Jeffrey Eckel stood on his back porch in Annapolis on Wednesday morning, pointing out the view of Back Creek and the Chesapeake Bay.
He now has a front-row seat to sea level rise, a threat to Annapolis and low-lying cities around the world driven by climate change. There was yet another coastal flood warning in effect that day, this one a foot above normal until 4 p.m.
Buying a waterfront house in Eastport might seem like an odd choice for an investor who has helped fund the generational shift from a carbon-based energy economy to one less likely to wreck the planet over the next century. Federal agencies that work on bay issues have all moved to higher ground, in part because of the risk of flooding.
As the chairman and CEO of Hannon Armstrong Sustainable Infrastructure Capital, Eckel knows a lot about the risks posed by climate change. He’s got a financier’s view on how much it costs to make the change to greener energy sources, and how long before the rising tide takes his home.
“There’s always going to be flood risk,” he said a few days earlier in his Annapolis office. “And the area of Eastport where we are is noticeably higher than, say, where the maritime museum is, which clearly has issues now. That flood risk is real but it’s a long time from now … 30 years.”
But time waits for no one. The Annapolis-based investment firm announced Thursday that its longtime CEO would step down on March 1, turning over day-to-day operations to Executive Vice President Jeffrey Lipson. Eckel will become executive chairman of the board.
The company, with a net worth of $34.1 billion and $9 billion in assets, said it made $41.5 million last year on $111.4 million in revenue. That was despite a fourth-quarter loss of almost $20 million, or 22 cents per share.
Despite the bad quarterly results, Eckel said there continues to be money to be made in the shift of energy sources.
“The world has benefited from 150 years of fossil fuel consumption,” Eckel said. “Obviously, without the costs of climate change, that fossil fuel uses relatively low capital-cost technology like coal plants, but really high variable costs like coal. What we are doing is providing the capital to switch that equation.”
To understand how Hannon Armstrong makes its profit, you have to sort out how the energy market works.
Relying on coal or natural gas for energy is inexpensive. The cost of a power plant itself is low, a mature technology paid for years ago. The variable is the price of the fuel itself, which goes up or down based on global politics, economics and conflict.
Moving to solar or wind for electrical power is the reverse. Building fields of solar panels or wind turbines that generate gigawatts of electricity — plus the ability to store power — is expensive, while the fuel itself is cheap. Hannon Armstrong provides billions of dollars through partnerships, loans and securities to make that change.
Hannon Armstrong lends money to build renewable energy sources — solar and wind-generating facilities, as well as storage for the electricity they generate. It also funds institutional-level changeover to energy-efficient heating and cooling systems. It earns a profit on interest from those loans and investments.
George Kelly, CEO of Earth Recovery Partners, has been involved for 25 years in ecosystem markets as well as environmental finance and law. He said Hannon Armstrong is really the first U.S. company to fill the role of a lender working in the field of renewable energy.
“A lot of traditional banks won’t loan on this because there is a delay in the revenue,” he said.
If the goal is to reduce carbon entering the atmosphere and reduce the speed of climate change, the company wants to direct the limited capital available to where it can remove the most carbon and generate the most revenue.
“The fact is, not every climate solution is equally impactful,” Eckel said. “I use the example of solar and California. Solar is both expensive and there’s very little carbon in California’s power system. So it’s not the most impactful investment we make but we’re definitely gravitating toward investments that have a bigger impact on the reduction of coal and reduction [in] natural gas … but also transportation investments that reduce just emissions from internal combustion engines.”
Hydrocarbons — molecules of hydrogen and carbon ― were the second most widely used fuel in the world during the 20th century, running far behind coal. After World War II, the discovery of major oil fields and the development of hydrocarbon technology started a consumption boom that took generations to complete. It wasn’t until 2016 that natural gas replaced coal as the world’s top fuel for electricity production.
This century, though, has seen growing alarm at the havoc caused by increasing temperatures — a spike driven by carbon pollution in the atmosphere, both from coal and hydrocarbons. That has been driving a build-out of infrastructure for the generation, transmission and storage of renewable energy — as well as investments in energy efficiency.
Hannon Armstrong clients include ENGIE North America, which just completed a 2.3-gigawatt portfolio of 13 wind and utility-scale solar projects, and AES Corp., which just financed 1.3-gigawatts of solar and wind projects across Arizona, California, New York, South Dakota, Utah and Virginia — plus land for a battery factory in California.
In Maryland, the company is a partner in “The Bomber” in Carroll County, the nation’s largest community solar rooftop project. It also helped finance a stream restoration on Bacon Ridge Branch near Annapolis that took advantage of Maryland’s regulations on carbon credits for environmental work.
Last year, the company released a self-assessment of its impact so far, saying its investments prevent a cumulative 6 million metric tons of carbon dioxide from entering the atmosphere every year, equal to making 700,000 U.S. homes carbon-neutral.
The term for most Hannon Armstrong investments is 30 years. But how long will it take investments like these to reverse an energy economy built over the last 150 years?
“It’s happening so much faster than I ever imagined,” Eckel said.
What changed is President Joe Biden’s Inflation Reduction Act. The law’s name is misleading, as its main impact is that it pumps $400 million into clean energy. The country already has efficient capital markets, and there is plenty of innovation. The act represents the policy shift that Eckel said has been missing.
“Now the market will sort it out and there’ll be problems with inevitably unintended consequences. But it is what the U.S. needs to do, from a policy standpoint, to rapidly decarbonize,” he said.
Eckel paid millions for the Eastport home in January, and although he didn’t talk about the change in leadership during a recent interview, he surely knew it was coming.
He had been eyeing the house for some time. He’s bought the house next door for his father a few years ago, only to see his dad move into assisted living after a few months.
He immediately set about making his new house as close to net zero carbon emissions as possible, ripping out the gas furnaces and replacing them with a superefficient wood-burning stove. He replaced the gas hot-water heater with an electric model. Solar panels went on the roof.
“The last thing is this old, apparently really lovely French gas stove,” Eckel said. “But I’m ripping it out.”
That beautiful gas stove represents part of a system Hannon Armstrong is working to replace.
“I don’t know if you noticed around Eastport, but BGE has been ripping up all of these streets to replace the gas line,” he said. “It is such a colossal boondoggle. The lines definitely needed to be replaced or shut down. But the amount of money it’s taking to put in lines that will last 50 years and make gas distribution permanent for another 50 or 100 years is ridiculous.”