The Exchanges

Q to the extent that it would be available for my project will be higher. That changes the likely optimal capital stack of That I might have for the project. It probably pushes me more toward more equity and less debt, but equity is always going to be more expensive. And so it just makes the cost of capital higher. No matter how I'm financing the project. Is that not true?

A No, you're absolutely right. The cost of capital is definitely higher in today's environment versus six months ago, and it's likely to continue to rise given inflationary concerns, and you're absolutely right also that the cost of capital is an important input to the Economics of an individual project, and thus the number of projects that bite pencil for any of these project developers and, you know, their customers. It is also true that in the areas that we have been active, there is less debt available because there are fewer financiers willing to go into these projects. So what I was saying about Generate typically being project equity, if you look at the last eight years, Many of our projects don't even have debt financing on them. So the question is, how do you actually build the project so that it's profitable for all involved, and how do you build more of them faster? That's the question we've been trying to answer since our inception. You're also right that at a certain point, many of these markets mature to a level where debt financing is available, and the cost of capital can go down, which can also increase the The adoptability or the total addressable market for those solutions, and we're trying to facilitate that transition from not mainstream to mainstream so that the cost of capital comes down and we all have a chance to deploy a lot more of the sustainable infra…

AI assessment note: “No, you're absolutely right. The cost of capital is definitely higher”

Q that I think, uh, I've always found exciting about Generate is you're sort of always looking at like, what is the, what are the markets that have all the right Puzzle pieces to scale. The technology is de-risked, the buyers are there, the, maybe it exists in another country, et cetera, et cetera. Um, and yet the puzzle pieces haven't come together. What do you think are those markets today?

A Well, there are a number of interesting opportunities that people are just not yet mobilized to address at the speed and scale we're talking about. Um, you're absolutely right, we're always looking for the new ones, but I'll highlight a few that we're active in that aren't there yet, even with our level of interest and involvement. One, for example, is electric bus leasing. We developed a partnership several years ago and announced it publicly that we were working with BYD, the largest electric bus manufacturer in the world, I believe, um, to lease electric buses to take that high cost of customer acquisition, high cost of acquisition from the customer and to turn it into a service-based arrangement where the customer wins over time because of the dramatic Total cost of ownership benefits of an electric bus over a diesel bus or some other form of internal combustion engine. It hasn't scaled because municipalities rely typically on federal dollars and are accustomed to doing so when they make purchases for new vehicles. And so the value proposition of a leased bus is actually very difficult to communicate to the typical buyer of those buses. We do have many Commercial customers, university customers, and a handful of municipal customers who have chosen the leasing path. But the leasing path is designed specifically to dramatically improve the total addressable market because mos…

AI assessment note: “One, for example, is electric bus leasing.”

Q of founding thesis of Generate, where you thought there was a gap in the market for infrastructure finance in climate tech, or even what you called it whenever you founded the company. Uh, and then we'll talk a little bit about how that market has evolved and how you've had to evolve along with it. But what was the, what was the genesis of Generate? What was the founding idea?

A The original idea was really to try to address what we saw as A broken capital market for sustainability broadly, and specifically for the area where we thought the biggest need was within sustainability, which is deploying the infrastructure of sustainability solutions. Most of that was about how do you get long-term capital? How do you get a true Technical set of capabilities together. How do you make sure that you're really thinking about the customers and the communities that you will serve with that infrastructure for decades? And how do you bring all of that together under one roof in a way that aligns all the interests of the stakeholders that are needed in order to actually have the license to operate as an infrastructure financier and an infrastructure operator?

AI assessment note: “The original idea was really to try to address what we saw as A broken capital market”

Q So let's go a level deeper there. So, um, what, what was broken about the capital markets that you couldn't get that done ex-generate? Like what, what would, where was, where was the bottleneck that a company trying to finance some of that infrastructure would run into?

A Well, there are a number of accounts, as you well know, of something called the Valley of Death, which really describes the lack of capital for deploying newer solutions that That are less well-proven or less mainstream in the eyes of the capital markets. I would say there's quite a bit more missing when you think about deploying solutions for, for sustainable infrastructure than just capital, and certainly in 2014 when we get, we got started, there were few folks offering capital for especially distributed Infrastructure opportunities. You saw capital flowing to large-scale solar and large-scale wind, but you didn't really see any attention focused on some of the additional solutions we need to solve climate change, whether it's in other areas of the power sector, like distributed technologies, for example, microgrids, battery storage, energy efficiency, or where you look at things like hydrogen vehicles, you look at things like Electric vehicle infrastructure, and even in waste and agriculture, which are important parts of the climate solution space, you saw very few investors or lenders willing to back projects in those areas because they just hadn't seen them before, and because they're structurally misaligned in, ah, doing those types of deals for a variety of reasons.

AI assessment note: “lack of capital for deploying newer solutions that That are less well-proven”

Q going to be able to procure X component for Y cost at the time that they financed the project. Now at times, it looks like it's actually going to be, it's going to take six months longer, but probably more importantly, it's going to cost 50% more. Is there a way to hedge supply chain risk, or who should be wearing it, I guess, at the end of the day?

A We look for ways to collaborate with our partners to address issues like that and have, in fact, done We've aggregated purchases across multiple partners for a particular set of supplies over the last several years. This has happened multiple times where we've had to step in, and because of our scale, our balance sheet, our liquidity profile, Our trust in the market. We're able to exercise some buyer power that individual developers are often having trouble accessing because they have smaller purchasing goals. They have, you know, shorter term liquidity. They have less established reputations with some of the suppliers. So you recently saw an announcement by some of the largest utility scale solar developers getting together To make a forward commitment on supply for US-based manufacturing capacity and solar technology. We've done that at a smaller scale with multiple partners where we say, we at Generate are willing to either backstop or make a purchase of a certain amount of supply. What can we do with the terms, the availability, the price of that supply if we step in intervening with our scale and reputation? And we look for other opportunities to do that because it's one of the other elements of the help That our project developers need, again, not being just a source of money, how can we be a source of true partnership where we're wearing that risk, to your point, alongsi…

AI assessment note: “We've aggregated purchases across multiple partners for a particular set of supplies”

Q uh, try to get, you know, funding from a non-dilutive source or something like that. But do you think that there, there, first of all, do you agree that that gap still exists? And if so, do you think there is a Solution to it, ultimately? Or should companies just be preparing to build their first of a kind on their own balance sheet at the end of the day?

A Well, that's a really good analysis and a really good question, and I would say I agree with you that capital is scarce for first of a kind technology scale-up in the form of an infrastructure project. I would say that's well-deserved as well, to your point. Is it ever going to change I'm not sure. I think it goes back to an earlier point we made. There is money available for a good project. If it's a good project with good stewards, it will get funded. And so, as I said before we started at Generate, back in the late 2000, when the first time we heard the Valley of Death moniker come out, most of the things that died in the Valley of Death deserved to die. They didn't have a good proposition to the customer. They didn't have an economic proposition to the investor. So at the end of the day, those things always fail. I think Generate has found a way to take first of a kind risk multiple times, where we have partnered with technology companies and project developers to build their first projects. And those are projects we believed Were worthy of investment. Now, we believe they were worthy of investment because we got involved early enough to make it so in partnership with these companies that were developing them. So as much as we talk about our focus on proven solutions, we do believe there are proven solutions that have not been commercially scaled, and that is one of the are…

AI assessment note: “I agree with you that capital is scarce for first of a kind technology scale-up”

Q so taking an example, you guys have financed a bunch of, you said waste to value in ag. So let's talk about like anaerobic digesters, which I know has been a category that generates been really strong in, like what was going on in the anaerobic digestion market that made it difficult to finance projects? And then how do you How do you create the right incentives to streamline it?

A Those are great points, Shael, and I think anaerobic digestion is a really good example of where we stepped into a void, but it's not just a capital problem that we stepped into, to your point. It's a whole set of issues that we were trying to address as we moved into anaerobic digestion, and as you know, anaerobic digesters have been deployed successfully for decades in Europe. Um, where there were more incentives for the human capacity to be built, such that there were human beings genuinely capable of building and managing anaerobic digestion facilities, and now you have, you know, thousands of those projects across Europe, many of them successfully serving their customers and communities, uh, taking waste streams and turning that into something more valuable. In the U.S., where Landfills are a bit more available, and where real estate genuinely is a bit more available, and where there are fewer price signals supporting the diversion of that waste into more productive uses, um, the market was underdeveloped, and you saw a number of project developers struggling in anaerobic digestion, not only to secure capital for building projects, But to secure all of the other elements of what makes a project successful. A good, solid feedstock support system. A clear price signal for the revenue that they would look to produce by taking that waste and turning it into either gas or elect…

AI assessment note: “fewer price signals supporting the diversion of that waste into more productive uses”

Q go after it anyway is it's a lot of work for what seems to them to be a small check size. How do you get over that? The like transaction cost problem. If you're going to solve that by doing all the work, like then you got to do a lot of work and you got to put a lot of people behind it and resources and time and money.

A Yeah, you hit the point on the head, Jill. We say at Generate, we take risks others won't, and we do work others can't, and that is fundamentally how we were set up, because we recognize that this is a systems problem, that complexity is the enemy of most financing, and that's why we don't even think of ourselves as just a finance shop or just an investment firm. It's why we built ourselves as a company, because we actually You actually need to have that technical capability that I was talking about, that operator mindset, the customer centricity. It's a lot more than just the box checking exercise or the Excel spreadsheet jockeying that you do in a typical finance organization. You actually have to think long term and build an entire business around addressing exactly that complexity you're talking about if you want to solve The physical problem of climate change at the speed and scale that we are required to confront it with.

AI assessment note: “It's why we built ourselves as a company, because we actually... need to have that technical capability”

Q deal with the fact that we're going to need to increase production and imports of fossil fuels while still maintaining this kind of long-term change. Decarbonization focus that we've got. How do you think about navigating the short-term choppy waters, but maintaining the foot on the gas on, on decarbonization as it pertains to infrastructure that needs to get deployed and the pace at which it needs to get deployed?

A I think it is depressing to look at the facts and the science today and the progress that we still need to make against The problem of climate change, despite the increasing momentum and great success stories that we can share about the last decade or so, and in particular the last couple of years in terms of climate solutions, their readiness, their adoption, the demand for them from customers, the support for them from the capital markets. We are just so far away still from actually mitigating The climate change problem in a way that saves humanity. We have a limited number of years remaining to make a very dramatic change in the trajectory of carbon pollution. And we We really need to think more about human capacity building than we have. We've focused a lot as a globe on policy and on capital and on technology. We have focused far too little on the thing that brings it all together, which is people. And if you look, for example, in the United States, where you'd think we have a pretty developed market for these types of solutions, and obviously have made pretty good progress, relatively speaking, in the last few years, again, relative to the prior years. We still lack the human capacity necessary to mobilize the 9.2 trillion dollars a year that McKinsey says is necessary for the net zero transition. And if you look at that 9.2 trillion dollars per year that's necessary, a l…

AI assessment note: “We really need to think more about human capacity building than we have.”