Over the last few years, there has been an influx of venture capital seeking out profitable climate tech startups. At the same time, asset-backed financing has become generally more available and cheaper – all else equal – for renewable energy and other sustainable infrastructure projects. But there has been a missing middle – investors willing to underwrite both technology and project-level risk to drive systemic climate positive change. This is why Sidewalk Infrastructure Partners (SIP) was created – to reimagine infrastructure investing for the 21st century. By integrating technological expertise, infrastructure experience, creative capital, and multistakeholder engagement, the firm has been making significant platform investments in the technology-enabled infrastructure of the future. Chad Reed and Jonathan Winer (SIP Co-Founder and Co-CEO) dive deep into many of the spaces SIP is investing in – from autonomous vehicle roadways, to shared broadband solutions, to waste-free recycling, to truly resilient electric grids.
Over the last few years, there has been an influx of venture capital seeking out profitable climate tech startups. At the same time, asset-backed financing has become generally more available and cheaper – all else equal – for renewable energy and other sustainable infrastructure projects.
But there has been a missing middle – investors willing to underwrite both technology and project-level risk to drive systemic climate positive change. This is why Sidewalk Infrastructure Partners (SIP) was created – to reimagine infrastructure investing for the 21st century. By integrating technological expertise, infrastructure experience, creative capital, and multistakeholder engagement, the firm has been making significant platform investments in the technology-enabled infrastructure of the future.
Chad Reed and Jonathan Winer (SIP Co-Founder and Co-CEO) dive deep into many of the spaces SIP is investing in – from autonomous vehicle roadways, to shared broadband solutions, to waste-free recycling, to truly resilient electric grids.
Links:
Sidewalk Infrastructure Partners
Episode recorded: February 3, 2023
Email your feedback to Chad, Gil, and Hilary at climatepositive@hannonarmstrong.com or tweet them to @ClimatePosiPod.
Chad Reed: I'm Chad Reed.
Hillary Langer: I'm Hillary Langer.
Gil Jenkins: I'm Gil Jenkins.
Chad: This is Climate Positive.
Jonathan Winer:I think there's a general sense that, as a society, to address some of our biggest challenges, we need more sustainable, more resilient, more inclusive infrastructure. I think there's a sense that we're just building the same infrastructure systems that we built last century and hoping to solve this century's problems. It's not the way to do it, but rather to be smarter and use technology to build more innovative infrastructure systems. Very, very strong need and also very strong tailwinds in that regard.
Chad: Over the last few years, there has been an influx of capital seeking out profitable climate tech startups. At the same time, asset-backed financing has become generally more available and cheaper – all else equal – for renewable energy and other sustainable infrastructure projects.
But there has been a missing middle – investors willing to underwrite both technology and project-level risk to drive systemic climate positive change. This is why Sidewalk Infrastructure Partners was created – to reimagine infrastructure investing for the 21st century. By integrating technological expertise, infrastructure experience, creative capital, and multistakeholder engagement, the firm has been making significant platform investments in the technology-enabled infrastructure of the future.
So in this episode, I sit down with Jonathan Winer, Co-Founder and Co-CEO of Sidewalk Infrastructure Partners to dive deep into many of the spaces the firm is investing in – from autonomous vehicle roadways, to shared broadband solutions, to waste-free recycling, to truly resilient electric grids.
Chad: Jonathan, thank you for joining us today. It's a pleasure to have you.
Jonathan: Thanks for having me.
Chad: You started in the climate-positive infrastructure space way back in 2009, I believe, when you founded Nereus, a private equity fund that invests in alternative energy infrastructure in Asia. What drove your interest in climate, and why did you focus your efforts initially in Asia?
Jonathan: I first started getting excited about climate tech and investing sustainability actually a bit earlier in my career. It was in the early 2000s. I was at a large alternative asset manager, and I was part of a team that helped set up their private equity investing arm. We did that. I had the opportunity to work a little bit as a generalist but in a few different areas in technology and some of the real early renewable IPPs in emerging markets.
I think people forget that back in the day, investing in renewable energy, or what we call Cleantech 1.0 now, had a big element of technology underwriting involved. A lot of this was understanding what was in the lab, new form factors of solar, how things would perform when they actually got in the field. One of the things that was really interesting to me was that one day we could be investing in technology, and the next day, really trying to figure out how to bring that technology into the field at scale and what type of commercial contracts would be necessary.
That's why our first stop to investing is sustainability. While I was at that firm, we also wound up starting to invest in emerging markets, and we did a small deal in a run of the river hydro developer in India. It opened my eyes to what was going on in some of the emerging markets. You had countries like India, which didn't have enough power. There were hundreds of millions of people who didn't have access to power. Hugely inefficient grids, incredibly high power prices.
At the same time that we'd be looking at deals in India, we would also be looking at deals in the US. In the US, we were building much larger IPPs, a little bit more technology forward, but you had a power surplus market, and you had to rely on all sorts of clever approaches to capital structure or tax equity or other ways to figure out how to get that technology deployed. It just seemed obvious to me that the easier application or the more independently compelling application was in Asia, and that's why we started Nereus.
Chad: Then you did eventually make your way to Alphabet's urban innovation platform, where you were the head of investments there, and you managed funds dedicated to technology, real estate, and infrastructure, I believe. What was your most important learning from this experience?
Jonathan: It's interesting. Until I got to Alphabet, I was investing in more traditional alternative asset managers, whether that's a venture firm or a growth equity firm, or hybrid firm, or whatever the case may be. When you're in those situations, you're really constrained a little bit by your mandate. There are certain types of investment tactics, whether it be the stage of company or the type of company that you're going to invest in. You're also beholden by what's in the market, what deals are out there to do, if you have very strong origination capability.
When I was at Alphabet, it was a completely different approach, which is obviously, we could invest in whatever deals that were out there. We did that sometimes, but what drove the analysis was really the technology and how we could develop and deploy compelling technologies. Sometimes it meant incubation. When I was there, we incubated a handful of companies in addition to doing transactions that were in market.
It got me back into a little bit more of an operating role that started my career as an entrepreneur. It just seemed like a much better way to invest, to have the toolkit of a traditional investment firm, but also not to be dictated to by deal structure or what's in market. Instead, let technology lead you. That was a really powerful experience.
Chad: Then let's go into the impetus behind Sidewalk Infrastructure Partners. You’ve raised a billion dollars. You position yourself as an infrastructure investment firm. Tell us specifically the impetus behind it and the specific challenges you're attempting to address.
Jonathan: It goes back a little bit to what we were talking about before the transition of Cleantech 1.0 that I experienced earlier in my career. I found that if you could both underwrite technology and underwrite project risk, that is how you can take first-of-their-kind technologies out to the lab and actually get them built in the real world. You could really secure very compelling returns, first-of-their-kind projects, or you can think about some of the early IPPs who are getting PPAs or other types of contracts that really provided tremendous excess return, and they were able to recap those assets as lower-cost capital entered the market over some period of time.
With that journey that we saw for renewable energy when we were at Alphabet, we're seeing that happen in a lot of other sectors in mobility and digital infrastructure in what we call circular economy, more approaches to recycling. That was part of the impetus, and we looked around and said, "Hey, if you have an idea for a new sustainability company, you're a series A startup who has a new approach to energy efficiency, there are dozens if not hundreds of financial sponsors who'd be very happy to explore giving you a term sheet. If you have an operating infrastructure asset, a core or a core plus infrastructure asset, there are dozens of mega funds, $10 billion-plus infrastructure funds, who would love to explore project financing those assets."
In that missing middle, we think there's growth equity for sustainable infrastructure. There are very few firms who are able to both underwrite the technology and understand what technology risk looks like but can also understand assets. The venture capitalists would say, "Hey, an asset-intensive definitely doesn't meet what I'm trying to do for my asset in a scaleable returns, and the core infrastructure or the core plus infrastructure doesn't say, "Hey, technology risk, that's not a good fit for me.""
There really was this lack of a company or a sponsor who was able to underwrite those risks and get those assets deployed, and that was the impetus for SIP.
Chad: That's really interesting. I worked on both of those sides, actually, myself. I guess in what you're trying to do, though, there's a lot of policy that's involved as well. In energy and infrastructure, there is, in general, but you're trying to change the built environment in a way that involves a myriad of stakeholders in a lot of cases. Could you talk a little bit about how you think about engaging policymakers and all the other stakeholders that are involved in the ecosystems of the spaces that you're in?
Jonathan: Yes. It's interesting because when I think about the policy question, and obviously, when you're working in sustainable infrastructure, in many cases, these are related industries, and in many cases, they're very influenced by policy. It's a core part of how we do underwriting and how we think about deploying assets and capital. I actually think about it both at a macro level and micro level.
At the macro level, we have these incredibly strong tailwinds, which is to say, if you look at the Inflation Reduction Act or the Infrastructure Bill that was passed before that, I think there's this widespread understanding that North America and in the United States, in particular, has an infrastructure gap that it needs to fill and it's one of the few bipartisan issues where people can get aligned on that.
I think there's a general sense that, as a society, to address some of our biggest challenges, we need more sustainable, more resilient, more inclusive infrastructure. I think there's a sense that we're just building the same infrastructure systems that we built last century and hoping to solve this century's problems. It's not the way to do it, but rather to be smarter and use technology to build more innovative infrastructure systems. Very, very strong need and also very strong tailwinds in that regard.
Those macro factors at the policy level, they're very impactful. Don't get me wrong. They do help. Actually getting an asset built in the real world is a very local challenge. It is a multi-stakeholder challenge. You noted that there might be other regulators or political stakeholders, but don't forget about the community as well, that you're trying to serve a community, and engaging that community, and what it needs and what it wants is an incredibly important part of how we develop projects.
Yes, everything we do, we have a playbook of how we try and gauge municipalities, how we think about innovations and municipal procurement, how we think about multi-stakeholder processes to build consensus around what we are building in, but what it really comes down to at the end of the day is innovation in this country is largely led at the local level. It is city managers. It is mayors. It is procurement heads who know what their communities need and want and who are willing to be a little bit innovative to get it done.
We try and align ourselves with municipal leaders where our capital and our technology and our projects can help them achieve goals that are at the top of their list. Sometimes they have-- You're trying to solve someone's number seven problem, and you're asking them to do it in an innovative way. Really hard to get the people to do unnatural acts and to do things for the first time to solve something that's not critical.
You'll see. The projects that we do, we tend to address needs of communities that are at the top three of you'll just talk to the mayor or the governor or the city manager, they say, "The thing that we're working with SIP on, that's one of our top three things." I think that's a really important way of thinking about how you do the micro-political engagement.
Chad: Great. I'm going to dig into some of your platform investments. First up, Cavnue, which is an operator of a road development system that's intended to build roads that are optimized for autonomous vehicles. Tell us about the problem this company's attempting to address and about the inaugural project, I believe, that they are putting together.
Jonathan: Yes. I started Cavnue a little over two years now, although some of the technology work and the amount of work been going on for about a year before that, so a little bit longer.
The challenge that we identified was, about three years ago, when we were working on this, autonomy was top of mind for everybody. If you were to ask somebody, "Hey, when is level five autonomy going to get here?" That's the level of autonomy where vehicles can go wherever they want and drive themselves. You might hear the CEO of an AV company being like, "Oh, it'll be here in two years. It'll be here in two years." They'd all say that actually for two years, but as we dug deeper and deeper into what the corner cases look like, and looked at the corner engineering and the data, we basically came to the conclusion that this was going to be a much harder challenge than people were giving it credit for.
I think you've seen that play out a little bit. You've seen people who used to say-- I remember the CEO of Waymo at the time used to say, "Level five autonomy will be here shortly." Then, about a year and a half ago, when we're still there, he would start saying, "Hey, I don't know when we're going to achieve well-defined autonomy, if ever." That's a public statement that he made. He got real acknowledgement, when you look at the shutting down of Argo, for example, that this is a much more challenging issue than people give it credit for.
As we started looking at that, we were like, "Hey, the industry has put tens of billions of dollars of work into these controllers and these perception systems and AVs, and no one's really put any energy or effort into what's the enabling infrastructure that could potentially simplify the operating domain in the near-term, so that autonomy could work quicker and be commercial quicker, but also long-term, could aid in the coordination of these types of vehicles.
You spoke earlier about how we think about policy. We were really big on convening ecosystems before we ever make an investment. We held a summit in Menlo Park a couple years ago. We invited, I think, 11 heads of DOTs, maybe 8 different automakers, a bunch of road operators like Transurbans or the Centras, the more traditional managed lane operators, and asked this question of, "Hey, what is the current roadside kit that is being used for an advanced managed lane, and how could we change that so that a vehicle that's equipped just with an L2 or an L3 system--"
The stuff you're seeing advertised on the Super Bowl, where somebody gets in their Escalade or whatever it is, and takes their hands off the wheel. How could we actually get to true hands-off, eyes-off experience for that driver? At the same time, starting to ask the question of, with the L4 trucks, what will it take to truly go driverless and not have four people behind the scenes remote driving?
Came up with an interesting approach to that problem that marries both civil infrastructure and changes the operating domain combined with digital infrastructure that allows for the perception systems to be more accurate and to be able to effectively see farther than they otherwise would. That's what Cavnue has developed. It's an integrated civil and roadside kit for digital network. Developing several projects right now. The one I think you're referring to, which is perhaps the flagship or the one that's most well-known for, is in Michigan, 42-mile stretch connecting Detroit and Ann Arbor.
The pilot there, the first three miles, will go live on this year. We're very excited about that. That use case is really focused on passenger vehicles, so people driving current production L2, L3 vehicles. Think about your Tesla autopilot or your Ford Mach-E or something like that. Then at the same time, they're working on several trucking corridors. The application there is to create rights-of-way that are dedicated for L4 heavy trucks.
Chad: Are your customers the municipalities or the auto manufacturers, or both? Who are you actually generating revenue from?
Jonathan: The customer itself is the vehicle. In a managed lane environment, you would say, "Hey, I can be driving on the highway, or I can get into this managed lane that both is faster, in the same way, I might get into HOT lane. Then when I also get in that lane by paying the toll to get into that lane to go faster, I also am allowed to take my hands and eyes off the wheel during the period of time I'm in that lane."
Then likewise, on the trucking use case, I think we're going, "Hey, here's a dedicated right-of-way where trucks can operate autonomously, but there's a toll associated with that." We think of that company as very much like a next-generation Transurban or a next-generation Centra managed lane operator, but where that managed lane is enabled by technology to do things that a traditional managed lane can't do.
Chad: Are you actually owning the lane, or is that still a public good in this case?
Jonathan: It's different state by state how things work. Quite frankly, the public-private partnerships that are used for road operations are different state to state. In some cases, the business model would be very much partnering with municipality to deploy the technology on roads that they continue to own. There are other opportunities, whether they're greenfield developments or dedicated center lanes, for example, that can be repurposed, where it might very well be a toll road operator. Might be like a Transurban-owned right-of-way, but that varies tremendously state to state.
Chad: Do you envision these sorts of lanes also having some sort of wireless charging capabilities either now or in the future that would further enable electrification of fleets and individual vehicles?
Jonathan: It's something we're looking at. As I think you're alluding to, there are number of companies that are working on those types of solutions. We haven't found one yet that is highly economic in the context of what is already a pretty expensive managed lane, but the goal of Cavnue long-term is to be the developer of the roads of the future, which is to say that if you want to build the most sophisticated road, both from a civil perspective, potentially from a charging perspective, and also from the digital networks that will be necessary at the roadside, Cavnue is the developer to do that.
It wouldn't surprise me if they look at that at some point, but the initial explorations that they've done in that space to partner with folks that would bring that technology to bear on their roads hasn't proven highly economic. Although, by the way, if anyone's listening to this and they have such a technology, please reach out, and we'd love to incorporate it into those roads.
Gil: Climate Positive is produced by Hannon Armstrong, a leading investor in climate solutions for over 30 years. To learn more about our climate positive journey, please visit HannonArmstrong.com.
Chad: Let's pivot to CoFi, which is a platform you created to bridge the digital divide by enabling open and shared wireless networks. Tell us a little bit about the digital divide problem first, and then I guess how Dense Air, which I think is the company you invested in attempts to address this challenge.
Jonathan: Yes, so look the digital divide, there are many different flavors of that challenge. I think perhaps the most intuitive one is, of course, the rural versus urban divide. That there are still people in rural parts of America, but also rural parts of the rest of the world where they don't have access to high-speed internet. Because that is so critical, both for education and for employment these days, that really is problematic. It's almost like a utility like water or electricity that you really want everyone to have. Certainly, on that problem, there are a lot of people with different solutions, whether that be satellite-based or other types of bringing fiber to rural environments using different types of [unintelligible].
The challenge that we were also focused on here that's another digital divide that people don't talk about as much is the digital divide that happens within urban environments. That digital divide is both internet to the home, but also, we think a lot about wireless networks because we think that those can be a lot of innovation around next-generation 5G wireless. I don't mean 5G in the way that it's currently marketed like your phone says, you're on a 5G network. Full standalone, low latency, very high-speed 5G.
If you had ubiquitous 5G of that nature, there'll be tremendous amounts of innovation in much the same way that Uber only exists, or as an example of a piece of innovation because everyone started having a phone in their pocket. There'll be a whole next layer of certain innovation that takes place if you have ubiquitous 5G. The challenge is with this type of digital divide, if you are a mobile network operator at MNO, and you need to build these wireless networks with 5G. Given the spectrum that is being built on, you need to what's called densify, which is you need to have more radios more frequently in order to provide the service.
It's very expensive to do that, and naturally, if you run a business, what you'll do is you'll provide the best service to the customers who can afford to pay the highest price if that is a rational economic decision. Now, by buying spectrum and by getting access to certain rights of away, you might have obligations to provide a more ubiquitous service. Then that's certainly appropriate and happens. By and large, if you make heat maps of urban environments, you'll find that there is much stronger wireless signal and better performance in areas where there's higher income.
That's just not surprising. If we believe this becomes an enabling tool for next-generation innovation, whether that be we can also work from home and this idea of a borderless classroom where students might be able to access the internet whether they're in school on a bus or at home, we really do want to move to a world where it becomes economically possible to have ubiquitous 5G wireless. That's what the technology that Dense Air is developing is trying to enable.
Chad: Again, the customers there are typically public sector entities or companies, or who exactly are the primary customers?
Jonathan: What Dense Air does specifically is it has developed a type of what's called a small cell, which is a radio that propagates wireless signal. What's different about this radio than existing small cells that are out there is that it is what we call a neutral host, which is that either on its own spectrum that it can propagate on or on the spectrum of a carrier, it can propagate from multiple different MNOs at the same time but that same small cell can be shared by AT&T, Verizon, T-Mo, a virtual mobile network operator. They can also create private networks from the [unintelligible] spectrum that is now available for public use.
As you mentioned, we have a public-- a slice of it being used for a private network for a school or municipality. What's different is it changes the total cost of ownership quite dramatically. It used to be that each one of those users if they wanted to have a small cell that could propagate their signal and be transparent to their network, they'd have to build their own pole, hang their own small cell. Actually, New York, there's been a bit of a controversy here, mild controversy, but they had to try and do this, to solve this problem.
They're building these 20-foot tall poles, and they have these five different big radios because they put a different radio in for each of the various different spectrums they need to propagate on. I think it was the mayor went to cut the ribbon on one of these on the Upper East Side. New York Post has this article like, ''What are you doing? New York City hanging these horrible things instead of thinking about innovation.'' It's a funny example top of mind as I looked out there.
The point being that it's not just that it's prettier and easier to deploy a single little box instead of these monstrous Frankenstein poles, but it's also a whole lot cheaper so that each company doesn't have to go replicate it. Rather than have five companies or municipalities building the same network for Midtown Manhattan, build one ubiquitous network for all of Manhattan using public right of way and then lease access to that to all five users. It's a much more cost-effective way to deploy ubiquitous networks.
Chad: My assessment is that Europe is better at this than we are in general. The service better there – Wi-Fi and cellular. Is that true? Does the data bear that out? If so, why do you think that is?
Jonathan: It's hard, I think, to generalize Europe, as opposed to country by country, because the way spectrum is allocated has a lot to do with whether or not it is economic and/or required for networks we build in certain ways. In certain countries, if you acquire spectrum, for example, it comes with certain rollout obligations associated with it. Part of the delta between the US and Europe, even within Europe, is how much revenue is there in the user base to fund effectively a dense rollout/what is the cost of the spectrum/what are the rollout obligations that come with the spectrum and what's the competitive dynamic? How many operators in a particular market?
It gets very hyperlocal, very, very fast as to why it becomes economic or not economic for networks to get deployed in certain ways. I do think and Dense Air, by the way, is a UK-based company, regardless of which one of those regimes you find yourself in, just bringing down the total cost of ownership of densification by sharing infrastructure is undoubtedly the way for everyone to get to better networks.
Chad: Now, let's go to recycling, especially plastics, which is, I think, a problem we're all familiar with. I've tried to stop using single-use plastics, but we all, I think, are forced to it in some cases. You created a platform, Polyshifts. Then through that, you've invested in AMP Robotics, which utilizes machine learning and robots to try to address this crisis. Can you talk a little bit about the problem and solution here?
Jonathan: Yes. This dates back to very early days of SIP back in 2018. There was a change in policy, where we've been exporting a lot of our recycling waste to China. They basically stopped accepting it, and what that meant was a lot of recycling waste in the US started going to landfills. In particular, plastics, I don't know if people are fully aware of this. If you throw your plastic like the blue bin, and you assume it's getting recycled, a very, very small percentage of plastic actually gets recycled. Some people put it under 10%.
The reason for that is that there are seven different types of plastic. If you look at the bottom of your bottle or your yogurt cup, it'll have a one or two type of plastic. The different types of plastic need to be recycled using different processes, and sorting the plastic effectively is incredibly expensive. Humans are not perfectly good at it. You have to pick up two yogurt cups. The human doesn't know the difference between this plastic and this plastic. They have to look at the bottom, and it's a very time-consuming thing.
We became interested in this question back in 2018 of what would it take to more cost-effectively sort plastics? I will say I remember talking to my wife about this back in 2018, and I'm sure it's not the most interesting dinner conversation. Your husband comes home. He's like, "Do you know that plastic is not being recycled, whatever." A year ago, come home one night. She was just like, "You know, John Oliver just told me that plastic's not getting recycled." Thank God for John Oliver. No one would know about this problem I've been talking about at home for three years.
We started trying to figure out if there were technologies that could more effectively sort plastics, specifically. There was, at the time, a young company called AMP Robotics that was raising a seed round, which we co-led. The initial problem that they've been focused on are more general-purpose materials recycling facilities, which are where we take all recyclables, you can think about metals and paper and plastics, and sort it.
They have developed robots that-- when you think about a gripping arm that can sort trash, and cameras. The cameras use a machine learning algorithm that the recyclables come down the conveyor belt. The more they see, and the more able they are to learn and distinguish the various types of trash and types of plastics. It's been a few years now. It's been a very successful company.
They have fundraised very successfully and grown revenue and have sold many of these robots into existing facilities, but they also announced last year the development of the first autonomous MRFs that I think could be anywhere in the world – certainly in the United States. They've built three of them now. These are facilities where there are no people. We call them sometimes dark MRFs. They're not actually dark, but we just mean that there are no people in them. I think those are initially focused on primary MRFs, but the real opportunity, I think, long term, will be to have advanced location facilities where you can take very specific types of recycling, plastic specifically, and further sort those plastics to make it economic to recycle them. That's what that platform is focused on.
Chad: Before we move on, let's touch on Resilia, which is your platform to enable a more resilient bidirectional transactive and distributed electric grid. Obviously, we invest in this space broadly, but you have invested and partnered with Ohm Connect to build Resi-Station, I think it's called, which is the largest virtual power plant in North America. Tell us a bit more about Ohm Connect and Resi-Station.
Jonathan: Sure. The problem here is well known. We designed the electric grid in a unidirectional way, centralized generation transmission distribution. That made sense when the fundamental engineering problem that we were trying to solve was how do you get electricity to every home in America? Which, if you think about that, it's a fundamental infrastructure and engineering challenge. It's incredible, the energy grid that we built.
As you're moving towards more intermittent forms of generation, so wind and solar as opposed to thermal generation, for example, that approach of centralized generation distribution, you need a grid that is able to both be responsive to that intermittent generation and can also leverage what are called distributed energy resources across the entire grid instead of having just centralized generation. That problem is, of course, the core of a lot of what people talk about as the energy transition, how we're going to move to new types of generation, and what the follow-on effects are going to be for the grid and for policy and for other things.
Within that space, and that's a huge space, there are entire funds and companies, your own and others, that are focused on it. There's a particular challenge that we think is important and particularly challenging to solve, which is how residential nodes on the energy grid can effectively engage in what some people would call demand response, but effectively what it means is interact with the grid in a constructive way so that you can reduce consumption instead of just increasing production.
The reason that is particularly challenging, there are a few reasons. One is that the system operators-- I try to use that word instead of utilities because I want to acknowledge that there are different types of system operators, but you might also use the word utilities, typically are used to owning assets. It's their job to own generation and transmission assets. There's a policy framework, rate basis, that people start to think about owning those assets over some period of time. They tend to control those assets.
As a result of putting these things on-prem at the customer's location, typically now the utility or some operators are not going to own the asset. They might not be able to directly control them. Aggregating that many devices is very challenging. Of course, the owner of those assets, we would call them a consumer, the utility might call them a ratepayer. I think there's a lot you can unpack and the distinction between those two words. That consumer has the expectation that those assets, whether that be an EB charger, smart thermostat, solar, and storage at their house, will first meet their requirements, whatever those might be, before providing grid services.
How a utility or a system operator is going to engage with that and how a consumer is going to engage with their home energy management is a very challenging problem. It's a fundamentally different problem than utilityscale solar or storage on the grid, which is also an important problem, but an easier technical problem. This is a much harder technical problem, and we think it's going to be exacerbated by the electrification of the vehicle fleet.
Specifically, if you put an EV in everyone's garage with a charger, and they all come home from work, between 4:00 and 6:00 and plug in their EV at precisely the time that a lot of solar is coming off the grid, you get the duck curve that you see in California. Our initial question was, how can you develop technologies for greater grid edge flexibility? Then how can residential homes be supportive to the grid? That's what Ohm Connect has done. They actually own all sorts of DERs, but initially, I think they're most well-known for smart thermostats.
What they're able to do is, at peak moments of demand on the grid, they're able to reduce consumption by the homes that are enrolled their program. They get paid by the grid to do that, and then they share the money that they get from the grid back with the consumer for having participated. What we created with them was what's called a virtual power plant where we put up, I think it was $80 million to subsidize devices, primarily thermostats, but also other types of devices into homes that would enroll in their app-based system that allows them to participate in these types of bidirectional interactions with the grid. There are now, I think, 250,000 homes in California, Texas, and New York that are participating.
Chad: Does Ohm Connect actually own the thermostats, the devices in the homes, or the consumers own those, and then they're just enroll in this program through the app?
Jonathan: The consumer gets a subsidized device. Instead of buying a Nest for X, you may buy it for Y, but when you get that Nest, it's enrolled in the Ohm Connect program. You still have control over it, and you could unenroll, I suppose, but most people don't. They sign up for this because they want to reduce their energy bill while also helping the grid be more sustainable.
Chad: Very cool. In addition to these platforms and your related venture investments, you mentioned earlier you lead initiatives, whether that's a summit, you have an Innovative Infrastructure Initiative, or I3, you do the Community Wireless Coalition. Tell me about one or two of these and then how they are important to develop the ecosystem for the solutions that you're ultimately investing in.
Jonathan: We talked about this before, that deploying new forms of infrastructure are multi-stakeholder processes with the public sector being important, the community obviously being critical, and obviously has to be economic from a financial and technological point of view. What we're doing with these is really trying to bring those various different actors together to come up with innovative ways to solve these problems.
I3, which recently actually merged with the Accelerator for America since it's part of the Accelerator for America, which we're very excited about. What they were really focused on is how do you do municipal procurement for more innovative approaches to infrastructure. There's nothing more boring than plastics except for procurement. I assure you, my wife falls asleep when I start talking about municipal procurement.
I think most people think of procurement as, "Hey, how do I get the cheapest widget through bidding at the government?" That's part of it, of course, but what we're really encouraging procurement officers to do is to be aspirational and to think about different ways that they can procure outcomes-based solutions for problems. If you're a city manager right now, and you're like, "Wow, I really need to electrify my vehicle fleet and/or put chargers into my community at parking lot or municipal parking," I could, I suppose, put out a very specific procurement for, "I'd like the following chargers for the cheapest price," and have 10 different people respond.
There's nothing wrong with that. What I think I3 would encourage and support andthey provide tools and precedent and support is a different approach to procurement where you say, "Hey, here's the challenge I have. How can I partner with the private sector to get the outcome I want without having to specify the specific device?" That entire effort is really around how to be innovative with respect to municipal procurement.
Community wireless is a very different approach and it comes back to that Dense Air challenge that we were talking about before, which is municipalities who are providing rights of way to these next-generation networks are not indifferent as to how these networks get built. I suspect that most municipal officers would want equitable networks to be built and ubiquitous networks to be built. This coalition is really thinking about what are the frameworks about how municipalities can design and achieve more ubiquitous and equitable wireless. Again, it's about how do you bring communities and stakeholders together to envision how to deliver these solutions.
Chad: You've raised a billion dollars from Alphabet, Ontario Teachers' Pension Fund, and StepStone. You're obviously taking a very long-term view of these challenges. What is your investment horizon and typically exit strategy for these sorts of investments?
Jonathan: This goes back to a question you asked at the beginning, which is what were some of the lessons that you learned when you were at Alphabet? One of the things that freed us when we were at Alphabet to do some really exciting, interesting things, whether that be incubation or otherwise, is that, effectively, we were a sole LP fund. We had even Alphabet's balance sheet. Jump into the legal technicalities of what it was. You had Alphabet's balance sheet.
Some of the traditional rules that you might have to follow if you were from venture fund, like, "I have a 10-year term. I have an extension. I'm investing in the following investement mandate. Series B companies with following profiles or whatever." We weren't constrained in that way. When we went about spinning out and setting up SIP, we really thought a lot about what type of company we wanted to be and what type of platforms we wanted to establish.
We wanted the flexibility to be an operating platform, potentially to develop technologies and incubate technologies, but also to transact. We wanted the ability to do a project equity. We wanted the ability to do TopCo Corporate Equity. If we were going to go run around to the top 30 infrastructure LPs in the world, they would probably say like, "Hey, you got to fit within the traditional structures that are being used for infrastructure funds, which wouldn't have allowed that.
We were very lucky and fortunate to have the support of Alphabet, the Ontario Teachers' Pension Plan, which has been a real innovator in infrastructure for two decades now, to design a structure that makes the most sense for our business and that allows us to build the type of platforms that we've been able to build. We're an operating company with a mandate that's defined by the impact that we can have rather than the tactics and the type of transactions or development that we might do.
It was a real validation. That was our series A. Then in our series B, I knew it was a real validation that the StepStone group, which is one of the largest allocators to infrastructure globally, looked at the substance of what we had done with that structure and said, "Hey." To infrastructure investors out there, it'd be really exciting for them to have access to this type of disruption. You have a $20 billion infrastructure portfolio, you have traditional toll roads, natural gas, peaker plants, and whatever else you have in there. You really do want to get exposure on the tower company. Then you want to get a data center company. Now you want to get exposure on the other side, so the innovations in those spaces either go along that innovation or just a hedge to your existing portfolio.
I think we're an interesting fit. StepStone was able to help bring our solutions to that community. We're very lucky to have the three of them as partners. They've been really great partners to us.
Chad: Jonathan, we're almost done, but first, we have the hot seat. We ask for your immediate reaction to the following statements.
Jonathan: Let's go.
Chad: The hardest decision I've ever made is?
Jonathan: I'm going to choose to interpret that professionally. I was once asked whether or not I was willing to move around the world to a country I'd never been to in a continent that I had never been to with 72 hours notice. I actually chose to go. That was a non-trivial professional decision.
Chad: That was India?
Jonathan: That was India, yes.
Chad: One thing I've changed my mind on is?
Jonathan: The inevitability of progress. I think I used to naively believe that there's inevitability of progress. In my old age and cynical nature, I no longer believe that.
Chad: The person I've learned the most from is?
Jonathan: My wife.
Chad: That's a safe and good answer. When I need to recharge, I?
Jonathan: I usually take my kids to nature in one form or another, go for a hike, go to the beach or something with my kids.
Chad: The key ingredient to my productivity is?
Jonathan: That I find a lot of joy in my work. I'm excited and joyful about what I do.
Chad: Brooklyn's best hidden treasure is?
Jonathan: Undoubtedly, Public Records. We just had a SIP event there last night. Love that place.
Chad: Nice. The most insightful book or article I've read recently is?
Jonathan: It came out last year, but George Packer wrote this book Last Best Hope about the changing communities in America, which I thought was really fascinating to read.
Chad: Yes, I enjoyed that one as well. To me, climate positive means?
Jonathan: Remembering that we are a steward of this planet for future generations and thinking seriously about the decisions that we make and the implications that they'll have on this planet in the future.
Chad: Thank you very much, Jonathan. It's been a really, really fascinating discussion. I love the work you guys are doing and look forward to chatting again soon.
Jonathan: Thank you very much.
Chad: If you enjoyed this week’s podcast, please leave us a leave a rating and review on Apple and Spotify. This really helps us reach more listeners.
You can also let us know what you thought via Twitter @ClimatePosiPod or email us at climatepositive@hannonarmstrong.com.
I'm Chad Reed.
And this is Climate Positive.