossil fuel producers such as Exxon, Chevron, or Occidental proposing blue hydrogen and direct air capture technologies – can afford to wait to get loans from the Loan Program Office under the IRA.

But small startups created and focused on one clean energy technology only are struggling without government funding.

“If we were part of a larger company, you have a larger whole that absorbs the impact. This is the main show for us,” Ajay Kochhar, chief executive at battery recycling startup Li-Cycle, told The Wall Street Journal in an interview.

Li-Cycle said last month it is pausing construction work on its Rochester Hub project pending the completion of a comprehensive review of the go-forward strategy for the project. The company flagged “escalating construction costs” that now exceed its previously disclosed guidance.

“The Company is actively engaged and continues to work closely with the DOE to satisfy conditions precedent for financial close for the loan for gross proceeds of up to $375 million as it undertakes its comprehensive review of the go-forward strategy of the Rochester Hub,” Li-Cycle said earlier this month.

Li-Cycle has also engaged Moelis & Company as financial advisor to assist in evaluating financing and strategic alternatives for the company.

Another startup, Plug Power, aiming to produce green hydrogen, warned earlier this month that it expects its existing cash and available for sale and equity securities will not be sufficient to fund its operations through the next 12 months, and “These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.”

NuScale Power, which develops small modular reactor (SMR), terminated in early November the Carbon Free Power Project (CFPP) it was planning with Utah Associated Municipal Power Systems (UAMPS) in Idaho as “it appears unlikely that the project will have enough subscription to continue toward deployment.”

These are just three examples of stalled or canceled projects due to rising costs and the slow process of DOE disbursing funding to startups.

In the summer, U.S. electric truck manufacturer Lordstown Motors filed for bankruptcy, and so did EV technology manufacturer Proterra, which saw Volvo Battery Solutions as the winning bidder to acquire the Proterra Powered business line as part of a Chapter 11 sales process.

Despite supply-chain and tariff challenges unrelated to the IRA and despite the fact that developers are still waiting for clarity on some of the IRA provisions, the benefits of the landmark climate law have started to manifest themselves, clean energy associations say.

Between August 2022 and July 2023, more than $270 billion in capital investment was announced for utility-scale clean energy projects and manufacturing facilities in the United States, the American Clean Power Association (ACP) said in a recent report. This exceeds the combined clean energy investments made over the previous eight years.

However, IRA funding is sometimes a Catch-22 for startups. The Administration won’t issue the loans until the companies have moved ahead with projects and external financing, which many firms struggle to do due to soaring costs and interest rates.

By Tsvetana Paraskova for Oilprice.com

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