Why Are FOAK Climate Projects Hard to Finance? Risk, Ambiguity and the Missing Reference Class

First-of-a-kind climate projects are hard to finance because they need project-sized capital before there is project-level evidence. They combine large budgets, many counterparties and site-specific risks at the moment when the most relevant commercial-scale precedent does not yet exist. Some of their uncertainties can be priced as risk, and some cannot be priced with confidence at all.

The capital need turns project-sized before the evidence does

At pilot stage a company is usually financed through venture equity, grants and strategic support. A commercial plant can need tens or hundreds of millions, tied to one asset in one place. MaRS, launching its first-of-a-kind lab in 2026, estimated that dozens of Canadian climate tech companies could be preparing projects in roughly the $50 million to $200 million range by 2028. J.P. Morgan's 2026 climate tech report calls this stretch a missing middle, where a first facility may need growth equity, catalytic capital, equipment finance and project finance together.

The gap has attracted dedicated study. The US Department of Energy published a portfolio review of FOAK financing and development approaches, and Prime Coalition publishes research charting the FOAK gap. Both treat the first commercial plant as its own financing problem, separate from venture rounds and from mature project finance.

Risk can be priced when there is a comparison

A financier does not need certainty to invest. Finance prices uncertainty every day. Construction projects carry delay risk, commodity businesses carry price risk, equipment has failure rates and credit has default probabilities. These decisions get easier when there is a class of comparable cases to consult.

That class is the reference class. A lender looking at a new onshore wind farm can study many built wind farms and estimate a range for cost, schedule and output. The range may be wide, and the lender can still set terms against it. Insurers, rating analysts and engineering advisers all work from the same kind of record, which is why mature technologies move through credit committees on familiar paperwork.

Ambiguity appears when the comparison is thin

A FOAK project can take that comfort away. The core technology may have worked at pilot scale while the commercial configuration has never been built. A unit operation may be familiar while its integration is new. A product may meet specification while no market has bought it at this volume.

In those cases the outcome is uncertain and the range itself is hard to estimate. Economists call this ambiguity, as distinct from risk, and people tend to avoid it more strongly than they avoid a known risk of the same size. For an individual financier, waiting for someone else to build the first plant is often a rational choice. When every financier makes the same choice, nobody builds it.

Stegra and Carbios, two first plants in public

Green steel shows the scale of the problem. H2 Green Steel, since renamed Stegra, raised more than €4 billion in debt financing for what it called the world's first large-scale green steel plant, at Boden in Sweden. The company later announced the closing of a further €1.4 billion financing round. Closing debt for a first plant is one milestone among several, and equity may be needed again before the plant produces.

Carbios shows the same pattern at a different scale. The company adjusted the timeline of its Longlaville PET biorecycling plant in late 2024 while financing was completed. In its August 2026 financing update it reported credit committee approvals from several banks and said its earlier financial close target would not be met. Commercial progress and project finance move independently. Each round is a new decision by a new set of capital providers, so a financing story written for the first close will need rewriting for the next one.

Break the novelty apart

The weakest response to ambiguity is to present the whole project as one large innovation. A reader then has to price everything as unknown. The stronger response is to separate the parts and show which ones are conventional, which have been demonstrated, which are being scaled, which rely on contractual protection and which remain genuinely new.

A first plant may use conventional civil engineering, commercially available equipment and an experienced engineering contractor around one novel process step. That is a very different risk picture from a project where every major subsystem is new. Adjacent evidence also counts, labelled as transfer evidence. Construction data from similar industrial plants can inform schedule assumptions, customer qualification in a related product can inform adoption, and equipment performance at another scale can inform parts of the technical case. How to present FOAK risk sets out a method for this decomposition.

The obstacle may sit outside the technology

A technically sound project can still be hard to finance for reasons unrelated to the core process. The offtake may be weak or conditional, or the buyer may lack credit quality. Feedstock supply may be uncertain. The site or permit may be unresolved. The construction contract may leave too much exposure with the project, the unit economics may be uncompetitive, public support may be uncertain, or the company may lack project development experience. Sometimes the capital provider's mandate simply does not fit the exposure on offer.

"Investors don't understand us" is therefore a poor default diagnosis. Investors may understand the project well and still say no for a sound reason. The discipline is to find the first real break and treat it as what it is. If the economics are poor, the repair is economics, and no presentation will change that. The role of the buyer contract is covered in what an offtake agreement means for FOAK.

Different capital holds different exposures

FOAK projects usually need a stack of capital. Company equity supports development and corporate risk. Grants or public funding may support demonstration or policy aims. Strategic capital brings customer or industry alignment. Project equity takes asset-level risk, and debt becomes available for the parts of the project a lender can underwrite.

The structure itself is specialist financial work. The communication point is simpler. Each capital provider is deciding on a different exposure, so one generic fundraising deck will answer none of them well. When ambiguity cannot be removed with more data, the decision can sometimes be redesigned. A staged contract, a smaller first commitment, a guarantee, milestone-based funding, insurance or co-investment can make the first move legible and survivable for the party taking it. The difference between backing a company and backing an asset is covered in fundable vs financeable.

How to find the first real break in your own project

List every reason a financier could reasonably decline, from technology to mandate fit. For each one, write down the evidence you hold, its status and who would need to be persuaded. The first item with no evidence behind it is where the next quarter's work belongs.

Then plan the first plant as a source of evidence for the second. Record delivered cost, schedule, availability, maintenance, product quality, customer acceptance and incidents from the first day. The financing problem continues after the first close, and a well-run first project turns the absence of precedent into the start of one. Brighter Future helps FOAK teams build investor and project pitches that separate evidence from ambition.

Sources and further reading

• FOAK financing and development approaches, US Department of Energy, 2024
• MaRS launches Canada's first-of-a-kind lab to scale cleantech champions, MaRS Discovery District, 2026
• Carbios provides an update on the financing of its Longlaville plant project, Carbios, 2026
• Charting the FOAK gap, Prime Coalition