Deeper roots for deeper impact

Hi there,

First Sunday roundup of 2024! Not gonna lie, sitting here imagining myself writing these Sunday newsletters 51 more times this year feels a bit daunting. But, when I ask myself why I do it, the most resonant response that ripples across my mind is, well, because I enjoy it. 

We will play with the format for this email iteratively, primarily to make it more digestible and easier for me to put together. For today, I still penned a longer note in the top section on a company I’m excited about. As many of us may find in January, old habits die hard.

P.S., if you were playing along with the little game I proposed in our last email, where I said I spied at least seven climate challenges in an image of a car along a road, the answers were as follows:

Challenges 1 through 3 were CO2, N2O, & mercury emissions from the tailpipe (the latter two have come down a lot in recent decades); 4 through 5 were tire pollutants, primarily particulate matter & microplastics, though I could go as far as to include three more there (heavy metals, polyaromatic hydrocarbons, rubber dust); 6 was embodied emissions in the car frame (think steel) and 7 were the embodied emissions in the asphalt of the road itself. The list could go on!

In today’s email:

• Deeper roots for deeper impact

• Climate tech fundraising announcements 

• Climate tech and energy headlines

DEALS IN FOCUS

The deal we’ll focus on today first crossed my desk in December. Back in 2023, Cquesta, based out of Chicago, announced it raised ~$5M in seed funding to develop deep-rooted crops to enhance drought tolerance in crops and to remove and sequester additional CO2. In the Sunday newsletter where I mentioned the deal, I neglected to properly hyperlink the article when I covered the deal in a sentence back then. So, to a certain extent, I felt I owed it to the Cquesta team to remedy that fact.

When I chatted with Michael Ott, the CEO of Cquesta, however, I also got excited about the company, its technology, and its potential impact, independent of any of my residual guilt.

The main reason for my excitement about Cquesta is borne, first, out of fear. The more I learn about global agriculture, the more I worry about our collective ability to make progress on climate goals. Reducing emissions from the power sector and transportation is one thing. But mitigating the negative impacts of global agriculture is more of a ‘final boss,’ as it were. Whether it’s loss of topsoil in the U.S., the absurdities and suffering inherent to factory farming, or how much deforestation things like cattle ranching in Brazil drive, the way our world produces food is perhaps the number one contributor to a cascade of perilous climate challenges. Here’s a short (sobering) list:

• Agriculture is the number one source of anthropogenic methane emissions, which disproportionately drive short-term global warming. 

• The use of synthetic fertilizers (critical to feed half the planet) has many negative externalities, ranging from nitrogen runoff polluting waterways to nitrous oxide emissions (another potent greenhouse gas).

• More than a third of land globally is used for agriculture. The expansion of agriculture to feed the world’s population inevitably leads to the loss of vital biomes and ecosystems.

Trying to overhaul global agriculture feels like a nigh-untenable proposition. How do you shift the system that feeds 8 billion people? A system that’s inordinately optimized to keep costs down while continuously growing output? 

To unpack that question, it’s worth noting that many earth-shattering innovations made the agriculture industry what it is today in the first place. For instance, we don’t often hear about Norman Ernest Borlaug, a Nobel Prize-winning agronomist whose innovations in crop modifications single-handedly drove massive increases in agricultural production. Borlaug’s innovations were so central that their resultant output is often dubbed a ‘Green Revolution,’ albeit not in the ‘green’ terms we typically cover in this newsletter.

Borlaug made several key innovations in agriculture in the 50s and 60s, including ‘designing’ much higher-yielding wheat varieties via selective breeding and significant attention paid to adapting specific strains of wheat to conditions in different growing regions. Borlaug and team developed ‘dwarf’ wheat varieties that are now prevalent across the globe. The plants produce higher yields than wheat that used to be grown and are more resistant to diseases and pests. In 2000, researchers estimated that 80% of all wheat grown worldwide still has traces of Borlaug’s rust resistance genes in it. Similarly, Borlaug promoted greater application of fertilizers to maximize yields, helping boost crop output in developing countries, especially in Asia and Latin America. 

In the same way that the Haber-Bosch process, developed in the early 20th century to ‘fix’ nitrogen from air for fertilizer production, helps feed half the world, Borlaug’s innovations have had a similar scale of impact. Single innovations can shift global systems!

Deeper roots for deeper impact

In 2024, it’s time to apply some of the thinking Borlaug brought to engineering plants to engineer new seeds with traits that are optimized not just for output but also to advance climate goals.

Cquesta is designing new seed traits that can offer benefits to farmers and farms on a variety of fronts. Their key innovation is designing traits that promote deeper root growth. Deeper roots mean plants can store more biomass below ground, which has carbon sequestration benefits. The further below the surface the roots stretch, the less oxygen is present. That means less microbial activity and, ideally, less biomass degradation, offering more stable carbon storage benefits. 

The carbon story here will be familiar to longer-term readers of this newsletter. There are (relatively) clear paths to monetizing measurable carbon sequestration benefits these days. If it can prove additional carbon sequestration in soil, Cquesta can sell carbon credits, some of the proceeds of which it can share with farmers. While this is a known model, it’s not without significant challenges and questions. Hess Corporation, a major oil and gas company, led Cquesta’s seed round, indicating they may well be interested in sourcing carbon credits from the company in the future.

While carbon is Cquesta’s initial monetization focus, deeper roots offer other positives. In current trials, Cquesta hopes to prove that deeper roots will also help crops adapt to climate stress, whether by pulling water from lower in the water table or by valorizing more nitrogen from fertilizers. 

Farmers have a deep appreciation for the benefits of additional nitrogen-fixing; they know precisely how much nitrogen they’re applying per acre and what that costs them. They also know they’ll lose a third or more of it because plants become oversaturated and can’t make use of all of it. Still, they overapply because the cost of that is less than the cost of underapplication. But, if you can show them they’re losing less of the nitrogen they paid to spread on their fields, if you can show them their plants are making more use of it, that’s a big win. Plus, it’s a big win in terms of mitigating pollution; nitrogen that plants can’t make use of runs off fields, often polluting waterways elsewhere.

The 2024 playbook

 Cquesta’s go-to-market strategy is to license their traits to seed companies, which those companies can then sell alongside everything else they already sell. Importantly, this commercialization approach makes adoption for farmers easier. The trait is a drop-in addition; farmers can buy seeds from the same retailers they’re accustomed to buying from. They don’t have to change their agricultural progress to apply Cquesta’s traits; they still plant the same way and harvest at the same time, under the same conditions. Buying the seed is one additional box to tick. As Michael noted in our conversation: 

The first crop with which Cquesta is working is CoverCress, a cover crop that itself is a new 'engineered' plant and is branded as a "climate-smart seed technology" (made by CoverCress, the company). CoverCress is planted to 'cover' and protect soil in between planting seasons. CoverCress has gained popularity of late, given it has characteristics that make it attractive for use in rotations with corn and soybeans. Working on CoverCress allows Cquesta to tinker with a crop that isn't the workhorse of farm profits; farmers care about it, but it's something a bit lower on the 'food chain' to start with and develop data collection and modeling systems.

There is, of course, a lot Cquesta will need to prove on the data, measurement, and verification front. They'll track who purchases their seeds, who planted them, who harvested them, and where this is all happening. At first, they'll be digging up a lot of plants to measure root mass. Michael readily admitted that that approach doesn't scale. Other tools can help measure root depth, though the hardware side of this is an active (and much-needed) area of R&D and tech commercialization (for perspective on this, explore my podcast conversation with Chris Tolles, CEO of Yard Stick PBC). In any case, for much of 2024, Cquesta will be hard at work gathering a lot of data at the field level on how their traits and seeds perform across different geographies, soil types, and more.

Ultimately, based on the data Cquesta can gather in any given field, and the lab, the measurement and verification game for soils often turns into a modeling one. The perfect state involves developing high-fidelity ways to extrapolate impact at scale. While spatial variability can become tricky once you start moving to models, if Cquesta can prove to farmers (and carbon buyers) that their traits offer the benefits they claim on smaller scales, Michael noted they'll move towards bigger 'targets' such as canola and soybeans, which are some of the world's largest agricultural commodities. Those crops are planted at scales where even relatively minor additional carbon sequestration (and other benefits) could scale to drive significant impact. There are few commodities that the world produces at gigatonne (read as billion tonne) scale; soybeans are one of them.

The scale of crops like soybeans and canola is also a good thing when you want to model impact. Working in commodity-crop agriculture offers a lot of consistency. Soybeans are planted relatively uniformly in 15-inch or 30-inch rows, which form grid-like structures that span miles. Plus, you can (and should) incorporate uncertainty into your modeling as a buffer. As Michael noted, if Cquesta knows they add 8 grams of root mass per soybean plant on average, that equates to 1.2 tonnes of additional mass per acre. Add a ~20% buffer, and you can claim 1 tonne of additional mass per acre with reasonable assurance of accuracy.  

Mind you, all of this still rests on convincing farmers that Cquesta’s solution is worthwhile. No matter how seamless you make the buying and application process, that remains no small feat. Michael reflected to me that farmers have been sold a bunch of ‘BS’ with respect to programs that make money from carbon credits in the past. A striking statistic is that 93% of farmers are aware of carbon programs, though only 3% participate. In the past, what’s been advertised to farmers hasn’t worked for them. In the same way that the media and general public have (rightfully) soured on voluntary carbon markets of late, farmers are (rightfully) skeptical of each iterative carbon-enhancing product or program that’s foisted on them. I appreciated Michael’s candor on this front; we need more clear-eyed perspective like this as we collectively discuss scaling climate technologies.

The net-net

I’ve been saying it, but I’ll say it again. Agriculture and the many climate challenges wrapped up in it will be a big focus for me in 2024. 

I’m under no illusion that a solution like Cquesta’s will scale to millions of acres and turn into a carbon removal, nitrogen-fixing, and soil remediation superpower overnight. But harnessing the same types of innovations, like Borlaug’s, that gave rise to the global agricultural system we have today in the first place feels like the right way to slowly shift agriculture to a system optimized for multiple variables – including better climactic outcomes – versus purely for maximum production.

DEAL HEAT

Larger funding rounds

⚡ Qiyuan Green Power, based out of China, raised ~$211M in Series B funding to electrify heavy-duty trucking and build charging facilities, as well as for its low-carbon energy business. China’s National Green Development Fund led. More here. (China, Energy)

Medium-sized funding rounds.

🔋 Swap Energy, based out of Jakarta, Indonesia, raised $22M in Series A funding for its EV battery swapping business. Qiming Venture Partners led. More here. (Indonesia, Transportation)

💸 Revfin, based out of New Delhi, raised $14M in Series B funding for its EV financing company. Omidyar Network led. More here. (India, Transportation)

Smaller funding rounds

📊 Amini.ai, based out of Nairobi, raised $4M in seed funding to use artificial intelligence and satellite technology to expand access to environmental data. Salesforce Ventures led. More here. (Kenya, Climate Data)

📊 Lumian, based out of Turkey and Wilmington, DE, raised $3.2M in funding for its IoT-enabled software that tracks energy usage and can help promote efficiency. Domino Ventures led. More here. (Turkey / U.S., Energy)

🏗️ LivNSense, based out of Bangalore, India, raised $2.75M in funding led by Pavestone to build digital twins to help heavy industry companies reduce their emissions. More here. (India, Climate Data)

⚡ UltiHash, based out of San Francisco, raised $2.5M in pre-seed funding for its sustainable data storage business that helps companies reduce their data storage needs. Inventure led. More here. (U.S., Energy)

⚡💦 Naco Technologies, based out of Riga, Latvia, raised ~$1.3M in pre-Series A funding to make advanced nano-coatings for green hydrogen systems that improve the effectiveness and durability of electrolyzers and fuel cells. Impact Ventures and the Untitled Ventures led. More here. (Latvia, Industry)

⛏️ Element3, based out of Fort Worth, TX, raised an undisclosed amount of seed funding for its direct lithium extraction business. EIC Rose Rock participated. More here. (U.S., Industry)

🌾 Fasal, based out of Lucknow, India, raised an undisclosed amount of funding from TDK Ventures for its patented IoT-crop intelligence technologies that help farmers reduce water consumption and increase yields. More here. (India, Food & Agriculture)

Other funding rounds

In private equity: 

⛏️ International Resources Holdings, based out of the UAE, announced it will invest $1.1B in Mopani Copper Mines, based out of Zambia, for a 51% ownership stake in its business. Copper is essential for many energy technologies. More here. (Zambia, Industry)

In debt funding:

⚡ Pattern Energy, based out of San Francisco, raised $11B in tax equity and loan financing to build a 550-mile transmission line between New Mexico and Arizona alongside 3.5 GW of new wind projects in New Mexico. This represents one of the largest, if not the largest, clean energy infrastructure projects in U.S. history. More here. (U.S., Energy)

⚡ BrightNight, based out of West Palm Beach, FL, raised a $375M credit facility to deploy more solar and storage projects. More here. (U.S., Energy)

🌞 Altus Power, based out of Stamford, CN, raised a $100M credit facility for its solar energy company. Goldman Sachs Asset Management and the Canada Pension Plan Investment Board led. More here. (U.S., Energy)

In acquisitions:

⚡ EIG Partners, based out of Washington, D.C., will acquire Ocyan Participações S.A., a Brazilian services provider for offshore energy projects, for $390m. More here. (Brazil, Energy)

🔎 Enpro, based out of Charlotte, NC, will acquire Advanced Micro Instruments, a Costa Mesa, CA-based analyzer and sensing technology company that targets energy and infrastructure operators as a key customer segment, for $210M. More here. (U.S., Energy)

⚡  TotalEnergies Renewables Singapore invested $300M for a 50% stake in Adani Green Energy, an Indian low-carbon energy developer. More here. (India, Energy)

In grant funding and contracts:

🔎 LongPath Technologies, based out of Boulder, CO, raised up to $189M in a conditional loan guarantee from the DOE to build and install a “real-time methane emissions monitoring network” in the Permian Basin, and other oil basins across Colorado, Kansas, Oklahoma, New Mexico, North Dakota, and Texas. More here. (U.S., Energy)

🌳 Tetra Tech, an engineering consultancy based out of Pasadena, CA, won a $24M contract from the U.S. Agency for International Development to help preserve biodiversity and natural resources in Cambodia using a “a community-led natural resource management approach.” More here. (Cambodia, Biodiversity)

ELSEWHERE IN CLIMATE AND CLIMATE TECH

⚡ Big 2024 energy: Pattern Energy raised $11B in tax equity and loan financing to build a 550 mile transmission line between New Mexico and Arizona to bring electricity from 3.5 GW of new wind projects in New Mexico to Arizona and California. This represents one of the largest, if not the largest, clean energy infrastructure projects in U.S. history. Construction is already underway. While this is exciting news, it’s worth noting that navigating permitting and approvals for the transmission line took 17 years (lol).

🔋 Na-turally: Two Chinese EV manufacturers have announced they will offer sodium ion battery-powered EVs for sale in 2024. Further, BYD broke ground on its sodium-ion battery facility in Xuzhou, China, for which it’s targeting annual production capacity of 30 GWh.

👑 King of the hill: The U.S. is now the world’s largest liquefied natural gas exporter, in addition to being the world’s largest natural gas producer (and oil producer) by a wide margin.

🥊 Battle of the EV giants: For the first time, Chinese EV manufacturer BYD is delivering more cars than Tesla globally. Regardless of who's #1, EV sales are skyrocketing: Plugins (BEVs + PHEVs) represented 19% of the global auto market in November 2023.

🔀 Transferability: First Solar completed one of the largest tax credit transfers to-date, selling $700M worth of tax credits it generated by selling solar modules domestically to Fiserv for $0.96 on the dollar. Tax credit transferability will unlock a new realm of finance for climate tech companies.

⬇️ Carbon storage: Louisiana recently took a big step to becoming a hub for carbon storage from carbon capture and / or carbon removal. The Biden administration granted state the power to issue permits for carbon storage wells (Class VI wells). North Dakota and Wyoming are the only other states with “primacy for Class VI wells”; elsewhere, the EPA manages the permitting process.

📜 Policy: Only 13 EVs qualify for a US tax credit now that more narrow criteria are being applied for the $7,500 rebate. Cars that still make the cut include Tesla’s Model Y (world's best selling EV) and Ford’s F-150 Lightning. A lot of other EVs that were once eligible for the credit no longer are.

📉 Not all roses: Back in December, Brazil’s congress passed new legislation making it more difficult for indigenous peoples to protect land they live on by requiring them to provide ‘concrete evidence’ they already occupied land they claim when the country’s current Constitution was first enacted. The new law prevailed against a veto from Brazil’s president. 

🚫 so good news: The Spanish government joined the likes of Germany to sunset its commercial nuclear energy program. Spain currently has seven active reactors that provide about 20% of the country’s electricity; it will now prepare them for decommissioning.

Elsewhere, Equinor and BP terminated a contract for the Empire Wind 2 offshore wind farm in New York, citing material and borrowing costs, and “supply chain issues.” The project could represent up to 1,260 MW of capacity, and the developers will now renegotiate their contract with New York, likely at higher prices and a longer timeline than initially planned.

NuScale, a small modular nuclear reactor developer, laid off 40% of its staff after it lost a major contract and canceled a project late last year.

🌞 Closing on good news: Japan's nuclear power regulator lifted an operational ban (first imposed two years ago) on the Kashiwazaki-Kariwa nuclear power plant.

The Kashiwazaki-Kariwa plant is the world’s largest nuclear plant with 7 reactors that together offer nearly 8 GW of capacity. There’s still more that needs to happen for the plant to restart, but this is a good push in the right direction.

France also appears poised to expand its nuclear fleet more than expected. It had planned for six new reactors. Now it plans to add up to fourteen, per a new draft law.

Ciao,

– Nick