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ECONOMIES OF SCALE

Wall Street is the key to solving the climate crisis—not Silicon Valley

REUTERS/Fabian Andres Cambero/Files
Jigar Shah is trying to replicate the financing success of solar investment in other climate tech industries.
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In 2003, Jigar Shah envisioned building a company using photons. Almost every modern energy source had worked the same way: burn fossil fuels, boil water, generate steam, turn a turbine. Photovoltaic panels were different. Sunlight was all that was needed to turn photons into electricity.

“I thought it was cool,” says Shah, who founded SunEdison with $20,000 in savings after leaving BP Solar. “I’m not sure I was motivated by climate change. It felt like something that needed to break through.” And it did. After setting up its first solar array in 2004, the company built more than 4.3 gigawatts of solar arrays by 2012, enough to power nearly 1 million homes.

But Shah’s plan to go public was derailed by the financial crisis. He sold the company to MEMC, a silicon manufacturer that adopted SunEdison’s name in 2009. The company went on an acquisition spree, binging on debt, and eventually plunged into bankruptcy.

Now Shah is trying again—this time as an investor. He witnessed how SunEdison mobilized billions of dollars for clean energy. Today, he wants to decarbonize every sector of the global economy, a mission that will require an unprecedented $27 trillion by 2050.

Quartz sat down with Shah to explore how Generate Capital, the investment fund he co-founded in 2014, plans to convince Wall Street and capital markets that the accelerating energy transition is a profitable and safe bet. Generate invests in commercializing large-scale technologies, from renewable energy and heating equipment to urban farms and wastewater treatment. After early investments of $2 million to $20 million per project, Generate recently made a $600 million investment with energy efficiency company Alturus to help Fortune 1000 companies increase their energy savings and efficiency.

That may sound boring, says Shah, but it’s the best way to move the needle. Shah argues tech companies’ primary role in reducing emissions is as the customer for technologies, not the innovator.

Of all the things that need to be done to switch from old infrastructure to new infrastructure, the least important part of it is the technology being cost-effective.

The following interview has been edited and condensed.

Quartz: Tell me about your model at Generate Capital. You’ve raised $1 billion and invested in more than 2,000 clean energy and infrastructure projects across North America. Why did you take that direction? 

Shah: Generate is just a natural continuation of what we were doing at SunEdison. Remember, solar panels haven’t changed from a technology maturity standpoint since 2003. Every year, they get better, just like your car gets better and lasts longer.

But Wall Street didn’t accept solar as an asset class until two years ago. So that’s what Generate does. It makes all of these technologies acceptable as an asset class. We use our own money initially, and then we bring in other people’s money. And then eventually Wall Street comes around 10 years later.

And it matters to get Wall Street in. Because not everyone knows how to raise $1.5 trillion, right? If you’re going to get to $1.5 trillion into electric vehicles, fuel cells, anaerobic digesters—there are 50 different technology classes that need to scale up to decarbonize the planet—most of them are still in early stages.

So the question is, how do you help people along the path to bankability? That’s what we do. Eventually Wall Street says, well, you know, I guess you’re right. The data is clear that this stuff is actually a good thing.

How do you choose the technologies that you’re financing? What are your criteria for making that bet?

It needs to be boring. The more boring the better.  The technologies that we’re investing in, these companies went public in the ‘90s. They’ve been in the field operating for 20 years. Right now people think they’re scary—fuels cells and hydrogen or whatever. But at the end of the day, the technologies are mature.

Given the benefit of hindsight, what are the lessons Silicon Valley should learn from the first clean tech boom that ended up with most of those companies going bankrupt?

I don’t know if there are any lessons to be learned in clean tech 1.0. I would say that Silicon Valley has very little to do at all with climate change. There’s actually very little that they can do to put climate change on a better trajectory.

When Microsoft says, ‘We’re going to start buying green energy, and we’re gonna start becoming carbon neutral,’ they’re speaking from the perspective of a consumer. For entrepreneurs in the business of sucking carbon dioxide out of the air, now they have a customer that’s willing to pay a premium for the carbon credit. 

But that’s not them being Silicon Valley. You’re just buying carbon from us. They’re not using their engineering or tech or talent to solve this problem. Remember, it’s not the tech companies. It’s Fortune 1000 companies, right? Walmart is having an equal role to Google. There’s Procter & Gamble, Home Depot, Lowe’s. So is the US Postal Service. All of these people who buy a lot of stuff are remaking the supply chain.

When you characterize this as tech, then you actually tell their peers in the Fortune 1000, unless you’re tech, you can’t actually do the same. And I think that that is harmful. Because they’re doing non-tech stuff to support our industry. That’s just procurement.

So why do you see Silicon Valley as primarily a customer for climate tech, and not the source or the funder?

Because that’s what’s needed. If you take a numerical point of view, most experts say we’re deploying about $400 billion of good stuff [such as clean energy and carbon reduction technologies] per year. We need to be at $1.5 trillion a year to have a chance at keeping [the global temperature increase] below 1.5° Celsius. 1

The Silicon Valley approach to that problem is to say the technology we’re currently working on is not cheap enough. And if it was cheaper, then we would easily get to $1.5 trillion. Innovation will lead to more action. But that’s not true. The International Energy Agency just proclaimed that solar is now cheaper than any other thing that any country could invest in. Does that mean that next year we’re expecting $1.5 trillion of solar to be installed?

No.

Right. So then what are the problems? The problems are the way that grids are set up, the regulatory frameworks, the engineers that work in these places. Just because I can show you an academic paper that it’s cheaper doesn’t mean they believe it’s cheaper. Of all the things that need to be done to switch from old infrastructure to new infrastructure, the least important part of it is the technology being cost-effective.

So as an entrepreneur and a technologist, is that encouraging or discouraging for you?

Neither encouraging or discouraging. It’s just what it is. It’s like you’re in the business of real estate. When you buy a farm and turn it into a million-dollar home community, you’re selling a dream. And if that dream requires you to cozy up to the local county commissioner, cozy up to the local city council members, cozy up with influencers on Instagram… You do what it takes to actually make this place a draw. That’s what I do for a living.

It’s shocking how myopic Silicon Valley largely is. They think either it’s innovation, or it’s money. It’s one of those two solutions, right? But what we’re talking about here is genuinely hard-to-fund stuff. This is a multi-faceted problem, and all of those facets are important. And Silicon Valley lacks the ability to understand how to genuinely help all of those facets.

Let me just push back a little. What do you think of examples like Tesla—aren’t they pushing technologies that aren’t necessarily new, but at least bringing the cost down and making them sexy so people will adopt them? 

I don’t think so. Elon has made it quite clear that he’s moved to LA because he doesn’t think Silicon Valley is the right mindset for what he’s building at Tesla. And that’s because, you know, this is a 10- to 15-year project.

Elon has taken it to the next level. But that’s not because he had Silicon Valley cred. It’s because he literally bankrupted himself in 2008 to keep his company alive. Elon deserves all the credit he received. Right? That guy walks on water, but it has nothing to do with Silicon Valley. Silicon Valley people bet other people’s money. Elon bets his own money.

As you try to replicate the financing success of solar investment in other industries, what sort of resistance do you see in your role at Generate Capital?

The resistance is [a lack of] familiarity. Remember, when you’re a venture capitalist, you make a 10 times return on your money. And it doesn’t matter if the underlying company is a good winner. That’s not the way that infrastructure investors work. Infrastructure investors must wait 13 years just to get their money back. When you invest in a solar project, under a 20-year contract, it takes 13 years to get your principal back. And then you make a return on your money in the last seven years.

So convincing people that that’s a safe investment, admittedly, takes a very long time.

But you’re finally seeing this model slowly accepted outside the solar industry?

Yeah. It just takes a lot of time. We’re six years into this project at Generate Capital. My co-founders and I’ve been doing it before then. And, you know, we still got another 25 years to go.