This post summarizes the key takeaways from the latest report published by the Office of Clean Energy Demonstration. Profiling 8 companies including LanzaTech, Solugen, Stegra and Via Solutions and a total of 21 FOAK projects, the report covers FOAK projects with different levels of technology and adoption readiness. By drawing lessons from the recent sucesses, it paints a realistic picture of what it takes to develop and finance FOAK projects.

Overall Takeaways

  1. Developing a financeable project requires creativity and iteration: developers of FOAK projects can use strategies that diverge from highly-structured, “bankable” projects, but are still “financeable.”
  2. Viable offtake and financing structures often depend on sector-specific demand signals and technology maturity, among other factors.
  3. FOAK projects require flexible, diverse financing strategies, balancing initial reliance on corporate equity with opportunities for structured financial products to evolve the capital structure over time.
  4. To accelerate project execution, recent FOAK projects advanced development processes in parallel and maintained high control over EPC workstreams.
  5. Hiring the right expertise at the right time is critical to closing the capability gap.

Demand Maturity / Market Openness

Key Lessons: Long term offtakers over short term for revenue certainty; diverse revenue streams preferred

  1. When there is strong demand for environmental attributes, developers can strike long-term offtake agreements, even when short-term trading is typical.
  2. When demand for environmental attributes is limited, it is more challenging to strike long-term offtake agreements. In these cases, developers often adhere to conventional offtake structures and use alternative strategies to derisk revenues and unlock financing.
  3. For early demonstration projects, the Companies pursued flexible offtake terms around volume, performance guarantees, and customer creditworthiness.

Capital Flow

Key Lessons: Focus on Corporate Equity for funding early-stage projects; Structured finance also available; Project debt/equity come in predominantly at later-stage but shows interest in coming earlier

Large-scale pilot and early demonstration projects:

  1. For early demonstrations, corporate equity is the primary capital source. Project-level financing is rare.
  2. Structured financial products other than traditional project finance are available.
  3. Some early demonstration projects can refinance their projects during operations.

Late demonstration and early deployment projects:

  1. Securing project-level debt is possible for early deployment projects, though developers should expect very strong protections for lenders and guarantors.
  2. Project equity investors are increasingly willing to come in at the early deployment stage, but will expect high returns. Developers can build a buffer to ensure their business case remains viable.

Project Development, Integration, and Management

Key Lesson: Retain tight control and always plan for the rain

  1. Maintain significant control over project EPC processes and outsource selectively for early projects.
  2. Developing and delivering an early demonstration project is like “building a plane while flying it”: expect highly dynamic, aggressive approaches to project management, engineering, and procurement.

Workforce

Key Lesson: Hiring the right team

  1. Hire expertise with a strong project execution track record and the right attitude for FOAK development.
  2. Nurture team culture and avoid internal silos: getting the best results with internal team members and external partners depends on trust, transparency, and collaboration.

Technology Maturity and Product Development

Key Lesson: Communicate the technical goals for successful demonstration; Focus on cost control and execution de-risking for deployment

Large-scale pilot and early demonstration projects:

  1. Set and communicate clear technical goals for large-scale pilots and early demonstration projects.
  2. Learning through operating can be more valuable than perfecting technology products in the lab.
  3. Demonstrate before commercial licensing.

Late demonstration and early deployment projects:

  1. Modular designs present lower risk during scaling.
  2. Using commercial off-the-shelf technology where possible reduces costs and lowers risk.
  3. Some product iteration from early demonstration to early deployment project is possible.
  4. ‘Platform’ technologies need to re-demonstrate for each new application.
  5. Companies may or may not achieve unit capital cost reductions between early and late demonstrations.

Additional Resources

S2G Ventures - The Missing Middle: Capital Imbalances in Energy Transition

CTVC - Foak Financing: The Good, The Bad, and The Eligible

Breakthrough Energy - Unlocking Capital for Climate Tech Projects

Standford Steyer-Taylor Center for Energy Policy and Finance - Guidebook for Early Climate Infrastructure

Trellis Climate - Resources for FOAK Project Preparation & Development

DOE - Adoption Readiness Levels (ARL) Framework