Investment in solar is helping to build “some of the iconic firms of the 21st Century”, according to a ‘social impact’ investor who was one of the early backers of Tesla and was behind the recent US$330 million sale of NEXTracker.
Nancy Pfund is one of the founders of venture capital (VC) firm DBL Partners, which combines returns on investment with positive social impact, measured through a number of metrics. The VC looks to make investments that will provide social mobility for poor and disadvantaged groups, for example, or in the case of DBL’s investments in SolarCity and Tesla, will combat climate change.
DBL’s latest investment has been in rural electrification specialist Off-Grid Electric, leading a US$25 million Series C funding round announced by the White House as one of a raft of measures to help alleviate energy poverty in the developing world. Off-Grid Electric is currently helping power communities in Rwanda and Tanzania with Pfund and her team hoping the impact will be spread across several of those metrics.
“Happily, if one of your social impacts is to address climate change, your goals are aligned between your social and your financial because anything you can do to create a better product that’s cost-effective and accessible, it’s going to be not only a good company, it’s going to be good for addressing climate change,” Pfund said to PV Tech in an interview on Monday.
“That’s one of the reasons we do so much in the sustainability field, it also creates a lot of jobs which is also one of our metrics. That’s why so many impact investors are interested in sustainability and vice versa because it’s quite fertile, in that sense.”
According to Pfund, the growth of solar in the US, where DBL’s investments to date have been based, has also followed this path to some extent.
“In the US, the solar industry is bigger than the coal industry in terms of employment. In California, it also hires more people than the ‘big five’ utilities. So this is not some fringe, marginal industry that doesn’t have economic and political clout – quite the contrary.”
“At SolarCity for example, 20% of the workforce is Latino, which, the tech companies have a very, very, difficult time with that kind of [recruiting]. So, this can also be a job creation engine which has all sorts of positive effects.”
Building the ‘iconic energy firms’ of the 21st Century
Solar is not for the faint-hearted or casual investor, Pfund, who has also begun investing in energy storage technologies, said. However, according to the VC, from humble beginnings, the industry is becoming a cornerstone of investment portfolios as well as increasingly looking like the natural successor to today’s fossil fuel-based energy industries.
“It’s not an investment sector that you can be a tourist in. It has a lot of aspects to it that you really have to learn and be knowledgeable about, policy, technology, international dynamics, financing, trends.”
“At the same time, we’ve been building some of the iconic firms of the 21st Century: Tesla, SolarCity, Sunrun just went public, NRG, SunEdison, SunPower – I mean there’s a whole new group out there that weren’t on anyone’s radar 10 years ago and that are now in some ways, we’re passing the baton in terms of energy names that will be kind of, widely admired.”
Following the cost curve: ‘Fantastic exit’ from NEXTracker hardware deal
On DBL’s investment in US solar tracking firm NEXTracker leading to a “fantastic exit” when it sold to OEM Flextronics in September in a deal worth up to US$330 million, Pfund said it had required exactly that prior industry knowledge and called it a “huge win” some had not expected. According to Pfund, the deal also demonstrated that the solar industry is “way over” the most difficult times for would-be financial backers.
“We’ve just had a fantastic exit in the solar sector about a month ago which was surprising to some people because it was a hardware deal and people are always saying, it’s all about financing, or software, or smart grid this, and I agree, it is about that, but it’s about everything.
DBL was happy to back NEXTracker and its CEO Dan Shugar, Pfund said, partly because she and her colleagues had previously invested in one of his companies before when Shugar sold solar system provider Powerlight to SunPower in 2006.
“So we’d already made money with him. He knows all about that industry, he had some great technology. It’s a self-powered tracker that has a little solar panel at the end of each row, so you don’t have these huge cables and you use a lot less steel, which drives down cost and improves the profitability of solar farms in a lot of places around the world. What’s not to like about that? And it doesn’t add a huge cost to the overall production relative to the increase in electricity that is generated when the panels follow the sun.”
According to Pfund, DBL held NEXTracker for less than two years while the value went “from nothing” to more than US$300 million, which she called “a huge win, for the industry, for the world and for the investors”.
“So I tell people it doesn’t have to be a billion-dollar company in order to have an amazingly positive exit and to drive the cost profile of the industry to be even more attractive. So I think you just have to kind of follow the cost curve and sometimes hardware is the right place to invest and I think people kind of forget about that.”