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Peter Möckel

Principal Industry Specialist

International Finance Corporation

April 27, 2021
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Ep 15: Peter Möckel - Principal Industry Specialist, International Finance Corporation
00:00 / 01:04

Bret Kugelmass
We are here today with Peter Möckel, who's a Principal Industry Specialist at International Finance Corporation. Peter, so great to see you after so many years. And thanks for coming on the show.

Peter Möckel
It's great to see you again, Bret. Thanks for having me.

Bret Kugelmass
Yeah. So you know, this podcast, we love to dig into all sorts of energy topics around really getting projects done. I think that's the main theme. But we always like to start off with the individual and their background first. So maybe you could just give us a quick tour of your history and how you became involved in the sector.

Peter Möckel
Yeah, like so many, I'm a fugitive of the telecom sector. So I first worked as an engineer in telecoms. I think somebody told me after college, It's mobile phones, young man, go into mobile phones. And so I worked in R&D for the German telecom company, Deutsche Telekom, the parent company of T-Mobile nowadays, and eventually ran the R&D lab in Berlin. I remember there was some time - I think it must have been 2006, 2007 - one of the benefits of being based in Germany was that we got negative electricity prices pretty early on with renewables coming on the grid. And there's a spot market in Leipzig, and they had negative prices in the mid 2000s. And of course, we thought it was crazy. How can you have negative prices? Now it's normal. And then somebody - no, it wasn't me, I can't claim responsibility - but somebody had the idea of using some of the backup batteries and these were big, big lead acid batteries for the landlines, which use some of that capacity to trade energy on it and buy negative and sell positive and we did that and of course, was a hobby. That was 10s of 1000s of euros in a 90 billion euro company. But the idea stuck with me and then years later, when batteries - and those were lead acid batteries back then - but years later when lithium ion batteries became more viable, that sort of came back to me as a as a topic to work on.

Bret Kugelmass
And when you say work on, what did you do with it?

Peter Möckel
Well, fast forward. In 2012. I heard that the International Finance Corporation, which is the private sector part of the World Bank, was looking for someone to work on climate finance. And remember, that was at the height of the previous clean tech boom. One of the topics I wanted to work on was energy storage, so that's when I came back to that idea. And then by 2012, it was still too early, I found find out. But by 2012, I thought that the batteries were now at the point where you could actually build a business out of arbitrage. And that was one of the topics they hired me to work on. And frankly, I realized I'm probably a better engineer than a manager. So I concentrated on the engineering side with IFC.

Bret Kugelmass
And what are the principal factors in these systems that made them difficult to utilize in this capacity historically, but that over time has changed in order to make it function? Is it strictly cost of batteries? Or is it other considerations as well?

Peter Möckel
First of all, it's costs. Obviously, that's a big concern. And I think there's this great Arthur C. Clarke quote, that we tend to overestimate what can be done in the short term and tend to underestimate what can be done in the long term. And we were at the first part of that statement at the time. So we thought, well, batteries will plummet in price really soon and this will be a business model. And it took much longer than then we thought it would. But it's also the second order reasons like management systems. When we first did that test pilot in Berlin in the 2000s, that required a bespoke software system to be written. Today you can get that off the shelf, to manage your system like that. So that's clearly also part of it. And then I think the big reason that sits now is not that the price is coming down is not the dominant reason, it's regulation. And that the many markets out there, there isn't the regulatory environment to make money with arbitrage and battery. And that's a key reason holding us back today.

Bret Kugelmass
And why does it require regulations? Can't you just have a meter and you run the meter backwards when you deliver energy and run it forwards when you sell it? Is it more complicated than that?

Peter Möckel
Yeah, I mean, that's- the point is, it's almost black and white, that there is regulation for this in a lot of the OECD markets and North America has been leading and in many markets in North America, you can do this. But Europe has been a little bit behind. It's different from the PV and wind revolution. But in many of the markets where we operate and are only operating in emerging markets, there is no regulation. So the freedom, the simple fact that the battery can be a transmission asset and a generating asset, it violates rules of regulation in many of the markets. And then there are the self consumption limits, other limitations on doing this. So that in many of the markets where we are, this is not possible today.

Bret Kugelmass
And so, maybe tell me more about the organization itself. What is IFC? Does it only operate in developing markets? Or is that just your sector? What's the whole organization at large?

Peter Möckel
The IFC is- when we say the private sector arm of the World Bank means we only bank with private sector companies. So we invest equity debt in companies and projects, and in any developmental area, and that's the obvious ones, education, health, etc. And then energy where I work with the climate angle to it. And, whereas, the better known World Bank, technically, the International Bank of Reconstruction Development lends to governments, we lend and invest in private sector companies. And it always must have a development goal. So it's a double bottom line business. But we are for profit in the sense that we have to recover on cost of capital and personnel costs. We're not about grants, we're about investment.

Bret Kugelmass
And the IFC and the World Bank - what's the relationship between the two? I understand how they're different. But are they owned by the same entity? Do they follow the same rules? Or are they just one modeled after the other?

Peter Möckel
They're part of the World Bank Group, so they are technically separate, in the sense that they book their own budget, they have their own bookkeeping and they don't intermingle funds between the World Bank and the IFC. And because IFC does have to operate on a for profit basis. But they do follow the same principles in the sense that they are for development. They have to follow very stringent environmental and social investment guidelines. And I think that's one of the success stories behind IFC is in many markets, we've been able to go in and demonstrate that a new business model and new technology is now ready to be invested in, both with a profit motive and at the same time observing environmental and social standards that are beneficial.

Bret Kugelmass
Yeah, I mean, I think it's great when you have alignment of those principles, because that's scalable. You can only do so much in the world with philanthropy. But if you can make a profit off of doing good, then that system can scale to do more good for more people. That's how I see at least.

Peter Möckel
Yeah, and sometimes I think overly generous donors can be a problem in the sense that you end up with companies that have an atypical capital stack. There's a great segment in Africa. They're companies that operate in off grid, solar and batteries, the small solar home systems, up until a few kilowatts, watts and kilowatts. And a number of these have been showered with very generous grants in the mid 2010s. And then they ended up with capital stacks that made it harder, in my opinion, to then attract commercial investors later on. So I think it shows more discipline if they have to scale up with a with a conventional fundraising model.

Bret Kugelmass
Yes. And maybe this is beyond your purview. But if you could just give us more of a bit on the history of IFC, where did they get the initial funding to invest? And what is their cheque size and dry powder size look like, you know, since its origin?

Peter Möckel
IFC is funded by the owners of the World Bank, which is the government's underwriting the World Bank, which is most of the world's governments. And that's where the initial capital raise and then subsequent capital raises came from. And the mission is to invest along the developmental goals as defined by the by the owners of the World Bank, which is aligned with the SDGs today, the SDGs are our guiding principles for investing.

Bret Kugelmass
When you say SDG, you mean sustainable development goals? Right?

Peter Möckel
That's right. That's right. And in particularly, if we go back into energy, again, it's climate, it's renewable energy, it's energy efficiency, anything that's climate positive, and it's also access to energy and has the motive.

Bret Kugelmass
Which in some ways - I came into the clean energy space through the climate lens. But over time, I've developed a more nuanced take where I actually feel that access to energy is maybe even more important than the climate goals. Not that they're both not important. But I just see firsthand how many people across the world are negatively affected by lack of access to energy.

Peter Möckel
Yes, and I think one of the clearest correlations in development is between access to energy and GDP per capita. And, of course, you may ask then, what's correlation and what's causation, but the correlation is clearly there.

Bret Kugelmass
Yeah, I think we all know where the causation is. Okay, so tell me more about some of the, you know, since you've been there, about some of the specific projects that you've been involved in? And maybe even, can you walk us through, What does it look like? How does a project come across your radar? Are you pitched to by entrepreneurs? And how do you get access to deal flow?

Peter Möckel
The lion's share of IFC's business is with mature companies is project finance. And again, within that, most of it is project finance, for example, for solar and wind and other renewable energy projects. There is a small part of what IFC does that I'm particularly proud of, because I think we were the first in development to do it. I can't prove that, but I'm pretty sure. We do operate with a venture capital business. So we invest in new business models early on, either in startups in emerging markets, or also in startups in the US and in other OECD countries with an impact on emerging markets. And that started as early as the 2000s. And by the by the early 2010s, when I joined, a lot of that was in climate,

Bret Kugelmass
And how big is that fund? The venture fund within IFC?

Peter Möckel
That's about 250 million per year, at this point, and a lot of that- we behave a lot like a corporate VC in that respect, and we try to invest in in new business models early. And then one of our differentiating factors is that, if a company grows, if a business model grows, we can then graduate them to the mainstream business and bring more capital into it.

Bret Kugelmass
Yeah, I think it's brilliant. Yeah.

Peter Möckel
That's the motive behind our early climate investment.

Bret Kugelmass
So maybe let's double click on that, because I think for our audience that's very interested in innovation, they are curious, especially, I can't tell you how many times I've heard the criticism that, for clean energy technologies, it's very difficult to cross the valley of death, because of the large amounts of capital that's required. Do you guys have good examples of maybe a storage technology or a new type of solar technology or any type of technology that you've helped cross that valley of death from the venture capital perspective?

Peter Möckel
Yep. And, of course, I may focus on this success stories. Yeah, because venture capital is a portfolio approach. Not everything works and you don't expect everything to work.

Bret Kugelmass
And that's the brilliance of it, it allows for there to be a class of capital that takes bigger risks, which I think is important to advance society.

Peter Möckel
Yes, and I'm a shameless optimist in technology, I think that we need technology to solve the climate challenge. And one example is a company that we worked with named is Microvast, the Chinese American maker of, at the time, lithium titanate batteries, and also now make lithium cobalt batteries focused on buses, when we invested first in 2011. And focus was on public buses in China. China had a very ambitious program to deploy electric buses in their public transit system. And I think even today, they're more electric buses in China than in the rest of the world combined. And our client Microvast developed lithium titanate batteries that are more expensive, are larger, than batteries that are focused on passenger EVs, but at the same time are very fast charging, are safe and have a very long service life. So very much focused on the bus niche.

Bret Kugelmass
It makes perfect sense, right? Because with buses, you spend more on a bus than you do on a car to begin with, and the reason is because you're using that asset, you're spreading out its use across many more person miles moved, essentially. And then and then you also are dealing with, you know, corporations, that buy fleets of these that can make financial decisions over a long period of time. And then yes, that specific technology attribute of being able to fast recharge makes perfect sense too so you can keep these buses in operation as much as possible. So that seems to make perfect sense.

Peter Möckel
Yes, and of course, safety is an issue with public transit, minimize risk of thermal runaway. But clearly, as you say, the determining factor is fast turnaround time, it's very hard to if you had to make a business case work if these buses are out of service for six, eight hours to recharge, and then Microvast grew in that market, but then we stuck with them for a long time and probably longer than a conventional one could have. And that's probably, I would like to claim, our amazing foresight as a key success factor. But I think one of the factors is just our patience in that they sometimes ended up on the wrong side of regulatory change in China. China changed some of the policies, they had to adjust with that and they did. And today they've done very well. And they're part of evolving spec in the US. So it's been nine years, almost 10 years now since we invested. But I think that's an example of how we like to work. And now, while that company has grown, IFC has invested in electric bus projects with municipalities in other regions, for example, in Latin America. So that's where the corporate VC lens comes back in again, we'd like to see something early, then also learn about it, why we invest, that's the best way to learn and then bring more capital into a new sector as it grows.

Bret Kugelmass
And how did you first learn about them, about this company? Do you remember the story about how you got introduced?

Peter Möckel
No, I think this is lost in antiquity here. I don't quite remember how they came in. But I think the sourcing I see works a lot like with any conventional investor. I think the best way to track deal flow in a sector is to be one of the early investors in it. And then you attract more pitches from more companies in that sector along the way. A lot of what we get is through approaches like that. For example, we are also an investor in Planet Labs on our planet, one of the micro satellite companies in the US. And I think that's placed us in that sector too, as a probable investor, and we do attract more interest in that.

Bret Kugelmass
Yes, I know Robbie, he is a friend of mine from San Francisco. That's an amazing company.

Peter Möckel
All right. Okay. Oh, that's great. That's great. So, I had the honor of meeting him when we looked at the company a few years ago. I'm still a fan.

Bret Kugelmass
Yes. And so, tell me more though about the position of the market when a company comes to you for money. Do you have to compete against traditional venture capital sources and actually closing the deal? Or do companies only come to you when it's a little too hard to secure private capital elsewhere?

Peter Möckel
That exactly the intersection where we need to operate. So, on the one hand, we will never be the world's fastest investor, we're not just one government. We are more than 200 governments. So that's not how we compete. On the other hand, we don't want to crowd out private sector capital either, that's against our mandate. So the ideal case is when you have a sector that is on the verge of being commercially viable, but maybe not quite. And we then demonstrate by bringing in alongside our investment, other private sector investors, and it's now ready for primetime. This could be a country, it could be technology, it could be a new market. For example, we were one of the first private sector investors in solar in India, in the early 2010s. And then brought in other investors alongside us. And now, the solar sector in India is a thriving private sector business that probably needs less and less. So we have to look to the next frontier either new technologies, like storage, or in new geographic markets.

Bret Kugelmass
And what about a company or a venture firm like Breakthrough Energy Ventures by Bill Gates. I remember when he started that fund, he was saying something similar: this fund is essentially made for opportunities in the clean energy and climate space that might have trouble otherwise attracting capital. And this is going to be a fund that thinks more long term and so is able to take on a slightly different risk profile. Do you guys fall in the same bucket as them? Or do you notice that there are two distinct spheres of the types of companies that you would invest in versus Breakthrough Energy Ventures?

Peter Möckel
We're probably later stage, our sweet spot in venture capital is Series B or later. That's not a hard mandate, and we have invested earlier than that, but the sweet spot is Series B, or later. So we would be coming in after Breakthrough Energy Ventures in a typical sequence of investments.

Bret Kugelmass
Yes, and I'll ask another question along these lines. And apologies if this is too political, you can always say no. But since Bill Gates recently came out with this Climate Fix book, he promotes nuclear and I'm a big fan of nuclear energy as well. A lot of the work that we do is in the nuclear sector and trying to encourage the growth of that industry, especially small nuclear plants. I know that historically, the World Bank has taken a position against nuclear investments. Do you see that changing? I assume IFC is also bound to that. But is that going to change with Bill Gates's new book and the growing change in public perception around climate technologies and the role nuclear has to play?

Peter Möckel
Yes, so the political part is above my paygrade. And I understand nuclear is outside the mandate of the World Bank Group. So this, for me is more theoretical. So my personal opinion as an engineer in working in climate is that it must be part of the solution. That's clearly the case. And it's hard to understand why it's not to a larger degree today. I personally have a story about this, I grew up not far from the last German nuclear power plant completed, Mülheim-Kärlich, in the 1980s. And the tragedy of the wasted human and monetary capital in this is that a neighbor of ours in my town spent his entire life on that power plant, building it up. And then it operated only for three years, and then it was decommissioned. And that is his life's work, working on that. And that plant only operated for three years.

Bret Kugelmass
It's so sad because I have such respect for German engineers, I've met so many in my life. And I've got good friends still in Germany, German engineers. And their industry that they've created is obviously top notch. And, you know, Siemens turbines are going in nuclear plants and Siemens produces a great turbine. So to see the nuclear industry just kind of have to fade away in that country is just the biggest shame to me ever.

Peter Möckel
Yeah. And again, my personal opinion, but we've broken the mold now. It has been cut, it will be hard to rebuild it at this point. Because that industry has been out of business for too long.

Bret Kugelmass
Yeah. And so I guess, just looking at other technologies, you know, storage, I know is a big focus of yours. What else do you see coming down the horizon, maybe even different types of storage that I don't think of. I mean, I know about battery storage, but I've heard about some futuristic stuff like where they lift up giant cinder blocks with cranes or they store compressed air. Are there other spaces that you guys are forecasting might emerge?

Peter Möckel
Yes. So my temptation is of course, as an engineer, I like that. And it's a classic technology investors dream. They're out there. Let's bifurcate the market below four hours of discharge time, it's all about lithium ion and the industry is investing so much money into it that we in the energy sector was, it's great, this time we don't have to subsidize it down. We benefit from the car industry, they do subsidizing. Just get ever cheaper batteries. Ant this is up to four, five, maybe six hours of discharge time. So that's solved. Above that, long duration storage, that's clearly still wide open. And there's a whole zoo of technologies out there. But like you said, from different types of flow batteries, molten salt, mechanical storage, compressed air, liquid air, and it's clearly unsolved at this point. And you have all these technologies competing. So for pure technology investor, it should be ideal to invest in potential winners here. Unfortunately, this is not us. So we go in at the point where the technology wall has been decided, up to a point, and then it's about scaling up and bringing in private sector capital. But, I think, especially between 2025 and 2030, this will be key for the energy sector, I think we're now seeing more and more projects where renewables are being paired with four or five hours of lithium ion storage, we're seeing the first project where, even in emerging markets, they're pushing it to six hours. So lithium ion is being pushed to the limit. And we need longer duration storage to get to maybe, our vision is that by 2030, you can have 24/7 from renewable energy.

Bret Kugelmass
And the question now there's an there's the other side to the fact that the car industry is doing a lot of the work bringing down prices, is they're also competing on the supply chain and the materials. As we look to the scale of the challenge that lies ahead of us, I mean, let's think. Maybe I should ask, does your organization have a research department that looks at it from the perspective of, Okay, it's nice to decarbonize one small country here or there, maybe you're at 5% of this economy, 10% of that economy, if we really are going to meet our climate goals, and decarbonize the whole world, is anyone running the numbers on how many total batteries we'll need? And what rate we'll have to replace them at? And what the impacts on the supply chain are going to be?

Peter Möckel
Yeah, so we've looked at part of that. I can't claim that we've looked at the holistic global picture. But we do, for example, have a team investing in mining, and we've looked at a mineral for decarbonisation, and the reassuring result was that this will not fail through lack of minerals. And on the battery side alone, I think the good thing is that nature has blessed us with enough material combinations to get the right voltage differential between anode and cathode that there's always going to be a way around.

Bret Kugelmass
Said like a true engineer.

Peter Möckel
Yeah, so there's always enough ways of doing it, that's great. So this will not fail. I think the result for us was that probably nickel is more critical than cobalt, which is often cited as a bottleneck for for batteries. But the battery industry has already been very good at reducing cobalt content and can replace cobalt if they had to, because nickel is used in motors with powder to replace and it used in larger quantities that's maybe the more critical mineral, but on the battery side, we see a little bit of a switch back to LFP batteries for stationary applications. So, batteries that are not used a lot in electric vehicles, so that the supply constraints that may occur on the electric vehicle side will not affect stationary projects. Because we had a time in late 2018 when, at the time, some incentives expired in South Korea for stationary systems. So a lot of projects tried to get deliveries before the end of 2018 in South Korea at the time and that led to constant supply constraints in other projects. So I think everybody learned to look for temporary but at the time a problem for some projects. I think one of the takeaways was trying to decouple from the from the AV industry a bit and especially batteries that are not so ideal for EVs, but have disadvantages like low energy density that don't really matter for stationary projects are now being looked at again for stationary.

Bret Kugelmass
And did the two mandates ever come in - or just the mandate of environmental driver in your mandate - does that ever come in conflict with the different types of projects? So for instance, mining sometimes is thought of as not a very environmentally friendly business. But on the other hand, it's used to enable clean energy. How are those conversations handled?

Peter Möckel
Well, mining is not my sector. So that's indirect, but like in the other sectors, we see our role as investing with stellar environmental and social criteria and showing that he can make a profit with it - I think that's a key point - and then bringing in other private sector investors observing the same criteria. And that's happening in mining. So we do invest in mining under these stringent criteria. But clearly the mining is required for the energy transition, that's out of the question, but on the other hand, recycling will be important too. We invest in waste disposal and waste processing, and also recycling of materials. So I think in lithium ion batteries, that's an unsolved problem too. It's very hard to make a profit on the basis of recycled materials at this point, where recycling happens is mostly because it's mandated. But it's not really a self sustaining business based on the materials, and eventually that will be the case too, as we get better at recycling batteries.

Bret Kugelmass
And hydrogen. This is another topic I hear about all the time. Obviously, we've used hydrogen, it normally comes from fossil fuels, but I've seen cars that are powered by hydrogen, I understand how electrolysis works. What we have to consider when thinking about the long term, environmentally friendly way of producing hydrogen and its role that it's going to play in the in the clean tech ecosystem moving forward?

Peter Möckel
I think that for me, that's been the big surprise of the last year. So a year ago, I was still making jokes about hydrogen, because so many people lost money with it the last time around, the first clean tech boom. And in clean tech, there are a lot of pioneers who got burned the first time around. And then, in the last 12 months, everything accelerated in hydrogen. So we've seen a lot of projects come up in in unlikely places, even in emerging markets on often local use of hydrogen, especially under specific conditions. For example, in northern Chile, there are almost ideal solar conditions, and a lot of solar energy on the grid. And wouldn't say excess, but clearly, at times of day, too much solar energy. So that then leads to the idea of, Couldn't we use that to electrolyze our green hydrogen? And then, for example, for use in mining in northern Chile. So we see a few of those come up. Also for public transit, we've seen a few projects. So, I think that's the thin end of the wedge where, whether you begin with some excess renewable energy and then electrolyze it, but eventually, this will be one of the candidate technologies for long duration storage, if we use the sequence of a PV electrolyzer hydrogen storage fuel cell as a drop in replacement for batteries for PV and batteries. That's going to be competitive eventually. But on the current price trajectory, probably by the end of the decade.

Bret Kugelmass
Yeah, it seems the economics are hard, especially if you're competing against dirty hydrogen, which is just so cheap. It seems difficult unless, well, one of two things change: either the dirty hydrogen becomes more expensive - and that would have to be the regulation, because the technology will always make it cheap - or if the technology for the clean hydrogen can significantly reduce over time. And I guess that's what we're hoping is going to happen by the end of the decade or some combination of both.

Peter Möckel
Yeah, especially I think electrolyzers have to become cheaper, that's a key technology here. And I mean, a little bit, the hope is that we see the same story repeat itself as we did in PV and wind, and then on batteries, that the prices actually fall more quickly than the pundits predict. And we're exactly at that point in batteries now, where we are at a lower price point per lithium ion battery cell than some analysts predicted we could ever reach. So we need a little bit of that in electrolyzers to get there. But we've done it three times now. So I think if there's enough R&D focusing on that problem, we may get there. The other big problem difference, not a problem, the big challenge in hydrogen compared to these other technologies is that the scale effects are very large. So you need to go straight to large projects to get to those prices, you can't grow up step by step as in batteries, where you're playing kilowatts and hundreds of kilowatts, and then the first megawatts maybe 10 years ago. But I think we have to go straight to bigger projects in hydrogen to get to the right scale effects to drive down the price.

Bret Kugelmass
It would be interesting though, if there were some niche applications that you could at least build at the smaller scale and it still makes sense. You know, who knows, off grid style. You mentioned some like mining, if you can make the economics work there first, and then develop a robust industry, get more experience, and then work your way up to the bigger the bigger production facilities. That would be nice if that could happen, the question is, can it happen?

Peter Möckel
Well, I think one wild card is solid state hydrogen. In some way, storing hydrogen in solid state combining with a metal. I think my personal aim is we need to kill the diesel generator. That's just a horrible way of making electricity.

Bret Kugelmass
Of course. And what about ammonia? Is ammonia a liquid way to transport to hydrogen? Does that work?

Peter Möckel
I think that's a candidate in technology absolutely, because it makes it easier to handle. And we've seen proposals for that, for applications like replacing diesel generators for off grid telecom towers. That's a nice market to begin, in telecom towers in remote areas, in emerging markets say they operate on the basis of $1 per kilowatt hour. By the time the diesel has been trucked there in remote areas, that's what you get to, maybe $1 per liter of diesel per kilowatt hour. And that's easier to compete with. So I think ammonia logistics in those areas are more realistic than hydrogen logistics. And that's a candidate technology for that.

Bret Kugelmass
And then I guess back to a previous question I asked, like your team internally, do you have a big research team? Is it mostly investors? What does your team composition look like? And what does that allow you to do in terms of understanding both forecasting the future of technologies, but also understanding the state of different technologies, no matter what stage they are at today?

Peter Möckel
As an agency specialist in IFC, I work on the technical due diligence of what we do and based on what I learned, also part of figuring out what to look at next. But we operate a lot like an investment bank in the sense that we have financially driven investment officers that that make the investment decision. And I look at it from the technology side, we're not big on strategizing, or making longer term studies, we're really driven by the investment objective. The World Bank is more programmatic and looking at longer term programs. I think a lot of what we do is driven by looking at new investment opportunities, and also learning from investments on what comes next.

Bret Kugelmass
Excellent. We touched upon a few different technologies, we talked about batteries, we talked about hydrogen, we understand that the traditional more project finance side of your business does more solar and wind, what other categories are out there, that we should be thinking about?

Peter Möckel
And so in the early stage climate technology, we're at the point where I think a lot of investors aren't aware, we realize we've invested a lot in making electricity carbon free, and a lot of investment has gone into wind, solar batteries and other storage technologies to support that. But for full decarbonisation, we have to bring more R&D relative to the GHG emissions into these other sectors. And one where we've been investing lately is agriculture. We've invested in a company like for example, SeeTree, that's a company that uses drones to more efficiently decide on irrigation, fertilization, etc, for permanent crops, like citrus trees. Then in other companies that try to reduce inputs into agriculture that are always related to GHG emissions. Obviously, fertilizer through the Haber-Bosch process is driving GHG emissions. And also water irrigation is always correlated to energy because it has to be pumped.

Bret Kugelmass
Yes, of course. I see. So those are almost like tertiary technologies that don't directly affect their climate goals. But they allow us some efficiency in an emitting source, so indirectly, they can help with that.

Peter Möckel
In terms of dollars invested per GHG avoided, it's sometimes more efficient. And we're beginning to look at carbon capture and use.

Bret Kugelmass
Okay, tell me more about that. This is almost how I found nuclear energy to begin with. And so I would love to hear what you think about carbon capture both from, you know, an IFC perspective, but also from a personal perspective as well, what you've seen, where you see it going.

Peter Möckel
Yeah, personally, I think it's a great bet on more aggressive carbon regulation, because a lot of the use cases that we've seen, clearly don't work yet on a standalone basis. For example, the cement is one of the best application we've seen a carbon capture and using it for building materials. And that still requires some level of carbon pricing or regulation to make it work. But with global climate, I think it's highly likely that there will be more aggressive regulation and carbon pricing. So it's almost one of the purest forms of betting on that, and investing in more ambitious carbon regulation. So I think as an investment theme, carbon capture use is perfect for that. And within that universe of possibilities, we see the cement industry as the best place to start.

Bret Kugelmass
But where do you see the technologies for carbon capture in terms of their readiness? This seems to be another one where, it's almost you need to operate at the big scale for to make economic sense. Are there projects? I mean, I know some of the big, you know, companies, Global Thermostat, Carbon Engineering, I'm sure they're looking to create big projects out in the world. Are they coming to you and asking - you know maybe not then specifically, but that category of company - and saying, hey, we'd like to finance a billion dollar capture implementation?

Peter Möckel
I don't think it's at that scale yet, at least it hasn't reached us. So we are, again, we are a little bit conservative in the sense that we probably wouldn't invest in the first billion dollar project, we probably like at that scale, we would like to see one or two projects being implemented. And that's probably a big problem still in the market today: who takes the risk on that that first project? And the other problem with global solutions, of course, is that we focus on emerging markets. So for carbon capture on a globalized scale, the location becomes less relevant. So I think we also have to evolve in understanding how can we fit the emerging market mandate to global solutions? And how can we invest in that under our mandate? But we were not at that point yet. So we haven't seen billion dollar level investments in carbon capture projects coming to us.

Bret Kugelmass
Yeah, I almost wonder given that, you know, especially for - this is a subcategory of carbon capture, but the direct air capture category - you could put that anywhere and it would still have the same impact on the globe. And so I'm almost wondering if this is perfect to fit your dual mandate, where you put it in a developing country and help increase, you know, access to jobs and all the auxiliary benefits of building infrastructure, even if it's totally, you know, financed and maybe even operates in the credit scheme, the carbon credit scheme of a developed country, if there's some there's some way to make it work that way.

Peter Möckel
Yes, I yeah, I think exactly right. I think that's something to explore. Because maybe the cost base can be lower in some way. So you get a bigger global benefit on a lower cost base. But it's unclear how that will be financed. So who's the off-taker? How would that be financed? That's the unsolved problem. But in terms of basing it in a lower cost market, but also the generation of jobs as an additional benefit, is a really good idea. And I think something that we need to wrap our head around.

Bret Kugelmass
And do we see any movement across the world of a government stepping up to be an off-taker for direct air capture and just saying, we're going to pay for the carbon, we're not going to use it, we're just going to store it, we'll put it underground, or we'll transform it into, I don't know, some other sort of cement or something. And we're just going to pay for it outright? Is anyone stepping up to the plate on that?

Peter Möckel
I haven't seen that yet, no, that will be groundbreaking. Absolutely. I think if somebody did that, and opened that door, that will be a good first step for both for investors and for other companies in that space. And that's why I think investing in carbon capture, even direct air carbon capture, is a good bet on some governments eventually getting there to the point where we realize we have to do that, we have to get to negative emissions to solve this problem.

Bret Kugelmass
Yeah. And then my hope is that, okay, they take that step, there's an off-taker for the carbon. And then you can now create an industry around repurposing that carbon, bring down the cost of those technologies. And then once that becomes economically valuable enough to pay for the capture initially, now you've got a sustainable, positive feedback system where you can make a profit by removing carbon from the air. I mean, that's the holy grail to me really.

Peter Möckel
Yes. And if somebody can get that cycle spinning, that will be perfect.

Bret Kugelmass
And one could even pitch it as just a huge economic opportunity for a country at large. Like you could say, you know, the US is going to invest in the creation of synthetic materials and fuels from carbon from the air. So once we perfect this technology, it's an export just like, you know, natural gas or oil has been for our country. And it doesn't have to be US. Literally any country could do that. Maybe even a country that has historically been deprived of oil, and wants to have now a synthetic oil export market that has climate positive benefits.

Peter Möckel
Yeah. And it also closes the loop with the electricity sector, I think it's much more realistic to decarbonize electricity by keeping some thermal generation, the rotating mass from that just solves so many problems. And then if you keep some thermal generation and just drive it with electro fuels or carbon capture fuels of some kind, that's much more realistic than being dogmatic and trying to drive out all thermal generation from a system.

Bret Kugelmass
Exactly. And that's just the electric sector, the other sectors are even harder.

Peter Möckel
That's right. It's a good point. There are other sectors where it's even harder to get rid of thermal.

Bret Kugelmass
Well, this has been an amazing conversation. I always enjoy talking to you. Are there any final notes that you want to leave on? The floor is yours for the audience here.

Peter Möckel
Coming back to what I said earlier, I'm an engineer and I don't apologize for it. And I think I believe really the solution to the climate problem is investing in new technologies, scaling them up faster. We can't subsidize our way out of this. And I think the last month, the last year has been amazing in the sense that we see so much interest in investing in in in climate technology, that I'm so much more optimistic than I was a year ago.

Bret Kugelmass
Peter Möckel, thank you so much for your time and sharing your insight with us today.

Peter Möckel
Thank you.

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