Eavor Technologies CEO John Redfern at the company's headquarters in Calgary in January, 2023.Gavin John/The Globe and Mail
Calgary-based Eavor Technologies is poised to become a global cleantech success story, with an asterisk—about which, more in a moment.
Tapping into Alberta’s deep reservoir of drilling and chemical engineering expertise, the seven-year-old firm has developed an innovative approach to generating geothermal energy using very deep vertical and lateral wellbores to create what are effectively giant below-ground radiators. The closed-loop system transfers the thermal energy locked deep in the Earth’s core to circulating fresh water. When all that hot liquid reaches the surface, the heat can be used to power electrical generators or sold to district energy utilities in lieu of conventional fuels, like coal or municipal waste.
According to Eavor CEO John Redfern, the firm is currently building its first plant in Germany, has three more active projects in the pipeline and is inking power-purchase agreements for dozens of others. To date, Eavor has raised about half a billion dollars in equity and debt, including a $92-million stake from the new Canada Growth Fund, its first investment.
Now the asterisk: While Eavor didn’t have any difficulty accessing early-stage grants from both federal and provincial agencies, and was quite successful in putting together seed funding from Alberta-based angel investors, it had no such luck in securing Canadian capital to begin scaling and commercializing a technology that can be deployed literally anywhere on Earth.
“We got zero dollars from Canadian strategics and Canadian venture capital firms,” says Redfern, a serial entrepreneur with degrees in engineering physics and law. Instead, Eavor has relied on European corporate investors, such as BP, and Singapore-based VCs, as well as non-dilutive funding and debt from various European Union agencies and banks. “We originally thought we’d start in Alberta,” he says evenly. “We thought we were going to be the best friends to everybody. We’re green, but we hire roughnecks. Surely everyone can rally around that.” But it was not to be.
Unfortunately, Eavor’s story is by no means unusual. Canada is very good at gestating cutting-edge technology but lousy when it comes to turning those technologies into businesses.
New research from the University of Calgary’s Haskayne School of Business and the Université du Québec à Montréal’s School of Management reveals the short-sightedness of corporate Canada’s unwillingness to back cleantech in particular. A paper published earlier this year by the Global Risk Institute found that U.S. publicly listed cleantech firms enjoy better access to capital and higher valuations than their Canadian counterparts. But when it comes to conventional energy (like oil and gas and coal), the pattern is reversed—although the authors, Yrjö Koskinen, Nga Nguyen and J. Ari Pandes, caution that valuations of North America’s energy sector indicate that it is “mature with an uncertain future.”
The study looked at a four-year window between January 2018 and December 2022—a volatile period that took in the frothiness of the late 2010s, the pandemic and the energy-sector fallout from Russia’s attack on Ukraine. “The stock returns for Canadian cleantech firms were positive in the second half of 2020 and beat the market (the benchmark being the TSX Composite Index), but they were significantly lower than the returns performance of cleantech firms in the U.S.,” the authors observed. U.S. cleantechs, by contrast, had ready access to the quantity of capital and debt that allows them to scale rapidly and achieve multiples that indicate robust long-term prospects. “This relative contrast in depth and sophistication between the U.S. and Canadian markets in turn poses a challenge for the Canadian cleantech sector,” they concluded—especially given the enormous boost the Inflation Reduction Act (IRA) is providing to cleantech firms in powerhouse states like Texas and California.
Two indices tell the tale: As of Oct. 30, 2024, the S&P/TSX Renewable Energy and Clean Technology Index is down 25% from five years prior, while the S&P Global Clean Energy Index is up 22% in the same time frame—a period when high inflation dampened prospects across the board.
The Haskayne/UQAM study focused on an important multiple: the so-called enterprise value, which is the sum of a firm’s market capitalization and its total debt relative to EBITDA. That ratio represents a measure of the present value of future cash flows, says Nguyen, a professor of finance at UQAM. “It basically reflects all the future prospects of the company.”
PHOTO ILLUSTRATION THE GLOBE AND MAIL/Getty Images
Those high cleantech multiples in the U.S. reveal investor confidence. “Americans know how to make these companies big,” says Koskinen, who holds the BMO Professorship in Sustainable Finance at Haskayne. “They have the deepest venture capital markets, the deepest financial markets, and lots of expertise, whereas in Canada, we have a hard time scaling up our very good startups and our smaller companies.”
The IRA was also a factor, adds Pandes, an associate professor of finance at Haskayne. “That provided a force for the cleantech space, as well as some regulatory certainty, credits and subsidies that put it on a strong trajectory,” he says. “Here, we’ve had a lot more uncertainty. I mean, in Alberta, there was a moratorium on cleantech for a while.”
Cleantech entrepreneurs like Redfern scratch their heads not just at the policy uncertainty but also the risk-aversion of Canadian investors, especially in light of the robustness of the sector elsewhere and their own ability to raise capital beyond our borders. “I’m not 100% sure why it was such a hard sell in Canada,” he says, hastening to add that his firm eventually did find backers, just not Canadian ones.
Peter McArthur, a retired investment banker who heads the Ontario Clean Technology Industry Association, says there have been recent examples of Canadian cleantech firms tapping into growth funding here, including Cyclic Materials, a Kingston, Ont.-based firm that sources recycled rare-earth elements, and e-Zinc, a long-duration battery storage system that relies on zinc, as the name suggests, instead of the rarer and more expensive lithium. “In Canada,” McArthur adds, “the desire to avert risk is significant.” As are the upsides. According to an RBC study, Canada needs to invest $2 trillion to reach net zero, while the global outlay over the next few decades is on the order of US$275 trillion, McKinsey and Co. estimates. “The opportunities are huge,” he says.
So, what should Canadian policy-makers do to get Canada’s investment horses to drink? An excellent question, says Koskinen: “Everybody [in Calgary] has been talking about scaling up since 2016. But nobody has come up with the solution.” Of course, other countries struggle with the question of scaling up domestic firms, notes Pandes. In our case, though, our southern neighbour’s zeal serves to magnify our tentativeness.
“We’re slow-moving. We like to consult a lot, which I guess is good on one hand,” he says. “But in the U.S., they’re just so swift. Look at the Inflation Reduction Act. There were bold moves there in terms of tax incentives and subsidies and more regulatory certainty. When they say, ‘Look, we’re putting our focus on this,’ they mean it.”
From the perspective of founders like Redfern, the experience of coming up empty-handed when approaching Canadian backers forced Eavor to adopt a global mindset. He says they learned the firm had to invest heavily in lobbying because it had to take an international approach to raising capital. They also realized they had to knock on as many doors as possible, even those that might not have seemed receptive to a pitch from an Alberta startup.
Redfern points to the $135 million in debt that Eavor raised from the European Investment Bank and a syndicate of other European financial institutions, including ING. “We had a first-of-a-kind geothermal project, which should be doubly difficult to finance, but we raised substantial money against that first project,” he says, adding this advice to other Canadian cleantech ventures: “The important thing is, you’ve got to keep an open mind as to where you’re going to get the money. You’ve got to think internationally.”
Canadian companies and consumers will have to procure these technologies and services as they decarbonize. The shame is that the resulting profits will flow elsewhere.
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