The investor sees some faults with the IRA — the subsidies for hydrogen production, he says, are “way too large”— but is otherwise pleased with its structure, and is advocating aggressively for officials in Europe to create programs that “match and exceed” the US offering.
This interview has been condensed and edited.
Bloomberg Green: How has the bill changed your outlook as an investor?
Yadigaroglu: It’s a monumental change. And like all monumental changes, it takes a while to sink in. So frankly, ever since it’s been passed, we keep having to do these sessions, with ourselves and with our entrepreneurs, to sort of say, ‘Hey guys, this isn’t theory. This is real.’ I don’t think it’s quite sunk in how much the world has changed.
For me the the biggest part of the news really is Section 45X. [A portion of the bill that provides production credits for manufacturing solar photovoltaic cells, wind energy components and battery cells.] Very simply stated, if you build a factory and run it in America, and it makes a battery, as the battery pack leaves the factory, you get $45 a kilowatt hour. [The subsidy covers $35 per kilowatt hour for battery cell production but adds another $10 for battery packs.] That’s more than a third of the cost of making [the battery] pack. And the way things are going, it could be the entire cost of making a battery pack within the 10-year span of the IRA.
In the European Union there’s a lot of worry about the impact of the IRA and calls for countering it with similar subsidies. Were you expecting that?
I’m hoping for that. Clearly, this is creating a huge battle for jobs and supremacy in these industries, primarily between China and the US. I don’t think it’s an anti-European bill per se, but Europe is a bit lost in the mix. The issue in Europe is that there is no obvious way to match it. So I’ve now shifted in the last months, as an advocate, to trying to get politicians and other countries to see this largely as a positive.
Do you think that EU officials are acting negatively?
Well, there’s certainly no coherent answer to date. So far, they’re mostly whining and complaining… Europe can’t stop this by saying, ‘Well, we’re going to impose a tariff on American product.’ American companies are going to care but not that much, because the global market is much, much larger than Europe. So sure, you can protect the European market. But all you’ll end up doing is making these components more expensive in Europe.
There are some prominent battery and energy storage companies in Europe. Are they at risk now?
The EU needs to match — match and exceed. And the issue is that the EU has a whole way of thinking about strategic health to different industries, and right now it’s not written in a way that is comparable or compatible with what the IRA does… They have to actually create new laws that don’t exist. And the sad part is — the ambition in Europe was already, I would say, mixed.
Without really strong leadership in Europe, you will simply see it fail.
Does the IRA change your investment calculus?
We’ve made, I think, 52 investments in 20 years. So we’re very concentrated. We’re not going to back 10 new companies this year.
But we are evolving a bit. Not just because of the IRA, but frankly where we are in how climate is evolving as a problem. If I’m looking at a new technology that could play an important role, but it will take 20 years to scale it up, I’m a little less interested today than I was 10 or 20 years ago. Because the timeframes to get our act together on climate are starting to be incompatible with doing things that will take decades.
Some of the things we’re doing now are a little less heavy on, ‘Let’s spend three or five years in a lab with engineers to see if this is possible.’ But a little more: ‘Here’s a twist that can [have] a real impact in five years on a major industry like solar.’
Are there categories that you’re no longer paying attention to now?
Well, I mean, certainly, you mentioned for Europe. I don’t know how we’d look at a European plant in those targeted areas right now. We had some things going on where we might have sited something in Europe. Until there’s a European answer, there’s no point in that.
Some climate companies that require manufacturing went public through SPACs and suffered. Did these companies get ahead of themselves? Does that concern you about the IRA?
When you do something this bold, when people are moving this fast, there will be a lot of craziness. There always is. Some stuff will fail. We’re going to run into a lot of bottlenecks. We don’t even have the capacity to build all these factories. Certain suppliers of these things are not going to be able to follow through.
I think we’ll run into limits on what tax capacity is available to absorb all these credits. Some of this stuff will look foolish or badly thought out, of course.
You’ve spoken to EU officials about this. What’s the reception been like so far?
Some people get it, but very few. And even those who get it say, ‘Well, we don’t see the way to get there with the way the EU is built.’ So: so far, not good.