AI demand fuels investor bet on North Carolina solar

It is well known that Brussels has embarked on a wide-ranging regulatory strategy to combat global warming. The CSRD and CSDDD have dumped reams of regulation into the laps of corporate bosses (and added countless billable hours to the law firms tasked with figuring it all out).

Another key EU measure is its regulation on deforestation, which goes into effect at the end of this year. As I report today, these rules will force new verification needs for Unilever and other global brands that rely on farmers growing crops such as cocoa and coffee.

But first, one scoop to start. Global institutional investors are increasingly looking to renewable energy sources to place bets on the booming electricity needs fuelled by artificial intelligence — and, in this case, in a rather unexpected place.

Thanks for reading.

Renewable energy

$650mn solar project unites pension funds

Pension funds from Sydney and Toronto have converged on a small city in North Carolina’s Blue Ridge Mountains to invest $650mn in a utility solar business.

Asheville-based Pine Gate Renewables today said it had raised that sum from Generate Capital, the Healthcare of Ontario Pension Plan and Australian pension fund Hesta. Pine Gate operates utility-scale solar projects and has more than 30 gigawatts of projects in development.

The investor interest was due in part to artificial intelligence, which is transforming the demand outlook for utility-scale solar, Pine Gate chief executive Ben Catt told me.

“A lot of the customers that we are dealing with are larger technology companies, folks that have growing data centre [electricity] loads” and “pretty aggressive renewables targets”, he said. At the same time, “you are seeing just an explosion of what demand is going to be [from] increased AI. We are going to take on unprecedented load growth,” Catt added.

San Francisco-based Generate raised a significant $1.5bn in January, making it one of the biggest equity capital raises of the first quarter (behind AI company Anthropic and tied with Epic Games, according to CB Insights).

“Pine Gate has done a terrific job serving customers like big data centres, but others as well who are desperate for clean energy that is cheaper and greener than the other sources of power,” Generate’s co-founder Scott Jacobs told me.

“Some of the drivers of demand are not only AI and data centres but also just the electrification of everything,” including a shift towards the use of electricity for heating, Jacobs said.

Deforestation Regulation

Coffee, chocolate and EU deforestation rules

One of the biggest stories in commodities this year has been the record surge in cocoa prices. Crop failures in west Africa have exacerbated a global shortage of the cocoa beans used to make chocolate, driving prices to an all-time high of £9,477 ($11,860) a tonne earlier this month.

The price spike has drawn attention to tens of thousands of small cocoa farms — as well as the work of a small, Amsterdam-based business called Meridia.

Started nine years ago as Landmapp, Meridia has provided land and property documentation to farmers in west Africa. The company won backing from aid group Mercy Corps and the Omidyar Network, among others. Land rights provide protection to farmers in disputes from evictions and to obtain financing.

Now, the company’s work is expanding thanks to new regulations in the EU. The EU’s Deforestation Regulation (EUDR) is scheduled to go into effect in December. For certain products sold in the EU, companies must verify that their supply chains have not contributed to forest destruction by submitting due diligence statements. Although the rule centres on deforestation, it also extends beyond trees to require companies to verify certain environmental and human rights protections. The EU estimates that its new rules will reduce at least 32mn tonnes of carbon emissions a year.

The scale of the EU deforestation rule isstarting to get attention from banks. Companies caught violating the rules could face fines of up to 4 per cent, or more, of their annual turnover in the EU, and could face temporary exclusions from public procurement and public funding.

“The tropics have lost 3.7 million hectares of primary forests in 2023,” Barclays said in a report this month. “The substantial impact of deforestation on both climate and biodiversity, alongside modest progress by corporates to ensure deforestation-free supply chains, continues to focus minds on the merits of regulatory intervention.” The report cited an estimate from Global Forest Watch, a watchdog organisation, that last year’s decline in tropical forest was equivalent to the clearance of almost 10 football pitches a minute.

Last week, Meridia announced a €5.2mn fundraising from Regeneration.VC and other venture capital firms. These investors are pumping funds into Meridia as the deforestation regulations have opened new opportunities for the business.

Chocolate and coffee companies have had data about local farms for years. But these figures were rife with holes, Meridia co-founder Thomas Vaassen told me.

“The elephant in the room that everyone knows in the industry: the majority of it is complete crap,” Vaassen said. “What the data will tell you is not at all what is on the ground.

“Today, the data has not really been a concern because it has been used for internal purposes,” Vaassen said.

“But now, suddenly, EUDR is changing the table stakes,” he said. Companies were saying, “‘Oh damn, we have to now send this data and submit it into the EU system.’ It has never happened before. Now you have to submit your actual, original field data.”

Meridia had built a verification system derived from its initial field work with west African farmers as well as commercial satellite data and public maps, he said. It was also working in more than 30 countries where cocoa, coffee, palm oil, soyabeans and rubber were produced. And it was already working with global companies, such as Unilever.

But venture capital firms are not the only ones funding Meridia. One of its latest investors is Atlanta-based trading house Intercontinental Exchange, which owns the New York Stock Exchange among other venues.

With the EU regulations looming, ICE has a good reason to be pumping cash into Meridia. The trading house warned its shareholders in February that the EU’s deforestation rules might “decelerate the physical trade of cocoa and coffee and reduce trading volumes” for the company’s coffee and cocoa futures contracts.

“Meridia has proven expertise in the risk assessment and verification of farm origin and supply chain data,” ICE benchmark administration president Clive de Ruig said in a statement last year, in announcing a partnership with Meridia. 

ICE isn’t the only company warning shareholders about these deforestation regulations. Bunge, one of the big four global grain trading companies, also said in February that palm oil and soyabeans could be impacted by the rules.

Reports from the Rainforest Action Network and the Palm Oil Transparency Coalition have shown that companies are still significantly unprepared for the EU’s deforestation rules with traceability and due diligence requirements lacking across the board, Barclays said. For businesses, like Meridia, aiming to help them comply with these rules, that means a major opportunity.

Right to reply

Last week we featured an interview with economist Esther Duflo, on her proposal to use taxes on corporations and billionaires to fund climate-related assistance to developing nations. Gillian Marcelle, chief executive of Resilience Capital Ventures in Washington DC, wrote this in response:

Hopefully, the voice of an eminent global North economist acknowledging complicity is important for stirring action. This can be a backdrop to important work for funding the UNFCCC and the loss and damage fund.

However, unless the new institutional scaffolding funded by this money is used to allocate financial capital in a different way, nothing will change. The money raised from this new source ought to tackle “blindspots” and build capabilities in Global Majority countries. That is an agenda for making long lasting change.

The values and norms at work in international development require transformation and there is no need for randomized control testing to do the direction setting.

Smart read

I recommend this story from our colleagues about Calstrs, one of the world’s largest pension plans. The California public pension plan has had to delay publication of its 2023 climate report after discovering inaccuracies in the way it was calculating the carbon footprint of its $331bn portfolio. It has now said it will not release its 2023 carbon emission data until 2025.