Generate Capital CEO talks new technology investments and community solar

Generate Capital is actively looking at “all sorts of solutions” in hydrogen, from production to use, according to CEO Scott Jacobs.

Jacobs told NPM that Generate is “very active” in the hydrogen market and is waiting to see when it will be ripe for the fund management company to build infrastructure around it.

“It’s getting close,” he said, pointing to the Inflation Reduction Act (IRA) as part of the driving push behind hydrogen right now. “We’re expecting it to accelerate.”

Generate, which is known for taking new asset classes and making them bankable, has over USD 15bn worth of pipeline and invested USD 2bn in 2022. Its balance sheet’s financial capacity is about USD 9bn to USD 10bn.

Jacobs said that the company is also watching other new technologies, such as carbon removal, small scale nuclear, and desalination. Generate has also been active in low carbon or zero carbon transportation, having financed electric bus fleets for Stanford University, Meta, and municipalities. Generate also financed hydrogen vehicles for customers like Walmart and Volkswagen.

“The solution has to be proven for us to count on it for 20 or 30 years, which is what we typically invest in that kind of time horizon,” Jacobs said, adding that some newer areas Generate has recently gotten into include agriculture. He stated that the company will make announcements about recent deals in that sector with the focus on more sustainable food production. “That’s an area we can turn into an infrastructure asset class. Food waste is 5% of our global emissions.”

Jacobs said that Generate has been involved in desalination financing for the second time in the last 10 years. The recent announcement was with Seven Seas Water. Primarily, financing has been in Latin and Central America and the Caribbean, where “we helped finance the desalination facilities that Seven Seas has built.” Generate is also looking at opportunities elsewhere, such as in the U.S., but Jacobs explained the company likes distributed infrastructure and smaller scale assets best.

“We think there’s more value in those,” he said. “And so those are not yet always in the money. The larger scale stuff can pay out with cheap electricity from larger scale solar farms for example, but those tend to be multi-billion-dollar desalination facilities and that’s probably not where we’re going to be playing.”

When asked in which states Generate has projects, Jacobs said more than 20 though most are in Texas, New York, and California. He highlighted the expansion of community solar programs state-by-state and that Generate is evaluating those as they come up. Maryland and Illinois are two examples he used of areas that emerged with community solar regulation, while other states have local incentives.

“At the end of the day, everybody focuses on the IRA and that makes sense because it’s a big tailwind for the sector, but in the infrastructure world, it is mostly regulated at the local level and some states are more interested in addressing food waste problems or reducing carbon emissions from transportation, so you have to think technology-by-technology and state-by-state,” he said.

Generate has also recently expanded into Europe with a London-based team and saw its first project in Brazil two years ago. So far, Generate has done about USD 1bn in community solar projects working with more than five individual project developer partners that Jacobs describes as having a long-term relationship. Generate has also done about USD 1bn worth of micro-grids over the past several years. He pointed to the Texas storm that knocked out parts of the grid almost two years ago, but stated that Generate’s customers were able to keep their power going.

Some of the partners with Generate for these projects include Nexamp, Intersect Power, and Pine Gate Renewables. When asked about these investments, Jacobs said that Generate looks to partner with “best-in-class developers in the sustainable infrastructure or energy transition world.”

Jacobs explained that the company, started 10 years ago, was structured around how to accelerate the renewable energy and sustainable world. Generate found projects that weren’t being built because there wasn’t enough capital providers interested in smaller scale infrastructure projects.

“They tend to only fund the large-scale central station infrastructure of the past, which makes sense because that’s the infrastructure they were set up to fund over the last 50 years – large scale projects,” Jacobs said. “But over the last 20 years, technology has changed and costs have come down so when you talk about solar panels and storage that are one-tenth the cost of what they were just 10 years ago, you have an asset size that is small and delivers service to a customer better than the large-scale central infrastructure station can offer.”

Jacobs stated that because of this, customers could get cheaper and more resilient sustainable power from distributed infrastructure solutions. However, Generate saw power users needed a third party to step in with capital and operational capabilities to do this.

Generate has a Public Benefit Corporation (PBC) model. Jacobs said usually investors enter 10-year private equity contracts, but that Generate sees that as insufficient in the world of infrastructure where assets are 20-to-30-years.

“It’s the wrong time horizon and capability,” he said. “You have to be able to support these developers multiple ways. They don’t want just one kind of capital.”

Jacobs explained that project developers are usually engaged in five concurrent capital raises, sometimes up to 11, which equals to five to 11 different audiences to build trust with and convince they are worthy of the risk.

“A lot of these project developers spend 90% of their time raising money and only 10% of their time building projects,” Jacobs said. “We’ll never get to net zero with that kind of efficiency ratio and we want to unlock that.”

To do this, he said Generate takes responsibility of operating projects for their life, something “no fund managers are doing.”

When asked if Generate might ever consider going public, he said all funding opportunities will always be considered.

“We’ve been courted by investment bankers for many years and always consider the public markets as an option for raising capital,” he said, adding that Generate has been “very lucky” to be supported in the private markets, but that Generate is a “capital hungry business.” “We’re trying to rebuild the world, which takes an amazing amount of money. We will tap the private and public markets for equity and debt. You should expect us to tap every source of capital in order to rebuild this world.”

*This story was originally published exclusively for NPM subscribers in February.


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