It is rare to find a corporate venture capital fund entirely devoted to hardware. Investors usually want to limit risks, dedicating at least some of their portfolio to software technologies, which tend to have much lower capital expenditures and development cycles.
But TechEnergy Ventures invests solely in hardware, something that comes from the needs of its parent company, Techint Group, where TechEnergy Ventures sits as the CVC of the energy division, Tecpetrol.
“The reason why we’re primarily focused on hardware is because the overarching mandate, and the ambition that we have, is that we’re going to find these technologies that are going to enable asset development,” says Alejandro Solé, chief investment officer of TechEnergy Ventures, on the CVC Unplugged podcast. “Contrary to a lot of companies in the world, we like to own, develop and operate assets. Within our DNA, there is an asset-heavy type of approach.”
The unit focuses on technologies spread across carbon capture, electrification, lithium and hydrogen, with investments in technologies like geothermal, energy storage, hydrogen generation, green steel and more.
Hardware investment makes stringent due diligence all the more important says Solé.
“Deep tech requires deep due diligence,” he says. The unit has its in-house technical team to do what it calls a “layer one” diligence process, followed by a second one, and then it tends to bring in advisors to triple-check the specifics.
“You do have to spend a good amount of time understanding the technology and understanding why will someone, in subsequent [funding rounds] when the amounts of capital get larger and larger, have the motivation to continue to fund this new tech.”
The size of Techint goes a long way here. Being able to pick up the phone and access the tens-of-thousands-strong engineer base at Techint Engineering & Construction – the group’s construction subsidiary – or steel products manufacturers Ternium and Tenaris, or metals and mining technology company Tenova, gives the unit a strong foundation on which to assess potential investments.
This access also gives them the ability to get on the ground and assess how a new technology can – or can’t – be trialled at facilities where any amount of downtime can be incredibly costly. It gives deep insight into how a technology would be implemented in a real-life situation.
Policy difference
Cleantech investing, says Solé, is greatly influenced by the regulatory framework of each geography.
“Certainly Europe has taken more of a stick-and-carrot approach. So you have the [Emission Trading System], so there’s the stick, and there’s obviously some form of carrot – the EU tries to support piloting and de-risking and has investment arms and a lot of funds in Europe have actual European Union capital,” says Solé
Across the pond, however, there are plenty of incentives for decarbonising, but not enough penalties for high emissions.
“U. S. is a full-on carrot type of game. It’s like: I’m going to pay you this amount of money if you do this,” he says. “I’m a little bit more on the idea that CO2 is an externality and needs to be priced and let people decide how they’re going to decarbonise.”
In Latin America, there is less of a government push, he explains, but more of a push by the private sector, which wants to anticipate where Europe and the US will be, lest they end up with stranded assets that don’t meet their climate policies and cannot sell into their markets.
Hydrogen in the right places
There was a time a few years back when it was thought hydrogen was going to be used everywhere and in everything, but those ambitions have been slowed down across the industry as much of the sector remains propped up by the willingness of customers to pay a green premium for it.
There will still be a great need for cleaner, green hydrogen – indeed, TechEnergy Ventures has an investment in an electrolyser technology developer called Versogen – but there’s more of a sense that the extent to which clean power is used to make green hydrogen can depend on where that hydrogen will be used, some places make less sense than others.
For example, if you put a solar plant in a remote location for the production of hydrogen to use as a feedstock for sustainable aviation fuel, says Solé, then it would make sense because that clean energy would not otherwise exist, but if you’re closer to a population centre where that clean energy could be directly used for other applications, it makes less sense to use it to produce hydrogen as a feedstock to something else, consequently having to burn more fossil fuels for the direct application.
“The way we think about it is that clean power is scarce, and really we should try to use that clean power to get the biggest or the best bang for the buck. So that clean kilowatt hour, where does it decarbonize the most? And it’s very few occasions that producing hydrogen for an application is actually the best use of that kilowatt hour,” says Solé
It’s difficult today for green hydrogen to get to cost parity partially because much of the infrastructure that would use hydrogen as a feedstock is not usually set up in a place for the availability of renewable resource, but more likely for close access to something like natural gas instead. Given that the often-cited standard amount of energy to make a kilogramme of hydrogen is 50 kilowatt hours, the unit economics won’t always work.
“It’s very rare for you to find a location that has clean power below $50-60 [per megawatt hour], so that 50 kilowatt hours is $2.5 dollars. You can produce grey hydrogen at around $1.50 today, so just a variable cost of electrolysis is almost twice than the cost of producing that grey hydrogen today.”
The decarbonisation in hydrogen, Solé says, would more likely come from things like carbon capture at the source.
Geothermal everywhere
Another area where TechEnergy Ventures is seeing great opportunity is in geothermal technology, which can conventionally been limited to very few places in the world as it has needed highly specific subsurface conditions to work, typically through naturally occurring steam reservoirs.
More recently, however, new methods like being able to inject water into dry rock in the ground and getting the steam back at around 200-300 degrees Celsius – what is referred to as geothermal 2.0. Now, companies like its portfolio startup Quaise are working on geothermal 3.0, which reaches new depths to be able to get steam at temperatures of around 500 degrees, vastly increasing the amount of power generated.
