Clean-Energy Startups Expected a Gusher of Government Money. They Are Still Waiting.
Companies often need to show progress to get government cash but struggle without it
A pile of government cash from last year’s climate law was supposed to fuel a wave of clean-energy startups. Instead, many are running out of money before the funding comes through.
Higher interest rates and rising costs have hurt the companies in what are often capital-intensive industries. Washington’s grinding bureaucracy has been slow to dole out the cash from the climate-focused Inflation Reduction Act.
Instead of minting a generation of startups, the government’s climate cash is set to flow to big companies that have better access to funding and moneymaking businesses that can offset costs.
“It’s taking longer than the market expected initially for the IRA benefits to kick in,” said James West, a senior managing director at investment bank Evercore ISI, who analyzes clean-energy companies. When they do emerge, “they’re accruing to companies that are more mature and more established and don’t need to raise capital.”
Companies such as battery recycler Li-Cycle Holdings, hydrogen upstart Plug Power and small modular nuclear-reactor firm NuScale Power are delaying or canceling projects because of ballooning construction costs and higher interest rates.
Some of the companies are in Catch-22 situations. Washington won’t issue them loans until they raise outside money and move ahead with projects. And they typically can’t qualify for tax credits until they finish building plants. Tight funding and high costs mean they sometimes can’t do either.
A race of sorts has emerged between the impact of higher interest rates and the funding from 2022’s IRA, which provides subsidies and tax credits to address climate change. So far this year, higher rates are winning.
They have slowed U.S. renewable-energy installations by driving up costs of wind and solar farms and battery factories. High rates have also cut into climate-startup funding and put clean-energy stocks on track for their worst year since 2011.
The disruptions are a challenge for the Biden administration, which wants to take credit for creating jobs and fighting climate change. The administration is confident many announced projects will get built and feels the industry hiccups would be even worse without policies like the climate law, a senior administration official said.
A marquee $400 billion government clean-energy lending program has agreed to make loans worth more than $20 billion for 12 companies since Biden took office to bolster domestic industries. But only four of the companies ticked all of the boxes to get the much-needed cash.
Battery-recycling startup Li-Cycle, which still has boxes to tick, is pausing construction on a facility in Rochester, N.Y., due to total costs growing to between $850 million and $1 billion from an originally announced $700 million. That puts its $375 million government-loan agreement in jeopardy.
Li-Cycle is burning through its cash, which fell to $137.4 million at the end of September from $517.9 million at the start of the year. The company is discussing strategic alternatives and financing options with the investment bank Moelis. Its shares now trade at about 65 cents, down from $6 in the summer.
“These are the things that can happen when executing big projects,” Ajay Kochhar, Li-Cycle’s chief executive, said in an interview. The company is talking to the Energy Department about how it can get the loan. “If we were part of a larger company, you have a larger whole that absorbs the impact. This is the main show for us.”
Many clean-energy companies have filed for bankruptcy in recent months, including electric-vehicle makers Proterra and Lordstown Motors and sustainable-farming company AppHarvest. Other upstart electric-car companies, such as Faraday Future, Arrival, Canoo and charging firm Tritium, are in danger of joining the list.
Plug Power was expected to be one of the biggest winners from the climate law. The company is aiming to produce green hydrogen, a potential replacement for fossil fuels in industries like steelmaking. Green hydrogen is eligible for lucrative subsidies, but the company’s first plant in Georgia has been hit by delays and rising costs.
Earlier this month, Plug Power warned that it might go bust in the next year unless it raises additional cash. It is evaluating fundraising options, including a possible $1.5 billion loan agreement with the government, though the timing remains unclear. “I wouldn’t be talking to you today if we had that money,” CEO Andy Marsh said in an interview. He understands why the office is careful with taxpayer dollars and isn’t counting on subsidies.
Plug Power has been battered by surging costs in its existing business of buying hydrogen from other companies and providing fuel cells to customers. Its market value has fallen to about $2.5 billion from nearly $35 billion at a recent peak in 2021, when Marsh sold shares.
While startups are suffering, the early winners of the climate law are established companies like solar-panel maker First Solar that already have manufacturing plants in the U.S.
The loan program is designed to help finance companies that otherwise might not get funding from a bank, but some of the largest commitments have gone to big projects. One is Ford Motor and South Korea’s SK On, whose BlueOval battery joint venture received a record $9.2 billion commitment earlier this year.
Washington has also been slow to set rules on subsidies, including for green hydrogen. Big players, including many utilities and fossil-fuel producers, are lobbying furiously to tilt them in their direction. Green hydrogen is made using renewable energy.
Energy sources like green hydrogen and nuclear power are needed to supplement wind and solar. An electricity provider and NuScale, a company attempting to build a first-of-its-kind small modular nuclear-fission reactor, are ending a project in Idaho because of cost increases and challenges finding customers to pay more for the power.
Tom Dickson, chief executive of New Energy Risk, which helps finance clean-energy companies, said it has become harder to finance projects because estimated costs keep changing. “We’ve seen where companies thought, ‘This is going to cost me X amount of dollars,’ and we go back and it’s going to be 30, 40, 50% more,” he said.