As students of financial markets, we’re keenly interested in moments of inflection which alter market structure, spawn dominant new institutions, and catalyze the growth of new asset classes. Historically, these shifts have been driven by both technology and policy change – think microprocessors and the deregulation of fixed income trading commissions in the 1970s. Innovations in capital markets and the development of new exchanges lead directly to increased price transparency, liquidity, and a broader ecosystem of market participants. Furthermore, early movers benefit from compounding competitive advantages as new supply begets demand and so forth, resulting in higher valuation multiples than almost any other category in fintech.
We believe we are at another moment of inflection at the intersection of renewable energy and financial markets. Increased investment in areas like advanced manufacturing, novel battery storage technologies, and new energy production are furthering American energy independence and laying the foundation for a more resilient and sustainable future. The recent passing of the Inflation Reduction Act (IRA) promises to significantly accelerate this trend, specifically, through the expansion and extension of tax credits related to clean energy and decarbonization. While these credits have existed in various forms for decades, the IRA made them transferable for the first time. Over $280 billion of new clean energy projects have been announced in the last year, including battery plants in Georgia, geothermal projects in Utah, and solar installations in Arizona. These and other large scale investments have brought tens of thousands of jobs across the United States, and we are just at the beginning – Goldman Sachs estimates that $3 trillion will be invested in clean energy and decarbonization over the next 10 years.
Enter Crux, the leading ecosystem for transferable clean energy tax credits. Through powerful software at the center of the largest network of market participants, Crux has quickly become the de facto platform for buying and selling transferable tax credits. Crux launched about 9 months ago and is already working with more than 100 partners and has over $8 billion of credits currently available for sale. They are already making transactions more efficient, facilitating price discovery, enhancing transparency, and providing instantaneous access to billions of dollars of active buy-side interest.
Historically, developers have sourced around 30% of their capital through tax credits. Large financial institutions have been the most significant providers of this form of project finance — known as traditional tax equity partnerships. Institutional investment would accelerate working capital for developers while generating attractive yields and offsetting corporate tax liabilities for the investor. While these partnerships have been lucrative for both sides, they’ve been highly bespoke offline transactions and thus were limited to the largest and most sophisticated developers and institutions. Plus, traditional tax equity required investors to be equity partners in the projects, requiring a higher level of diligence and involvement than perhaps either side desired. The transferability of these tax credits, however, significantly lowers the barriers to entry for smaller developers and corporate buyers alike. Furthermore, it also enables the participation of new intermediaries like regional banks, as well as tax advisors and syndicators to play an important role in facilitating transactions for their clients. We believe there is a significant commercial opportunity to aggregate these market participants through software and a network, and to drive the growth of this emergent asset class. Importantly, transferable tax credits offer corporations with taxable income a chance to both cut their tax liability and seize a financial opportunity while supporting sustainability and energy independence. It’s a savvy fiduciary move with a benevolent impact.
We’ve had the pleasure of getting to know Crux co-founders Alfred Johnson and Allen Kramer for several years and have been impressed by their quick execution – leveraging their prior entrepreneurial experience building marketplace businesses and their deep knowledge of policy from prior work in the White House and Treasury Department. They’ve assembled a world class team of technologists, energy professionals, and capital markets experts – including Rob Parker, Chief Commercial Officer, who brings more than 20 years of energy finance experience to the company.
Today, we’re excited to announce that Andreessen Horowitz will be leading Crux’s Series A round of financing and that I will be joining their board of directors. We’re thrilled to be partnering with Alfred and Allen and to be investing alongside existing investors Lowercarbon Capital, Ardent Venture Partners, New System Ventures, Overture, Canapi Ventures, Orsted, LS Power, Hartree, CIV, as well as individuals like KKR founder Henry R. Kravis to support Crux’s next phase of growth.
