Smart Energy Finances: SVB’s collapse and its potential headwinds for cleantech startups Dollar sign cracked floor, dollar crisis, financial crisis concept.

March 17, 2023 Editor

The effect of Silicon Valley Bank’s collapse on energy startups, E.ON’s €6 billion-bolstered network investment plan, EV startup Arrival’s equity lifeline and a tax-exempt revenue bond for Zinc8 energy storage’s first commercial manufacturing facility are on this week’s Smart Energy Finances radar.

Silicon Valley Bank’s collapse

Being called the largest bank failure since the 2008 financial crisis, the effects of Silicon Valley Bank’s (SVB) collapse are far-reaching; with the energy sector feeling the effects.

The Bank was considered the go-to entity for startups seeking financing to get themselves off the ground, especially for those within the climate tech space.

According to the Bank’s website, SVB had 1,550 climate tech and sustainability clients. When it came to clean tech projects, the start-up focused bank had $3.2 billion in financing commitments for clean energy startups, leading or participating in 62% of community solar financing.

Examples of clean tech companies listed on their page include the likes of solar and virtual power plant developer Sunrun, Plus Power, AES, Leeward Renewable Energy and Bloom Energy, among many others.

The bank was shut down by regulators last week due to a failure of management and supervision according to a statement from the Bank Policy Institute and signals potential long term headwinds for energy sector startups.

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According to Energy Tech, the bank had previously vowed to commit more than $5 billion in loans, investments and other financing support for sustainability efforts, but got caught up in losing bond positions as the Federal Reserve continued raising benchmark lending rates to try and bring inflation down.

Although the failure will definitely have short term fallout for startups with vested interests, CNBC emphasises the growth of the climate tech startup space since the bank’s start, hailing their collapse as opportunity for new lenders to serve the market.

Explaining the potential that Silicon Valley Bank’s collapse may present for project bankability was Katie Rae, CEO of The Engine, an accelerator and venture fund focusing on “tough tech,” including climate startups – to CNBC.

“Fundamentally, the companies that are coming out of climate right now have real strength. These are foundational companies and people are going to want to lend to them because it’s good business.”

E.ON bolsters energy transition investment plan by €6 billion

In Europe, and on a more positive note, electric utility company E.ON has announced an significant upgrade to its 2027 investment plan.

After strong financial earnings in 2022 – adjusted Group EBITDA rose to €8.1 billion ($8.6 billion) in the 2022 financial year – E.ON points to further growth in the company’s network infrastructure due to their additional investments and has committed a €6 billion ($6.4 billion) increase to their investment programme to 2027.

This constitutes a more than 20% increase, totalling €33 billion ($35.2 billion) until 2027.

More than 95% of the planned investment activities that are covered by the EU taxonomy are expected to meet its strict sustainability criteria. The largest share of the additional investment, up to €4 billion ($4.3 billion), will go toward energy networks.

In particular, the ambitious expansion targets for renewables are leading to further increased demand in Germany and Europe to connect these facilities to the network and to expand the network capacity. 15% of Europe’s renewables capacity is already connected to E.ON’s networks.

An EV startup’s equity lifeline

British EV startup Arrival has announced a $300 million equity financing line with Westwood Capital, aiming to slow its cash burn and sharpen a US product strategy.

The startup is hoping to commence US production of its Class 4 XL electric Delivery Van in the Charlotte factory in late 2024.

Key elements of the company’s financing and strategic plan include lowering their targeted cash spend to no more than $35 million/quarter – aiming to significantly reduce the size of investment required to fund the business this year – and finalising a 50% reduction of the Company’s global workforce in Q1.

The financing line will provide the Company with access to additional liquidity, hoped to fund the business into late 2023 without the investments required for XL production.

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At the end of December, the Company had $205 million of cash on hand. This was insufficient to fund its business plan or its operation for a period of 12 months, and so Westwood’s equity is seen as a financial lifeline for the company.

With the actions taken to reduce costs and the capital commitments subsequent to year end, the Company believes it can operate the business into 2024 while it seeks to raise capital to complete the vehicle programme for the US.

However, there remain material uncertainties about the Company’s ability to continue as this further capital is required to fund the company to a breakeven point.

Zinc8 energy storage system funding for first commercial factory

Zinc8 Energy Storage Solutions Inc. has announced approval from the Ulster County Industrial Development Agency (UCIDA) of the issuance of tax-exempt revenue bonds for up to $10 million to undertake the buildout and completion of their first commercial manufacturing facility within Ulster County, New York.

Proceeds are expected to be utilised for the acquisition of machinery, equipment, fit-up and improvements to the facility.

Once a lease has been entered into, the Company expects additional investment will be needed into the facility over the first three years after taking possession.

Zinc8 Energy Storage System (ESS) (CNW Group/Zinc8 Energy Solutions Inc.)

Zinc8 has developed its battery technology using zinc and air as fuel. Power from the grid or renewable source is used to generate zinc particles in a Zinc Regenerator and Oxygen is released into the atmosphere as a by-product. The zinc particles are flowed to the storage tank and maintained in potassium hydroxide (KOH) electrolyte until required.

Whenever power is needed, the zinc particles are delivered to the power stack, recombining them with oxygen to generate electricity. The zinc oxide (ZnO) by-product is returned to the storage tank for later regeneration.

The Company is currently reviewing the capital requirements to fund the buildout of the manufacturing facility.

The Ulster County tax-exempt municipal bonds are subject to various terms and conditions, including limitations on the use of funds and repayment terms.

The Company has engaged KeyBanc Capital Markets Inc. as placement agent to place the bonds with eligible investors in accordance with applicable securities laws.

For the latest finance and investment announcements coming out of the energy industry, make sure to follow Smart Energy Finances Weekly.

Cheers,
Yusuf Latief
Content Producer, Smart Energy Internaitonal