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Policy Pinpoint: Bring a Flashlight on a Camping Trip

This photo of Arkabutla Lake, Mississippi evokes a hydropower project this fund has staked.

In Brief

Go forth and invest, this year's policy developments seem to bellow. But where, and how fast? 

Whatever succeeds in the new policy environment will both leverage tax credits and fit into today's existing physical landscape. 

Consider a fund that just raised $1 billion from clear-eyed sorts that acts on this principle. 

Where most participants summon highways as their metaphor for financing a new energy system, I’m invoking a camping trip. At the end of this year’s United Nations negotiation on climate commitments, we all see again that climate change confronts our financial system with the unknown, and only a thin trail along a steep, dark ascent. Falling is not really an option.
For anyone raising a fund or building a project, the camping metaphor also clicks. There’s always more sky /more capital to think about than you might be following at a given moment. Some people trust in the latest equipment, others trust their inner compass and traditional tools.
If you indulge two more glosses on this metaphor, the Inflation Reduction Act blazes miles upon miles of trail with clear markers in what had been overgrown backcountry. And the inconclusive recent climate negotiations that the United Nations sponsored in Egypt work as charcoal-gray clouds overhead. Where are attentive capitalists placing investment now that scale is possible and challenges are starker than ever?
An outfit straightforwardly named Climate Adaptive Infrastructure announced on November 16 that it had raised $825 million in equity and more than $200 million in a related fund. It also announced that nearly 40 percent of this capital had gone to three investees, including a peaker plant that burns gas when the grid comes under strain. The other chief placements went to a hydropower concern and Intersect Power. That company develops renewable projects and works on siting, community relations, and power trading.
The fund’s manager, the aptly named Bill Green, articulates its focus as consistent with a trek rather than a day hike. To quote the press release, the team judged investees for their  “ long-term carbon emissions, and viability as a hedge against climate losses.” In that context, a company that already has built projects with sensitivity to community dynamics and a power plant that comes on when the grid really, really needs it look lke bastions of value even with the tax credits in the IRA positioned to foster gigawatts of new projects.
Like the troop leader who reminds you to pack a poncho on a sunny morning, I’m here to remind you that the credits and incentives in the IRA lie on the other side of many thorny passages. Financing projects, lenders and equityholders have to acknowledge the risk that the IRA’s credits may fail to gain traction. Treasury officials need to write rules and provide guidance. Employers need to source material that fits the IRA’s sourcing limits, collect local permits to build, and find and pay people able to do and manage the jobs.
That’s execution risk. Above that lives infrastructure risk. The United States needs (to use a rough number) a bazillion acres of land and umpteen miles of transmission lines to update the electric grid. Alternatively, its utilities and entrepreneurs need to roll out thousands of lines of code to increase efficiency and local power by orders of magnitude. There’s no guarantee.
Can the Treasury Department flick off barbs from other governments, which resent the US’ new industrial policy, or from ideologue state officials who want to protect oil and gas companies’ market advantages? Even if so, can government agents plan, distribute, regulate and update policies in time? Our working hypothesis at CBEY says: probably, in part, and then private capital can ensure a bigger market overhaul.
But if we were investing others’ capital instead of just borrowing readers’ time, we might well take harder looks at assets like those in the Climate Adaptive Infrastructure Fund. Just like you can count on rain at some point on your camping trip, you can count on floods and heatwaves, wildfires and refugees needing dry ground. We’re excited about what the Inflation Reduction Act can unleash and about the views we’ll see when the tax credits in it have flowed into the economy in 2033. 

But we’re sure there’ll be more need for more adaptive infrastructure every year. When you’re going camping, you can’t only pack for the summit and the selfies.