The Exchanges

Q intensive climate tech. But I want to start with each of yours or the backstories, uh, that led to the The meet cute, so to speak, that took us to where we are today. Uh, so Rob, let's start with you. Um, describe Monolith. What is the technology you're pursuing? What's the purpose of it? And then, uh, tell us just a little bit of the background of the company.

A Yeah, sure. Well, thanks so much for having me and happy 2022. So Monolith, uh, we have a technology called methane pyrolysis, and it's one of those really big primary technologies. Uh, what we do is we, we take natural gas or methane, And we heat it up using electricity. And methane's got this really cool thermodynamic property. If you heat methane up to 16, 1700 degrees Celsius, it actually splits into solid carbon and hydrogen. It's just like a fundamental property of methane. And so what that does for you is two things. One, you've just made hydrogen without producing any CO₂. And then second, if you do it just right, you can get this solid carbon product that's got a bunch of utility And thus a bunch of value. And so we've been working on this process for close to a decade now. It's been a long journey that started in the wake of Cleantech, one point O's, uh, demise. And, uh, we started in 2012, uh, have raised a lot of equity over the years and have taken technology that was almost there and got it to full commercial scale. And so, of course, the promise here, right, is you can clean up some really hard to otherwise clean up industries on the solid carbon side, and we can talk more about that in the carbon black part of it. But you also make hydrogen without making CO₂, which is going to be super critical for a bunch of those other hard to decarbonize sectors like ammonia…

AI assessment note: “we have a technology called methane pyrolysis, and it's one of those really big primary technologies.”

Q decade to get to where you are today. Uh, talk about what that scale up has been like. You said you raised a lot of equity too. Like, just give me a snapshot of the history of Monolith and what, what scale up stages you've had to hit and what it's taken to finance those. Like, what, what does it take to get to now building a billion dollar plant?

A Yeah, let me start with the financing side. Um, it's, it's been an incredible string of no's, probably on the order of, you know, 99 no's for every yes throughout the process. And like I said, we started in twenty-twelve where, and we were in Silicon Valley, and we went to everyone on Sandhill Road, and precisely 100% of them said no. And so, so then we had to get creative, because we really thought we had something, right? Like, like I said, this is a big primary process That's gonna be really important, splitting methane into its two key components. So then we went more broadly. We, we did find initial investors in New York, uh, and up in Calgary, Canada, both private equity as opposed to venture. Um, and that set us off on a very long journey with some awesome partners. Um, our two founding shareholders, Warburg Pincus and Azimuth Capital. Uh, and then we added another major shareholder at Cornell Capital. But that, that had the vision like we did of if you can build one of these primary climate tech companies with real hard technology, um, you're gonna have outsized returns in the long run. And, and so we were able to kind of throughout that decade, continue to do rounds of financing, add strategics, which I can talk about at the right times, and ultimately get to commercial scale. On the technology side, um, it's been just a huge amount of innovation and invention. So we, …

AI assessment note: “let me start with the financing side. Um, it's, it's been an incredible string”

Q in three to five years. So talk through kind of where you were at there. So you, you mentioned you had built a commercial scale, uh, Uh, single reactor, is that right? But needed to build a full-scale plant. Like, give us a sense of what those orders of magnitude look like, and then talk through what your options were as you were exploring how to finance the big thing.

A Yeah, so, you know, our kind of corporate equity pathway got us all the way to one operating commercial unit, which from a technology perspective is pretty much all the way there. Um, from a Asset perspective, it's still just a fraction of the way there, and so our, our path forward with this, ah, loan is going to support is an expansion to that plant where there's currently one unit. We're gonna add 12 additional units, and we're also going to add the capacity to convert the hydrogen that we produce there into anhydrous ammonia. That's, you know, north of a billion dollar project. And while the technology risks are largely retired, there's a whole different set of risks that you start to look at when you're in that one billion dollar, uh, investment, which has to do with markets, you know, as Jigar was saying, merchant versus fully contracted, and there's lots of gradations in between there. And then also like long-term operational, um, you know, can you hit capacity factors? Do you hit your own M budgets? Um, and the gap between the way venture and private equity thinks about this and the way infrastructure investors or commercial banks think about this is very wide. And so that's, I think, where the DOE's program fits in awesome is it's willing to do the work and it's a huge amount of work. Like this was, this was close to two years of deep diligence, mostly on market and te…

AI assessment note: “We're gonna add 12 additional units... north of a billion dollar project.”

Q do you think that, you know, I know we've talked about sort of the point of this, the point of building plant number one and to go through the loan programs office to do it and so on, is to be able to then go out to the commercial financing markets. What do you hope the sort of process of building and financing plant number two is going to entail?

A Yeah, so the easy parts. When you're trying to sell clean hydrogen at, you know, a good price point, there is no shortage of demand for it. So we've got something like 45 projects in the pipeline, almost all of them anchored by a customer who's currently producing hydrogen in a CO two intensive way saying, why don't you come build a plant next to ours and, and we'll buy your hydrogen and clean up our process, ammonia, refining, RD, et cetera, et cetera. Um, technically I think it's also not that hard. You know, we partnered with Kiewit, Uh, they're doing the wrap on the EPC for this, uh, project, uh, in Nebraska, and it'll be highly replicable. So it's, it's, you know, building the next plan. I don't think it's gonna be a huge issue from an EPC perspective. And so then I think it largely comes down to the financing side and, and that's kind of circled back on our comments earlier. That's why we love doing this with the, the DOE and the LPO is like, it's in many ways the hardest test. And if you can get through that, get at the project, kind of all the conditions met finance, built and operating successfully, then I think there's, you know, a wall of money that's enormous that wants, and we saw it in wind and solar, right? That wants to invest in projects that are executable and preserve capital. Give reasonable returns and are clean.

AI assessment note: “it'll be highly replicable... then I think it largely comes down to the financing side”

Q you're right. Um, but so just to put a bow on that then, up to this point, up to where you're building this big billion dollar facility, you know, you'd even built a commercial scale plant there in Nebraska, all of that using corporate equity dollars. Is that right? In this case, via, you know, you have private equity backers, but it could just as easily have been venture capital.

A Yeah, that's right. So, so all private capital, a hundred percent, um, to this point. Um, and, and, and Jager, you should take some comfort that, uh, probably about two years ago, that ratio of 99 no's to one yes really flipped. And I think it's like, as we retired some of the real binary risks and, and as climate tech started to, you know, revive and hydrogen became a really important part of the energy transition, um, we started attracting a lot more interest, um, from financials, but also from strategics. And so there we added, uh, to our shareholder base, uh, SK group, South Korea, Mitsubishi Heavy Industries, I think one of the best technology developers in the world, uh, and then NextEra. Uh, biggest wind and solar producer, uh, in the world, which is really important because while we use a lot of natural gas, our primary feedstock is actually electricity. This is an electrically driven process, and so having that partnership was really important.

AI assessment note: “Yeah, that's right. So, so all private capital, a hundred percent”

Q carbon black, uh, which has its own market attached to it, as opposed to post-combustion carbon capture, where you're basically just like sucking the CO two out and you get a CO two gas, which then you have to do something with. So how do you think about what your prime, do you think about a primary product? Is it hydrogen or carbon black or are they co-equal to you?

A It's an awesome question. Um, I think the answer is both. And what really got us interested when we were, you know, planning to start a company 10 years ago is this concept of, like, almost switching carbon capture on its head, right? Instead of ending up with something that's a waste product, CO₂, that's super hard to deal with if you want to sequester it permanently or find some other use that doesn't just end up back in the atmosphere. So you replace that with something that has a ton of value. It's got economic value, but it's also got environmental value because the current way that this product, Carbon Black, is made is Super dirty. Tons of CO two, lots of socks, lots of knocks. So, so that's what got us super interested. It's like, you're making hydrogen, you're sequestering the carbon, but in a high value, also offsetting way. Um, that was like actually the light bulb moment at the company, 10 years ago. We kind of put those pieces together. We're like, man, this is something we want to work on because the impact could be huge. Um, just a little bit on the color. Cause like the, the color rainbow has Gotten very, very broad.

AI assessment note: “I think the answer is both.”

Q of a kind full commercial scale plant from traditional banks, is the thing that would hold you up that all you could say is, well, we have operational data at one 13th the scale of this plant, but we can't, we can't prove to you that it's gonna, that it's gonna hit the things that you mentioned, uptime, capacity factor, O&M budgets at full scale, or what is it precisely?

A Yeah, it's a good question. I, I mean, I don't think that, you know, the, the commercial kind of debt side has trouble understanding that you prove it technically on one, and then you replicate that such that you don't have additional technology risk. Like I think everyone gets that. I think it's just some of the, can we point to a deal that we've done that, you know, 90% is identical to this deal. You know, from a full risk analysis underwriting perspective. And if the answer is no, then it just gets really hard to kind of get through all of the various, you know, approvals that you would need at, at this scale of investment. And so it's, it's maybe more that, that it's like N equals one, that makes it really tough.

AI assessment note: “can we point to a deal that we've done that, you know, 90% is identical”