Fred Lalonde, the co-founder of climate technology startup Deep Sky and CEO and co-founder of Hopper Inc.Deep Sky
Hopper Inc. founder Fred Lalonde’s climate-technology startup Deep Sky Corp. has raised $57.5-million to capture carbon and store it underground. But climate experts say the venture faces long odds to prove out its viability – a take Deep Sky’s principals don’t dispute.
Co-leading the funding are Canadian venture funds Brightspark Ventures – the first financier of online travel agency Hopper, one of the country’s most valuable private technology companies – and Whitecap Venture Partners. Provincial agency Investissement Québec (IQ) is kicking in $25-million. Other investors include BDC Capital and Ontario Municipal Employees Retirement System. OMERS’s former venture capital head, Damien Steel, runs Deep Sky. Brightspark and IQ led a separate $17.7-million financing of Deep Sky this year.
Deep Sky has also added two colleagues of Mr. Steel to the board: Annesley Wallace, former global head of infrastructure at OMERS, and veteran investor and entrepreneur Sam Duboc, Mr. Steel’s former boss at EdgeStone Capital Partners.
“I can’t stand on the sideline any longer,” said Mr. Duboc, who hasn’t previously backed or overseen a climate-technology company. Climate change “is an existential crisis. I have four kids and hope to have a lot of grandkids. This problem needs to be solved. This is a massive challenge for sure, but just because it is, that doesn’t mean we don’t do it.”
Deep Sky’s plan is to capture carbon from the sky and ocean at a series of campuses across Canada using reactors developed by other companies, and remove 200,000 to 300,000 tonnes a year per site. It would store the carbon underground, power operations with renewable energy and derive revenues by selling carbon credits on nascent exchanges on which demand far outpaces supply. The company was borne out of Mr. Lalonde’s desire to do more than plant trees to offset carbon emissions from all the flights Hopper sells.
Deep Sky’s principals admit it must overcome several challenges. Each of its full-scale campuses is expected to cost $500-million to $800-million to build – money Mr. Steel and Mr. Lalonde expect to come from government, including green-investment tax credits.
That worries climate policy experts who think public spending should be focused on pressing goals, namely reducing carbon emissions to meet net-zero targets by 2050. “We need people thinking outside the box, that part is great,” said Dan Wicklum, former co-chair of Canada’s Net Zero Advisory Body. “This is a fantastic thing for the private sector to invest in. But governments have to be extremely judicious in what they support. If I was the government, I’d want much more certainty that any type of public investment in that type of venture will yield results.”
Deep Sky will initially build a small-scale demonstration facility with 12 types of reactors from different suppliers to capture carbon from air and another with five technologies to decarbonize oceans. Facilities “will look more like an Apple store than a hut” to showcase the effort to visiting dignitaries, Mr. Steel said.
But the reactors Deep Sky plans to use are typically built by hand and haven’t yet been developed to the scale Deep Sky envisions, which, Mr. Steel said, might require the startup to build its own factory as “not many people have thought through how to mass manufacture these.”
As if setting out to tap massive government funding, build out early-stage technology at scale and starting up factories wasn’t challenge enough, Deep Sky is also looking to harness renewable hydro and wind power at a time of growing demands to electrify automobiles and other parts of the economy, said Bruce Lourie, president of the Ivey Foundation, a climate policy think tank. “Throwing something like direct air capture into that seems very difficult,” he said.
Mr. Steel acknowledged “we don’t have the energy today to support what needs to be done.” The long-term solution, he believes, will be to build small modular nuclear reactors to power the facilities. That adds yet more risk as SMRs are early in their development. The SMR industry was dealt a setback last week when the first such project in the United States was cancelled after costs ballooned.
Deep Sky and its backers are nonplussed. “We need big crazy bets with amazing, driven entrepreneurs that can change an industry and create billions of dollars of value,” said Brightspark partner Sophie Forest. “Is it risky? Extremely. If it wasn’t, everybody would do it.”
Mr. Lalonde said he is encouraged by a surge of startups pursuing new ways to capture and store carbon, which Deep Sky hopes to incorporate into its operations. “People are trying to figure out how to capture carbon underground at a pace that wasn’t there even six months ago,” he said. “That makes me feel really good.”
He also believes there will be a huge shift of global priorities and governments will redirect trillions of dollars now spent subsidizing the oil and gas sector to addressing climate change. “The money will be there the same way it is for the defence industry, shipping or fossil fuels,” he said. “What underpinned the development of our energy sector was economic growth. Very likely what will underpin the development of this sector is survival.”