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13 December 2019

Why We Invested In This Unique Geothermal Technology

by Daniel O’Brien, MD, Harwell Capital

As the Managing Director of Harwell Capital, I am always interested in businesses with truly innovative, proprietary, scientific and engineering technology. We have built our portfolio by investing in organisations that solve real-world problems in clearly identifiable markets. Personally, I have also always had a specific passion for impact investments, and have tracked renewable energy solutions. This is why, in 2015, when I was introduced to Strada, I was intrigued – although their system had only been described to me as ‘some interesting renewable energy technology’. At first, we were reluctant to pursue, because historically, we have not been mineral/resource investors given our exclusive technology focus, but the patent estate got us interested.

As things progressed and we learned more, it became clear that Strada could potentially hold the key to accessing geothermal energy in a way that is fast, affordable and with a low impact on the environment. We bought into the market need for a base-load renewable energy, which could provide 24/7 availability, with a small, non-invasive physical footprint and be structured for favourable economics. We also bought into the technology’s unique capability to deliver this, as evidenced by third-party validation, Lloyds register and certificates, IP portfolio, and first contracts. However, the journey was not always a straightforward one!

At first, we had an investor-friendly experience, working with a great, practical-minded CEO. The Chairman/Founder was not involved in the day-to-day running of the company, leaving that to the CEO while he refined tech and delivered projects on site in Malaysia and Finland. This worked until he removed the CEO and took the position himself. The business then suffered, while he struggled to prioritise, becoming distracted when (following three world-record-breaking achievements) the company was valued externally at $1bn. For a time, the business had more opportunity than it could handle, frequently being approached with potential projects, each worth $10m’s, in various sectors. But the organisation was stretched too thin, lacked rigorous internal infrastructure and there was a period of chaos.

We learned many lessons through the experience, but I continued to believe in the technology enough to push past the issues. We knew that a change in the leadership and strategic approach was necessary. Following a fairly dramatic restructure, and the appointment of a new CEO, the business is now one that is investable, not only for ourselves but also for other institutional investors. We have consolidated all shareholders into one entity, which holds all the IP, has a new board, new Articles, new governance measures and controls, and is a solvent going-concern entity. We fully back the new CEO, who has proven himself repeatedly in terms of integrity and his ability to execute plans under extreme pressure. This is now a funded, well-structured and run business, and critically, throughout the problematic prior years, the IP portfolio was maintained throughout. There is now a simple cap table, standard shareholders agreement, and lack of complexity with various entities and bespoke contracts as experienced before.

Meanwhile, the market is now beginning to wake up and realise that there could be a way to access what has, to date, been considered non-economically viable geothermal resource. If this resource can be reached cheaply and efficiently, there is the potential to access a massive, clean, 24/7 energy source. Strada is now in the process of finishing additional testing in Australia which, after a two-year hiatus, would demonstrate to the community what this technology is uniquely capable of. It’s been a long and hard-fought process to get here, and where all venture investors expect a proportion of failures in the portfolio, this technology always looked worth fighting for.

From a social and impact point of view, Strada’s patented Fluid Hammer Operating System (FHOS) could very meaningfully contribute to our ability to transition away from carbon-heavy fossil fuels, as well as provide reliable and cheap energy, heating and clean water globally. Our task now is to highlight capability in testing, put this into commercial wells, and then control a manageable roll-out. We want to ensure that the IP is capitalised on, but without falling into the same traps as the historic management, by taking on every project available.

I have every confidence that this will be a success and deliver world-changing solutions, but we will know a lot more once the testing in Australia (this month) and the first commercial wells (coming months) complete. We continue to debate at the board whether we should then licence out the IP and methodologies so that many drilling companies can utilise it, or,  whether we should raise the $50-100m needed to commence building a bespoke rig fleet ourselves, and to capture the full margin available.  Either way, at this stage and considering all factors, the company has a very real opportunity to become a significant force in the renewable energy market globally.