Alternative Energy: A Maturing Renewables Industry

Originally posted in Credit Suisse Alternative Energy Report, authored by Michael Weinstein, Maheep Mandloi, Khanh Nguyen.

“We attended the Renewable Energy Finance Forum Wall Street (REFF) this week in New York. The event was attended by lenders, tax equity providers, and major renewable developers.

More Discussions Around Shorter PPAs and Merchant Risk: Over the past year, we have been observing more discussions regarding shorter PPAs (10-15 years) among tax equity and debt providers, especially as 20-year wind and solar contracts are now below $20/MWh (wind) and <$25/MWh (solar) and cheaper than other technologies/merchant markets. Many investors are now more comfortable with merchant power risk, though most still need insurance products to cover unhedgable long term weather and basis risk.
 
Debt coverage ratios improving: Debt coverage ratio for large scale solar projects has come down from 1.3x last year to 1.25x without any insurance, and to 1.1x for P50 insurance (which guarantees energy production).”

Data Begins Insuring Output for Solar Systems in Virginia

Originally posted in The Energy Fix.

A new, data-driven, service backing two large solar systems in Virginia promises to ensure systems deliver at least 95% of their projected output.

The service is a “solar put.” It was developed by kWh Analytics in Silicon Valley for Coronal Energy and its clients Dominion Energy and the Central Virginia Electric Cooperative.

Solar developers can buy solar puts on their systems to persuade banks and other institutions to help finance the siting, permitting, construction and deployment costs.

The actual insurance product is housed at Swiss Re, the giant wholesale re-insurance company based in Zurich, Switzerland. With at least 95% of a system’s output ensured, the risk of a system underperforming for weather or any technical or equipment mishaps shifts from the developer to Swiss Re and its AA- credit rating.

This way, said Richard Matsui, founder and CEO of kWh Analytics, “banks can provide better financing terms to the solar developer and help the developer get more money out of their asset.”

In what has been the solar-challenged Southeast U.S., solar puts are poised to help developers overcome the still somewhat stubborn culture favoring monopoly utilities’ preference for natural gas and nuclear generation and early financing hurdles which are now further complicated by tariffs on steel and solar panels imposed by the Trump administration. At the same time, solar suddenly is in a position to help fill the void created by the failed construction of two nuclear reactors in South Carolina and utilities’ struggles to maintain the viability of their nuclear fleets.

Matsui conceived the idea of a solar put in early 2017. He and his colleagues began collecting data on how large solar systems were performing anywhere they could capture it.

“Every asset class has a third-party repository on how that asset class performs,” Matsui said. “Without that repository, it is very hard for investors to understand and trust how those assets are performing.”

Solar puts helped develop the 10 MW Martin Palmer Solar Center for the Central Virginia Electric Cooperative. CREDIT: Central Virginia Electric Cooperative

As 2017 came to close, kWh said it had collected data on how about 20% of the solar systems in the U.S. are performing from roughly 100 different solar system owners and equipment suppliers. “We are the only guys in the industry with this actuarial perspective so we set out to convince insurance companies how solar works,” Matsui said.

In making sales calls and speaking at various solar power conferences, Matsui said he kept running into Ed Feo, president of Coronal Energy. Feo said he grasped the concept quickly and deployed for Power Purchase Agreements to sell the output of its 10 MW Martin Palmer Solar Center to the Central Virginia Electric Cooperative (commissioned May 22) and power from its 20 MW Essex Solar Center to Dominion Energy in Eastern Virginia.

“Broadly speaking,” said Matsui, “insurance pricing is somewhat analogous to other more familiar forms of insurance, e.g. car insurance.

“When insuring a car, the insurance company needs to know the age of the driver, how many years they’ve had a license, past driving history, etc. The insurance company can’t tell you the formula. But they can tell you what factors go into pricing and what they’re going to insure.”

“Our pricing formula is structured accordingly,” Matsui explained. “We use physics modeling and our data repository of solar project data.” This includes location, hardware, installer and past performance.

This slide captures the essence of a solar put. CREDIT kWh Analytics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At the recent Solar Power Southeast conference in Atlanta, Matsui said kWh serves “50% of the tax equity market with four of the top seven investors.” They include Google and clients of US Bank and PNC Bank.

Tax equity is money that for-profit companies are willing spend in buying solar systems and the tax credits that come with them to offset their tax liability.

California and the Southwest Excel in New Ranking of Top Performing Solar Projects

A new analysis from kWh Analytics provides a benchmark for solar project output around the country.

Originally posted on Greentech Media.

A first of its kind dataset from kWh Analytics ranking production at individual solar power plants around the country, indicates that California and the Southwest still have the upper hand in solar energy output.

California in particular far outpaced any competition. Among the top ten solar states by highest performing projects, 43 of the 70 plants were located in California.

Those results are not entirely surprising, but MJ Shiao, global lead of renewables and emerging technology at Wood Mackenzie, said the transparency behind sharing the data is a boon to the industry.

“While you can look at these results and say that they’re pretty obvious, i.e. single-axis trackers in high insolation areas produce best, I think the real accomplishment is having a single platform to host and compare real performance — and being willing to share that with the industry,” he said. “More transparency into actual asset performance across multiple owners and project types is welcome and necessary to ensure that solar continues to actualize its promise as a long-term clean energy generation source.”

kWh Analytics and partner the Solar Finance Council said the report could increase investor confidence in project finance, as well as offer operators and developers concrete benchmarks to meet industry standards.

“The solar industry has grown tremendously, and our understanding of asset performance must grow as well,” said Mike Mendelsohn, executive director at the newly-formed Solar Finance Council. “This report provides investors critical insight on solar technology performance and can help lower the cost of capital for the broad solar sector.”

Areas favored in the rankings obviously get more annual sunlight than northern regions in the United States and Shiao said he would have liked to see adjustments for insolation. A further breakdown by region did offer some insight on the top-performing projects located around the country.

In the Northwest, Oregon claimed four of five top-performing projects. In the Midwest, Indiana came away with six of ten top-performing projects. And all of the top-performing projects in the Northeast were located in New Jersey.

kWh Analytics also divided the rankings between tracker and fixed-tilt, because trackers can increase a facility’s yield by 20 percent.

According to the analysis, the top-producing tracker projects produced at least 2,180 megawatts-hour/megawatt peak, while the top fixed-tilt projects produced a minimum of just 1,500 megawatt-hour/megawatt peak. The use of trackers remains more common in the Southwest and South, offering those projects an edge in output.

 Source: kWh Analytics

While the Southwest dominated in both tracker and fixed-tilt project output, the spread was more evenly shared with the South for fixed-tilt projects.

 Source: kWh Analytics

The report is the first from the Solar Finance Council, which announced its formation just last week. It cited a mission to lower the cost of capital and encourage new investors in the solar space.

In the announcement of the group’s formation, Mendelsohn — previously of the Solar Energy Industries Association — said “the industry needs to find new and larger sources of capital, and to do so, improve investor confidence that solar assets produce energy and long-term cash flows as originally projected.”

The Solar Finance Council said it would help achieve these goals through research and data distribution, so it’s likely more partnerships are to come.

“To meet the extraordinary challenge before us, solar needs to be on every rooftop in the country,” said Mendelsohn in a statement. “That is going to require a lot of investment capital as well as critical cost reductions through improvements in consistency and quality in project development. The SFC is designed to facilitate the cross-functional industry organization necessary to make that happen.”

kWh Analytics and Solar Finance Council Release the Industry’s First ‘Asset League Tables’

Featured coverage: Greentech Media, Solar Power World.

To highlight accomplishments in the solar industry, avail stakeholders of quality performance benchmarks, and encourage adoption of data best practices, kWh Analytics partnered with the Solar Finance Council to present the industry’s first “Asset League Tables” report, published today.

Drawing from kWh Analytics’ data repository, this report includes an overview of solar project performance, performance benchmarks, and an alphabetized list of the industry’s top performing solar projects at both the national and regional levels.

Download the complete report here: http://www.kwhanalytics.com/wp-content/uploads/2018/05/Solar-Asset-League-Tables-May-2018-Final.pdf

The Asset League Tables will be refreshed later this year to reflect updated data. While we make our best efforts to include all assets in our evaluation for inclusion in the Asset League Tables, there are projects for which we have incomplete data or are missing data altogether. To ensure all projects are provided an opportunity for inclusion in the Asset League Tables, sponsors are encouraged to submit projects with 2017 production data for evaluation. From now until July 2nd, sponsors should contact leaguetables@kwhanalytics.com in order to: 1. Verify that the kWh Analytics’ data record of their assets is accurate and complete, or 2. Submit performance data for review and inclusion in the updated Asset League Tables. As an additional incentive, all sponsors that submit projects for review will be provided more detailed benchmarking against the entire, anonymized data set. Only the top performing assets will be highlighted in the next revision of the Asset League Tables.

The submission file can be found here: Solar-Asset-League-Tables-data-submission

kWh Analytics tracks $8 billion in U.S. solar deals so far in 2018

Originally posted on pv magazine USA. The Spring DealFlow report from kWh Analytics highlighted 17 Asset Transactions and 19 Asset Financings deals year to date.

kWh Analytics Spring 2018 DealFlow available here.

If solar and wind are going to scale to supply most of the power on the U.S. power grid, they are going to need massive sums of capital. And we are starting to see evidence of that scaling.

One piece of evidence is a high rate of increase in the amount of electricity coming from solar power. In 2017 we saw total electricity delivered by solar photovoltaics increase by 43% year-over-year. Another piece of evidence is the sheer volume of investment. Globally, we saw 7.7 GW of assets change hands in Q1’2018.

Focused on the United States, the kWh Analytics’ Spring DealFlow Report gives high-level details on 36 projects that have closed since the start of 2018. 17 of the projects are characterized as asset transactions and 19 projects as asset financings. The 21 projects that disclosed financials represented more than $8 billion in deals.

A majority of the asset transactions did not disclose financials, and truly, browsing the list is really a who’s-who of solar developing. NextEra and NRG topped the list with big deals selling off large asset portfolios. SunPower managed to squeak a 918 kW onto the list as well.

While some might consider New York State’s projected $1.4 billion from a future 22 projects to be delivered by 2022 a bit far out to be considered on this list, it may be appropriate as the bids are due by October of this year and companies have already spent money on developing at least some of the sites that will land contracts.

Along with Governor Cuomo’s contributions are 18 other projects, some of which are shown above, with close to $4 billion in funding. Some of these investments were covered by pv magazine, such as Dividend, Ares and Sunlight.

Some estimates suggest the world needs to see $1 trillion per year in clean energy investment to stave off a 2°C increase in global temperatures. We have a long way to go, and it is the rate of scaling that will be critical.

#Solar100’s Shayle Kann: The Malcolm Gladwell of Clean Energy

Originally posted on pv magazine USA. Richard Matsui, Founder & CEO of kWh Analytics, speaks with Shayle Kann, Senior Vice President of Research & Strategy at Energy Impact Partners.

Shayle Kann is clean energy’s own dedicated Malcolm Gladwell.

Throughout his career, Kann has prioritized the ability to be “curious, analytical, and a storyteller.” He has made it his job to understand the whole industry.

And as former head of GTM Research, how Shayle Kann thinks about a subject has for the past decade of his career shaped how the broader solar industry thinks about a subject. Ideas like solar + storage soon arriving to compete with gas peakers and viral stats like the one President Obama used in his 2014 State of the Union speech (that the U.S. installs a solar project every four minutes) can be traced back to Kann’s work.

He’s also a living example of Gladwell’s ‘10,000 hour rule’—a decade into his energy career, Kann is widely regarded as an expert on not just solar, but how the broader electric industry operates.

In this interview, Kann discusses how he chose his current role at EIP, Greentech Media as a startup, and the solar industry’s ‘Next Frontier.’

Starting in Energy

Richard Matsui: Many people are familiar with your story while at GTM. Prior to that, how did you first get into energy?

Shayle Kann: I got into energy in college through a class called ‘Strategic Natural Resources.’ We read Dan Yergin’s book The Prize and I discovered a whole world out there called “Energy” that was undergoing dramatic transformation. It just hooked me. I found it utterly fascinating.

At that point, I was a psychology major. It was too late for me to change my major without an extra semester I couldn’t afford, so I tailored my major. I ended up studying the psychology of energy behavior, which is this subset of psychology that looks at the types of behavioral interventions that actually get people to change their actions with regard to energy. The big revelation in the psychology literature at the time was that you can tell people as much as you want about how much energy they consume and all the reasons why they should conserve, but that has virtually zero statistical impact on their actual consumption.

Richard Matsui: Don’t tell Opower.

Shayle Kann: But, tell people what their neighbors are consuming, and it does have a statistical effect. Of course, this came before Opower, and that has become the backing to what ultimately became Opower’s model.

Richard Matsui: Right, fair point.

Shayle Kann: After my entry into energy, I took a course taught by a semi-retired Southern California Edison regulatory executive on utility regulation and discovered that I was actually even more interested in utilities and utility regulation. As a result, after I graduated, I went to work at the California Public Utilities Commission. I quickly discovered that I am not meant to be a regulator. However, I learned a lot, and still to this day utilize insights that I gained from my very brief period working there. Understanding how the regulatory process works is invaluable.

In 2007 I received a Fulbright grant to go to Australia. I ended up doing academic research on wind project finance during a credit crunch, essentially asking how you finance incredibly capital-intensive assets when there’s no money. I spent about a year researching, travelling around Australia, and watching kangaroos hop in front of my house (no joke).

When I came back in 2009, I randomly stumbled across GTM when it was a ten-person startup. From there I sort of discovered that market analysis is something for which I have both a passion and a talent.

 

GTM as a Startup

Richard Matsui: When we were first connected during my McKinsey days ten years ago, I remember buying reports from both GTM and Photon Consulting. Back then I would give the edge—sometimes a significant edge—to Photon. What helped GTM, as the underdog startup, to succeed?

Shayle Kann: One thing that was always true for us, whether in comparison to Photon or other competitors later: we never had the most resources. Without as many people to dedicate, we were not as global in scope as some of our competitors. We figured that we could add value by identifying a few specific areas of frothiness and confusion and dedicating attention to quantifying what was happening, identifying the players, and understanding the strategies involved.

Our first major foray into that was going really deep on solar in the U.S. We partnered up with SEIA to start tracking the whole market in detail each quarter. We went as deep as we possibly could, down to the level where we would look at individual micro markets and every policy development and rate structure that matters for solar in the U.S. You could not possibly cover that granularity if your mandate was to cover everything all the time. We decided we would pick places where we could go deep at the expense of going broad. And then as time went on, we continued to do that just in new areas. That worked for us.

Richard Matsui: I like that lesson: The importance of focus. As a startup, it’s difficult to succeed unless you’re willing to take some bets on what’s important and what’s not.

 

Changing How We Think

Richard Matsui: What idea are you most proud of popularizing? Perhaps the idea that gas peakers may soon be replaced by solar plus storage?

Shayle Kann: We made a few calls that I’m proud of. Storage soon arriving to compete with gas peakers is a good, current example, and one that I think will prove to be true. Another is the rise of residential solar loans (as opposed to leases), which we predicted early and is well underway. We also made a concerted effort early on to hammer home the point that the value of distributed energy is a function of rate design – so we started modeling actual rate structures and load profiles rather than just comparing the levelized cost of distributed solar to total retail rates.

We also originated a few viral stats. At one point, a couple of us had a competition to see who could create the most viral statistic about solar in the U.S. We thought the battle was over when I received a moveon.org email forward from my retired mother in Wisconsin which, unbeknownst to her, used one of our stats. But then President Obama used the other one (that the U.S. installs a solar project every four minutes) in his 2014 State of the Union speech, which would be tough to top.

But in the end, the thing we popularized that may have the most lasting power is the term “grid edge” to describe the rapid evolution of electricity where the utility meets the customer. We were sick of talking about the “smart grid”, which no longer encompassed the most exciting things happening in the sector, so we coined this other term in order to be able to analyze the areas we thought were most dynamic. We had no idea it would catch on like it did.

 

What’s Up Next

Richard Matsui: You have an interesting bird’s eye view of the industry. What were the most interesting ideas and opportunities that came to you when you were thinking through what you wanted to do after GTM?

Shayle Kann: Good question. GTM was an iconic experience for me. It was an all-consuming eight and a half years, and I loved it. When it came time to leave, that was no small action for me because so much of my time, attention, and identity were tied up with the organization. So, I wanted to give myself a little bit of mental space to find out and deliberately left without knowing what I wanted to do next.

I explored a range of different options. I considered joining or starting a brand-new startup, which in part appeals to me because I really enjoyed the early days of GTM when everything was in flux and nothing made sense—that was stressful, but it was a lot of fun. I also considered taking more of a strategy-focused position at an operating company. Ultimately, I realized I wanted to retain what I loved most about my world at GTM: It was my job to be curious, analytical, and a storyteller.

I wanted to be able to continue doing that work, but I was also hoping to find a position where I could put my money where my mouth was. It’s difficult to do that as an analyst, because you have a meaningful influence on the market, especially once you get a lot of voice in the industry. I wanted to be able to take a view on something and then take action upon it directly.

So when my current role presented itself as an opportunity, I realized that it had exactly those characteristics.

Richard Matsui: That’s interesting. It sounds like you were looking for two components in your next role: One, the ability to be curious and help craft the industry narrative, and two, the ability to apply your skillset and take action. What about EIP helped you decide this was the right place to take action?

Shayle Kann: EIP is a fascinating venture fund whose investors include some of the largest utilities in the world, and whose portfolio includes some of my favorite cleantech companies. From the outside, I was already somewhat enamored with EIP’s model because I think the company sits at the nexus of those who are ultimately going to be the most important players in energy transformation. On one side, there are the innovators—the startups that are building new technology and services, solving the problems that we are going to face as the next wave of technologies hit the grid. And on the other side, the utilities that are going to have to integrate and manage all of those things, keep the lights on, and maintain the customer base. EIP sits in between those two. EIP gets to invest in the start-ups and gets to work with the utility to provide them visibility and help them adapt and evolve their own strategies. It’s just really a cool place to be within this transformation because you get to see both sides and then try to help each group within that ecosystem to learn and do better.

 

VC Trends

Richard Matsui: When you put your VC hat on in your current role, what are the trends and themes you find most interesting?

Shayle Kann: This is a broad and somewhat tired framework, but I think we have four simultaneous transformations occurring within the sector: decarbonization, decentralization, digitization, and electrification.

Those are obvious trends but what’s unique about this time is that, while each one of them stands on their own, they are all happening simultaneously and they all interact with each other. As an example, electrification puts a bunch of electric vehicles on the grid. EVs suddenly catalyze decentralization because now you have another source of demand response or, potentially with vehicle-to-grid, you have another source of energy storage. The emergence of EVs presents new opportunities and new risks to the system.

Similarly, in the other direction, the proliferation of sensors, communications, and analytics that are happening at the grid’s edge will enable us to manage the upcoming influx of EVs. Were it not for those types of analytics, better planning, and visibility, we would have a much bigger problem when the EVs hit the grid.

I try to think about the way these four transformations are occurring and also how they interact with each other.

Richard Matsui: Is there an anti-thesis—either something that you see as particularly exciting but others don’t think so, or conversely something other people are really excited about but actually you’re skeptical?

Shayle Kann: That’s an interesting question. I would take a somewhat cautious approach to blockchain, not because I’m not a believer in blockchain necessarily, but because the hype to proof ratio is a little terrifying.

I’m also skeptical of startups that rely on getting consumers to spend a lot of their time explicitly thinking about energy. I think it’s widely recognized that customers generally pay very little attention to energy, and I don’t think that a business model that depends on that changing is going to find success.

I remember the Accenture statistic that customers think about their energy bill a total of eight minutes a year. I mean you could imagine that number doubling, but you probably can’t imagine it going up by orders of magnitude.

There are, however, lots of interesting ways to create great customer experiences that hide energy value within issues that are more front-of-mind. For example, EIP is invested in Sense, which offers residential energy disaggregation. You can use Sense to monitor your device-level energy consumption directly, but you can also use it to check, for example, whether your garage door is open or how long your child has been playing Xbox.

 

Solar’s ‘Next Frontier’, Grid Modernization, & Ten-Year Predictions

Richard Matsui: What’s the ‘next frontier’ for solar?

Shayle Kann: I think that the most valuable people in the solar industry right now are the people who understand wholesale markets and electricity financing. Historically, the solar industry didn’t really need those skills, right? Everything had a long-term PPA, so you just built off of that. But now it turns out that solar is becoming exposed; basis risk is a perfect example.

Richard Matsui: Agreed. Recently, I was on an Infocast panel talking about hedges. We were talking about our volume hedge, and the infrastructure bankers were talking about price hedges. They used a completely different set of vocabulary. Sitting there, I was reflecting on the fact that our entire industry, or maybe 99% of the solar industry, has come this far without understanding the basics of the underlying electricity market that we’re serving.

When college students ask me how they can make an important contribution to renewables, I say that I think that understanding of the wholesale electricity market is quickly becoming the new “must-have” skillset. Not enough solar people understand it, including myself.

Shayle Kann: I agree with that. I think having people who understand the wonky wholesale market and these wonky products is incredibly important. For example, the people who are paying attention to the Flexible ramp in CAISO as opposed to flexible capacity—those differences really matter. Especially now that all this solar is getting paired with storage, so it’s somewhat dispatchable. We need people who can understand that in-depth, and I barely scratched that surface.

Richard Matsui: Solar and utilities have had an ongoing love-hate relationship, or at least a love-fear relationship. Last month we talked with Katherine Hamilton, and in addition to sharing numerous insights and reasons for optimism in solar, she warned that the solar industry should watch out for grid modernization as the latest attempt from utilities to maintain profits by rate-basing unnecessary investments that “suck the air out” for other opportunities. Do you see opportunities that are win-win for both industries? Or will the relationship continue to be an adversarial one?

Shayle Kann: I tend to think of the challenge as a function of the regulatory construct. As an example, SolarCity, did all this work to make the case that solar has—in particular locations and at particular times—meaningful value to the grid. Currently, the problem is that value is not monetizable by either solar or by utilities. As a result, there is very little incentive to place solar in the places where it adds the most value on the grid. That’s a problem that regulations need to fix. We need to improve electricity pricing schemes, we need locational pricing, we need to open up opportunities for non-wires alternatives. Those types of things do tend to be win-wins, because ultimately if you believe that these distributed resources, solar being an example, have true value to the system, then we should have a regulatory construct that Is structured accordingly. There are a lot of win-win opportunities, just as long as that’s our north star: Get the right resources in the right places.

Richard Matsui: You’re roughly around your ten-year anniversary of working in and around solar. Do you have a non-consensus bet on what will happen by your twenty-year anniversary?

Shayle Kann: I think in the next decade, we will have an operational solar project somewhere in the world selling power at 1 cent per kilowatt hour.

One of the big lessons for me over the past decade: Do not underestimate the solar industry’s ability to bring cost down. Just don’t do it.

Richard Matsui: I hear you. I remember reading both your demand forecast model at GTM and my own model back at McKinsey. Neither look very smart, today.

Shayle Kann: There was a period during which we would under-forecast global solar demand because a feed-in tariff market would pop up virtually overnight. Suddenly, the Czech Republic would install 2 GW and that would throw everything out of whack. Then we started to calibrate our demand forecast better, and we ended up fairly accurate.

However, it’s still challenging to predict exactly which combination of factors will drive solar down to 1 cent per kilowatt hour. We’re going to see manufacturing cost reductions, longer system lives, and lower cost of financing—and you are more familiar with that last point than anybody else. While some may think we’ve hit the asymptote for solar, I don’t think we’re anywhere near it.

Richard Matsui: I agree, though it’s worth noting that this is the counterpoint to Varun Sivaram’s thesis.

Shayle Kann: Sort of. The core questions in the debate Varun has sparked are whether solar is currently on a trajectory to low-enough cost for long-term growth, and whether the systems around solar (both physical and regulatory) will adapt fast enough to integrate it at high penetration. My prediction here is that we will see *a* project selling power for $0.01/kWh, not that it will be the norm.

Broadly speaking, I agree with Varun about what will need to happen in order for solar to hit 40%, 50% or more of global electricity production. But I don’t necessarily agree that we’re currently off-track. Solar has broken through, and continues to break through, many seemingly impenetrable barriers. And I love looking at all the innovative companies I’m seeing now who are going to solve the next set of challenges.

 

“Solar Nerds Everywhere”

Richard Matsui: Good seeing you at the EIP office warming party. It was great—and I mean this in the best way possible—to meet with other solar nerds that I don’t see often.

Shayle Kann: There are solar nerds everywhere—I was hiking in Tilden Regional Park the other weekend and two people walked by and I heard one say, ‘SolarCity’s customer acquisition costs are crazy.’ [laughs] Can’t escape it.

Richard Matsui: Better that than talking about the latest Instagram fad.

Shayle Kann: That’s true.

Energy Production Insurance for Your Solar Project, From Swiss RE and kWh Analytics

Originally posted on Greentech Media.

A new insurance product from kWh Analytics guarantees up to 95 percent of forecasted energy production for asolarplant, providing security for solar developers in a regulatory environment where it’s been scarce.

The “solar revenue put” offers backing for a project that makes lending debt less risky for banks. Using its solar asset database, kWh Analytics assesses performance for a given project, setting expected output and putting a price on the risk. If a solar farm doesn’t reach that agreed upon output, the insurer pays for the difference.

“This product pays for itself because you’re able to unlock so much more debt and get the banks so much more comfortable with these assets,” said Richard Matsui, CEO and founder of kWh Analytics. “It allows the banks to feel good and come through.”

With the new partnership, global insurer Swiss RE Corporate Solutions will keep risk from the projects on its own balance sheet. With that backing, projects will be able to get more debt financing at lower costs. KWh Analytics said the product will offset 50 percent of the $0.10 per watt cost of recently announced solar import tariffs. The company recently sold its first policies, for about 40 megawatts at three Virginia solar farms owned by Coronal Energy.

Cory Honeyman, associate director of solar at GTM Research, said the product should give developers more flexibility and assurance in a project’s viability.

“Being able to raise more debt with a lower debt service coverage ratio means more breathing room for asset owners to hit their required returns during the term of a PPA, rather than being overly reliant on post-contract revenue stream,” said Honeyman, 

Matsui told Bloomberg the tool allows project developers an increase of debt between 10 and 15 percent.

Honeyman said the mechanism will be “an important financial innovation” to continue lowering the cost of capital for utility-scale solar projects as power purchase agreement prices continue to decline.

The product could be especially helpful for project owners raising debt project-by-project rather than on balance sheet, because Honeyman said that strategy relies more on project cash flows to meet the requirements of lenders.

Driving down solar costs amidst an uncertain, and even negative, policy environment has become increasingly important as the solar industry moves towards maturity. According to S&P Global, coping with tariffs announced by the Trump administration and other potentially harmful policy developments has essentially pushed the market back a year. GTM Research’s own forecasts indicate tariffs could curtail U.S. nstallations by 11 percent through 2020.

Innovative solutions and new financing tools can help alleviate some pressure on developers to keep moving forward.

“With corporate tax reform potentially putting pressure on sponsor returns, and the tariffs adding another 5 to 10 cents per watt to all-in costs depending on the year, the ability for asset owners to increase leverage means they can eke out slightly higher returns via less required equity and a lower overall cost of capital,” said Honeyman.

Guaranteeing generation could also give solar an edge over other clean energy resources.

GTM Research solar analyst Rishab Shrestha, who previously worked at MAKE Consulting, said that it’s more difficult to offer such assurances for generation in the wind market. Looking ahead, the ability to predict generation with high accuracy could guarantee higher revenues for solar in addition to lowering project costs.

“The value gain I think would be higher if that’s possible,” said Shrestha. “I would imagine that financing costs for solar, which is already more competitive than the wind industry, would become more competitive moving forward.”

Introducing the Solar Put: Insurance for Cloudy Days at the Farm

Originally posted on Bloomberg. Related coverage available in El Financiero.

  • Swiss Re provided solar revenue put to guarantee 95% of output
  • Solar put can cut risk, make financing cheaper: KWh Analytics

Insurance giants like Swiss Re AG, with the help of a San Francisco firm, now have a way of guaranteeing production from solar farms — not an easy feat considering supplies from these plants rise and fall with the sun.

The product that at least one insurance company is now offering is called a solar revenue put. It was developed by risk-management software firm KWh Analytics and can guarantee as much as 95 percent of a solar farm’s expected output, according an email the company sent to clients Tuesday. Swiss Re has now sold one for three Virginia projects.

This insurance policy stands to strip away uncertainty surrounding solar projects. With a put in hand, lenders may be willing to offer financing at better terms, driving down the overall cost of a farm, said Richard Matsui, KWh Analytics’s chief executive officer.

“In the solar business, risk is cost,” Matsui said in an interview, and the “cost of capital is the single biggest risk.” Swiss Re referred questions to KWh.

A Floor for Solar

Here’s how a put works: The policy sets a floor for electricity output from a solar farm. The client pays a premium, and if a plant doesn’t generate enough power to reach the floor, the insurer covers the difference. While it may cost about 1 percent of a project’s revenue, it also allows project developers to get 10 percent to 15 percent more debt, at better terms, Matsui said.

Underpinning these puts is a database of historical production from solar farms that KWh uses to predict output from planned projects. It forecasts performance based on specific components inside existing plants, Matsui said. Using this, KWh prices the risk for insurance carriers like Swiss Re.

According Nathan Serota, an analyst with Bloomberg New Energy Finance, a product like this could make clean energy cheaper to finance and bring down the price of solar power. “It’s advantageous to project developers because it allows them to lower their cost of capital, and solar power prices as a result,” he said.

New Solar PV Tool Accurately Calculates Degradation Rates, Saving Money and Guiding Business Decisions

Originally posted on NREL. Also available on Solar Power World, Solar Industry Mag, pv magazine.

RdTools standardizes calculation methods providing better module performance and degradation analysis

April 10, 2018

How long a product can be expected to perform at a high level is a fundamental indication of quality and durability. In the solar industry, accurately predicting the longevity of photovoltaic (PV) panels is essential to increase energy production, lower costs, and raise investor and consumer confidence. A new software package developed by the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) and industry partners SunPower and kWh Analytics is making the measurement of PV system expected lifetime performance more reliable, consistent, and accurate.

RdTools combines best practices with years of NREL degradation research to deliver new methodologies that change how solar field production data is evaluated. The software package makes it possible to accurately evaluate PV systems faster, despite common challenges with performance data.

Graphic showing research data.

RdTools results show time-series data along with a year-on-year degradation distribution. The same system is analyzed with the clear-sky method (a), and sensor-based method with a poorly maintained sensor (b). In this case, high reported degradation is likely caused by sensor drift, rather than a degrading PV module.

“There’s a high level of interest in this software because it provides user-friendly, accurate, and objective assessments that can help owners make sense of their data,” said Dirk Jordan, engineer and solar PV researcher at NREL. “We spent years building consensus in the industry around a common set of analytical rules. Now PV stakeholders can learn much more about the performance of their technology and improve decision-making on multiple fronts.”

PV module and system degradation have been historically difficult to assess in the PV industry. Field performance can be impacted by many confounding variables including ambient weather conditions, seasonal changes, sensor drift, and soiling, to name a few. Extracting system degradation rates previously required years of production data, high accuracy instrumentation, and the presence of staff scientists to conduct the evaluation.

The RdTools software package solves these problems by providing a robust and validated software toolkit for calculating and analyzing PV system performance and degradation over time. The tool can deliver valuable insights for manufacturers, engineers, investors and owners who have a stake in system performance, such as identifying under-performing sub-arrays, and quantifying system performance relative to neighboring systems.

For co-developer SunPower, the results of its own data analysis were compelling. “The RdTools method was used to analyze energy generation from 264 PV systems at locations across the globe, revealing that degradation rates were slower than expected,” said Greg Kimball, a senior performance engineer at SunPower. “The result prompted improvements to and extension of our warranty coverage to customers.”

According to Adam Shinn, a data scientist for co-developer kWh Analytics, RdTools is valuable because of the information it provides to the solar investors with whom they work. “As more and more solar is deployed, there is an ever-increasing amount of PV performance data available to analyze,” Shinn said. “For solar investors who seek to understand the long-term financial risks of their energy-producing assets, analysis RdTools will help them quantify PV durability.”

RdTools was led by a NREL team of researchers: Michael Deceglie, Chris Deline, Dirk Jordan, and Ambarish Nag and funded by the U.S. Department of Energy Solar Energy Technologies Office. The software is actively being developed as a set of open-source Python scripts and usage examples on GitHub and is publicly available to interested users who can access, download, and customize the software.

Organizations interested in testing and contributing to the software can contact NREL at RdTools@nrel.gov or visit the website at https://www.nrel.gov/pv/rdtools.html.

NREL is the U.S. Department of Energy’s primary national laboratory for renewable energy and energy efficiency research and development. NREL is operated for the Energy Department by The Alliance for Sustainable Energy, LLC.

Top 5 Takeaways on Solar Risk Management

Originally posted on SEPAPower.

Risk management is critical to the growth of the solar industry.

Navigating the nuances of solar risk management was the focus of a workshop, “Solar Risk Management: What Is It and Why It Matters to Investors, Sponsors & Asset Managers,” at the recent Solar Asset Management North America (SAMNA) conference in San Francisco.

Kicking off the panel discussion, Jason Kaminsky, Chief Operating Officer of kWh Analytics, provided a basic definition of risk management, drawing from a recent report co-authored by kWh Analytics and the Solar Energy Industries Association (SEIA).

A panel discussion on solar risk management at SAMNA featured (left to right) Jon Previtali of Wells Fargo, Jason Kaminsky of kWh Analytics, and Jonathan Roumel of Spruce Financial. (Photo courtesy of Solarplaza)

“The responsibility of the risk manager is to identify items that may lead to the financial deterioration of an investment, and proactively work to resolve these situations,” Kaminsky said.

Representing banks, solar developers, and risk management firms, the speakers provided insights into the evolving field of solar risk management and the challenges ahead. Discussion varied from the many functions and stakeholders involved in solar risk management, to how banks — key stakeholders in solar projects — assess project risk and performance

Key takeaways are discussed below.

1. Risk management begins at origination and continues throughout the life of the project. While origination — that is, lining up prospective investors — is sometimes viewed as separate from risk management, the panelists stressed that market leaders take a comprehensive and more holistic view of the two. At the end of the day, risk management is about making sure the institution doesn’t lose money, and that begins with matching a project with the right investors.

“There are two steps to risk management,” said Jonathan Roumel, Vice President of Operations at Spruce Finance, a firm working in solar and energy investments. “Step 1 is to invest in a quality asset to avoid or minimize risks up front. Step 2 is to efficiently manage that investment throughout the life of the asset and effectively mitigate risks which do arise.”

Jon Previtali, Director of Technology and Technical Services for Renewable Energy & Environmental Finance at Wells Fargo, also stressed how banks may approach underwriting technical performance risk in-house. He discussed the value of high-quality technical due diligence, particularly in situations where warranties may not be actionable. Accelerated lifetime testing of solar modules may also be conducted to reduce the risk of latent defects.

The panelists also agreed that risk management should not be viewed solely as a back-office function. Investors, sponsors and owners will all benefit from the understanding that risk management continues beyond the initial phase of investing in a solar asset.

2. Bank compliance is a team effort. Simply put, compliance is about ensuring that a bank’s internal processes are in line and operating within investment requirements. Teams — and often, teams of teams — must coordinate with each other to succeed in meeting various compliance requirements. According to Lan Sasa, Assistant Director of Project Management in Renewable Energy at U.S. Bank, banks interface with numerous internal and external stakeholders. The list includes internal asset management and performance teams, internal tax and accounting teams, internal credit committees, internal and external auditing groups, internal senior executives, and regulators.

Lan Sasa of U.S. Bank at SAMNA. (Photo courtesy of Solarplaza)

Furthermore, these various teams serve respective purposes and may have different areas of focus. For instance, while a bank’s origination team may be chiefly concerned with their developer relationships, a bank’s risk management team will likely be chiefly concerned with the financial health of the solar project. The group leader for renewable energy investments is responsible for making decisions amidst such competing considerations, and continuously requires high quality information to react quickly.

3. Problems will occur; surprises should not. Bank auditors are an inescapable fact of life for anyone working at a bank, including the teams responsible for solar investments. Given that an entire team is tasked with monitoring the fiscal health of these complex financial organizations, data transparency is a critical building block for any risk management strategy. If all of the data related to an asset or investment is not centrally located, latent problems can evolve into serious issues that can, in turn, lead to increased scrutiny.

Previtali of Wells Fargo noted that generally in bank contexts, “surprises are not well received.” But, one audience member asked, how do financial institutions respond to the occasional, but unavoidable surprise, such as the recent Sonoma wildfires.

Kaminsky from kWh Analytics reported that U.S. Bank recently used his company’s risk management software to get same-day information on how its investments were affected by the disaster. Without such a database of record, senior management at the bank would have waited days or weeks until all the developers were able to collect the required information and report back to the bank. Such situations again underline the need for high-quality data.

4. “Those who hold the risk should understand it best.” This project finance maxim continues to hold true and, during the workshop, was cited to explain the complex structure of solar finance deals. While banks have considerable experience and know-how about solar power plants, they still tend to structure their investments to limit their risks to those that they understand best.

Previtali noted that Wells Fargo, as a tax equity investor, is naturally exposed to risks pertaining to the tax credit. “Tax attorneys are our high priests,” he said. “We don’t do anything without their blessing.”

Risk related to the potential for underproduction, once foisted on lenders, is now increasingly held by insurers that back the Solar Revenue Put, a product that guarantees a certain level of revenue for a project, even if it underperforms. Firms that have a competitive advantage to assume specific risks are said to be its “natural owners.” Insurers are increasingly confident in their actuarial understanding of solar production risk, enabling them to be the natural owners of the risk.

5. Data standards are being developed to support risk management, reduce market inefficiencies, and lower costs for consumers. Clearly, in the increasingly complex field of solar investment and risk management, stakeholders and teams across the field need real-time access to accurate, consistent data. Until recently, however, a lack of data standards in the sector had created inefficiencies and increased risk.

SEPA’s Aaron Smallwood provides an update on the Orange Button Initiative. (Photo courtesy of Solarplaza)

Aaron Smallwood, Senior Director of Technical Services for the Smart Electric Power Alliance (SEPA), updated the workshop audience on the Orange Button Initiative, a standard for solar project data that has the backing of the U.S. Department of Energy’s SunShot Initiative.  Calling the initiative “an opportunity to help our industry mature,” Smallwood reported that Orange Button is now widely supported by leading solar industry groups, including SEPA, SEIA and the SunSpec Alliance.

Essentially, Orange Button provides a standard taxonomy — that is, a set of categories and classifications — for defining the standards to be used to measure a project’s production and other key operational metrics. The standardized data can reduce time, cost, and inefficiencies, said Previtali of Wells Fargo.

“We have some of the best and brightest people in the industry working for us,” he said. “But we’re asking them to spend a substantial amount of time cutting and pasting data from monthly operating reports into our system. We should change that. That is one of the reasons why I am a huge fan of using Orange Button.”

As with Orange Button, the development of increasingly sophisticated risk management tools and best practices is a sign of the solar industry’s maturation. As solar investments grow, so will compliance requirements and risk management needs. It is a matter of scale and size. As an investment grows, so does the magnitude of its potential downside.

Every asset class goes through this process. Bolstered by consistent data standards, solar risk management will be critical to helping our industry scale.