Insuring the cash flow of residential solar power

Originally posted on pv Magazine USA.

kWh Analytics has structured its Solar Revenue Put for a portfolio of 4,000 residential systems totaling 35 MW-DC, insuring the long term production of the portfolio to ease investor’s worries.

The insurance companies trust solar power enough to consistently offer real protection to big investors. This protection is a reflection of solar power’s probability of generating the volume of power that it is projected to produce.

kWh Analytics has applied its Solar Put to a portfolio of 35 MW-DC worth of residential projects, averaging about 8.7 kW across the 4,000 units. For kWh Analytics, it is the first U.S residential portfolio financed with the support of the Solar Revenue Put. The group said that it has now structured its Solar Revenue Put credit enhancement on over $250 million of solar assets.

The IGS Solar portfolio is being funded by a commitment from Ares EIF, the power and infrastructure strategy at global asset manager Ares Management, L.P., as well as a term loan commitment from ING Capital LLC, a financial services company.

One way of describing this probability are the p50 and p90 values (which DNV GL gives a great explanation of). Recent portfolio offerings of securitized solar leases have begun to reference these ratings, and they are suggesting that solar power will far outperform their p50 and p90 ratings. For instance, a SunPower portfolio’s long term generation projections notes that its ‘A’ rating is based on a projected degradation of 1.02%/annum, while p50/p90 ratings project that SunPower’s degradation value will be 0.25%.

kWh Analytics defines the Solar Revenue Put as a credit enhancement that guarantees up to 95% of a solar project’s expected energy output. The policy has been risk capacity rated as an investment grade portfolio by Standard and Poor’s. Specifically noted, the insurance covers “shortfalls in irradiance, panel failure, inverter failure, snow, and other system design flaws.”

kWh Analytics estimates that you will save up to 5¢ per watt on finance fees because of their guarantee to buy, yielding you a net profit relative to the cost of the insurance.

This continued normalization of investing in solar power will offer more companies the opportunity to bundle packages for global investors who have far more money to invest than there is solar that can reasonably, financially be built right now.

Swiss Re provides capacity on structured solar deal

Originally posted on Intelligent Insurer.

Swiss Re Corporate Solutions has provided the risk capacity for a so-called Solar Revenue Put, a credit enhancement that guarantees up to 95 percent of a solar project’s expected energy output, which has also been described as a new type of insurtech potentially worth billions.

The Solar Revenue Put was structured by kWh Analytics, a specialist in solar risk management. It covers a portfolio of 4,000 projects totalling approximately 35 MW DC of capacity located in the Northeast US. The facilities are being developed and managed by IGS Solar, a residential and commercial solar provider.

The IGS Solar portfolio is being funded by a commitment from Ares EIF, the power and infrastructure strategy at Ares Management, a global asset manager, and a term loan commitment from ING Capital.

Swiss Re Corporate Solutions provided the capacity for the Solar Revenue Put, which is structured as an insurance policy on solar production and revenues and which serves as a credit enhancement for financial investors.

Brian Beebe, head of origination North America Weather and Energy, Swiss Re Corporate Solutions, said: “Swiss Re is committed to managing carbon-related sustainability risks and supporting the transition to a low-carbon economy. We are actively building our business to support the renewable energy that will power our global future. The Solar Revenue Put represents a new, multi-billion dollar insurtech category.”

 

 

Swiss Re backs 35MW Solar Revenue Put by kWh Analytics

Originally posted on Reinsurance News.

Swiss Re Corporate Solutions, the commercial insurance arm of global reinsurer Swiss Re, is to provide risk capacity for a 35MW Solar Revenue Put structured by solar risk management provider kWh Analytics.

Solar energyThe deal relates to a portfolio of 4,000 projects located in the Northeast U.S. that are being developed and managed by IGS Solar, a residential and commercial solar provider.

It is the first U.S residential portfolio financed with the support of the Solar Revenue Put and kWh Analytics said that it has now structured its Solar Revenue Put credit enhancement on over $250 million of solar assets.

The IGS Solar portfolio is being funded by a commitment from Ares EIF, the power and infrastructure strategy at global asset manager Ares Management, L.P., as well as a term loan commitment from ING Capital LLC, a financial services company.

The Solar Revenue Put was developed by kWh Analytics to act as insurance policy on solar production and revenues, serving as a credit enhancement for financial investors and accelerating the growth of the solar industry.

Brian Beebe, Head of Origination North America Weather and Energy at Swiss Re Corporate Solutions, commented on the deal: “Swiss Re is committed to managing carbon-related sustainability risks and supporting the transition to a low-carbon economy. We are actively building our business to support the renewable energy that will power our global future. The Solar Revenue Put represents a new, multi-billion dollar insurtech category.”

In September, Swiss Re Corporate Solutions also provided risk capacity for a separate Solar Revenue Put structured by kWh Analytics, which related to 50MW of solar farms in Oregon, owned by GCL New Energy.

“In the solar business, risk is cost,” explained Richard Matsui, Founder and Chief Executive Officer (CEO) of kWh Analytics. “With the Solar Revenue Put, industry-leading sponsors and banks are able to reduce the risk—and therefore the cost—of solar. Less risk, less cost, more solar.”

The Solar Revenue Put has been utilised for portfolios ranging from thousands of residential rooftops to more than ten utility-scale plants, and a recent survey revealed that more than 40% of active lenders value the Put as a credit enhancement.

“We started IGS Solar because we believe in the value of developing alternative sources of energy,” said Mike Gatt, Chief Operating Officer of Distributed Generation at IGS. “To support us in this growth, we were pleased to have found efficient and reliable execution with our partners, ING, Ares, and kWh Analytics. The Solar Revenue Put enables us to both enhance our returns and reduce our downside risk.”

“Starting with our initial investments in 2013, we have continued our leading role as a lender to the residential solar space,” added Scott Hancock, Director at ING. “We are pleased to have incorporated the Solar Revenue Put to support this financing for IGS and Ares.”

Marathon Capital acted as exclusive financial adviser to IGS for the Solar Revenue Put transaction.

First U.S. Residential Solar Projects Turn to Output Insurance

Originally posted on Bloomberg.

  • IGS Solar portfolio to use KWh’s ‘solar-revenue put’ tool
  • To be used in financing for 4,000 projects in U.S. Northeast

A tool designed as an insurance policy for solar-power generation will be used to manage the risk associated with U.S. residential systems for the first time as part of a financing agreement backing 4,000 projects in the Northeast.

Investment in the 35 megawatts of capacity being developed by IGS Energy’s solar unit will be partly protected by KWh Analytics’ “solar-revenue put,” according to the statement Thursday by the San Francisco-based risk-management software company. Solar farms have previously obtained the put, which can guarantee as much as 95 percent of expected output. It can be used to help solar investors reduce their cost of capital, leading to better financing terms.

IGS is both developing and managing the portfolio, which is being backed by funds managed by Ares Management LP. Swiss Re AG is backing the insurance product. Terms weren’t disclosed.

This “demonstrates that this product works for utility-scale as well as residential,” Richard Matsui, KWh’s chief executive officer, said in an interview. KWh has structured the put on more than $250 million of solar assets, according to a separate statement Thursday.

Ares EIF-backed resi solar portfolio closes financing

Originally posted on SparkSpread.

An Ares EIF-backed residential solar portfolio has closed financing with a term loan from ING Capital and a solar revenue put with Swiss Re.

kWh Analytics structured the solar revenue put, which backs a 35 MW (dc) residential solar portfolio that comprises 4,000 projects in the U.S. northeast.

Marathon Capital was the exclusive financial advisor to IGS Solar, the developer behind the portfolio.

This is the first U.S. residential portfolio financed with the support of a solar revenue put, according to an announcement from kWh. Solar portfolios supported by a revenue put are able to line up debt packages that are 10% larger on average, the press release said.

“Starting with our initial investments in 2013, we have continued our leading role as a lender to the residential solar space,” Scott Hancock, director at ING, said in a statement. “We are pleased to have incorporated the Solar Revenue Put to support this financing for IGS and Ares.”

Brian Beebe, Head of Origination North America Weather and Energy, Swiss Re Corporate Solutions, said in a statement: “Swiss Re is committed to managing carbon-related sustainability risks and supporting the transition to a low-carbon economy.”

“The Solar Revenue Put represents a new, multi-billion dollar insurtech category,” he added.

kWh Analytics Structures Solar Revenue Puts on $250 Million of Solar Assets

Originally posted on Business Wire.

SAN FRANCISCO – kWh Analytics, the market leader in solar risk management, announced today that it has structured its Solar Revenue Put credit enhancement on over $250 million of solar assets. Rapid adoption of the Solar Revenue Put is improving the economics of solar power and accelerating the growth of the solar industry.

“The history of the solar industry is one of relentless innovation,” said Ed Feo, President of Coronal Energy. “kWh Analytics developed a novel solution that we are proud to have deployed. The Solar Revenue Put is moving the market by driving down the industry’s cost of capital.”

The Solar Revenue Put has emerged as a powerful tool that enables acquisitive solar investors to win more competitive bids by reducing their cost of capital. The Solar Revenue Put has been incorporated into a variety of project financings, ranging from thousands of residential rooftop power plants to centralized utility-scale solar farms. Both refinancing and “new build” financing have been supported by the Put.

“We provide creative renewable energy solutions,” said Richard Dovere, CEO of C2 Energy Capital. “Implementing the Solar Revenue Put in our project financings is not only consistent with our mission, but also helps us to win deals. The Put is quickly becoming an industry standard.”

“As a trusted energy partner delivering reliable and affordable solar PV projects on a stand-alone basis or paired with storage, and an active solar investor, AES Distributed Energy constantly seeks out new tools to support our competitive edge,” said Brian Cassutt, Chief Financial Officer at AES Distributed Energy. “The Solar Revenue Put is a strategic option for sponsors to enhance returns and presents a unique opportunity for lenders to differentiate themselves.”

According to a recent survey of the 50 most active solar lenders (the “Solar Lendscape”), more than 40% of these lenders are now underwriting the Solar Revenue Put as a credit enhancement. Project financings supported by the Put are securing approximately 10% more debt.

“Nomura worked with kWh Analytics on a new build solar farm to come up with a unique solution to meet the owner’s needs,” said Vinod Mukani, Managing Director at Nomura Securities. “The insurance allowed Nomura and the sponsor to create a floor on revenue reducing the risk of resource volatility, enhancing the investment value. The policy was put in place quickly and efficiently at an accretive price point.”

“Managing the cost of capital is a central challenge for every solar investor,” said Justin Fuller, SVP of Renewable Energy Finance at Celtic Bank. “We have successfully combined the strengths of the USDA loan guarantee with the Solar Revenue Put to create a best-in-class offering for project-level debt.”

Using its proprietary actuarial model and risk management software (“HelioStats”), kWh Analytics developed the Solar Revenue Put, a credit enhancement for solar investors, to drive down investment risk and encourage development of clean, low-cost solar energy. Solar Revenue Puts are now set to guarantee production of more than 3 TWh of solar electricity, enough electricity to power every home in America for a day.

“In the solar business, risk is cost,” said Richard Matsui, Founder and CEO of kWh Analytics. “With the Solar Revenue Put, industry-leading sponsors and banks are able to reduce the risk—and therefore the cost—of solar. Less risk, less cost, more solar.”

###

Learn More about us: kwhanalytics.com & kwhanalytics.com/SolarRevenuePut

Media Contact:

Sarah Matsui

sarah.matsui@kwhanalytics.com

About the Solar Revenue Put

The Solar Revenue Put is a credit enhancement that guarantees up to 95% of a solar project’s expected energy output. kWh Analytics’ wholly-owned brokerage subsidiary places the policy with risk capacity rated investment-grade by Standard and Poor’s. As an ‘all-risk’ policy, the Solar Revenue Put protects against shortfalls in irradiance, panel failure, inverter failure, snow, and other system design flaws. The Solar Revenue Put provides comprehensive coverage that banks rely upon, enabling financial institutions to more easily finance solar projects on terms more favorable to the sponsor.

About kWh Analytics          

kWh Analytics is the market leader in solar risk management. By leveraging the most comprehensive performance database of solar projects in the United States (20% of the U.S. market) and the strength of the global insurance markets, kWh Analytics’ customers are able to minimize risk and increase equity returns of their projects or portfolios. kWh Analytics also provides HelioStats risk management software to leading project finance investors in the solar market. kWh Analytics is backed by Anthemis, a leading fintech venture capital firm, ENGIE New Ventures, the venture arm of France’s largest energy company, and the US Department of Energy. For more information about kWh Analytics, please visit: www.kwhanalytics.com or follow us on Twitter @kwhanalytics.

kWh Analytics Closes Solar Revenue Put for 35 MW of Solar Power Projects with IGS Solar, Ares Management, ING, & Swiss Re

Originally posted on BusinessWire, Solar Power World.

SAN FRANCISCO – kWh Analytics, the market leader in solar risk management, today announced that it structured a Solar Revenue Put for a portfolio of 4,000 projects totaling approximately 35 MW DC of capacity located in the Northeast U.S. The facilities are being developed and managed by IGS Solar, a residential and commercial solar provider. The IGS Solar portfolio is being funded by a commitment from Ares EIF, the power and infrastructure strategy at Ares Management, L.P. (NYSE: ARES), a global asset manager, and a term loan commitment from ING Capital LLC (“ING”), a financial services company. Swiss Re, a leading global corporate insurer, is providing capacity for the Solar Revenue Put. Marathon Capital acted as exclusive financial advisor to IGS. This was the first US residential portfolio financed with the support of the Solar Revenue Put.

The Solar Revenue Put is structured as an insurance policy on solar production and revenues, which serves as a credit enhancement for financial investors. Using its proprietary actuarial model and risk management software (“HelioStats”), kWh Analytics developed the Solar Revenue Put to drive down investment risk and encourage development of clean, low-cost solar energy.

“We started IGS Solar because we believe in the value of developing alternative sources of energy,” says Mike Gatt, Chief Operating Officer of Distributed Generation at IGS. “To support us in this growth, we were pleased to have found efficient and reliable execution with our partners, ING, Ares, and kWh Analytics. The Solar Revenue Put enables us to both enhance our returns and reduce our downside risk.”

“Starting with our initial investments in 2013, we have continued our leading role as a lender to the residential solar space,” says Scott Hancock, Director at ING. “We are pleased to have incorporated the Solar Revenue Put to support this financing for IGS and Ares.”

A recent survey of the solar industry’s most active lenders indicates that more than 40% of active lenders value the Solar Revenue Put as a credit enhancement. Solar portfolios ranging from thousands of residential rooftops to more than ten utility-scale plants have utilized financing structures supported by the Solar Revenue Put. Portfolios supported by the Solar Revenue Put are securing debt sizing increases of 10% on average.

Swiss Re Corporate Solutions provided the risk capacity for the Solar Revenue Put. Brian Beebe, Head of Origination North America Weather and Energy, Swiss Re Corporate Solutions, says, “Swiss Re is committed to managing carbon-related sustainability risks and supporting the transition to a low-carbon economy. We are actively building our business to support the renewable energy that will power our global future. The Solar Revenue Put represents a new, multi-billion dollar insurtech category.”

###

Learn More about us: kwhanalytics.com & kwhanalytics.com/SolarRevenuePut

Media Contact:

Sarah Matsui

sarah.matsui@kwhanalytics.com

About the Solar Revenue Put

The Solar Revenue Put is a credit enhancement that guarantees up to 95% of a solar project’s expected energy output. kWh Analytics’ wholly-owned brokerage subsidiary places the policy with risk capacity rated investment-grade by Standard and Poor’s. As an ‘all-risk’ policy, the Solar Revenue Put protects against shortfalls in irradiance, panel failure, inverter failure, snow, and other system design flaws. The Solar Revenue Put provides comprehensive coverage that banks rely upon, enabling financial institutions to more easily finance solar projects on terms more favorable to the sponsor.

About kWh Analytics          

kWh Analytics is the market leader in solar risk management. By leveraging the most comprehensive performance database of solar projects in the United States (20% of the U.S. market) and the strength of the global insurance markets, kWh Analytics’ customers are able to minimize risk and increase equity returns of their projects or portfolios. kWh Analytics also provides HelioStats risk management software to leading project finance investors in the solar market. kWh Analytics is backed by private venture capital and the US Department of Energy.

About IGS Solar
IGS Solar, a turn-key commercial and residential solar provider with significant solar assets under development, provides businesses, homes, and communities with an opportunity to participate in creating a sustainable energy future. As an affiliate of IGS Energy, IGS Solar is dedicated to delivering innovative solar energy solutions. For more information, visit IGS.com or connect with IGS Solar at linkedin.com/company/igs-solar.

About Ares Management, L.P.
Ares Management, L.P. is a publicly traded, leading global alternative asset manager with approximately $125 billion of assets under management as of September 30, 2018 and 18 offices in the United States, Europe, Asia and Australia. Since its inception in 1997, Ares has adhered to a disciplined investment philosophy that focuses on delivering strong risk-adjusted investment returns throughout market cycles. Ares believes each of its three distinct but complementary investment groups in Credit, Private Equity and Real Estate is a market leader based on assets under management and investment performance. Ares was built upon the fundamental principle that each group benefits from being part of the greater whole. For more information, visit www.aresmgmt.com.

Ares EIF is the power and infrastructure strategy within Ares’ Private Equity Group, with a 31-year track record of investing in assets and companies in the power generation, transmission and midstream sectors. Since inception, Ares EIF-managed funds have made approximately 70 equity investments in nearly 130 different power and energy infrastructure assets with a combined underlying enterprise value exceeding $20 billion. During the last 15 years, Ares EIF has invested in nearly 9,000 MW of greenfield generation and transmission projects, as well as 200 miles of greenfield pipeline projects, representing over $11 billion of capital costs.

About ING Capital LLC

ING Capital LLC is a financial services firm offering a full array of wholesale financial lending products and advisory services to its corporate and institutional clients. ING Capital LLC is an indirect U.S. subsidiary of ING Bank NV, part of ING Group (NYSE: ING), a global financial institution of Dutch origin. The purpose of ING Bank is empowering people to stay a step ahead in life and in business. ING Bank’s more than 51,000 employees offer retail and wholesale banking services to customers in over 40 countries.

About Marathon Capital

Marathon Capital is an investment bank focused on the global power and infrastructure markets. Founded in 1999, Marathon Capital has been involved in many pivotal energy transactions and company expansions in the areas of M&A, capital raising, project financing, tax equity and financial restructuring. The firm is headquartered in Chicago, with additional offices in San Francisco, New York and Canada. Marathon Capital is a four time recipient of the “Best Renewable Asset Advisor Award” by Power Finance & Risk.

About Swiss Re Corporate Solutions

Swiss Re Corporate Solutions provides risk transfer solutions to large and mid-sized corporations around the world. Its innovative, highly customised products and standard insurance covers help to make businesses more resilient, while its industry-leading claims service provides additional peace of mind. Swiss Re Corporate Solutions serves clients from over 50 offices worldwide and is backed by the financial strength of the Swiss Re Group. Visit corporatesolutions.swissre.com or follow us on linkedin.com/company/swiss-re-corporate-solutions and Twitter @SwissRe_CS.

#Solar100’s Ray Shem: Solar’s Cassandra

Originally posted on pv Magazine USA.

In this #Solar100 interview, Richard Matsui, Founder and CEO of kWh Analytics, speaks with Ray Shem, CFO at Pine Gate Renewables.

In Greek mythology, Cassandra was gifted by the god Apollo the ability to see the future. She was also cursed to utter prophesies that were true but no one believed—until it was too late.

Today, Ray Shem’s understanding of real estate finance cycle and the solar industry lends itself to sharp analysis of solar’s evolution. In this interview, Shem provides a clear framework for understanding the sponsor equity market and describes a future solar market in which new entrants displace or acquire many of the current incumbents, reshaping the competitive dynamic of the entire industry.

Ray Shem is a solar soothsayer and this month’s featured #Solar100 thought leader.

FROM HISTORY TO REAL ESTATE TO RENEWABLES

Richard Matsui: I saw that you have your BA in history from Yale and your MBA from University of North Carolina. What drew you to renewable energy and how did you begin working at Pine Gate Renewables?

Ray Shem: When I graduated from college, I originally thought I wanted to be an attorney. I was randomly assigned to the real estate practice group, and after a year, decided I wanted to work on the principal side of things. Real estate was booming around that time, so I left the law firm to work for a startup real estate developer in D.C. flipping houses in the revitalizing parts of DC. Then I went to Chapel Hill for their real estate program.

After I graduated from UNC in 2008, I took a job working for a medium-sized regional developer based in Charlotte. Two months later, Wachovia was basically bought for a dollar, Lehman failed, and I ended up selling condos for two years—fun. It was actually terrible, but it was formative in terms of gaining experience failing and needing to be creative to move units. After a few years, I ended up running capital markets and acquisitions, raising project debt and equity.

Zoe Hanes, who worked at FLS Energy at the time, was my neighbor and recruited me to go into solar.  I started off doing project finance at FLS, including tax credit equity and project debt, underwriting new investment opportunities, and developing the corporate finance strategy. That’s how I got into this industry.

Richard Matsui: Having witnessed firsthand a full economic cycle in real estate, what lessons do you apply in solar?

Ray Shem: It makes me pretty risk-averse. My biggest lesson was the importance of asset quality. Quality is especially important when things get rough. In 2009, if you had great real estate, you could always move it. Yes, it would sell at a discount, but you could sell it. Bad real estate didn’t move at all. It was just frozen out.

Solar is a little different because of the secular trend of cost reduction. Construction costs are down and the cost of capital is falling. It’s a big tailwind that mitigates some of the volatility. People have made aggressive bets on the cost curve continuing to fall, and to date they’ve been right. Even under the burden of the module tariffs, we’re seeing modules trading at pre-tariff levels. So, there’s still some room there. A development asset that looks bad today may look good in a year.

A FRAMEWORK FOR THE SPONSOR EQUITY MARKET

Richard Matsui: You have an interesting framework you use to describe the sponsor equity market. Can you outline it here?

Ray Shem: I see the world bifurcated into three different types of sponsors: early stage developers, aggregators, and long-term owners.

Early stage developers tend to be hyper-local and in the right place at the right time. You see it in Minnesota, in Massachusetts, South Carolina, and other states. Legislation changes, policies move, and all of a sudden, a bunch of homegrown developers pop into place.

You then have aggregators, folks that have some degree of development experience and can crawl into a deal and understand the risks associated with it. Aggregators have access to larger pools of capital, including tax equity, debt, and some form of sponsor equity. These developers aggregate projects, typically in the “distributed utility” segment, though we’ve also seen this with some C&I as well. These developers create value by aggregating portfolios to a scale that can successfully attract capital from large tax equity and debt providers in the market.

And then you have long-term capital: the infrastructure funds, pension funds, and insurers that want to be long-term owners of these relatively low-risk infrastructure assets.

Aggregators play a role in market-making. In our work, we see a lot of small projects that make sense from an economic perspective. But the scale of those individual projects is too small and requires someone to aggregate them into a portfolio to fit an investor who wants to write a $50 million check.

However, a secular shift is underway. As the mystique around tax equity financing continues to fall away and the tax credit itself steps down, I think you will start to see pressure on the aggregator as a business model. Early stage developers, by deploying high-risk dollars and pushing policy that creates markets, will continue to create and capture value. In the aggregate, they will be fine. But the pie shared by aggregators and long-term owners will increasingly see the value migrate towards longer-term owners.

WHAT HAPPENS TO THE ‘FOR SALE’ SIGNS

Richard Matsui: It feels like half of the aggregators in the industry today have a “For Sale” sign in the window. Where do these firms end up?

Ray Shem: It’s a big question. Ultimately, I see two directions:

Some aggregators will begin to increasingly pivot to in-house greenfield development and become early stage developers.

Some aggregators will go in the other direction and sell themselves to long-term owners. The sale of sPower to AES and Aimco a few years back is a classic example of this.  As a result, some of the aggregators are likely trying to position themselves for this kind of exit. The key question is, “How well are they trading?” I know there are a couple out in the market, but I don’t know how those processes are going.

Richard Matsui: I think we, as an industry, are all holding our breath to see the results. Valuation will be the key question. When the purchase price is ultimately paid, that sum will represent the value of the assets on book plus the platform itself.

Ray Shem: Yes, and “platform value” can be an elusive thing. When we were at FLS, we thought we could clearly articulate the case for an acquirer to value the platform itself, and it proved to be somewhat illusory. A lot of value ended up being driven by assets on book.

Richard Matsui: Are you hearing that “platform value” is getting more value than what is has historically?

Ray Shem: I think it is an opaque, illiquid market. Without hard data points or trades that I’m thinking about in particular, my bet is that some platforms are getting value. I think those are probably platforms that had big pipelines, and that is probably where the value ultimately gets attributed. If I were managing low-cost money looking for a home in infrastructure assets, I would also be focused on pipelines, and then making sure that the team was in place that could translate that pipeline into investment opportunities. What I would expect to see is buyers first look at the pipeline, and then they lean into the bid, based on their confidence in the team.

THE COMING SHAKEOUT

Richard Matsui: Let’s talk about the long-term owners. It seems the category can perhaps be divided into two different groups: strategic and financial. From the strategic side, you have companies like BP and Shell buying Lightsource and Silicon Ranch. One of our own investors is ENGIE, which has acquired SoCore and Infinity Renewables. There are several other active strategics. They generally seem to follow a consistent logic—they want to own the businesses that will build the future energy system. From my perspective, strategic acquisitions appear to be motivated by a desire to internalize the talent and institutional capability, even as assets drive the valuation. But what about the financial long-term owners, like Capital Dynamics or New Energy Solar? Will they be using a different playbook?

Ray Shem: That’s a good distinction to draw. It probably depends on the source of money. Strategics are far more likely to look at a platform transaction. If you’re New Energy Solar, you’re not going to go back to your shareholders and say, “Hey, guess what? I just bought a company.” That’s probably not in the mandate.

I can see the aggregator firms bifurcating. Some aggregators will be acquired by strategics. Other aggregators will likely develop deep relationships with cheap, passive capital—the third group.

Richard Matsui: This introduces an interesting dynamic. If aggregators continue to get acquired, or start to develop exclusive relationships, or become early stage developers, then it could suddenly become difficult for a long-term owner to source projects. Even if they do have a competitive cost of capital.

Ray Shem: Yes. All of this boils back down to the scarcity of projects. It’s the linchpin. In a world where aggregators fade away, an important question becomes, “Can the small early-stage developers and the large pension funds find a way to do deals, even without the middleman?” As corporate PPAs continue to grow, we are already seeing a need for higher capital requirements for developers to strike those deals, which favors larger players.

I don’t have a background in conventional energy, so I am going out on a limb here, but I see two structural features about solar that dis-favor the strategics. Historically, conventional energy assets required a high degree of sophistication in energy markets. While some larger solar assets are management intensive, solar assets in general are a lot more of a pure-play financial investment: You have a long-term contract, you have merchant curves, and other factors that end up informing the value. The advantage of being a strategic is somewhat blunted vis-à-vis solar.

The second factor is the highly local nature of solar development. Small utility-scale projects continue to proliferate, nationwide. Community solar uniquely enables a near-retail compensation for near-utility scale cost structure. Succeeding in that market is a hyper-local question—Who can get the zoning? Is the policy regime in place? Who can sign on this offtake? Who can get their foot in the door before the local program closes? Those scenarios don’t necessarily play to the benefit of large, national strategics. It will be interesting to see ultimately where that lands. 

PREDICTIONS

Richard Matsui: You are very familiar with the aggregator business model, so it’s fascinating to hear you describe the secular headwinds there. Does the decline of aggregators and the rise of strategics and financial long-term owners represent the natural “end state” for our industry? I’m reminded of that Francis Fukuyama title—is this “The End of History”? 

Ray Shem: [Laughs]. Not necessarily. There’s still a fundamental gap here. If you have 4% equity capital, you need to deploy it in increments of hundreds of millions of dollars. There is an inherent mismatch between cheapest source of capital and what projects are available. From what I’ve seen, average project size in utility-scale is actually decreasing, even as these large long-term owners require bigger deals. Here’s the challenge: if I’m a local developer, I need to find someone with a few million dollars to finance my project. If I go out and raise that from friends and family, I’m not doing it at four percent. The aggregator has historically done that work. The question is, “Is this model the future of solar development?” If so, you could argue that there’s a permanent role for working capital to aggregate portfolios to a scale that can attract cheap capital.

Richard Matsui: I see. Is your hypothesis that that the aggregator role will still be needed, but it will be fulfilled by strategics that have vertically integrated down into the aggregator function? And that large, standalone aggregators will be increasingly rare, or even cease to exist in the future?

Ray Shem: Overall, I do see increasing pressure on the aggregator business model. At the end of the day, it comes down to competitiveness. Who will be more competitive: The strategic that has a reasonably cheap source of capital and has the operating businesses that can operate a distributed fleet of small utility-scale farms? Or the financial investors that may have the cheapest capital, but does require an aggregator intermediary? You could argue that the most efficient market will be the latter, where aggregators and financial investors are competing vigorously for every project. And vertical integration doesn’t benefit a strategic that much because the requirements to operate a solar farm isn’t high.

Richard Matsui: That makes sense. But sometimes, the market does not reach an efficient end-state. If I’m a strategic with an aggressive growth target in solar that I need to hit, I have to get my capital moving and start acquiring. Especially if I start seeing bigger aggregators getting snapped up, I’m going to start feeling very anxious that I might be the only one left without a date for the prom.

Ray Shem: Exactly. I think that will definitely happen. In fact, we’re seeing it now—for example, Orsted with Deepwater Wind. We are starting to see strategics insist, “I need to have a renewable energy platform.”

Richard Matsui: Yes. And if those strategics lock up dealflow by acquiring many of the bigger aggregators, it would seem to put the financial investors in a tight spot. Or perhaps new aggregators would simply emerge. We are in interesting times.

To wrap up, can you give me a non-consensus bet that you think is going to play out over the next couple of years?

Ray Shem: I live in Asheville, North Carolina, so I think every perspective I have is probably a non-consensus perspective.

If you’re a carpenter, every problem is a nail and every solution needs a hammer. So, my background is real estate. I think ultimately what you’re going to see in the marketplace is a lot of diversity—because of the diversity of the underlying assets. You’ve got everything from residential, small C&I, small utility scale, all the way up to massive 500 MW plants. I think you could make an argument that there will permanently be a diversity of players in the marketplace. I don’t necessarily think that this market will run to a singular end state, where all projects are fiercely competed for equally by all players. I do think there will be a lot of heterogeneity in terms of the marketplace and in terms of small, nimble developers taking advantage. I think you will continue to see some aggregators, though I do see added pressure on that business model. But if you build relationships and you can add value to those development relationships, there’s probably a niche for that. I think the strategics are just getting started here. The diversity of business models that we see today will reduce, but you’re still going to see a lot of diversity.

We haven’t hit the end of history yet.

The Orange Button ‘gridvolution’: A critical tool for taking the energy transition digital

Originally posted on Smart Electric Power Alliance (SEPA).

Two months ago at the Global Climate Action Summit in San Francisco, decarbonization captured most of the headlines—and for good reason. California Gov. Jerry Brown and former New York City Mayor Michael Bloomberg announced that state, local and business leadership is driving the United States toward its 2025 goals for the United Nations’ Paris climate accord, despite President Donald Trump’s withdrawal from the agreement. The campaign against climate change is gaining momentum.

Meanwhile, at an affiliated event called Gridvolution, several sessions focused on distributed energy resources, including the Orange Button Initiative, a collaborative effort to drive down project soft costs by establishing a standard format for reporting and collecting project data. The U.S. Department of Energy launched the initiative in 2016 with the goal of creating an industry-wide standard similar to the Green Button standard for streamlining consumers’ access to their energy use data.

Led by SunSpec Alliance, the creators of the Gridvolution forum and a principal Orange Button sponsor, the event had no grand proclamations; instead initiative stakeholders rolled out a powerful new set of software tools for solar financiers, project developers and asset managers. The message here: an electric grid evolution, a “gridvolution,” is gathering speed, as well.

Talking Orange Button at the Gridvolution, (from left) Jon Previtali, Wells Fargo; Michelle Savage, XBRL US; Charlie Isaacs, Salesforce; David Sykes, Chapman and Cutler LLP; and Tom Tansy, SunSpec Alliance. (Photo by Matthew Wiseman)

Key takeaways from the event: Moving beyond initial development of the standard, software developers are now major players in the multiplication and sophistication of its potential applications. And, from an initial group of four sponsors, Orange Button has expanded to include 350 companies and more than 1,000 individuals as active participants.

Still, over the past two years, much of the work on Orange Button has taken place behind the scenes. Initially, sponsors partnered with financiers such as Wells Fargo and asset managers such as sPower to demonstrate market demand for the standard, also reaching out to software companies large and small to help identify and shape cost-saving solutions. More recently, the project has entered a new phase, as noted, with software developers delivering the lines of code and functional tools to significantly cut costs on data collection and management for the people who build and invest in solar projects.

The Orange Button data standard itself is an open-source system for codifying solar project data and automating data exchange during project assessments, permitting, financing, interconnection, and other stages of the project lifecycle. Reflecting the complexity and granularity of the information involved, the initial release of the standard — Orange Button 1.0 — contains about 4,200 data fields.

Access Orange Button 1.0 at the SunSpec Alliance website.

Soon after releasing version 1.0, members of the Orange Button workgroup set their sights on adding project documents to the standard’s open-source, digital library, starting with manufacturer data sheets. Also known as spec sheets or cut sheets, a data sheet reports a product’s key specifications, including dimensions, electrical characteristics, and third-party certifications. Adding data sheets to Orange Button enabled inverter manufacturers to report compliance with California’s newly revised interconnection standard, Rule 21, highlighting one of many use cases.

Gridvolution panel on Orange Button code, (from left) Jan Rippingale, Blue Banyan Solutions; Jonathan Xia, kWh Analytics; and Jessie Deot and Tom Tansy, both of SunSpec Alliance. (Photo by Matthew Wiseman)

More recently, kWh Analytics introduced Orange Button Translate, software that takes proprietary project data and converts it to the Orange Button standard, moving the market one step closer to deploying data interoperability at scale.

“The reason Orange Button has developed faster than many of us had anticipated is the high rate of industry participation,” said Jan Rippingale, CEO at Blue Banyan Solutions, which provides business software for solar firms. “Given the strength of the developer community and the results we have already achieved, it’s only a matter of time before we see soft cost reductions attributable to the Orange Button standard.”

Raising the bar on industry IT

When the Department of Energy launched the the Orange Button Initiative with a grant in 2016, inefficient data gathering and management practices were slowing market growth. Some financiers reported spending hundreds of dollars an hour for lawyers to review project agreements and tens of thousands of dollars on due diligence before they could finalize projects. Data standards improve growth potential for everyone.

As an open-source software project, Orange Button has continually raised the bar on information technology (IT) capabilities throughout the industry. One benefit, asset managers no longer have to expend resources creating proprietary systems for tracking and reporting on solar performance evaluations. They can use the classification system in the Orange Button standard, which was developed by a team of industry experts, including a performance engineering manager at sPower, the largest private owner of operating solar assets in the US.

Machine-readable data sheets

In July, California updated the smart inverter requirements in its Rule 21 interconnection regulations, ordering grid-tied inverters to activate more of their built-in grid-stabilizing features. Without data standards, rule changes like this can create inefficient processes for many organizations. Inverter makers would have to produce new versions of their product data sheets, and utilities responsible for grid interconnection would have to collect the updated data sheets and enter the compliance information into their IT systems.

With the Orange Button data standard, inverter makers can streamline compliance reporting, which simplifies data collection for utilities. In fact, Orange Button makes it possible to reduce data collection costs by making data sheets and other project documents machine readable. Clean Power Research has demonstrated this capability by using Orange Button data to report an updated list of Rule 21-compliant solar equipment to California utilities.

Translating legacy data

One of the biggest anticipated barriers to adoption of the Orange Button standard is migrating legacy data to Orange Button data. kWh Analytics has taken the first step toward solving for this problem with the release of Orange Button Translate. This publicly available, proof-of-concept software allows users to fill in Excel spreadsheets with production data, solar array metadata, and solar system metadata, then upload the data to generate Orange Button-compatible files.

“We support Orange Button because it will reduce the cost for risk managers to monitor key metrics,” said Jason Kaminsky, chief operating officer at kWh Analytics.“ Orange Button Translate is the first piece of software designed exclusively to support the new data standards.”

What’s next?

Looking ahead, software developers are continually working to improve the Orange Button data standard through public and online meetings of the Orange Button workgroup, and occasional in-person programming sessions. SunSpec Alliance hosted the latest active coding session, or hackathon, Nov. 7-8 at its offices in San Jose. The event served as a kickoff for the Orange Button core library, a set of programming files that will be included in all implementations of Orange Button software.

“Energy is the last fundamental industry to go digital because it hasn’t had communications standards like Orange Button to streamline data exchange,” said Tom Tansy, chairman of SunSpec Alliance. “Cost reductions for solar hardware have defined the past ten years in the solar industry. The next ten years will be remembered for our ability to drive down soft costs using data standards.”