Podcasts

‘Gold rush’ fever stoked by new climate law is a real concern, investor warns
‘Gold rush’ fever stoked by new climate law is a real concern, investor warns

In Episode 15 of the Factor This! podcast, Leyline Renewable Capital CEO Erik Lensch breaks down how the transformational Inflation Reduction Act may impact clean energy capital markets from an investor's point of view.

Check out our first part of the "What's going on in clean energy capital markets?" series with Pine Gate Renewables CEO Ben Catt, who shared a developer's perspective.

Erik Lensch has been on both sides of the fundraising transaction, as a solar developer and a capital provider.

In 2007, he founded a residential and commercial solar development company that experienced early success. But seven years later, slim on cash to develop new projects, Lensch sold the company to a hedge fund.

At the time, most developers were self-funding their projects, especially in the early development stages, due to a limited supply of financing options. That constraint served as Lensch's inspiration to form Leyline Renewable Capital.

Leyline Renewable Capital started off slow with $12 million and several projects in 2017 and 2018. Then, in 2018, the company landed $150 million from a spinoff of George Soros' investment fund, Newlight Partners.

Fast forward to today, and Lensch says that Leyline Renewable Capital is competing in an over-saturated clean energy capital market that is flush with cash and craving projects. He warns that the incentives for clean energy in the Inflation Reduction Act could create a "gold rush" fever that lures inexperienced financiers and developers into the market.

Leyline Renewable Capital CEO Erik Lensch

The clean energy market was already frothy before the Inflation Reduction Act passed, Lensch said. Investment-grade projects are in limited supply and funds globally are intent on chasing clean energy and environmental opportunities in order to meet sustainability targets.

If gold rush fever sets in, another washout of developers and investors could result, Lensch said, pointing to the earlier cleansing that swept through the renewable natural gas sector.

"I don't worry as much about solar," Lensch said, noting the industry's relative maturity. Instead, he points to some electric vehicle and green hydrogen plays as potential areas for concern. "We don't learn from our mistakes."

Plenty of investors are providing early-stage, pre-construction project loans; the kind that inspired Leyline Renewable Capital's founding in 2017. And, while Lensch said he believes his company has a clear advantage given its previous experience as developers, competition is still fierce.

Leyline Renewable Capital is now entering the world of growth equity with a strategy of partnering with developers early on, instead of chasing individual projects.

The company also provides bridge loans to developers, like the $50 million note provided to Intersect Power in 2020. The financing enabled Intersect Power to raise $750 million in 2022.