PVTech's The Weekend Read: Financial risks of solar

Full article available on PVTech.

“Data analyst Hao Shen is following his growing suspicion. “We thought that more modern photovoltaic systems would be more reliable and efficient than those commissioned 10 years ago.” Shen is the head of data products at data analytics and climate insurance firm kWh-Analytics.

The company has compiled performance data from the portfolios of 15 of the 20 largest system operators in the United States. It then compared the revenue reports prepared before the plants went online and the actual production data. That comparison, covering 30% of ground-mounted plants in the United States, showed “just the opposite is true,” Shen says. The discrepancy between predictions and real output has increased.”

Norton Rose Fulbright's Currents Episode 190: Climate Insurance and the Solar Industry

Originally posted in Norton Rose Fulbright’s Currents Podcast.

Jason Kaminsky, CEO of kWh Analytics, joins us to discuss the company’s $20M Series B fundraise and the emergence of climate insurance. We discuss what the fundraise means for the industry as a whole, why climate insurance hasn’t emerged yet and the challenges the insurance industry faces when insuring renewables, solutions he has seen on the insurance side, the partnerships that are happening in the industry, the improvement in modeling on the underwriting side and more.

#Solar100's Tim Larrison: The Vince Lombardi of Solar Finance

Previously posted in Forbes.

In this #Solar100 Interview, Richard Matsui, Co-Founder & Chief Strategy Officer of kWh Analytics, speaks with Tim Larrison, CFO of Primergy Solar.

Over his long career in renewable energy, Tim Larrison has steered companies through periods of significant growth with his keen insight on the energy industry’s biggest finance problems and his focus on fundamentals. Like the legendary Vince Lombardi, Larrison has a relentless commitment to the blocking and tackling of managing a business, and the success of this strategy has culminated in his current position at Primergy Solar, which melds his operational finance background with opportunities to do large, creative structured financing.

In this Solar100 interview, Larrison discusses his career in energy, solar’s project finance problem, emerging storage technology, solar’s next major hurdle, and career advice for future CFOs.

THE LONG AND WINDING ROAD TO RENEWABLES

RICHARD MATSUI: You’ve obviously had a long career in solar, but I didn’t realize you also had experience in different sectors. Can you walk me through your career trajectory and how you ended up at Primergy Solar?

TIM LARRISON:

It has been a long road to Primergy Solar, I’ve been in and out of the energy industry, but I’ve always been on the finance side of things. 

I started nearly 30 years ago at Ernst and Young and was involved in advisory for Eastern European energy companies as they were coming into the international fold. I was assigned to work in Kazakhstan when it first became an independent country. It really was the Wild West – pre-internet and no international landlines. This sparked my interest in international emerging markets, and I decided to go to London Business School for my MBA. 

During business school, Enron was on the rise, and I got a job as a summer associate. The first project I worked on resulted in a $2.4 billion acquisition of Wessex Water Company and I was hooked. I stayed on after I graduated, and that’s when my infrastructure and power work began. 

When I left Enron, I knew that I wanted operational finance experience versus the pure transactional experience I had up until that point.  Operational finance is a different animal and I felt that I needed it to round out my skill base. I had a couple of senior level operational finance jobs and ultimately ended up as the founding Chief Financial Officer (CFO) of CLEAR in New York. It was a great role, but ultimately, I missed being a part of the energy industry. 

A lifetime later, I took a job at as the CFO of a venture-backed startup that was mining lithium in the Salton Sea. They had a great idea, but major project finance problems. I saw this problem across Silicon Valley: people forgot that they were in the energy business, where 20x multiples just don’t happen. There was a massive disconnect between venture capital expectations and the realities of the energy industry. 

From there, I joined Yingli and had a great run with a phenomenal team. This was at the beginning of the solar ramp up in the US and I think there was a point that we brought in 20-25% of all the panels in the US.  It was a fantastic job because I was able to get exposure to the whole solar market and understand where the market was headed.

Although the solar sector was booming, the industry was missing something critical. It became apparent quickly that solar is an incredible opportunity, but it requires a different lens.  I remember visiting SunEdison and seeing hundreds of employees managing what was essentially three mid-sized solar power plants; it was never going to work. They weren’t doing anything differently from managing a coal plant or a gas-fired power plant…there was a lot of overhead.

At the end of 2019, an Operating Partner at Quinbrook Infrastructure Partners asked me if I wanted to build out Quinbrook’s investment platform for solar and storage, Primergy Solar. The people at Primergy understand that solar needs to be managed as an energy business rather than a venture-backed startup. A perfect combination of being an operational CFO and being able to work on large, creative structured financing; this ties all my experience together and I couldn’t be happier.

LESSONS LEARNED & CURRENT TRENDS IN SOLAR

MATSUI: How does it feel to be back in the energy industry, where your career started?

LARRISON: It’s an exciting time to be in renewable energy and I am very happy to be in the industry now because we’re doing a lot of good work.  Primergy is a perfect place to have an impact – we are growing and have the backing of a fantastic investment fund that is committed to zero carbon investing. We are fortunate to have a leadership team that are all operators who understand the challenges of being in the energy business. But, at the end of the day, it’s still the energy business. And I can’t stress that enough.

There’s an incredible amount of innovation within renewables; kWh Analytics is a great example of that constant innovation. I love the fact that there’s always twists on what has happened before. It builds on old ideas. 

MATSUI: Thanks, Tim. We draw inspiration from history, and credit enhancements like the Solar Revenue Put are an old idea. As a former consultant, you learn that there are very few, truly novel ideas. 

One of the smartest people I met in solar, Dan Pillemer, once observed the same dynamic you did. He said, “I don’t understand why all of these solar lease/PPA companies, a consumer finance business, are locating their teams in the Bay Area, one of the most expensive cities in the world.” 

What else has your prior experience taught you about solar?

LARRISON: One of the hot topics for me – though it’s a cliché – is maturity. With maturity, we’re seeing bigger projects. In fact, we just announced momentum on our cornerstone Gemini Project, which is one of the largest solar + storage projects in the United States. But it won’t be the largest for long. With the way that financing tends to be set up, it’s around a lot of value on tax equity. For reference, the tax equity check for Gemini is 4-5% of the total tax equity market. 

I don’t think the way these projects are being financed is sustainable. The industry needs to look at traditional power financing. You often hear that if the ITC went away, it would be the end of the world. But change happens all the time. The energy industry survives. When the industry comes across issues that prevent it from growing, it’s time to do something different. 

MATSUI: A great colleague of mine, Alex Deng, has the dubious honor of having financed the industry’s first truly merchant utility-scale solar project in his past life. No tax equity was involved. It’s painful, but it can be done. Our industry is kind of addicted to these “25% off” coupons from the federal government.

LARRISON: Right, and the problem is that there aren’t enough coupons for everything that everyone wants. There are better ways than tax credits to incentivize renewables, and the industry would welcome those rather than the on-again off-again of the current tax credit extension cycle, which isn't healthy for the industry.  Eventually, I hope that the reliance on tax credits will disappear and that more efficient financing and incentives will emerge. 

STORAGE: THEN & NOW

MATSUI: One of the topics I wanted to hit on was storage – you were early to that, starting with Green Charge Networks in 2016. I remember the way we met was through your co-founder, Vic Shao. Vic and I had lunch and were talking about developing the Storage Revenue Put. We thought we’d hit on this brilliant idea, and then Vic took me back to your office and introduced me to you. 

You said, “This is never going to work. Our technology doesn’t work very well. You could guarantee our technology, but it would not be a good business for you.” It was an incredible amount of straight-up honesty from someone I’d just met. That’s something I’ll never forget and really appreciate about you.

LARRISON: Yes, and I think we both believe that maturation of storage technology is a critical piece of the renewable story. There have been huge strides since our first conversation, but a lot of improvements are still needed before the technology will be widely implemented.  Gemini is huge, and with more and more large-scale storage coming online, the industry has more potential than ever to turn the corner, it’s at our fingertips.

MATSUI: You’ve clearly been part of guiding improvement in this area; you also were kind enough to help us as we were thinking through how to do an insurance policy for storage. What do you think will be an indicator of success for storage?

LARRISON: The big milestone will be the emergence of a bond offering with storage. This hasn’t happened yet, but I expect there probably will be one in the next 12 months or so. The ability to do bond offerings means that you’ve grown up. 

LOOKING FORWARD

MATSUI: As the industry strives for 30% solar by 2030 (according to SEIA’s Solar+ Decade), what do you see as the biggest challenges for meeting this goal?

LARRISON: The next challenge is bridging the disconnect between these newer technologies and the financial community. kWh Analytics is working towards that, using technology to create extra value for the financial community. 

I don’t think the trajectory for storage is going to mirror the solar ramp. Solar is not a new technology, while lithium-ion batteries are still relatively new. And in my view, lithium batteries are the storage technology. While there are other new storage technologies, the challenge is: can these new technologies plausibly get competitively financed near-term? The financing process is incredibly arduous. I saw it with my experience at Simbol, where the technology was great, but you just couldn’t convince the banks. It’s 11 years later, and I know people are still working on that. 

ADVICE FOR FUTURE CFOs

MATSUI: Over the coming decade, if solar continues on its current trajectory, we’re going to go from 5% to around 50% of the energy mix. This industry is going to need dozens, if not hundreds, of leaders like you. Obviously your path is not exactly replicable, but what advice might you have for the person who’s going to be a CFO in 5 to 10 years?

LARRISON: My advice to future CFO’s would be this – doing deals is fun, but running businesses responsibly is even more essential and impactful. Operational finance is the blocking and tackling of managing the business. There’s no glory, no celebratory closing dinners, but it’s absolutely vital in the energy infrastructure business. 

Solar asset underperformance hurts equity owner's bottom line

Full article available on PVTech.

“Last year analysis by renewables performance aggregator and insurance provider kWh Analytics highlighted the extent of solar asset underperformance against P50 estimates in the US. Here, the company’s Sarath Srinivasan details some of the reasons behind that underperformance.”

kWh Analytics Closes Solar Revenue Put for 225 MW of Solar Power Project with HSBC, Citi, and National Bank of Canada

SAN FRANCISCO -- kWh Analytics, the leader in Climate Insurance, today announced the largest new-build, utility-scale solar project supported by the Solar Revenue Put. The solar project, located in Virginia and owned and operated by The AES Corporation (NYSE: AES), totals approximately 225 MW DC of capacity. The Virginia project is being financed by HSBC, Citi, and National Bank of Canada.

The Solar Revenue Put is structured as an insurance policy on solar production and revenue, providing protection against downside risk. The policy also serves as a credit enhancement for financial investors, allowing asset owners to achieve more favorable financing terms. 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.

A recent survey of the solar industry’s most active lenders indicates that more than 60% of the active lenders in the solar market value the Solar Revenue Put as a credit enhancement. Notably, these lenders are now offering the Solar Revenue Put proactively in their financing bids. In total, more than 2.5 GW of solar assets, including both operating and new-build utility-scale and distributed generation portfolios, have utilized financing structures supported by the Solar Revenue Put. The Solar Revenue Put has increased the amount of debt raised against assets by 10% on average.

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

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 leading provider of Climate Insurance by using our proprietary database of renewable energy project performance of over 300,000 operating assets -- the world's largest database -- to underwrite insurance policies for renewable energy, backed by the world’s most trusted insurers. To-date, we have insured over $3 billion of American solar power plants with our first insurance product, the Solar Revenue Put. kWh Analytics is funded by venture capital and the US Department of Energy. To learn more, please visit www.kwhanalytics.com, connect with us on LinkedIn, or follow @kWhAnalytics on Twitter.

kWh Analytics Raises $20M to Deliver Insurance for Our Climate; Launches 2nd Product to Insure Renewable Energy

Originally posted on Business Wire. Additional coverage on Axios, PV Tech, Reinsurance News, and Coverager.

Lacuna Sustainable Investments leads Series B round to accelerate kWh Analytics’ growth and build on its leadership in developing insurance solutions that prevent climate change. 

SAN FRANCISCO, CA (FEBRUARY 8, 2022) - kWh Analytics, the leader in Climate Insurance, announced today that it raised $20 million to continue the organization’s expansion.

The capital raise reflects the increasing focus on Environmental, Social, and Governance (ESG) issues, particularly within the insurance industry. While many insurance companies are addressing ESG by divesting from fossil fuels, kWh Analytics has taken a proactive approach by developing data-driven insurance specifically for zero-carbon assets. 

“The most recent 2021 Intergovernmental Panel on Climate Change (IPCC) report was clear: it’s a ‘code red’ for humanity,” stated Richard Matsui, CEO of kWh Analytics. “The world needs more renewable energy to mitigate climate change, and insurance is key to ensuring these projects get built. This new category of “Climate Insurance” is a massive, once-in-a-generation market opportunity; kWh Analytics is proud to be a market leader in this space.” 

Matthias Weber, the former Chief Underwriting Officer of Swiss Re, noted, “kWh Analytics has filled a critical gap in renewable energy insurance, using an innovative, data-first approach. This fundraise underscores their position as the leader in this space.” 

As the custodian of the world’s largest database of renewable energy asset performance, kWh Analytics has emerged as the leading provider of Climate Insurance by leveraging its real-world data to power its underwriting. This innovative model has been widely successful: the company’s first product, the Solar Revenue Put, now protects over $3 billion of solar power plants, while delivering a best-in-class loss ratio. Now, kWh Analytics is proud to announce the launch of its highly anticipated Property Product, which provides all-risk coverage against physical damage for solar, storage, and wind projects. Learn more at https://www.kwhanalytics.com/property.

“As an investor in renewable energy power plants, we understand firsthand the challenges that investors face in procuring cost competitive insurance,” said Brad Bauer, Partner at Lacuna Sustainable Investments. “On top of that, today’s standard insurance offerings miss important  nuances specific to renewable energy equipment, like the impact of microcracks and hotspots on performance. That’s what makes this fundraise and product launch so important -- not only is kWh Analytics supplying more insurance, but they are innovating on the existing products by using their proprietary data.”

With the new funding, kWh Analytics plans to develop additional solutions to support solar, wind, and storage asset owners and investors. The company will also bring these solutions to new international markets. These new offerings will continue to revolutionize underwriting and pricing within the renewable energy insurance space by leveraging real-world data. Notably, this  investment follows ongoing collaboration with leading global re/insurers, including Swiss Re. 

###

About kWh Analytics

kWh Analytics is the leading provider of Climate Insurance by using our proprietary database of renewable energy project performance of over 300,000 operating assets -- the world's largest database -- to underwrite insurance policies for renewable energy, backed by the world’s most trusted insurers. To-date, we have insured over $3 billion of American solar power plants with our first insurance product, the Solar Revenue Put. kWh Analytics is funded by venture capital and the US Department of Energy. To learn more, please visit www.kwhanalytics.com, connect with us on LinkedIn, or follow @kWhAnalytics on Twitter. 

kWh Analytics Closes First 20-Year Solar Revenue Put+

SAN FRANCISCO – kWh Analytics, the Insurer for the Energy Transition, today announced that it structured the first-ever Solar Revenue Put+, which will provide 20 years of Solar Revenue Put protection, for a project located in the Southern U.S. The project is being funded through a private bond placement. SwissRe, a leading global corporate insurer, is providing insurance capacity for the Solar Revenue Put+. This deal represents the longest solar generation guarantee in the industry and the second bond deal structured with the Solar Revenue Put.

The Solar Revenue Put is a solar production and revenue insurance policy, 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. The Solar Revenue Put+ is an innovative new offering that extends Solar Revenue Put coverage from the typical ten years to up to 30 years, or the full amortization period of a project.

“The Solar Revenue Put+ allows asset owners to achieve the benefits of the Solar Revenue Put across a project’s entire life,” said Richard Matsui, Chief Executive Officer at kWh Analytics. “This means it’s easier than ever to achieve a lower cost of capital and reduce downside risk, even for uncontracted portions of the lifecycle.”

A recent survey of the solar industry’s most active lenders indicates that a majority of active lenders value the Solar Revenue Put as a credit enhancement. Solar portfolios ranging from thousands of residential rooftops to 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, while mitigating downside risk. The Solar Revenue Put+ offering extends these debt sizing and risk mitigation benefits by an additional 5 to 20 years, across the project’s full lifecycle.

For more information about this product, please contact Sarath Srinivasan, Head of Risk Transfer Products at kWh Analytics. 

About kWh Analytics   

kWh Analytics is Insuring the Energy Transition by leveraging the most comprehensive performance database of renewable energy projects in the United States (300,000+ operating assets) and the strength of the global insurance markets. Through the industry-leading Solar Revenue Put, asset owners and lenders 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. 

Learn More: www.kwhanalytics.com & https://www.kwhanalytics.com/solarrevenueput 

Follow Us on Twitter: @kwhanalytics 

Connect with Us on LinkedIn: https://www.linkedin.com/company/kwh-analytics/mycompany/

SOLAR REVENUE PUT CLAIM PAID FOR TEXAS SOLAR PROJECT IMPACTED BY STORM URI

kWh Analytics achieved another Solar Revenue Put milestone with a recent claim paid to a leading solar asset owner for a utility-scale project in Texas. This represents the sixth claim; all have been paid in full and within 30 days for the over $3 billion in solar assets insured with the Solar Revenue Put. Notably, the Solar Revenue Put typically insures projects for ten years with an annual settlement, meaning the product has paid out a significant portion of claims in its 34 total completed operating years. 

“Our claims track record demonstrates that the Solar Revenue Put works as advertised: it ensures that asset owners can recoup any losses insured by the Put through a quick and easy claims process, insulating their projects from negative financial impacts,” said CEO, Richard Matsui.

This particular asset owner structured the Solar Revenue Put on the project in  2018 to guarantee production for ten years. In Q1 of 2021, the project underperformed its production estimates due to a combination of overly aggressive production estimates and the impacts of Storm Uri. kWh Analytics’ quick claims process allowed the asset owner to issue their quarterly debt service payment. This claim illustrates the Solar Revenue Put’s ability to protect against all risks, including extreme weather, such as wildfires and severe storms.

For additional details on this claim, please contact Sarath Srinivasan, Head of Risk Transfer Products. For more information about our claim track record, download our claims case study here.

kWh Analytics hires Property Insurance team

SAN FRANCISCO – kWh Analytics has expanded its team to establish an innovative property insurance product for renewable energy assets with the addition of two experienced insurance professionals. Issac McLean joins as the Head of Property and Darryl Harding joins as Senior Underwriter.

“As documented in our 2021 Solar Risk Assessment report, the renewable energy property insurance industry has significant room for growth in understanding and underwriting risks for this asset class. Our new team will allow kWh Analytics to offer a new, data-driven Property & Casualty (P&C) insurance line that underwrites risk using real data from over 30% of the US operating fleet, the world’s largest database of operating assets.” said Richard Matsui, Chief Executive Officer. “Isaac and Darryl will expand our capabilities to meet the needs of the solar community, while cementing kWh Analytics’ ability to achieve its goal of Insuring the Energy Transition”

Isaac McLean joined kWh Analytics from ICAT Managers, where he served as a Senior Product Manager. In this role, he led the development and launch of several successful insurance products and teams, including multiple P&C programs. Previous to ICAT Managers, Isaac worked at Safeco as a claims examiner and product analyst. Isaac brings over 18 years of experience in insurance, underwriting, sales, marketing, and product development. 

Darryl Harding joined kWh Analytics from Hartford Steam Boiler, a Munich Re company, where he served as a Senior Production Underwriter and supported the development of their Solar Property and Shortfall product lines. Prior to his role at Hartford Steam Boiler, he served as an underwriter for commercial lines at The Hartford. Darryl has over 10 years of experience underwriting insurance products and collaborating with brokers to find innovative solutions for insureds.  

For more information on the kWh Analytics team, visit https://www.kwhanalytics.com/.

#Solar100's Nat Bullard: The H.G. Wells of Clean Energy

Previously posted in Forbes.

In this edition #Solar100, Founder and CEO of kWh Analytics Richard Matsui speaks with Nat Bullard, Chief Content Officer at BNEF.

Nat Bullard is known for his research and reporting in the clean energy industry. He has spent almost 15 years analyzing the market and informing everyone from senior executives to the broader public about how the industry is evolving. Like H.G. Wells, he’s a prominent, forward-looking thought leader, who has devoted his talents to advancing one of the most critical causes of our time — the development of clean energy.

In this Solar100, Nat weighs in on his experience researching the industry, how solar technology has evolved over time, his predictions for battery storage and hydrogen, and his advice for young professionals.

—

RICHARD MATSUI: Starting all the way back — I know you studied art history and architecture as an undergrad, then went on to a graduate degree in international studies. Can you walk me through that career arc and how you landed at BNEF?

NAT BULLARD:  Yes, I studied art history as an undergraduate. I picked that major, because it was a small department, and I was able to get a lot of face time with professors. The major also focused on what they called “formal analysis,” which is a structured way of inquiry. I realize it sounds like an unusual segue into thinking about business, but it was actually quite useful – a structured way of looking at something, considering it, and describing it. It would have been a fine background for a management consultant (and I had classmates in the department who did just that). But I ultimately decided I didn’t want to be a business or management consultant, so I took a job as a teacher at the American International School in Cairo instead.

I returned from Cairo thinking I would study international affairs or international relations development, but I also realized I wanted to focus my studies on something measurable. In my case, that ended up being energy trade growth, and that’s where I ended up in graduate school.

When I graduated, I was looking for a job and I did not have the traditional technical skills that someone would need to work in energy at the time. Most people came from an engineering background, a physics background, or a finance background. However, I was one of a few people that had a background in development economics and climate science, which was useful in the fast-changing part of the global energy sector, so I managed to get hired by Ethan Zindler and Michael Liebreich, at what was called “New Energy Finance,” based in London (I worked from DC).

The trajectory for me and for our research firm followed a familiar arc: I focused on solar, we got acquired, and we became part of a much bigger company, Bloomberg. That’s when I moved to San Francisco, and then I continued to broaden out my research from there — more content direction roles, overseeing some of our custom work, and later four years of living and working in Asia before returning to the U.S.

MATSUI: Is that where your focus remains today?

BULLARD: I would say my role is divided into three equal parts. The first is our management committee. Our group has a small management committee, since the whole company is roughly 250 people. We support the business of BNEF, the research group. There is another third that is external facing, which includes channeling our work for senior clients into materials like a board briefing or a Bloomberg event. Finally, the last third is my weekly writing.

I developed that last part about seven years ago now. We were discussing new projects and my team asked me what I wanted to do. I said I want to write an email to people, but I want to send it to them on the weekend and I didn’t want to send it to everybody — I want to send it the boss of the people that we typically worked with. So, we put together a weekly briefing for executives that I sent out on Saturdays. I started out with a distribution of about 175 people, and it’s now grown to 160,000.

It’s hard to keep good information bounded, so we opened it up with subscriptions and then eventually moved to Bloomberg Opinion. Then about two years ago, Bloomberg began a new editorial vertical called Green, and the editors asked if I would join that vertical instead. That’s where we’ve been since then. Today, the email still has my name on it, but it includes a broader package of topics that we write about, including transportation, climate, finance, climate science.

LESSONS LEARNED & CURRENT TRENDS IN SOLAR

MATSUI: Over those years you’ve written about so many different angles on solar. What are your thoughts on how far we’ve come as an industry and what are the latest trends you’re seeing?

BULLARD: I’m perpetually trying to determine how far along the journey we are. I often try to think about the electricity sector in the United States as a whole and how renewables fits into that story. On the renewable energy side, for wind and solar specifically, we’re at about 10% of the total electric capacity. So, on a linear basis, there’s 90% of capacity left which might become wind or solar.

Now, we may run into limits of exactly how much of that capacity becomes renewables, because it’s not going to necessarily be 100%. Part of figuring out how much capacity becomes renewables hinges on whether we’ve done the groundwork to substantially decarbonize the global economy through other means.  

In terms of the latest trends, something I wrote about recently is the slowing of

“asset rotation” in the industry, which essentially means projects are changing hands less. This is happening, because the stable returns from renewables look positive on a balance sheet and companies are increasingly able to refinance their assets advantageously – some with the help of your Solar Revenue Put — to gain more capital without actually selling the project. It’s unclear how this will impact the industry in the long-term.

MATSUI: Any surprises, from the research?

BULLARD: Solar provides a very particular lens on thinking about the energy transition. It’s a field with an extraordinary amount of aggregate success and an extremely high specific failure rate. If we think about many of the companies that we would have dealt with a decade ago, more likely than not, they no longer exist due to acquisition or exiting the industry altogether.

Certainly, the history of the solar business was the aggregation of millions of marginal transformations, but it was generally the people with a bit of a crazy vision and the skills to implement that vision that succeeded. In retrospect, I think many companies survived by having allocated part of their vision to a particular part of their staff. Good developers were generally agnostic about technology, but absolutely rigorous about location, planning, permitting, money, all those kinds of details and making sure they had the right people to execute on them.

MATSUI: As a market watcher, what makes for good business in the renewables industry? 

BULLARD: That’s a great question. One of the advantages of solar and wind is that you might have locked up some land, but that does not preclude other people from employing sun or wind – it’s not an exclusive resource. However, being early is definitely beneficial. Being thoughtful about where you build a pipeline is good. Having capital helps, especially the ability to recycle capital if you’re an asset owner. Creditworthiness is big. The things I’m describing here are rather dull in the sense that these are attributes of other industries as well, like the real estate business.

MATSUI: Relatedly, what do you think makes for a sustainable competitive advantage that one can have in solar? Is there such a thing?

BULLARD: It’s a fundamental question. I think the combination of balance sheet, domain expertise, and human capital helps determine a company’s competitive advantage, although I’m not sure that any advantage will be perpetual. I think this sector as a whole has, outside of probably wind turbines, relatively little durable competitive advantage at a company level, but the renewables industry and solar, in particular, is still so young and a lot can change.

MATSUI: You’ve been watching the industry for a long time.  Can you remember times when people in the industry were right or wrong about where the industry was headed?

BULLARD:  Yes, definitely. Over a decade ago, everyone – including myself — believed that solar thermal would win out in power generation versus solar photovoltaic (PV). They were competing architectures and competing logics, if you will.

Solar thermal was a solar inflected version of industrial architecture. Downstream of the solar field, you basically maintained the same thermal-energetic system, so everyone in the sector was familiar with how that worked: you had a lot of things that were hot, you had things that rotated, and you had things that needed integration. The pitch for solar thermal was that the plants were very reliable and the grid operator could treat it like a gas plant.

On the other side was PV. PV was run with batch manufacturing in the early days, and then later on small scale manufacturing. It had measurable unit success, so you could look at each plant and measure cost and efficiency. The pitch for these projects was that the plant will be able to deliver some significant savings in time on large pieces of unused land.

As we know, PV won, because you could measure it, and it had a lot of visible iterations. Also, frankly, you had a lot of good sharing of information. We were able to find out more information about what was happening in the PV world.

In short, there was a competing logic of high frequency, low latency development on one side with mega projects on the other [solar thermal] side. It's been ten years now, yet I still return to this as my durable learning on logic — Megaprojects versus high volume manufacturing.

My other lesson from the PV versus thermal debate was about being perpetually on the margin. PV is the marginal new unit of power in almost any power system in the world right now. That means that it can be built at whatever scale is needed at the time and place – be it a gigawatt of capacity, or a module on a roof. That position, being on the margin, is a great place to be! You have the chance to try new things, to provide new products and services, to meet incremental demand growth and displace retiring capacity.

MATSUI:  What other innovations do you think enabled the growth of solar?

BULLARD: One of the biggest innovations happened in the polysilicon industry. Around 2004, solar panels were essentially using the offcuts of the semiconductor grade polysilicon industry. People started buying polysilicon at 5 or 6 “9s” purity levels for solar, rather than at 13 “9s” purity levels for chips for computers. The polysilicon product for solar was technically an inferior product, but the industry used it. It started as a small piece of a high-margin business, then became a separate business where that “inferior” product was being produced intentionally. The story of polysilicon and solar is a very classical disruptive innovation in that way.

Back then, solar only made up a small part of the polysilicon industry. I remember when we developed a tracker to identify when solar became the main driver on a volume basis for polysilicon. It was a while ago, but interestingly, we saw a similar pattern happening with lithium-ion batteries rotating their main demand driver from consumer electronics to vehicle applications.

PREDICTIONS FOR BATTERY STORAGE & HYDROGEN, THE NEXT FRONTIERS IN ENERGY

MATSUI: Has developing a framework for solar’s growth helped you in your other, more current iterations of technologies in the Energy Transition?

BULLARD:  Absolutely. I’m always thinking about the governing laws for different aspects of the industry. For instance, the wind sector has one set of governing laws, manufacturing has another, and so on. So, the companies that were the leaders in wind turbine manufacturers a decade ago are still the leaders. There are new ones, but there is sort of the industrial logic that that process hasn’t changed. As we look at the new technologies that are arriving, it’s worth us asking how they compare to existing technologies.

That kind of interrogation helps me think about the future of emerging technologies, like direct air capture. For example, I often ask myself questions like, “What’s the future of direct air capture? How many direct air capture units are we going to build? Are we going to have 200? 2,000? 200,000?” Any of those figures might work and they may even have similar economics, but the logic of getting there and the ownerships behind them will be very different. That’s when I use the PV-thermal metaphor I described earlier.

Lately, I’ve been using that line of thinking to investigate hydrogen specifically.  

MATSUI: What’s your take on how hydrogen will unfold?

BULLARD: I think what’s going to be the most interesting aspect to watch is the margin of competition, similar to solar PV and thermal. Three years ago, most people thought heavy-duty trucking would likely be molecular (e.g., liquid fuels), because that’s how we would energize these kinds of vehicles. What we’re now seeing, though, is that the molecular side does not move as fast as the electron side (e.g., electricity). So, now we’re seeing manufacturers producing high volumes of batteries and providing me a forward curve of what the batteries are going to cost in the future. This kind of behavior is obviously going to support the growth of the electron side and I think that’s where the industry is headed today.

CARRER ADVICE FOR RENEWABLES

MATSUI: What advice would you give to someone looking to get into renewables?

BULLARD: There are a lot of companies in this industry – both established and start-ups. So, my advice for people entering this sector is to ask yourself what needs to be true for the industry to thrive and from there, narrow down where their time and talents may be best suited.

So, I’m looking at a company, a technology, a sector. What needs to be true for it to be net zero emissions within its domain? Is that a question of science, a question of policy, a question of money?

Take policy for example. What kind of policies do we need to enact? Does the industry require a national net zero standard? Does it require a tax benefit? Does it require land access? Does it require intellectual property regulation? Then on the technical side, does it have a learning curve that we can measure, or might it? And again, back to my industrial logic, are there a small number of very large things, or a very large number of very small things that are going to make the industry move? The other factor to consider is competition. And then one might consider the type of people that are going to be attracted to this work.

Asking these questions can help people figure out which companies to target in their job search. There are lots of facts that need to be true for companies to be successful and impactful, and if you build it up your case in an evidentiary way, then I would encourage someone to try it out.

kWh Analytics expands Solar Revenue Put team

kWh Analytics has expanded its team to accelerate the adoption of the Solar Revenue Put with the addition of Sam Barton, Colin Schneider, and Alex Deng, three experienced business development professionals with significant knowledge of renewable energy project finance.

“2020 set a new record for market adoption of the Solar Revenue Put, which we believe will be exceeded in 2021. We are expanding our team to meet the needs of our clients within the hyper-competitive solar industry,” said Richard Matsui, Chief Executive Officer. “Our new hires’ insights will help advance the growth of the Solar Revenue Put and kWh Analytics’ position as the insurer for the Energy Transition.”

Sam Barton joined kWh Analytics from Silicon Valley Bank (SVB), where he served as Vice President of Project Finance. Previous to SVB, Sam held roles at Tesla and SolarCity, supporting structured finance for renewable energy projects. Sam brings over 10 years of experience in solar project finance and business development. He holds a BS in Environmental Engineering from the University of California, San Diego.

Colin Schneider joined kWh Analytics after serving as the Head of Solar Acquisitions at Gardner Capital and the Vice President of the Renewable Energy Infrastructure Group at Bridge Bank, a group he helped found. Colin has a wealth of experience leading the development of millions of dollars of solar assets over 10 years. He holds a BS in Finance from Santa Clara University.  

Alex Deng joined kWh Analytics from Advanced Power where he supported project finance, acquisitions, and development. Before Advanced Power, Alex worked at Soltage and the Glenfarne Group, supporting renewable energy project development and asset management. He also holds a BA in Economics from New York University. 

For more information on the kWh Analytics team, visit https://www.kwhanalytics.com/.

#Solar100's Alain Halimi: The John Madden of Clean Energy

Originally posted in Forbes.

In this edition #Solar100, Founder and CEO of kWh Analytics Richard Matsui speaks with Alain Halimi, Executive Director of Natural Resources and Energy at Commonwealth Bank of Australia.

Alain Halimi is known for his significant experience in clean energy financing. He has spent over 15 years supporting the development of renewable energy in the US and internationally and has provided his insights at numerous conferences over the years. Like John Madden, he’s coached and supported his teams on numerous successful clean energy deals and he’s a known color commentator in the industry.

In this Solar100, Alain Halimi weighs in on his experience financing renewable energy assets, how the renewable energy market has evolved over time, predictions for energy storage, and his thoughts on how the industry can continue to advance diversity and inclusion.

STARTING OFF IN RENEWABLE ENERGY FINANCING

Richard Matsui: You’re a Frenchman, working for an Australian bank, living in New York City, financing renewable energy. Can you talk me through how you ended up here?

Alain Halimi: I think that’s the way the world works now. Everything and everyone is becoming more and more integrated. It’s also a good reflection of what’s happening with the clean energy movement — it’s happening all over the world.

In terms of my career, I studied banking in college in France and found a job at a French-Belgian bank called Dexia. We actually started working on our first wind deals there in 2004-05. They were very active in clean energy at the time and were already closing 10 to 15 wind farm deals a year. Then, Dexia gave me the opportunity to move to the United States and I wanted the opportunity to learn about other international markets, so I came here in 2006.

Once I arrived in the US, I worked on my first wind deals. At the time the renewable energy market started to be fairly active with large wind projects due to the establishment of Renewable Portfolio Standard (RPS) targets and the Production Tax Credit (PTC). Then around 2010, I wanted to explore new industries, so I moved to BNP Paribas. There, my focus was more around natural resources. I had a great experience working there across Investment Banking and Debt Capital Markets, but in 2014, Commonwealth Bank of Australia (CBA) had an open position in its Natural Resources and Energy group. Given my experience at Dexia in clean energy and at BNP Paribas in Natural Resources, the role was a perfect fit.

Seven years later, the CBA platform has materially grown where we are now leading large wind, solar, and standalone battery storage projects across the US. CBA was an early mover in the space and at the forefront of this major energy transition. Over the years, we have been able to provide financing solutions assisting our clients to fund their renewable energy projects in the US.

RENEWABLE ENERGY FINANCING MARKET EVOLUTION

Matsui: How has the market evolved since ‘04?

Halimi: The market has evolved a lot in terms of competitiveness, understanding the technology, financial structure and risk appetite. Everyone from banks to equity investors have been getting up to speed, so financial institutions have increased their risk appetite over the years, especially given the historically strong track record the sector has experienced.

In the beginning, I remember we had to rely on only one year of data for some of the first wind farm deals we completed, and some of the assets we financed didn’t necessarily perform as planned; but, the market has certainly learned a lot from those early deals. Similarly, on the solar side, I remember working on my first solar project in 2008. It was an 11MW solar project and was probably considered one of the largest projects in the US at the time. However, over the past few years, solar projects have now become a key asset class within the renewables space with an average deal size of 150+MW. Additionally, the cost of solar modules has fallen by 94% over the past decade and is now undeniably one of the cost effective sources of power generation in the US.

Standalone battery storage is poised to follow a similar arc to solar, based on where the solar market was a decade ago. For example, the cost of lithium-ion batteries, has fallen by 86% and efficiency has grown dramatically over the same period. I think the industry will continue to grow quickly with larger scale battery projects, since storage is one of the key technologies and solutions available to green our power grid.

Matsui: There have been a lot of macro changes in the past year: we are in a global pandemic and now, we have the Biden administration pushing to deploy more renewables. How have the last 12 months impacted renewable energy financing and the market as a whole?

Halimi: Generally, the market has continued to grow. All industries are somewhat in competition with each other to attract capital, but in the past 12 months, even with everything that has happened, there has still been significant support for clean energy. That is just a reflection of a few factors. First, the renewable energy sector has historically been a solid asset class given its contracted nature and resilience to macro shocks. This asset class has been far less volatile than other asset classes, historically speaking. Those features have naturally attracted more capital. Second, there has been a growing awareness of the energy transition. COVID has certainly accelerated the trend to do more in the space and key players from governments to investors to boards have made a renewed commitment to taking the conversation to the next level. We are certainly at the beginning of a global energy transition and in the US, the industry will continue to grow an increasing share of the market within the power grid.

RENEWABLE ENERGY FINANCING TRENDS: PREDICTIONS FOR 2021 REFINANCINGS

Matsui: We recently surveyed lenders for our annual Lendscape update and interestingly, almost all the lenders said that they focused on financing new-build projects in 2020, rather than refinancing operating projects. Commonwealth Bank of Australia is an obvious exception, since we were fortunate to be able to work with you on a sizable refinancing last year. What role do you think refinancing will play for the rest of 2021?

Halimi: I think refinancing will likely play a bigger role in the market this year and next, since a lot of projects were built five to seven years ago and will be reaching the end of their loan terms. We track this closely.

On our side, we completed one sizable refinancing last year, but that happened because the sponsor simply wanted to optimize the terms and also ensure the credit aligned with the asset’s strong performance. We are working on another refinancing and we are looking at a few financing solutions to further optimize the structure for the developer, given the good performance of the underlying solar project. The Solar Revenue Put can certainly help to sharpen those returns for the sponsor and mitigate production risk for the lenders. For instance, on the refinancing we led, the Put allowed the sponsor to hedge themselves against energy production risk while optimizing underlying leverage. That was an effective solution and the process was fairly straightforward to execute on. The kWh team made that process simple for everyone, including the sponsor and the banks that were new to it.

THE NEXT FRONTIER IN FINANCING: ENERGY STORAGE

Matsui: For the most part, everyone agrees that storage is the next frontier, but there haven’t been many deals completed to-date. So, can you give me a snapshot of your perspective on storage today? What’s financeable and what’s not?

Halimi: Project financing for battery storage really varies based on the project.

One type of project is where you have co-located solar and storage and the solar assets feed the battery. For those deals, it’s generally straightforward to finance as it’s considered a fully integrated solution, so you can apply similar principles to wind or solar financing.

The second type of project is where the battery serves as a peaker plant. For instance, we recently closed a financing as a bilateral credit facility where the project is partially contracted with Southern California Edison (SCE) to install a standalone battery to act as a peaker to replace gas units. In this case, the challenge on the financing side is securing a revenue stream. You usually have a capacity contract with the utility, but that does not generate much revenue. The real revenue will come from arbitrage, but the challenge becomes figuring out how to buy and sell electricity from the battery at the right time.

So, that’s where we’re focusing on now – understanding the location of the asset, the market it will be operating in, how the developer is managing energy deployment and the software it plans to use for that process...etc.

LOOKING AHEAD

Matsui: Lastly, moving forward into 2021, we’re going to be asking everyone in the Solar100 series about racial equity in the solar industry. The thought is that the solar industry is of course important because of climate change, but it’s also important because of jobs—there are a lot of people who work in this industry or want to work in this industry. As a respected renewables leader, what are your thoughts on how the industry can continue to improve in this important area?

Halimi: I agree that is an important topic to discuss. In clean energy, there’s a huge value chain – from manufacturing to operations to finance – which requires a lot of different types of expertise and all together, can bring social justice with economic advantages to local communities.

Our economy has been reliant on fossil fuel and that has had significant impacts on the health and pollution of communities, particularly those that have already suffered from other negative socioeconomic factors. The renewable energy sector can be a key tool, not only by contributing to the energy transition, but also in providing opportunities and support for those that the fossil fuel industry has impacted by offering access to affordable and safe power.

So far, the industry has been a key job creator and has provided opportunities for training throughout the entire value chain. The industry has also enabled entrepreneurship opportunities, although we could do additional work to ensure these opportunities are equitable and fair to everyone. There have been some positive initiatives in the US to support diversity and inclusion, including dedicated funding and tax credits for Opportunity Zones and initiatives from industry groups such as the Solar Energy Industries Association (SEIA) and American Council on Renewable Energy (ACORE). Also, some developers have made direct commitments and specific targets to build a diverse and inclusive workforce. 

However, a lot more still needs to be done. Although the level of awareness has increased, this needs to be translated into action. Trying to use examples from other industries, one idea that may improve equity is to offer asset ownership to local communities to build equity and align interests. Companies and governments should also work together to invest in developing a more diverse, equitable and inclusive workforce by creating a culture of inclusivity and accountability.

Norton Rose Fulbright's Project Finance NewsWire

Originally posted in NRF’s Project Finance NewsWire April 2021 edition by Keith Martin.

About 15% of US solar projects will reach the end of the recapture period for investment tax credits this year, presenting opportunities for private equity and pension funds looking to buy assets and for lenders looking to do refinancings. Many US solar projects are financed in the tax equity market.

Tax equity accounts for roughly 35% of the capital stack in a typical solar project, plus or minus 5%. A sale of a project within the first five years after it is put in service will cause part of the investment tax credit claimed on the project to have to be repaid to the US Treasury. This lock-in effect makes it hard to sell such projects directly for at least five years. However, private equity and pension funds can still buy the developer interest without triggering significant recapture in cases where projects have been financed with tax equity to the extent the tax equity papers allow the developer to shed its interest during that period. The sale of the developer interest usually triggers recapture at most of only 1% of the investment tax credit claimed.

kWh Analytics expects more refinancings of large solar projects in the next few years as solar projects that were installed in the last five years start to roll off tax equity financings. Its Lendscape survey of solar project finance lenders in March found that little to none of their business in 2020 was refinancings. About 14,000 megawatts of projects were put in service in 2016. Seventy-nine percent of lenders surveyed said that their spreads on loans are currently at or below pre-COVID levels.

#Solar100's Audrey Lee: The Marie Curie of Clean Energy

Originally posted on Forbes. In this edition of #Solar100, CEO and founder of kWh Analytics Richard Matsui speaks with Clean Energy For Biden co-chair, ArcLight Clean Transition director, and senior director of energy strategy at Microsoft, Audrey Lee.

Audrey Lee is known for her significant public and private sector impact on the clean energy and sustainability industry. Like Marie Curie, Audrey has channeled her scientific background into developing practical and actionable solutions for the industry’s toughest challenges. Her career highlights include co-founding Clean Energy For Biden and serving as a senior executive for notable industry brands, like Sunrun, Proterra (via ArcLight), and now, Microsoft’s energy team.

In this Solar100, Audrey Lee weighs in on her experience mobilizing nationwide support for Clean Energy For Biden, identifying target companies for ESG-focused Special Purpose Acquisition Companies (SPACs), and her advice for building a career in renewables.
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INSPIRATION FOR WORKING IN THE ENERGY INDUSTRY

Richard Matsui:   Starting from the beginning -- I saw that you started off in physics and then went on to receive your doctorate in electrical engineering. What inspired you to get started in energy in particular? 

Audrey Lee: In grad school, I wanted to do something in sustainability. At that time, there was only one professor in my department working on solar cells, and it was hard to find something to do in that space. So, I started talking to people in the public policy school at Princeton and really got into energy policy.  

What attracted me to energy is that it’s just so critical to society and the economy; it’s a basic piece of infrastructure. There is a great opportunity within the energy industry to take basic infrastructure and be able to put in new technology to make it more sustainable, and I think that’s a basic requirement for the electricity grid: you want it to be both sustainable and reliable. Also, you want customers to have a choice in the kind of energy that they’re getting. 

Matsui:  Building on that sense of dualism and thinking about your career, I noticed you’ve held roles in both the public and private sector. How do you think one sector informs the other and vice versa?

Lee: Because energy is such a regulated industry, I don’t think you can disentangle the public and the private sector. And for our industry to grow, I think we need more exchange between the two. 

CLEAN ENERGY FOR BIDEN

Matsui: You’re currently a co-chair for Clean Energy For Biden. Can you give a brief overview of the organization and what you’re trying to achieve?

Lee: Honestly, we were a bunch of people in the clean energy industry that wanted to see Biden elected, really just a loose network of business leaders and advocates. Our goal was to advance policies, technologies, and investment to address climate change.

We had three simple goals: one was fundraising, two was to get out the vote, and three was policy. We started around April with just a handful of us, when it became apparent that Biden would be the Democratic nominee. Since then, we’ve grown to 15,000 members.

Matsui: That’s incredible! At least ten times more than I would have guessed.

Lee: Yeah! It’s a testament to how much the clean energy industry has grown. It’s been really awesome to see the response.

What makes Clean Energy For Biden unique is how grassroots it is and how we’ve gotten so many volunteers involved. We’ve had hundreds of volunteers helping us organize. 

In total, we raised more than $3.2 million and had more than 100 fundraisers. We also have 30 state and affinity teams across the country. Because the policies from different states and different regions can be so different, and what clean energy means in different states can be different as well, we wanted to make sure we had that regional representation in our teams. How the teams organized and talked to voters was really important. 

Then, we made an announcement at our Inaugural Ball that we’re transitioning to Clean Energy For America. So, now we’re hiring a CEO while trying to keep that grassroots and matrixed national and regional team structure.

Matsui: I come from a background in diplomacy, and one of the things you learn in diplomacy is that there’s a fundamental tension in coalition building. To some extent, you want the biggest tent possible. But it’s also true that the bigger the tent, the harder it is to actually get stuff done. So with that line of thinking -- what are the priorities that this group would want the Biden administration to execute? 

Lee: That’s a very good question, and I’m going to encourage you and many others to join and help us figure it out!  We want to keep that grassroots nature of the organization and work with our volunteers to decide how we can continue to be impactful  – choosing which elections to engage in, advocating for clean energy policy, and educating the public about clean energy. We also plan to raise funding to support resources for these grassroots teams. 

Matsui: To your point, it’s surprising to hear that this grew from ten people in a room to 15,000. Any experiences there that surprised you, given the diversity of people and regions participating in Clean Energy for Biden? 

Lee: Actually, it was only six people on a Zoom call at the end of March 2020. 

Yes, I think you can look at what we did for the Georgia Senate Race. After the election in November, we provided support for the runoff and the messaging there was directed to that audience. We already had an existing Georgia team that was organized to elect Biden, and we were sensitive to what would be successful there to elect the two Democratic candidates for Senate. 

For instance, when you phone bank in the south, it’s better to call someone ‘sir’ or ‘miss’ and be very polite and call them by their last name. Usually in the scripts, you don’t use genders; you say their first name. You say, ‘Hello, Jane.’ But in the south, it should be ‘Hello, Mrs. Smith.’ So, it was the little things like that that we learned from the Georgia team.

Matsui: A good friend from college was recently elected in Georgia, and I’ve been surprised to learn that when it comes to clean energy, that my home state of Hawaii and Georgia actually share a lot in common. Everyone wants good jobs and clean air.

SPECIAL PURPOSE ACQUISITION COMPANIES (SPACs)

Matsui:  In addition to being a part of Clean Energy for Biden, you’re a board member on ArcLight’s SPAC.  SPACs are making big waves in our industry. Based on your experience at ArcLight, what type of company makes for a good target for a SPAC nowadays?

Lee: ArcLight Clean Transition went public in September of last year, and when we came out, our goal was to identify and take public a leading clean energy or sustainability company. We had raised $278 million and we were looking for a company around the $750 million to $2.5 billion valuation range. 

We are very excited about our transaction with Proterra, a leader in commercial vehicle electrification. Under the agreed deal, the company was valued at $1.6 billion enterprise value and we raised an additional $415 million, meaning that Proterra will have $825 million in cash to continue to invest in the business.

What’s really exciting about Proterra is that it’s not just about electric buses. They have Proterra Transit, as well as Proterra Powered, which provides power train and battery packs for vehicles, and also Proterra Energy, which provides charging infrastructure management. And so, if you look at their public documents, you can see that a lot of the growth opportunity is not just in electric buses, but also these other areas. 

Matsui: Right. But there’s such a wide range of companies getting support from SPACs right now. Can you expand upon the criteria that people in your shoes are using other than valuation? Shayle Kann from EIP says that there has been 40 SPAC mergers in climate tech announced so far.

Lee:  I can’t speak for other SPACs, but we looked for strong revenue growth, a large near-term order backlog that gave us financial performance visibility, and a clear plan for profitable growth. Additionally, we assessed how the target would use the proceeds to accelerate their growth. I recommend looking at the Proterra/ArcLight investor deck to see how Proterra answered these questions. 

Another, probably obvious, thing to note is that SPACs turn private companies into public ones. So, part of our role is looking for companies that public investors can understand and want to invest in. From that perspective, electric vehicles are not too esoteric. 

Matsui: Following that line of thinking, my impression is that the ESG SPACs have first chosen to invest in electric vehicle (EV) space. I suppose EVs are easy for a retail investor to understand -- thanks to Telsa -- but I would have thought that solar would be equally easy. Do you have any thoughts as to why SPAC investment in solar appears to be a step behind? What does that say about what SPACs tend to be looking for?

Lee: The SPAC phenomenon has come upon us so quickly that everyone is trying to learn about them and understand whether it’s the right fit for their company and for what the company wants to do to grow. So, I think part of it is letting the whole SPAC formula catch up. 

Matsui: I can understand that. What structural changes do you think the SPAC trend will cause in our industry?

Lee: I personally see it related to the momentum that we are gaining in terms of addressing climate change.  I think there’s real hope that we will be more ambitious in passing climate change policy and developing more clean energy, and that excitement is related to the excitement in investing in clean energy.  

I’m also seeing investors rethink their approach. Firms generally have an approach for investing in oil and gas or even utility-scale renewables. But, they now need to think about how our electricity grid and transportation is going to evolve and how distributed energy and all these other types of resources will interact. This adds complexity for investors, because it’s not like investing in a centralized power plant. This means we need to develop new investment mechanisms for these new types of technologies, because we see this clean energy transition coming.

If you take a firm like ArcLight, which has traditionally invested in gas or large-scale utility and wind assets, they have an infrastructure fund to do that. And in this case, by using a SPAC, the firm had the ability to invest in software, services, and technology in the energy space that their traditional infrastructure fund can’t invest in. 

MOVING FORWARD: ADVICE FOR YOUNG PROFESSIONALS & INDUSTRY OUTLOOK ON DEI

Matsui:  What lessons learned from your career can you share with young professionals looking to work in clean energy?

Lee: Honestly, I found it challenging to join the private sector from the public sector, because I didn’t have any product or business development experience in my resume. People didn’t really know what to do with the skills that I had in public policy and government. Luckily, Susan Kennedy also had a background in government and recognized how transferrable my skills could be. And that was a great opportunity to be able to prove myself, to be able to make that shift.

I also think being at a start-up was great, because I was able to wear many hats. I was the first employee at AMS, and I learned so much. Being at a smaller company was a great way to prove myself. Then Sunrun recruited me to work on their technology platform and more and my previous experience gave me the authority to run the P&L (profit and loss) for energy services there, expanding my responsibilities from data science, software, and product to business development, go to market, and financing. 

My advice is to pursue what you’re curious about. I want to learn new things and learn new skills. I think what I found challenging in graduate school is that I didn’t get a lot of exposure to what’s possible -- what you see around you is academia. And so, I had to push myself to talk to people. I would cold call people, get informational interviews, and try to understand how the world outside academia works. I probably interviewed a hundred people. So for those earlier in their career, don’t be shy! People love to give unsolicited advice.

Having my doctorate was a nice credential on my resume as well. I remember I was at a dinner meeting in Texas with about 80 people and people at my table said, “You look 18...You have  Ph.D.!? Okay maybe you’re 22... You have two children!?... Okay maybe you’re 25.” I was 39.

Matsui: I personally run into a similar problem, and honestly, I don’t have a great solution to it. Do you have any recommendations about how to approach those situations?

Lee:  I try to launch into the discussion immediately. I like to get in front of the whiteboard and start solving some problems together. It can be annoying in the first five minutes when you’re exchanging pleasantries and people think that I’m an assistant, but then I can get into the subject and quickly disbar that.

Especially in the energy industry where you have people with decades of experience, it becomes a question about how can you learn from people with that experience, while also bringing in new ideas and new models. Having diversity helps with that.

Matsui: Certainly. Do you see any group modeling the kind of behavior that you think the industry should be adopting in terms of DEI?

Lee:  I think you can take my experience being on the board of ArcLight Clean, which is a public company in a way, although not a standard public company. Generally, the standard mold for a board of directors is to look for someone with decades of experience -- an ex-CEO or CFO -- and instead, I’ve been given this great opportunity to join the board and provide my perspective as someone with a greater understanding of the customer, the technology, and policy and the implications of that. In that sense, I think board diversity will continue to be really important. 

Going back to our discussion about my early career and how I wanted to work on sustainability and I didn’t know how, reminds me of what’s great about our industry: we come from all sorts of backgrounds and it’s important to continue to add more diversity.

CleanCapital's Expert's Only Episode 87 with Jason Kaminsky

Our COO, Jason Kaminsky, joined Clean Capital for an episode of Expert’s Only. He discusses the next phase of solar and best practices to use data to better manage assets and ensure predictable revenue. Jason and Jon spoke about the next phase of solar and the cutting edge advancements they’re making in data management.

“Our team enjoys working closely with kWh, as they’re a market leader in solar risk management, and we’re thrilled to welcome Jason to the show.” - Jon Powers, Clean Capital

Norton Rose Fulbright's Currents Episode 149 - 2020 Lendscape Updates: the Refinancing Boom

Our CEO, Richard Matsui, joins NRF Currents for an update on the Solar Lendscape. He covers what is new in tax equity, gives a breakdown of three trends he is seeing on the lender side and an update on the underperformance of solar projects that was uncovered in the Solar Generation Index, explains how underperformance might affect refinancing and more.

Underperforming solar assets shade the entire industry. Here is how to fix it.

Full article by Brian Lynch available in PV Magazine.

Underscoring what some call the solar industry’s “systemic overestimation bias,” kWh Analytics found that the average solar asset underperformed its target weather-adjusted production by 6.3% between 2016 and 2019 (early life); one-quarter of the projects that were studied missed their production targets by more than 10% after accounting for weather.

These data points are unsettling, but are they surprising? After all, what accounts for the industry’s overly optimistic bias towards over production?

In short, self-interest. When the developer, EPC company, and long-term owner are all financially motivated to assume generous production, they generally will. The inevitability of real-world data crashing this party was bound to happen.

A recent IEA renewables report reiterates how solar has evolved beyond being an accessory in the nation’s energy mix to being the lowest-cost, highest-growth energy generation source going forward.

This inflection point represents an opportunity for the industry to shift its attention away from constant cost-out and toward putting our collective effort into building projects that reliably generate cost-effective clean energy.

The ever-increasing deployment of solar assets can’t be contained. For the health of the whole industry, we owe it to ourselves to deploy better projects.

Climate Change is Tightening Insurance Markets. That's No Good for the Solar Industry

Originally published on Greentech Media by Emma Foehringer Merchant.

In the spring of 2019, the sky in parts of West Texas opened up, in some areas dropping hailstones as big as baseballs, according to the National Weather Service. Beyond cracking car windows and damaging rooftops, the hailstorm struck a 180-megawatt solar project developed by 174 Power Global, causing an estimated $70 million to $80 million in damages as ice smashed the project’s panels, made by Hanwha Q Cells.

The event got the insurance market’s attention.  

“That’s really when the market changed overnight,” said Sara Kane, a senior vice president overseeing energy risk management at insurance broker Beecher Carlson.

Solar came up at a time when insurance was relatively affordable and easy to procure. Insurance was never an insignificant cost for developers, according to a 2010 report from the National Renewable Energy Laboratory (NREL). But it’s gotten significantly more expensive in recent years as natural disasters exacerbated by climate change have proliferated. Hurricanes have soaked the South and wildfires have destroyed property in the West, compelling insurers to reckon with what experts say are years' worth of underpricing the risk of damages.

From the end of 2019 to the first part of 2020, property insurance premiums rose between 10 percent and 60 percent, according to the Insurance Information Institute. The change has been particularly acute for solar. Premiums have increased by as much as 400 percent in the last two years, according to a recent analysis by two companies that specialize in analyzing solar risk, kWh Analytics and Stance Renewable Risk Partners.

How insurance will function in a climate-change-impacted future is an open question that policymakers across the United States are now mulling. But there's a distinct paradox in the threat of rising insurance costs hampering solar growth. 

“It would be ironic if one of the possible fixes for climate change can’t move forward just because it can’t get insurance,” said Keith Martin, a transactional lawyer at law firm Norton Rose Fulbright.

Solar, climate change and a hardening insurance market

Simply put, the insurance industry makes money by receiving more in premium payments than it has to pay out in claims. To do so, insurers analyze the risk associated with certain properties and price premiums accordingly. (While there are different types of solar insurance, this article focuses on property insurance, which protects projects from physical damage.)

Because the probability that something will go catastrophically — and expensively — awry is relatively slim for an entire portfolio of projects, insurers can generally make a profit by charging clients premiums and paying out a lower amount of money in claims.  

But in recent years, insurers haven’t seen the level of profits they’d like. So they’ve begun to charge higher premiums, a change in the industry that’s called a “hardening” market. Climate change is expected to sharpen that trend because damages will become more likely.

Within the group of insurers that underwrite solar projects, there’s also been a growing realization of the threats to such projects. Many experts cite the 2019 West Texas hail case as the impetus, but wildfires in California and natural disasters elsewhere have also raised concerns.  

“The view was, for solar specifically, ‘Oh, this stuff just [sits] there. What can really happen?” said Kane, who previously worked as an underwriter for renewable energy projects.

Now, insurers have a greater understanding of physical threats to renewables projects and are correcting for what Kane called “unsophisticated underwriting in the beginning.”

“Honestly, losses have caught up with us,” she said.

A hard market doesn’t usually last forever, but climate change — at least given the current policy environment — is not a problem that’s going away. And experts like Kane and Sam Jensen, a Stance co-founder, say costs aren’t likely to get much more affordable.  

“It’s safe to say, at least in our opinion, that those days are over,” said Jensen.

The current market has created numerous limitations for solar developers and financiers.

Natural-catastrophe-related sublimits (part of an insurance policy that defines coverage on certain types of losses) have shrunk, said Jordan Newman, a managing director at Wells Fargo that works on the bank’s tax equity investments for renewables. That means "the amount of coverage in dollars that you’re able to achieve has gotten lower and costs more,” he said. 

With lower sublimits, banks are seeing an uptick in the number of developers asking for waivers on insurance coverage. And since projects must re-insure each year, even in-service installations are navigating these challenges.

Banks are also giving more scrutiny to the track record of the developer and the location of the project. Financiers and insurers are wary of having too much exposure in one region, especially if it has known natural disaster potential, as almost every region of the United States now does.

Changing underwriting

Taken together, the limitations could impact where developers can site projects in order to guarantee adequate insurance and funding. The situation also calls for a re-evaluation of risk for investors and insurers, experts said.

Developers or an independent testing body will have to work to help insurers understand risk mitigation in solar, in part through better data analysis. Insurers currently pay more attention to location than technology choice.    

“Any new generation of technology is being insured assuming the history of that technology,” said Amy Schwab, a senior project leader at the National Renewable Energy Laboratory and the lead author on a December 2020 report on insuring PV. “It always takes a while for insurance rates to catch up.”

If building out clean energy is a political priority, the federal government may also need to act as “insurer of last resort,” as it does for some flood insurance, said Martin at Norton Rose Fulbright. 

The disastrous weather in Texas that cut electricity for millions in February is the most recent example of climate change’s potential to disrupt clean electricity. Though natural gas accounted for the majority of generation that went offline during the severe cold, Kane said many of Beecher Carlson’s renewables clients have reached out regarding business-interruption insurance. The event may add fuel to insurer concerns about underwriting renewables.

“Any large-scale weather event that reeks of climate change in that it’s unusual and that it’s severe will absolutely trickle its way into underwriting consideration,” she said.

Navigating those challenges will be essential for continued solar growth, a key aspect of the Biden administration's agenda on climate action.  

While climate impacts “are going to be felt across the entire economy,” said Kane, “it feels like a little bit of salt in the wound because the renewable industry is trying to help and getting dinged in the same way as industries that are not actually part of the solution.”