kWh featured speakers at Intersolar North America

This week the kWh Analytics team attended the Intersolar North America Conference, the world’s leading exhibition series for the solar industry and its partners. Along with other industry professionals, Richard Matsui (CEO) and Jason Kaminsky (VP of Partnerships) were honored to be speakers at multiple conference sessions, covering topics such as the bankability of solar and the “billion dollar opportunity” in solar asset management.

In this post, we wanted to share our thoughts on how data can both enable bankability and also be the foundation of a huge opportunity, by looking at how data has helped shape other industries. Although we have seen data be a key enabler in almost all major asset classes — everything from commercial mortgages to student loans and aircrafts — we focus in this post on two very different but high-growth segments of the market: residential mortgages and credit derivatives.

Data accumulation and percolation are fundamental to the success of any asset class. If we consider the mortgage market in the 1980’s, we see a data-leveraging opportunity that emerged then that is similar to the one we have today with solar. Like solar, mortgages were considered an esoteric investment class when they first came onto the scene, which created an opportunity for the company CoreLogic (then called LoanPerformance) to fill in the gaps in information and provide intelligence to investors. Their solution was focused on two key elements: trends in housing values and trends in financial performance of the mortgage contracts. Their gradual construction and distribution of an extensive database on the mortgage industry became one of the catalysts to growth in the mortgage debt market. Today, CoreLogic has data on more than 99% of the mortgages in the US and is a publicly traded company with $1.4 billion in annual revenue. As for the mortgage market? It is now a trusted industry with more than $14 trillion in debt outstanding.

Similarly, in the early 2000’s the credit derivatives market was small but promising. Credit derivatives are essentially insurance products for corporate credit in which a lender can transfer the default risk of a loan to a third party. This product was poised to become a big player in the financial ecosystem, however, its potential for growth was inhibited by the lack of independent data and transparency at the time. Founded in 2003, the company Markit took advantage of this position. The major inhibitor to growth in the early days was the inability to answer a very simple question: how do you price this new product? Markit’s first product, a pricing database to provide transparency into the pricing of transactions in the market, helped bring new investors into the segment. Secondly, they undertook the systematization of unique ID’s for credit derivatives in order to improve reference data on trades. With this project underway and an industry database established, the natural progression was the addition of key complementary databases. These were products and services that fit the market and helped either bring in more capital or improve transaction efficiency. Because of the development of these databases, the market for credit derivatives grew ten-fold in 3 years. Markit went public in 2014, and just recently merged with IHS to form what is now a $13 billion company.

So what do these stories say about the solar market? At kWh Analytics, we believe that the establishment of industry-wide databases can induce tremendous growth in the solar market, just as it has done for the mortgage and credit derivative markets. Currently, growth in the industry is hindered by the high cost of capital and the lack of information needed to improve investment decision making. While our current focus is on risk management for investors – the unique solar pain point that we can address – we understand the power that the data can bring to improve underwriting decisions and improve market efficiency. Similar to CoreLogic, we focus on analyzing and understanding both the physical asset and the performance of the financial contracts. Solar is unique in that there is risk carried in electrical performance, as well as payment performance. This makes it even more important to use data to help investors get a clearer picture into operational and financial risk, so that they can gain more confidence in the solar market. And with an industry database, complementary products and services that will either improve liquidity or improve transaction efficiency are sure to follow.

The potential for growth in the solar market is great, and the opportunity for data to improve liquidity and reduce the cost of capital is immense. As with the mortgage and credit derivative market, establishing an industry-wide database will transform the market and help investors and key stakeholders realize the bankability of this asset.



An Open Letter to Big Oil

Dear sirs:

With all the recent news about the oil slump, it’s OK to admit times are tough. The biggest immediate challenge is the price per barrel is down – here in California, gasoline costs as much today as it did when I first started driving. I recently filled up at Costco for an unprecedented $1.85 per gallon!

But oil faces much more long-term challenges as well, that don’t just affect the US markets. There’s been an increasing movement to evaluate your industry against the backdrop of climate change. The Church of England and New York’s state pension fund, who collectively own $1bn of Exxon stock, pushed through a shareholder resolution to assess the impact of climate change policy on your business. The New York attorney general has launched investigation into Exxon Mobil about hiding climate change science. The Paris Climate Change agreement, COP21, is being signed today, on Earth Day 2016.

Times are tough in solar, too. Our solar stocks are getting hammered. SunEdison just filed for bankruptcy. The Guggenheim Solar ETF is down 20% year-to-date. But the fundamentals of solar are strong – perhaps stronger than they’ve ever been – with the extension of the Investment Tax Credit and our industry’s continued ability to drive costs out of the system. Our stocks are down because we got a little overzealous with our financial structuring: just like the oil business, cheap capital is our lifeblood and the difference between success and failure, and we are learning the hard way that YieldCos may not be the solution for which we hoped. SunEdison simply overextended themselves and layered on too much debt. It wasn’t financially sustainable, and the market responded.

Unfortunately, the oil industry isn’t financially sustainable either. Citibank estimates that up to $52 trillion worth of oil and gas may be ‘carbon stranded’ through 2050, meaning that the oil and gas must be left in the ground to meet our climate goals – a material risk to an industry whose main business is to find, extract, refine, ship, and sell oil and gas. And the market is responding to these facts, too: it’s hard to miss the $3.4 trillion dollars that is being divested from fossil fuel stocks.

We often lash out at each other, pointing fingers at who gets more subsidies than the other, but I think that we actually need each other. Our solar industry is going through growing pains, with high levels of volatility, too-cute financial structures, and heady management teams. We’re still defining our market and how we fit into the existing utility ecosystem. Your stocks are up this year, but are facing long-term headwinds, climate change being first and foremost. We’re dealing with short-term pain while you are facing long-term threats.

Our worlds are quite similar: we both build long-term power assets, have to navigate the power markets, need large amounts of cheap capital, require innovation, and operate globally. The customers of our product are converging — in both the power plant business and within our transportation infrastructure.

Shell, BP, Exxon — it’s your innovation that helped get the solar industry off the ground in the first place, including some of the first solar modules (such as in the photo above). You all but divested of the business, but I think it’s time to reconsider. You desperately need to diversify your business, tell a positive climate change story to your investors, and hedge against stranded assets. More than half of the new power capacity added to the US last year were from renewables. Imagine how much influence you could have if you sat with us at the table when negotiating against utilities on net-metering policy or worked with Congress on a comprehensive energy strategy.

On the other hand, we need cheap capital, huge amounts of tax-equity, and experienced management teams. We envy your 2.7% debt rates and billions in tax payments each year. Your global operational expertise and long-term business planning would be an asset to us.

My belief is that the challenge is more one of culture than logic. In my brief stint as an employee at Chevron, I was told that working in the renewables division was a “CLM” – a “career limiting move” – since the management team consisted purely of oil and gas executives. Culture can be changed, and it starts at the top.

So, what to make of all of this? Well, the fundamentals are better than ever, but our stocks are down. Solar assets are cheap out of bankruptcy, after all. You have billions on the balance sheet and a need to rebrand your business. Now is the time for you to get back into solar and invest now in a hedge to your oil and gas business.

As such, we call on each oil major to appoint a Head of Renewable Energy that reports to the CEO and commit 10% of their capital expenditures budget to renewables in 2017. For the top three oil companies (Exxon, Chevron and Valero), that’s roughly $5 billion for 2017, a meaningful contributor to the renewables project finance market.


kWh Selected for Department of Energy’s Orange Button℠ Initiative

We are honored to announce that kWh Analytics has been selected by the U.S. Department of Energy SunShot Initiative to participate in the Orange Button℠ initiative. This industry-led collaboration is aligned with kWh’s broader mission to establish clear data standards, provide transparency for the solar industry, and broaden access to renewable energy. A portion of Orange Button’s $4 million grant will help kWh Analytics implement data driven solutions and boost solar bankability. Other Orange Button grant recipients include the SunSpec Alliance, SGIP, and the National Renewable Energy Laboratory (NREL).

Similar to how the “Green Button” initiative reduced costs by standardizing data from electric utilities, the Orange Button initiative seeks to reduce solar costs by improving access to and quality of data across the project life cycle. By establishing standards in which rapid data exchange can move across the value chain, leading energy companies can drive out inefficiencies in the market, establish greater transparency, and support stakeholders in making smarter investment decisions.

The U.S. Department of Energy SunShot Initiative has supported and launched these “Button” initiatives to establish a collaborative national effort, under a unified brand, to drive innovation and cost-competitiveness within the solar market. Orange Button aims to accomplish these initiatives through engagement, standards development, and data exchanges. To support this effort, kWh Analytics is bridging the gap between solar firms by developing the critical infrastructure needed to facilitate transmission of solar-related data between developers, investors, and other key stakeholders.

Founded in 2012 by longtime solar veteran Richard Matsui, kWh Analytics seeks to support the growth of solar utilization through increased transparency and reduction of soft financing costs. “Lack of data standards has been a key factor in holding the industry back from its true potential,” said Matsui, CEO of kWh Analytics. “At kWh Analytics, we are proud to be part of a team that is leading the industry towards greater efficiency. This initiative is an extension of our company’s core vision of bringing down the cost of capital for solar assets and establishing greater cost-competitiveness throughout the industry.” Emphasizing the need for data-driven transparency in unveiling the true performance of solar assets, kWh serves to transform the ways in which investors identify opportunities and accurately price risk in this exciting new asset class.

About kWh Analytics

kWh Analytics is the industry leader in risk management software for solar energy investments. Their flagship software product, HelioStats, manages project-level data from more than 50,000 solar power projects in the United States, creating the industry’s largest independent database of solar asset performance.  kWh Analytics strengthens the solar industry by increasing transparency, improving investment decision-making, and enabling efficient risk management.

About the SunShot Initiative

The U.S. Department of Energy SunShot Initiative is a collaborative national effort that aggressively drives innovation to make solar energy fully cost-competitive with traditional energy sources before the end of the decade. Through SunShot, the Energy Department supports efforts by private companies, universities, and national laboratories to drive down the cost of solar electricity to $0.06 per kilowatt-hour. Learn more at

Can Data Rescue Solar Stocks? Google Is Leading the Way

Published originally on GreenTech Media by Jason Kaminsky

Imagine, for a moment, that you are an investor and somebody is in your office pitching you on magical beanstalks. The magical beanstalk industry is growing, and you have been asked to invest in a plot of land that will be developed into a magical beanstalk farm.

This all sounds great, but you’re new to magical beanstalks, and as an investor you need to weigh risk versus opportunity. How many of the plants die each year? Which species of magical beanstalk is the most reliable? What happens to your investment if the USDA changes its rules? Farmers claim that the investment is safe, but you’re getting spooked, and the important data — the data for your underwriting model, such as annual yields, geographic variance, death rates — just isn’t being shared. You wonder: Are they hiding something?

Solar theories and truisms

Of course, this story is an allegory for the solar industry. To the outside world, we are the growers of magical beanstalks — we literally generate value from the sun — and still the new kid on the block in the finance world. Just look at how we are classified: solar falls within the “esoterics” category for securitizations right next to rail cars, cell towers, and drug royalties.

As an industry, it’s our job to make investors comfortable with solar. There are truisms in the consumer finance market about how different loans perform; for example, even if homeowners default on a mortgage, they may still pay their auto lease because they need the car to get to work. We haven’t developed truisms for solar, so we push a lot of theories on how these investments will perform.

For residential solar, the investment opportunity is a hybrid of consumer finance and project finance. Most of the time, a consumer lender needs to understand consumer behavior, and maybe a bit about the asset they’re financing. Solar investors need to understand not only how the equipment will perform and the regulatory environment in which these projects operate, but also how consumers will behave given different performance and savings profiles. We believe that this savings element is so unique to solar that it may be the most important indicator of delinquencies and default.

When faced with uncertainty, data is a pathway to understanding and acceptance. Without data, we see investors either avoid the market entirely or severely “haircut” the cash flows needed to meet their return. For example, the average advance rate for solar securitizations is 75 percent, compared to 92 percent for autos and 99 percent for mortgages. Data opacity also results in conservative assumptions: Kroll assumes 0.75 percent annual degradation and stress-tests cash flows at a 1.2 percent degradation rate.

To finance the projected addition of 69 gigawatts of solar in the U.S. by 2022, it is our responsibility as an industry to effectively leverage the data that does exist.

Thought leaders at organizations like Google, PNC Bank and Sunlight Financial are working to effectively use their data for risk management and gain competitive knowledge from the industry’s largest independent database of solar data.

Access to metrics

Other industries use data to develop and secure investor confidence. In the home mortgage industry, a firm called CoreLogic retains an industry-wide database covering 99.8 percent of the mortgage market. A variety of industry stakeholders use these databases to better understand how mortgages perform across a broad spectrum of scenarios. In the early 2000s, CoreLogic provided insight into this market when investors were having difficulty understanding the risk of prepayments, and this allowed the mortgage business to grow. After the recent mortgage crisis, investors are today focused on the risk of delinquency and default, and they leverage industry data to inform their credit models. As a result, mortgages remain a trillion-dollar market.

Experian replicated this model for consumer credit. Trepp does this for commercial mortgages. Even the nascent peer-to-peer lending industry has a firm, Orchard Platform. The evolution of an independent, vertical-specific industry database is an inevitable step in the maturation of any asset class.

We see the need for this role in the solar market. To enter the market, investors need to have transparency into how large pools of solar projects are performing under different conditions, and to evaluate the “solar farmer” compared to an industry standard. Importantly, this data can be used without giving up a competitive advantage; once getting comfortable with the market as a whole, investors are still going to seek out the best brands, the most efficient developers, and the highest quality servicers. By way of comparison, Wells Fargo is one of the world’s largest mortgage originators, and it also collaborates closely with CoreLogic in the sharing and use of mortgage data.

But today, the solar industry doesn’t use our data effectively. It’s nearly impossible for an investor to find real industry data to include in underwriting models or to become more comfortable with the market.

With support from the U.S. Department of Energy SunShot Initiative, KWh Analytics created an industry-wide solar project database including nearly 70,000 operating solar projects. The company gathers data on how these assets perform both technically and financially, and quantifies these results on an anonymized basis for the benefit of solar stakeholders.

Data to the rescue

We know from history that independent data aggregation can move an industry forward. It has the power to educate, the credibility of independence, and the benefit of volume. It can allow existing investors to better manage their exposure and bring new investors into the market.

Solar stocks are being hammered in large part due to liquidity challenges, even as the companies in the space are fighting to rebuild our energy infrastructure. We need to use all of the tools at our disposal to increase the availability of capital. A robust and transparent use of data is a necessary solution in our toolkit.

Nevada isn’t alone: California’s retroactive solar legislation

By: Jason Kaminsky


While everyone is talking about Nevada’s recent battles on net metering, few are discussing California’s impending electricity rate reform. Unlike net metering, shifting electricity rate structures are inherently retroactive, and will have a significant impact on the solar savings of all solar homeowners in California. Quantifying this risk factor is an important analysis for investors in distributed solar portfolios.

For those of us in the solar industry, the recent overhaul in Nevada has been a story to watch. While there was a moment when it seemed like the entire industry revolted, NV Energy and the Nevada PUC are beginning to back down from their position- at least as it pertains to what is considered by many the most offensive piece of the legislation, which is that it punitively taxes existing solar customers retroactively. (If you need additional background, the New York Times wrote a great overview article yesterday titled “Nevada’s Solar Bait-and-Switch.”).

If we turn to California for a moment, the state with the largest population of residential solar customers, most of the news coverage of late has been related to NEM 2.0 and how this will enable a stable base from which to grow the solar market in the state. (For more context here, we find the dry facts the easiest to understand – and thus refer the interested reader to yesterday’s summary by law firm WSGR.)

With that as context, there was plenty of coverage of CA Rate Reform when it was approved last July, but it seems worthwhile to loop back to those discussions since, to some extent, rate reform is a policy that is being applied retroactively (but not discussed as such.) Yes, it’s complicated, and yes, it retains the full net-metering credit, but it still has the unique distinction of impacting customers under NEM 1.0 — and thus the majority of California solar customers that have been financed to date. At the very highest level, this changes the economics for all customers of SDG&E, PG&E, and SCE in a few ways:

  1. A flattening of the rate tiers through 2019, with the top marginal rates dropping by about a quarter. We covered this in an article for Chadbourne in July.
  2. 2-10% of the largest electricity consumers will pay a “super user” surcharge
  3. A minimum bill of $10 per month
  4. A mandatory shift to time-of-use rates in 2019 (with the opportunity to opt-out)

As a result of the ruling, economics for customers have changed as recently as Jan 1 of this year; the very biggest “super uses”may actually see improved economics from their solar system, while the majority will see reductions in their marginal utility rates until 2019 (and thus eroded solar economics). Customers offsetting most of their load will realize a bigger utility bill as a result of the minimum bill; PG&E explains on their website that solar customers offsetting all of their bill will see $66 / yr in additional expenses, a result of the increase in minimum bill to $10/mo from $4.50/mo. Unfortunately most homeowners won’t even realize this until they get their annual true-up in a year.

Thus, the embedded risk of an operating portfolio is not only a function of where that system is located and when it was built, but also what percentage of the customer’s load it offsets and a host of other variables.

Unfortunately, the CPUC also set the tone that fixed surcharges will be on the table for future rate proceedings, which are expected to impact NEM 1.0 customers as well if and when they are approved.

Most solar investors acknowledge that exogenous factors – including policy and utility rates – are outside of the control of their solar industry business partners, but assume that changes in homeowner economics will impact delinquencies and defaults. These risks can be managed if they can be measured, and judicious investors will need to adapt their underwriting and portfolio surveillance capabilities to address the nuances of the solar markets. Standard portfolio surveillance practices (for example, by monitoring the trustee reports to evaluate cash flows) and underwriting tools are inadequate for solar, and will be replaced by advanced analytics that allow for earlier evaluation about the risk-return of distributed solar portfolios. Solar production and homeowner economics will be known well in advance of customer non-payment; why wait for it to be a problem before you quantify the level of the risk?

kWh Analytics receives prestigious award from the Department of Energy

kWh Analytics is proud to announce that we are the recipient of a Department of Energy grant under their Technology to Market funding program. This award provides continued validation of the kWh Analytics approach to utilizing industry data as a means to improve the underwriting and risk management of distributed solar portfolios.

A summary of our project award, entitled Solar for the Other 35%, is found below:

About 35% of American citizens hold “non-prime” FICO scores < 680, which restricts their ability to take on a solar lease, power purchase agreement (PPA), or loan that has enabled tens of thousands of other “prime” citizens to go solar. Given the uniquely attractive nature of solar assets, kWh Analytics believes that there is a tremendous opportunity to use data analytics to prove that FICO is merely a contributing factor, rather than the only factor, that influences customer repayment. kWh Analytics will create the solar industry’s largest database of financial payment history for solar leases, PPAs, and loans, similar to what kWh Analytics has already done for solar energy production data under Incubator 8. kWh Analytics will also identify other key sources of data that could impact likelihood of repayment and integrate with those sources where possible. This data set will serve as a crucial pre-requisite for developing a statistically significant, independent understanding of how to safely underwrite solar in a way that also expands the total addressable market. Underwriting ratings and the underlying data can then be licensed to solar firms as a profitable service.

We are excited to be a part of the new cohort of innovative companies pushing the industry forward, and wish to extend congratulations to the other awardees as well! Learn more about all of the awards at the Department of Energy’s Technology to Market website.



Three Takeaways on Solar Securitizations from Infocast Capital Markets Conference

Last week, we were invited to participate in the Infocast Solar Capital Markets Conference in New York City. The event was well attended by issuers, underwriters, lenders, and service providers with lots of great discussion about the current and future state of the solar capital markets. We distilled the discussion to three key takeaways from the conference:


  1. Bespoke Transactions: Five securitizations have been issued so far; the first two securitizations were Cash Grant deals, and thus did not have the complications of tax-equity. These were followed by two deals that utilized lease pass-through structures, and the latest deal by SolarCity was providing leverage to partnership-flip transactions. Since each structure has unique impacts on the cash flow profile, each deal had to be written nearly independently. The latest SolarCity deal even had multiple tax-recapture insurance policies that had to be customized for each of their underlying partnership-flip deals. In short, these deals took longer and cost more to underwrite than should be expected in the future of the industry. Participants agreed that a simpler capital stack without tax-equity should increase efficiency for future transactions. Securitizations can take 3x longer to close than bank financing in today’s market.
  2. Ratings Agency Perspectives: Each of the ratings agencies commented on how they addressed the lack of historic operating data. A few interesting themes emerged.
    1. First, a distinction was made between a customer’s ability to pay and their willingness to pay. While utility bills could be considered a proxy for ability to pay, it says nothing about the customer’s value proposition. Moody’s commented that there isn’t a proxy for willingness to pay for a solar transaction, and thus meeting the customer’s value proposition of saving money is critical.
    2. Second, while losses from other markets are used as a proxy, solar is unique in that the system is attached to the home. We are in a tight credit environment where only high-quality borrowers are qualifying for solar systems and mortgages. The agencies expect another (looser) credit cycle to reduce the credit requirements for new mortgages, and thus that the credit quality of these portfolios will decline dramatically; Kroll said that they double the loss rates of their proxy portfolios to account for this credit deterioration.
    3. Third, the agencies assume that renegotiations over the course of these transactions and believe that customers will be comparing their transaction against the lesser of prevailing utility rates and new PPA contracts in the future.
  3. Data Transparency Can Lead to Liquidity: It was generally agreed that two types of data can help unlock liquidity in the market. First, the industry just needs to continue operating and seeing how these deals perform; as 20-year contracts, there is an inherent lack of data that shows how consumers will behave over the life of the transaction. The second type of data related to the existing data that has been collected in the industry. The lenders into securitizations specifically indicated that greater data transparency would lead to better liquidity and reduced interest rates, and we are proud that they highlighted kWh Analytics as uniquely positioned to provide this service.

We are excited to see where the securitization market moves and other ways that we can support these transactions with reliable, granular industry benchmarking data. The cumulative solar ABS issued to date is only $660 million, while $180 billion of asset-backed securities were issued in just the last year. The capital markets are poised to grow as deal structures become simpler, solar loans increase in volume, and data is more readily available on how these transactions perform across the industry.


Renewable Energy Asset Management Conference

This week we were pleased to participate in Infocast’s Renewable Energy Asset Management Conference in Carlsbad, CA. Jason Kaminsky, our Vice President of Partnerships, moderated a panel entitled Ownership Strategies for the New Breed of Investors. The panelists included Ty Bowman of Prudential Capital Group, Bill Cannon of Sumitomo, Andrew Kim from Goldman Sachs, Lisa Ryder of KeyBanc Capital Markets, and Mark Williams of PNC Bank.

In what proved to be a rousing discussion, the participants discussed their roles and requirements as investors in renewable energy. A few highlights from the panel include:

  • All panelists agreed that compliance obligations are ratcheting up for investors, and that internal oversight requires timely, accurate, and consistent reports. Compliance comes from all sides, including senior management, internal audit, credit, the OCC, the Fed, etc. One panelist shared that when a partner delivers reports at “5pm on the last day of the quarter”, it makes her job more difficult and lowers the desire to work with those specific partners in the future.
  • Ty Bowman of Prudential reinforced the idea that transparency is critical to the investor-borrower relationship. The investor community wants to help solve problems together with their partners, and investors often have seen things in their other portfolios that can help address problems that a different client may be seeing. Open communication and data sharing are often mutually beneficial.
  • Andrew Kim of Goldman Sachs stated that he doesn’t like the phrase “passive investor” and views his role as one of “active oversight.” This phrase really resonated with us, as it highlights the obligation that investors have to stay close to their investments, even if they’re not the day-to-day managers. Active oversight is one step beyond trust-but-verify, with frequent portfolio surveillance and engagement in the operation of the portfolio.
  • A number of the investors from the utility-scale market shared that commercial and industrial DG scare them from an asset management perspective due to the quantity of projects and the difficulty of underwriting / monitoring performance. The panelists agreed that you need strategic partners for asset management as the quantity of assets in the portfolio grows.

We’d like to thank Infocast for inviting us to participate in the conference. Thanks as well to Mark Williams of PNC, who gave us a shout-out for helping PNC with their asset management obligations through our HelioStats software platform.


Analyzing Solar Rooftop Portfolios

by Jason Kaminsky and Richard Matsui, with kWh Analytics in Oakland

Investors in rooftop solar companies and portfolios, and lenders to the sector, are using big data to draw useful insights and improve their valuation techniques, creating an opportunity for thoughtful developers to differentiate their operations by skillfully demonstrating transparency into the performance of their assets.

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