Solar Getting Credit Where Due? Financing Options Expanding Despite 201

Originally posted in Julien Dumoulin-Smith’s Bank of America Merrill Lynch Alternative Energy Report, February 6, 2018.

Despite the clear headwinds from a rising yield curve of late, we note continued focus on bringing costs down through a variety of methods including increased leverage as financial firms get more comfortable with the risk profile of solar, which we see as consistently viewed as lower risk.

For example, we see kWh Analytics’ “solar put” option as one example of both the comfort level around solar increasing as well as one method to offset the pricing increase from the 201 tariff. While the ‘solar put’ is still relatively small (30MWac) in the larger picture, we highlight the comfort of insurance companies in underwriting cash flows from solar projects at the P50 production level, which is a key turning point for the industry to lever up further. With about 70% advance rate on Solar historically and a 1.15x debt service coverage ratio, we see the involvement investment-grade credit insurance companies as helping to spur a further cost decline (5 cents/watt on the revenue put alone) and higher leverage metrics for an asset class which should have relatively de-risked production levels versus other power assets.

We see the revenue put as merely the latest example of the industry adjusting processes to bring costs lower, offsetting at least part of the 201 case.

Julien Dumoulin-Smith, Research Analyst, MLPF&S

kWh Analytics, Coronal Close the First Solar Revenue Put

Originally posted on pv magazine USA. Additional information available on Business Insider.

The company says that the new product has the ability to reduce up to 5 cents per watt in financing costs.

With so many in the solar industry and outside it fixated on the potential impact of tariffs on solar deployment, it is important to note that a big part of system cost reduction has been and will continue to be driving down “soft”, non-hardware costs. Some of the most important soft cost reductions have involved driving down the cost of solar finance, such as the securitization of solar assets pioneered by SolarCity.

Yesterday kWh Analytics and Coronal Energy announced a new development in reinsurance that kWh Analytics says can significantly reduce the cost of solar finance, closing on the industry’s first solar revenue put for three solar projects totaling 30 MW-AC in Virginia.

kWh Analytics’ Solar Revenue Put is backed by an un-named “global” insurer and provides a guarantee that investors will get paid for up to 95% of a solar project’s expected output, even if the plant itself falls below this. The product provides insurance not only against cloudier-than-expected weather, but also panel failure, inverter failure, snow and system design flaws.

“If you are an investor or a bank looking at a project, your number one concern is cash flows,” kWh Analytics Founder and CEO Richard Matsui told pv magazine.

“The idea itself is not new,” he observes. In fact, Matsui notes that all of the combined cycle gas plants in the United States built in the last decade have carried some sort of hedge to cancel out uncertainty of the project, which usually involves the risk of lower-than-expected power prices. Similarly, the wind industry depends heavily on fixed-shape hedges, which put a floor on prices.

And while Matsui says that a number of insurers had expressed interest in a similar product for the solar industry, they lacked the necessary actuarial data on PV plant performance. This is where kWh Analytics came in, and Matsui says that his company is able to draw upon the data that they have gathered from monitoring an estimated 20% of the large-scale PV plants in operation in the United States.

“By and large the (solar) asset class performs very well,” declares Matsui. “Everyone who is in solar knows that, but we just happen to have the best data to prove that.”

Matsui notes that in the past three months, his company has already seen seven lenders issue term sheets at 1.10x or 1.15x DSCR against P50 revenue when the Solar Revenue Put is in place. He notes that this compares to a standard “haircut” of 30%, meaning that project developers were typically able to only borrow 70% of a project’s estimated income.

If banks are willing to lend more towards the value of projects, that means a potential lowering of financing costs. And while differences in the available rates and types of finance between different projects makes it inherently hard to determine what the overall impact on cost will be, kWh Analysts estimates that developers and project owners could see a 5 cent per watt reduction in certain projects.

“In the solar business, risk is cost. In fact the cost of capital is the single largest cost in a solar power plant,” states Matsui. “Using data, we at kWh Analytics reduce risk. Lower risk means lower costs means more solar.”

“In 2018, 1.10x DSCR will become the new normal.”

Developer Inks Financing with First Solar Revenue Put

Originally posted on SparkSpread.

A U.S. developer recently closed financing for a 30 MW (ac) portfolio of solar projects in Virginia with what is thought to be the industry’s first solar revenue put.

The deal, which was executed by developer Coronal Energy and a AA- rated insurance company, was structured by kWh Analytics, a solar risk management outfit.

The multi-year revenue put guarantees up to 95% of forecasted P50 energy production at the Coronal Energy portfolio, which is also financed with tax equity provided by an unnamed bank.

By providing an “all risk” insurance policy, which covers losses due to factors including adverse weather and panel failure, the kWh Analytics revenue put has the potential to reduce the debt service coverage ratio (DSCR) required by project finance lenders to 1.10x or 1.15x from a more typical 1.30x.

The lower DSCR could cut the overall cost of solar projects by as much as $0.05/per watt, equivalent to half the $.10/per watt increase expected as a result of the imposition of tariffs on solar panels imported in the U.S.

“In the solar business, risk is cost. In fact, the cost of capital is the single largest cost to a solar power plant. Using data, we at kWh Analytics reduce risk. Lower risk means lower cost means more solar,” Richard Matsui, founder and ceo of kWh Analytics, said in a statement.

Indeed, in the fourth quarter, seven lenders issued term sheets at 1.10x or 1.15x DSCR on the P50 revenue of projects, assuming that kWh Analytics revenue put is in the structure, he notes.

San Francisco-based kWh Analytics is able to asses and price solar project risk via a proprietary database of historical performance data, accounting for some 20% of the U.S. market.

The transaction with Coronal Energy, which closed on Dec. 22, covers the Essex project (20 MW), which is contracted to Dominion Energy; and the Martin and Palmer projects (10 MW, total), which sell power to Central Virginia Electric Cooperative.

“Our work with the kWh Analytics team enabled the portfolio to move smoothly across the finance finish line and on to producing clean, low-cost energy for our utility customers,” Ed Feo, Coronal Energy’s president, commented.

#Solar100’s Ed Feo: The Hank Aaron of Solar Development

Originally posted on pv magazine USA. Richard Matsui, Founder of kWh Analytics, speaks with Ed Feo, President of Coronal Energy.

Hank Aaron and Ed Feo have had homerun successes in baseball and solar development, respectively.

While they are known for their out-of-the-park hits, it is perhaps their lesser-known ‘plate discipline’—knowing when to swing and when to pass—that makes both Hank and Ed exceptional in their respective fields.

Described by fellow #Solar100 leader Keith Martin as “invariably impressive,” Ed combines a lawyer’s attention to detailed process with a solar veteran’s intuition of cost vs benefit. It will be unsurprising to many that Coronal Energy was the first sponsor to employ the Solar Revenue Put.

In this interview, Ed shares insights relevant to sponsors planning their 2018 activity: What makes a great solar developer, what it takes to scale a development business, and how to think about the latest policy uncertainty.

Sailing into an Unlikely Start in Renewables

Richard Matsui:  You first established your career as a lawyer and co-chair of the Global Project Finance practice at Milbank, Tweed, Hadley & McCloy. What is the story behind your shift from lawyer to solar developer?

Ed Feo: I had planned to gain experience in a law firm for five years and then move into something more entrepreneurial.  My five-year legal career kept extending with each interesting opportunity that came along.

I got my start in the renewables business by a fluke. I was a young maritime law associate, and my law firm had a request from a client to finance a wind farm. Nobody knew what a wind farm was, but because I sailed, the partners figured I might know something about wind. That’s how I started in renewables.

One thing led to another, and over time I worked on projects involving all generation technologies, international energy projects, the California market restructuring, the 2001 energy crisis, and the resurgence of renewables in the aftermath of all of that. I first worked on financing solar projects in 2005.  Project costs were just a little bit higher then than they are now.

It was not until 2010 that I finally pulled the trigger and left the practice of law. My then-clients Jim McDermott and Lee Bailey at US Renewables Group had an idea to start a finance company, and they asked me to run it. That was a bit of a wild ride because we were tied in with the DOE loan guarantee program. That was really cool to start with, and we raised a lot of money. It became very un-cool as the program garnered some pretty harsh attention.

For my next adventure, I joined Jonathan Jaffrey in early 2013 and started Coronal as a solar energy finance and asset management company affiliated with Panasonic. Jonathan had worked in private equity for years and had formed a solar company a few years before. He’s a financial magician, and one of the smartest people I’ve ever worked with. Here we are, five years later.

Richard Matsui: That’s a fantastic backstory. I did not know that you got into renewables because of sailing.

Ed Feo: Yeah, it is bizarre. People have asked, “How did you have this vision that renewables would grow into such a big deal?” The fact is that I had no particular vision at all—when asked to work on the first wind deal, I thought it was interesting and quirky, that was about it. From that start, I later did some research and became enamored of a study by Royal Dutch Shell showing the successive waves of energy sources, with renewables being at that time a miniscule but future part of the mix—over the succeeding fifty to seventy-five years. So directionally it seemed like a good place to be.  Anyway, my brief career advice to people is: Be open to opportunities and do work that interests you. If it turns out to be the next big thing, terrific. If it does not, then you are still engaged in work that has meaning to you.


What Makes a Great Solar Developer

Richard Matsui: In a previous #Solar100 interview, Keith Martin named you first when I asked him for the most impressive developer. What do you think a developer needs to excel in solar?

Ed Feo: Well, Keith clearly is a person of superb judgment!

Seriously, energy development is an odd and complicated business. I know some people think it is simple.  Keith cited in his interview one client who said even his grandmother could develop a solar project. And I thought, “Man, he must have a pretty smart grandmother.”

Development is a multi-level game in which the rules and variables are constantly changing. The essence of what you’re doing is forecasting a need for a product for delivery years away from today and finding a customer for that future product, all in the context of moving legal, regulatory, engineering, and financial variables. It is, at some level, a little crazy.

I think being a successful development company comes down to three things: One is being able to take a strategic view; two is the ‘how-to’; and three is timing.

The ability to rapidly switch from a tactical lens, which dominates our day-to-day, to a strategic lens is critical. Developers need to see the path to the best upcoming opportunities—even if they are years away from fruition.

The ‘how-to’ is a combination of almost oppositional skills—on the one hand, you need to be extremely process- and detail-oriented, but on the other hand, good development firms are also driven by intuition and gut. In its focus on process and detail, development really is an engineer’s dream. For example, in our company, we spend an enormous amount of time on the process of quantifying the risks and the costs associated with each variable, all to better educate ourselves about the potential of delivering a successful project far into the future. And the numbers do inform the process.  But, ultimately, the decision to proceed also includes an instinct for how the variables will turn out—and that part is hard to quantify.

When we started Coronal, I was very impressed by how many people were in the business. After looking at 150 projects, I was really impressed by how many people did it poorly. They were essentially long on gut and short on process. But at the same time, I would see some big companies doing development without a great deal of success because they were long on process but short on instinct. I think you need to have both to succeed.

Finally, so much of development is about timing—knowing when you ought to be developing, when you ought to be buying, when you ought to be selling. It’s not easy.

All that said, I’m fortunate to work with a group of very smart, dedicated people in our shop who do an excellent job of collectively bringing these three strands of development together.


Policy Implications for Solar Developers

Richard Matsui: How does the current policy uncertainty change the way you think about your development pipeline today?

Ed Feo: Uncertainty is just part of this business. If we look back ten years, policy uncertainty, price uncertainty, or supply uncertainty have always been around to some degree.

But now there is additional policy uncertainty at the federal level given the direction of the current administration. In looking at our pipeline, we have had to consider the effect of the section 201 trade case, the tax law changes, and the FERC reliability notice of proposed rulemaking, among other matters.

During the pendency of the trade case, we concluded that we needed to cover ourselves by acquiring panels where we could before a tariff would be in effect. As for assets where we couldn’t cover ourselves, we either sold our position or deferred the delivery dates until we thought there would be more certainty. In times of uncertainty, it is nice to be able to say, “Okay, we can sit tight and wait for things to resolve themselves.”

Thinking long-term still requires that we take a view on how these issues will turn out and the subsequent impact on costs. Every developer has a cost curve for every project component with different assumptions about the outcome of the trade case, etc.  We build our curves into our models, identify a projected time frame, and try to get as much room in that time frame as possible to mitigate the downside risks associated with the policy uncertainty and other issues.

The tariffs announced this week are unfortunate in terms of driving up costs and thereby affecting the attractiveness of solar in certain markets.  That said, the tariff rates are within the range of what we were expecting after the ITC recommendations.  Having greater certainty on cost is a plus. We also expect states and customers with an interest in promoting renewables to lean in a bit. So, we might shift our market focus a little, emphasizing some markets more than otherwise would have been the case.  And of course, a number of factors still need to be played out— the detailed rules on the tariff, the potential for exemptions, the duration of the tariffs in light of possible retaliatory actions by other countries, other cost savings, and so on.  The game definitely isn’t over.

Richard Matsui: When you think about the various items that factor into your pricing, what variables have the biggest room for improvement?

Ed Feo: Overall, cost reductions will continue. Everybody’s lived off of panel price reductions. These will continue over time, but obviously will be affected by the outcome of the trade case. Installation is also continuing to make cost improvements. When you build larger projects, you realize that the implementation of a solar plant has more in common with a manufacturing assembly line than with traditional construction. Improved processes on installation will result in lower costs.

The soft costs—specifically the combination of the costs of funding plus transaction costs—also have room for improvement.

For much of its history, our industry has been built on highly structured financing models involving tax equity, project-level or back-leveraged debt, and third-party equity. It’s a project finance lawyer’s dream. That structure is expensive. Over time, I expect we will be seeing more debt, and more standardized terms, and as a result lower capital and transaction costs.

Richard Matsui: Keith estimated that tax equity’s share of the capital structure will shift from 40-50% of the stack to 30-40%. Debt will inevitably play a bigger role in our capital structure; the question has always been one of timing. The industry is already beginning to make this shift. We have already seen seven lenders issue term sheets at 1.10x or 1.15x DSCR on P50 revenue, assuming the solar Revenue Put is in the structure. Our hope is to help usher in more debt capital into the market and fill in that gap, which is clearly going to be a big issue for everyone in solar in 2018.

Ed Feo: You are right on the mark. That is what we have been doing with Panasonic. Their production guarantee results in more favorable debt service coverage ratios. Your Revenue Put does the same thing, and the arbitrage is made possible by your data, whereby you and your insurers can see a lower risk level in system performance than what the banking community is currently willing to consider on an individual asset basis.

Richard Matsui: Yes, there is an arbitrage element, though it’s also true that panels, inverters, and projects are not all equal, in terms of quality. We see a wide range in our quotes for the Revenue Put, which reflects this variation. Fundamentally, the missing piece has historically been the lack of performance data to quantify this difference in quality. But now that we are managing data from nearly one in five American solar projects, we are able to quantify the risk, and bring in global insurance capacity at attractive rates. We consider ourselves privileged to have worked with your team on closing this first Revenue Put transaction.

Ed Feo: I agree with you regarding the quality of equipment and projects—not all are equal and there are ramifications in terms of long term performance. Given the continuing cost pressures facing developers, your solution is reaching the market at a good time. Over time I would expect coverage ratios to come down and tenors to extend because of the availability of the insurance products in the near term and ultimately because of greater acceptance and understanding of the system performance risks by the finance community and their advisors.

Richard Matsui: Returning to your point on installation, there is an ongoing debate in our industry about how integrated a developer should be when it comes to EPC. Some vehemently argue in favor, citing better cost and quality control. More vehemently argue against, citing overhead and reduced flexibility. How do you see this?

Ed Feo: At Coronal, we started as a finance shop. We just bought projects and financed them. When we grew tired of paying premiums to developers, we bought a development shop. And then, we decided, “Gee whiz, we’re giving away margin,” and so we bought an engineering and construction management firm.   We added our own asset operation and management team, so now we can develop, build and hold an asset if we so choose.

But these investments and the integration of all of the parts into one organization haven’t stopped a lively debate internally, and I’ll bet the same debate is happening at every company that has integrated capabilities. There will be an eternal argument about whether the additional margin capture is better or if it’s better to gain best practices and risk mitigation from working with third party firms. Developers and project managers will be arguing about this as long as there are solar projects to be installed.

Given the intrinsic volatility and complexity of the business, it’s undeniably useful to have the tools to build your own projects. Full stop. But you don’t necessarily want to build all of them, for the same reason that it’s not necessarily true that you want to own all of your assets. Committing to always doing everything is dangerous.

Our approach is to develop each project as if we are going to own it, base case. The question is always: “If I had to build it myself, could I make some money and be okay with the risk profile?” But maintain the mental flexibility to say, “You know what? I’m better off selling this asset today because pricing is strong” or “I’m not happy with the risk profile I see going forward, and it’s time to de-risk.” This ability to carry a project through completion means that we avoid the pickle of a pure-play developer forced to sell into an unfriendly buyer’s market before or at NTP.


On Scaling a Development Business

Richard Matsui: How do you think about scaling up your business?

Ed Feo: Development is a kind of business where you have to be ready to proceed where there’s opportunity and stop where there isn’t. If you commit yourself to fixed growth targets, then you are also explicitly ignoring the dynamic of the market. That gets you into trouble. Others could have different views.

Richard Matsui: A VC once asked me why the solar industry feels so volatile. I told him that the leading developers in the solar industry are, almost by definition, successful gamblers. A developer that attains national scale is one that has successfully made dozens of “bet the farm” moves to get there. As a result, these survivors make moves that are consistent with that personal history, even if the risk now seems inconsistent with their current scale of their business. It’s a “risk on” mentality, which works—until it doesn’t. And when it doesn’t, we see big explosions and many journalists come to cover the scene. I hear you making the case for flexibility, but where does process and discipline fit into the picture?

Ed Feo: My personal definition of a good developer is someone who approaches every project with the same amount of rigor, and really thinks through the timeline, inputs, and contingencies. And who can make intelligent bets (that’s the combination of data, process and instinct). There are a number of development companies for whom we have huge respect because they take that approach.

Discipline is a critical part of the process. You need to know what risks you are willing to take. And not. You need to know what you are willing to pay for. And not. It is also important to not get swept up in frenzies that occur along that path.

The long-term picture of solar is obvious: There will be much more solar five years from now than today. The question is how to get there. You cannot—must not—assume that it will proceed linearly and think strictly in terms of market share. I just don’t think it makes sense in this business.

SunEdison is a good relatively recent example of a company that decided that they were smarter than the market, and committed to aggressive growth. When that growth could only be achieved unsustainably, relative to the opportunities being presented—well, that didn’t turn out well.

When you look at the energy business outside of solar, you’ll see that there are developers of energy projects that have been around for a very long time. They know how to develop energy projects, and they have discipline. And they are not Fortune 100 companies; they are midsized companies that may sit on the sidelines for a long time before finding the opportunity they want to act on. I like to study those models, and ask, “Who are those really smart guys who have been doing this for 20 years, and how do they do it?”

Richard Matsui: I strongly believe in that, this idea that being a historian of sorts, a historian of business models, is uniquely valuable in this new industry. Though it’s also worth noting that sometimes you can draw the wrong parallels. When I first entered solar in 2007, everyone agreed that solar panel manufacturing was going to be just like semiconductor manufacturing. Therefore, manufacturers made large capex and R&D bets on the assumption of great gross margins that never materialized. On the flip side, being able to identify the right analogy grants you valuable context. We looked at conventional asset classes like mortgages and consumer credit, and realized the role that CoreLogic and Experian play as repositories for that performance data. It’s provided a powerful template for us to think about growing our business, in the solar industry.

Ed Feo: Absolutely, I really like that point. One of my criticisms of the solar industry is that it’s myopic, and more than a little bit driven by missionary zeal. Yes, we are doing great things for the environment and society, but it’s important to temper the enthusiasm for what we are doing with a clear eye on the harsh realities we face. In this business, people can be mesmerized by the passion and glamorous part and forget that it’s important to do the unglamorous part, too. I’m the curmudgeon of our company because I’m not that enthused about enthusiasm. If I had to choose between someone with a low level of passion (and even a difficult personality) but with good execution skills, versus someone with a lot of passion but less skilled execution—I will choose the former any day of the week.

Richard Matsui: When you think about the financing parties that you’ve worked with, who strikes you as being the most creative?

Ed Feo: Well, anybody who gives us money is creative, intelligent, and good-looking, so…

Richard Matsui: [laughs] That’s fair.

Ed Feo: Our approach is to limit the number of people we work with, and drive as much business as we can to those handful of people so that we achieve high transactability—meaning certainty of closing, timing and costs. I’m looking to get the job done, and then making sure our next deal is easier to close than the one we just closed. All that being said, we work with PNC, U.S. Bank, SMBC, Rabobank, and Bayern LB. They all do a fantastic job.

Richard Matsui: Last question. What’s your biggest non-consensus bet for 2018?

Ed Feo: Well, from a solar development standpoint, 2018 is in a way already over. I’m more concerned about what we have to deliver in 2020 and beyond.  This year does look like a challenging year for developers and we will see some fallout. But to succeed in solar, you need to look at a five-year timeframe. That should be a consensus view.  In terms of non-consensus bet:  The Cleveland Browns go .500 next season.

Winter 2018 DealFlow from kWh Analytics


Since we are all focused on the impacts of the Section 201 ruling and the latest tariffs, we thought it would be a good time to share some uplifting news that we are tracking in our data: The fourth quarter had a tremendous amount of deal activity, with over 50 deals closed during the quarter valued at over $9 billion.

This level of deal activity is coupled with the fact that spreads for loans are continuing to become more competitive. While deals will be impacted by the trade case, the capital structure is continuing to get cheaper, especially when the Solar Revenue Put is included within the structure.

After receiving positive feedback on our first DealFlow, we knew we had to make it a regular series. In the Winter 2018 version you will find:

  • A featured deal seeking debt financing
  • Quantification of where the loan market is trending for 2018
  • Detailed deal data for the 50+ solar transactions that closed in the fourth quarter

Please send us your deal info if you’d like your deal to be included next time (no, we don’t charge anything), we are at

PDF Available Here:













Richard Matsui
Founder & CEO kWh Analytics

Project Finance NewsWire: Risk Management for Solar Projects

Originally posted on December 2017 Project Finance NewsWire.

The Solar Energy Industries Association published a guide called “Best Practices for Solar Risk Management” in September. Jason Kaminsky, chief operating officer of kWh Analytics and the author of the guide, Ed Rossier, a director of project management for renewable energy investments at US Bank, and Mike Mendelsohn, senior director of project finance and capital markets at the Solar Energy Industries Association, talked about the topic during a webinar in November. The following is an edited transcript. Keith Martin with Norton Rose Fulbright in Washington is the moderator.

MR. MARTIN: Jason Kaminsky, what is the difference between an asset manager and a risk manager? The guide suggests the difference is important.

MR. KAMINSKY: The sponsor does asset management. It has the asset. Bankers and tax equity investors do risk management. They want to make sure they will be repaid or reach their target returns.

An asset manager at a sponsor is responsible for supervising technicians, overseeing O&M agreements, managing spare parts and the other physical aspects of making sure the project performs. He or she is also responsible for things like sending and correcting invoices, preparing financials, getting auditing and accounting help, and preparing reports for the financiers.

Risk management is what a banker or tax equity investor does in preparation for and after an investment. That includes things like tracking, monitoring, reporting on, and managing the health of the investments after they have been made, and managing internal stakeholders who have an interest in the financial health of the portfolio.

MR. MARTIN: How did you come up with the best practices you recommend in the guide?

MR. KAMINSKY: First, kWh Analytics works closely with a number of investors. We drew on their insights. Second, I drew on my own experience at Wells Fargo. I was one of the early members of the solar tax equity team, so we basically built our own risk management platform from scratch. Third, various members of the solar energy advisory council at the Solar Energy Industries Association read and commented on the guide, and then we had peer review by about a dozen other reviewers from industry that included other lenders and tax equity investors.

Identifying risks

MR. MARTIN: Ed Rossier, you have a huge portfolio of tax equity positions in solar projects. Risk management has to start for you when you are first looking at a potential project. I suspect you end up cataloging all the risks, and then you write into the deal documents which party takes each risk. The ones that US Bank will take have to be quantifiable if you are going to invest.

People sometimes say that it is not important to eliminate all risks. You just have to be able to quantify them. Whose job is it at a tax equity bank like US Bank to identify these risks? Start at the front end of the process.

MR. ROSSIER: Most banks are probably organized with three lines of defense. There are the business lines, then risk management and compliance, and then an internal audit group that makes sure everybody is doing what he or she is supposed to be doing.

Our business line is the world that I live in. These are the revenue-generating individuals at the company.

MR. MARTIN: You originate deals.

MR. ROSSIER: It is everything facing the customer. There is a separate line that is concerned with implementing policies and approving investments. That is separate from the team that originates, closes, and manages the assets. Within that world of the customer-facing business-line function, different banks choose different ways of organizing things.

We are organized into three groups: we have business development officers, who are originators who source new customers and new investment opportunities and take them through the letter of intent. Once the letter of intent is signed, it is transitioned to my team which we call project management, but it is really underwriting, negotiating and closing.

That team will take an investment from signing of the letter of intent through closing on the definitive deal documentation. At that point, the investment is transitioned to our asset management team, which holds it through the life of the investment until we exit.

MR. MARTIN: You are in the middle position. The letter of intent has already been signed. Now the deal has to be documented. You have to understand the risks. You bring in a lot of consultants, including lawyers, to help you understand everything. There is also diligence done by the internal team.

MR. ROSSIER: At this point, the due diligence requirements for most deals are pretty standard, depending on the deal type. Most people will circulate a due diligence closing checklist pretty early in the process that covers the waterfront.

Our internal team will review everything in conjunction with outside counsel. We engage a variety of other experts, including independent engineers, appraisers and accounting firms.

MR. MARTIN: Could someone contemplating raising tax equity from US Bank ask you in advance for the checklist so that he or she can get a head start on setting up a data room?

MR. ROSSIER: Yes, it happens occasionally. A big caveat is that until the specifics of the assets are known, it is hard to cover everything in a checklist.

MR. MARTIN: There are three different business lines involved in moving the deal to completion and then afterwards during the operation phase. One is a group that gets it through the letter of intent, then you come in as part of another team that does the diligence and documents the deal. Then the baton is passed to an asset manager.

MR. ROSSIER: Not to confuse terms, but that is the term that we use. At our bank, the asset managers process all of the post-closing fundings and then any amendments or issues that come up in deals. They manage through exit.

MR. MARTIN: How many solar projects does US Bank have in the asset manager stage at this point?

MR. ROSSIER: Something like 250 investments.

MR. MARTIN: How many asset managers do that many projects require?

MR. ROSSIER: Our team is around seven, and then there is another group of portfolio analysts that supports them, which is about five or six people. There is some permeability between people in different business lines, and there is a lot of cooperation, because every investment that we do is either with a repeat customer or a customer that we hope will become a repeat customer.

The information from each group has to be shared with the others because the originators need to know how projects that already closed are performing, and underwriters need to understand what might have gone wrong so that they can incorporate that information into their underwriting. We all sit together. There is constant communication among the groups.

MR. MARTIN: What does a portfolio analyst do that the asset manager does not?

MR. ROSSIER: They collect everything that is required to be delivered and then dig into financial statements, operational statements, tax returns and the like and are available to help do a deeper dive into any asset that might be troubled or where we want to pull a little more data out of our portfolio.

MR. MARTIN: That’s a lot of work. What is left for the asset manager to do?

MR. ROSSIER: That’s a good question. [Laughter].

MR. MARTIN: There are seven of them compared to five or six of the people you just described.

MR. ROSSIER: The bulk of their time is spent on fundings. We do a lot of residential solar and portfolios of small utility-scale solar, and each of those investments will have multiple fundings. You could have monthly fundings or twice-monthly fundings all year long for one investment. There is a lot to review in connection with each funding.

After that, most of the work is annual and quarterly reviews of the portfolio and then, of course, any project or sponsor that has distress of any kind will draw the bulk of their remaining attention.

MR. KAMINSKY: One of the surprises to me when I first joined Wells Fargo is that you have the business line, as Ed mentioned, and then there are lots of other internal stakeholders who have an interest in what you are doing. A bank has an accounting group that is working on the bank’s accounting. It has a tax group. You might work with an equipment leasing group. You have internal audit.

A lot of the time is spent directing traffic and making sure that all those other teams have what they need to do their jobs.

Current hot buttons

MR. MARTIN: Ed Rossier, you said the portfolio analysts and asset managers sit pretty close to the deal originators so that you can learn from each other. Is there a formal process? Are there regular meetings? Can you think of anything that has been passed to the deal originators recently from experience on the asset manager’s side?

MR. ROSSIER: Yes. Our company made a conscious decision to integrate the teams by having people from different teams mixed together. We don’t have silos. We think communication is important.

For example, the tax equity investor often has an outside completion deadline, and if you have a lender that is bridging the tax equity investment, it will want a cushion between the maturity date and the outside completion date on the tax equity commitment to ensure it is not left without a takeout. The outside completion dates are negotiated during the term sheet phase by the business development officer. They are essentially a conversation between the business development officer and the customer about an outside date to complete the project that the customer feels confident will be met.

The deal then transitions over to my team. Maybe there are eight to 12 weeks of negotiation, underwriting and closing and, during that time, the schedule might move, but the outside completion date might not. That can create a problem if asset managers are having to ask for extensions after closing because the lender extended its deadline in order to accommodate the construction schedule. The tax equity investor gets asked to extend as well. The delay might be due to a new schedule the utility imposed for interconnection, for example. The delay was not incorporated into the internal credit approval.

This causes heartburn for sponsors and lenders and creates work for asset managers, so we try to learn from the experience and come up with a different approach for setting future outside completion dates at the front end.

MR. MARTIN: Make sure all the dates synchronize. Jason Kaminsky, you worked at Wells Fargo for a while in a similar capacity as Ed Rossier. Are there other ways that you have seen teams organize themselves?

MR. KAMINSKY: Organizations that do not have the volume and head count of US Bank sometimes divide up by customer. This affects the way such a bank makes investments and evaluates risk. The same person takes the deal from start to finish and also acts as the asset manager.

Where the investment group sits within the banks also influences its perspective. Sometimes, like at US Bank, it sits alongside groups handling low-income housing and other tax-credit investments. Other times the group sits within a principal investing group, or an energy lending group or a leasing practice. This influences everything else about the accounting, the oversight and the risk perspective. We see people come at solar from different starting points, and I think it influences the way they evaluate the deal.

MR. MARTIN: Ed Rossier, you mentioned a lot of people who have to sign off and, Jason Kaminsky, you said that a lot of the work is acting as a traffic cop by steering things to people who will need them in order to sign off. The people who sign off include the tax equity business unit, the credit committee, internal and external auditors, the bank regulators, and maybe the tax department.

You probably get to a point fairly quickly where you know the hot buttons of each of these groups. Name a couple of current hot buttons that are getting a lot of attention.

MR. ROSSIER: It can change from year to year and from month to month, depending on the topic du jour. Risk mitigation tied to tax reform is a hot topic today. It is requiring a lot of coordination among departments within the bank.

Another one that is new this year is module supply security and tracking where modules are as a direct result of the Suniva tariff case. The potential for import tariffs creates pricing uncertainty.

Other ones that are popular this year include interparty terms of lenders where debt or back leverage is added to investments after closing, and post-closing changes in sponsor ownership. There have been a fair number of upstream acquisitions of developers, and that has created a lot of work for asset managers.

Best practices

MR. MARTIN: The risk management guide is really just a compilation of best practices for managing risk. It breaks these practices into three categories. There is risk measurement and monitoring over time. Then there is comparison against industry benchmarks, and finally there is compliance. The guide recommends a dozen best practices. Let’s talk about some of them.

Let’s start with operating risk. This is the first place to focus because it determines the cash flow from the project. The guide recommends tracking a weather-adjusted performance index. Jason Kaminsky, what is that?

MR. KAMINSKY: It is comparing actual output to the projected production in the project pro forma. Is the project or the portfolio hitting its target? If not, is it because of something that the sponsor can control? The main variable is usually weather. If it was poor sun, then it is not usually the sponsor’s fault. On the other hand, if there is an operational issue, we will want the sponsor to address it.

Backing out the influence of the weather — that’s essentially the weather adjusted performance index — can isolate any operating issues.

MR. MARTIN: Who maintains this index? Is it the sponsor, the tax equity investor or the lender?

MR. KAMINSKY: It is usually monitored by the sponsor and then delivered to the various stakeholders as part of the reporting package.

MR. MARTIN: Does the sponsor come up with its own model or is this something that is purchased from outside?

MR. KAMINSKY: It is a blend of both. External information is sometimes used to support an internal model.

MR. MARTIN: How do big data and industry benchmarks play a role?

MR. KAMINSKY: We see a lot of requests for benchmarks. That gives investors a sense of whether assets are underperforming in relation to the broader market. If so, that might be a sign of a bigger problem. The other area we have had a lot of questions about is a significant weather event, like a big snowstorm, fire or hurricane. These events seem to be becoming more common.

MR. ROSSIER: I am a big fan of aggregating data and standardizing data fields. We participated in Orange Button, a US government effort, when the group was determining the taxonomy. I think more standardization is helpful at both the data level and the contract level.

MR. MARTIN: How does standardization help you?

MR. ROSSIER: There are two sides to this. One is we are an active syndicator. We will try to raise about $500 million of third-party tax equity next year and deploy it alongside our own bank’s tax equity. As part of our reporting to third-party investors, the more we can benchmark, the better the product we are delivering to our third-party investors.

The other side is accessing new market segments that are not currently served by tax equity. Two great examples are low-FICO customers, like subprime homeowners, and the commercial and industrial solar market, which has people scratching their heads over how to tackle it.

MR. MARTIN: The data and the benchmarks get you comfortable eventually that a low FICO score is not a problem.

MR. ROSSIER: In theory they could. Or they could tell you the opposite. For now, we don’t know. We recently began working with kWh Analytics to help us aggregate our data, and we use the aggregated data to support our syndications business and underwriting practices. For example, Fannie and Freddie publish a lot of mortgage data. This allows people to do analysis and draw conclusions based on the data. It is much more difficult in solar because every sponsor holds its data as a proprietary source of value for its own use.

MR. MARTIN: How could data help you get comfortable with the C&I solar market where the problem seems to be lack of standardization for the offtake contracts?

MR. ROSSIER: It will not help with the issue of offtake contract standardization, but it does help when you are trying to evaluate default risk or credit risk generally of offtakers or the likelihood that solar equipment will remain in service. There may be ways to look at it on a portfolio level and draw conclusions about default rates or periods of lost revenue. Banks might not start there, but there might be an opportunity for insurers to be first movers in that market.

MR. MARTIN: Next question. The guide says, “Nearly every large portfolio to date has seen the insolvency of a vendor or sponsor.” That is referring to rooftop solar, correct?

MR. KAMINSKY: It is true across the solar market, but more so in the C&I and residential segments.

Risk matrix

MR. MARTIN: You go on to point out in the guide that there is also regulatory risk as net metering policies, tax law and renewable portfolio standards sometimes change, sometimes with retroactive effect. The guide tackles this by recommending investors track exposure at both the project and portfolio level by looking at how many dollars are exposed to different equipment types, geography and what else?

MR. KAMINSKY: I guess the best way to answer this is with a few examples. With the recent wildfires in northern California, investors are trying to scope very quickly what kind of exposure they have to assets in that region. Zip code is the key metric. Investors who have their assets divided by zip code can determine their exposures quickly.

In addition to geography, assets might be tagged by installer, equipment vendor, servicer, offtaker and offtaker credit. A robust data set helps an investor respond quickly to the changing market.

MR. MARTIN: So having a matrix on your computer screen or a big spreadsheet showing exposures is a powerful risk management tool. One of the uses is being able to respond quickly to questions from credit. Are there other uses for such a matrix?

MR. KAMINSKY: Yes. Sometimes within a bank you are managing exposures to risks like geographic concentration, low-FICO customers, lots of battery storage, for example. There is a misconception that if there is a problem, you can’t really do anything about it.

I learned very early in my career that problems are okay, but surprises within a bank environment are not.

If you see a problem on the horizon, often if you get a lot of smart people together, you can come up with a pretty good mitigation strategy. That might include financial support. It might include alternative O&M strategies. Using this sort of matrix allows you quickly to scope your risk and decide how you want to manage that risk.

MR. MARTIN: Offtaker credit risk is another issue, especially in the residential solar portfolios and the utility-scale projects with corporate PPAs. What are the best practices to deal with these kinds of risk?

MR. KAMINSKY: You can’t manage what you don’t measure. Today in the residential solar sector, we don’t even have a clear definition of what a default is. We are still figuring out what is the right time to call a default and how to track different performance metrics across the portfolio. The challenge is how to normalize the data or metrics so that people like Ed can make better investment decisions.

MR. ROSSIER: The challenge on the residential side is the market is currently structured and willing to serve the prime homeowners, meaning a FICO score of at least 680 or 700. There is often an allowance for some portion of the portfolio to be unrated with either partial prepayments or ACH requirements to mitigate that risk. That’s just where people have been comfortable, and in the absence of any broad data-based conclusion, I don’t see that changing much.

In the C&I sector, it is really just commercial credit underwriting for the offtakers on a credit-by-credit basis. This is why I think that market has not really grown much because the only time we have been successful doing these types of portfolios are ones where they have, for example, a FedEx contract covering 50 FedEx locations so that you can underwrite a single offtaker and a single form of PPA and it is all standardized. The PPA wraps some of the site-control risk.

Those work, but in terms of my brother-in-law’s gym getting solar on the roof, that is probably not going to be financed by US Bank because there is too much work to do to get comfortable with the credit. A handful of companies are trying to solve this problem using technology and web-based underwriting platforms to make that underwriting a little more systematic. They might be successful, but ultimately that gets to a second regulatory area for banks, which is third-party risk management. If you are relying on a third party to underwrite your risk, then you have to be comfortable with the creditworthiness of the third party, and the bank regulators will hold it to the same standard as the bank. That means there is another door to get through.

MR. MARTIN: It sounds like a lot of this lends itself to artificial intelligence.

MR. ROSSIER: Yes. Our tax equity subsidiary was a community development corporation that was originally focused on affordable housing and new markets tax credits. We were always compliance-focused. Tax credit recapture was our first risk category. Other banks may start with the asset-level risk and then go up the chain.

MR. MARTIN: Is this a case where the more you know, the more risks you see or the more you know, the more the list of risks shortens?

MR. ROSSIER: I don’t know that it is either. With any new investment type, you uncover some risks that maybe you did not think of at first. The risks in solar are pretty well known at this point. Performance is the unknown.

If we could go back 10 years and rebuild our platform and money were no object, every bank would develop a proprietary underwriting database that could tap into other sources of data, allowing you to make the case to your credit or risk management folks that you can underwrite 100 different commercial offtakers in a single fund. That is something that artificial intelligence might eventually make possible.

MR. KAMINSKY: Even if you have identified a risk, it doesn’t mean a bank is always best suited to wear it, especially if it leads to volatility in cash flows. Currently within the lending market, there is a lot of capital, but a finite number of deals. I think in that market, the question is how either to stretch your risk appetite or to find innovative ways to structure around risks. We have secured insurers to accept untraditional risks. In our case, insurers take production risk, and we are finding lenders are able to underwrite projects more aggressively with these policies in place. That is important in today’s competitive market.

MR. MARTIN: Let’s work Mike Mendelsohn in here. The US Department of Energy’s Sunshot Initiative office has been working with the solar industry on an Orange Button data standard. Ed Rossier mentioned it. The standard is described in the guide as a taxonomy for solar data transfer and reporting. What is it? When will it be available?

MR. MENDELSOHN: Essentially it is a dictionary of all relevant data terms so that there is a consistent name and definition for each term. That allows for interchangeability of data and facilitates greater liquidity in the financial market. We expect to see something in the next couple of quarters.

MR. MARTIN: You worked at the National Renewable Energy Laboratory. That is where most of us in the solar market got to know you. The Solar Energy Industries Association hired you away from NREL. NREL had run out of budget for your program. You were working mainly on model contracts for solar deals. Now that you have moved to SEIA, you have also come up with sets of best practices for installation and O&M and for consumer protection. Is the focus of these efforts rooftop solar or are you working more broadly?

MR. MENDELSOHN: We started with distributed generation. We are now thinking about doing standard contracts for the utility-scale market. We recently improved on the commercial and industrial PPA that is designed for relatively small C&I projects. We are in the process of bolting on some different components to that: for example, a PACE addendum and a storage addendum. We are trying to build out our suite of contracts to include other technologies and other finance models.

MR. MARTIN: Where can people find these contracts?

MR. MENDELSOHN: Search in Google for “SEIA model contracts.” Or navigate through the SEIA website. You can always contact me as well.

MR. MARTIN: You suggested your next focus as a group may be on utility contracts. Is there any other potential focus at which you are looking?

MR. MENDELSOHN: We are looking across the investment ecosystem. How can we facilitate reduced transaction costs or allow project cash flows to be pooled into structured finance products?

We were talking a little bit earlier about the C&I sector and how difficult it is to finance. A lot of that is because the originators are too small to come up with a contract portfolio of sufficient scale to reduce risk across that portfolio. Building portfolios across originators has been too difficult to date because of the risks inherent with that. I think we will be able to solve for a lot of those issues and develop portfolios that are large enough where any single project within the portfolio does not represent too much concentrated risk. That will be a valuable barrier to overcome.

#Solar100’s Julia Pyper: The Anna Wintour of Cleantech Media

Originally posted on pv magazine USA. Richard Matsui, founder of kWh Analytics, speaks with Julia Pyper, reporter and Senior Editor at Greentech Media.

The two journalists-turned-editors Julia Pyper and Anna Wintour have much in common when it comes to their roles in their respective industries:

In their ability to read and report on the times in a way that shapes public opinion, in their early starts studying their future beat, in their formal positions as editors for Vogue and GTM respectively, in their roles as industry power brokers—what Anna is for fashion, Julia is becoming for Cleantech.

In this interview, Julia takes a wide-angle lens on the solar industry and also shares her best practices for startups looking to grow their media presence.

Julia Pyper is the “Anna Wintour of Cleantech Media” and this month’s #Solar100 thought leader.

Starting in Cleantech

Richard Matsui: I read recently that you were raised on a horse farm and credit your chosen beat to growing up in Canada.  What drew you to working in cleantech and solar in particular?

Julia Pyper: Cleantech journalism combined all my passions: I always wanted to work in journalism to tell stories, to educate and, quite frankly, to support democracy.  At the same time, growing up with family in the energy industry, I have always been interested in energy and climate issues.

Canada is a resource-based economy, and several people in my family work in oil and gas.  My uncle is a former CFO of Enbridge, a natural gas distribution company, my cousins are surveyors who go up to the oil sands, and my brother works for Kubota, a tractor company dependent on the fuel economy—everyone in Canada knows someone who has either worked in or been influenced by the oil and gas industry.

I think we need to be cognizant of the role that oil and gas plays, not just in Canada, but in the U.S. as well.  It is silly to think that oil and gas will go away tomorrow.  And similar to the U.S. coal debate around coal workers, you also cannot abandon the people that work in these industries.  That said, I want explore strategies to diversify economies, because being reliant on fossil fuels seems shortsighted.  People will want those resources for a time, but they are finite.

Driven by my desire to see a cleaner and better world, Cleantech journalism allows me to explore these complex topics.  Let’s see what new features, business models, and technologies we can come up with.

RM:  You started the Empowering Project as a side hustle—what is the Empowering Project and what are you hoping to add to the conversation on renewables?

JP: I love storytelling and bringing in human elements to reporting.  Last year I went to Haiti and worked on my first mini documentary, titled ‘Empowering Haiti,’ to try and cover energy issues in a different way.

Haiti is a case study on the critical role of clean energy in developing economies.  Getting locked into a fossil fuel future is dangerous.  Further, fossil fuels can be impossible to put into place because of the industry’s prohibitive infrastructure costs and technical requirements.  Millions of people will miss out on the benefits electricity brings if they hold out for a fossil fuel power plant.  Cleantech solutions are not some hippie initiative—solar can be deployed rapidly and is proven to enable and empower communities in ways that fossil fuels cannot.

One year after ‘Empowering Haiti,’ I am exploring other opportunities to continue the energy discussion under the Empowering Project.  I want to investigate topical issues like political partisanship in energy, and find ways to address and move beyond that partisanship.

RM: Of the pieces you have worked on for GTM, ClimateWire, and elsewhere, which (if any) has been the most controversial, and why?

JP:  “Why Conservative White Men are More Likely to Be Climate Skeptics.” I wrote it when I was at ClimateWire and the New York Times had an agreement with them, so it ended up running in the New York Times as well.

On the one hand, the findings are not surprising—conservative white men think conservatively. Considering that climate change requires people to adapt to something that is hard to see and feel, it is not surprising that conservative people would be less inclined to take action.

However, spelling it out is controversial.  No one likes to be told that they are wrong.

My mother sent it to a family member, and let’s just say it started a debate.

RM: Was the goal of your piece to start a debate?

JP: No, my goal was to understand how people were thinking about the issue and how their worldviews influence their likelihood to take action.  My piece was based on actual research by university researchers.

That piece brought to life how deeply people’s positions and worldviews influence how they think about progress and the economy.  It is a really tricky topic to report on—people were telling me, “You’re white, why would you write that?”  Other people would say that I did not go far enough in my reporting.  No matter what you write, you have to get a thick skin.

Media Advice

RM: We’ve been seeing an increase in cleantech startups and startup incubators (Powerhouse, Greentown Labs, Urban Future Lab, etc.), and with that, a lot of media being done in-house.  As a veteran journalist and senior editor, can you share best practices for startups looking to get their word out?

JP: Frankly, I think you need to do it all as a startup. A few suggestions:

  • Thought leadership is how people build brands online. Write blog posts.  Share articles and add your two cents to them.  Pitch contributed articles to established trade publications.  Be part of the conversation.
  • Social media can be challenging if you have a very lab- or tech-based product, but in general, establishing your company on social media can go a long way. Social media, coupled with traditional media, is effective in establishing a company voice.
  • Tie what you’re doing to what people already know and care about. For example, a new technology is especially interesting when it is addressing a longstanding problem.
  • Do not assume everyone has the same level of passion that you do at your startup. Make it fun.  Gimmicks sometimes work because you are just trying to get people’s attention, and there is so much competition for people’s attention.
  • Take advantage of your unique perspective. If you have data, share some of that data.  Opower actually did a good job posting some of their insights on their blog.  People shared those links, and it created fodder for reporters to build upon in their stories.  If you’re a company with data to share, I would recommend that strategy.

RM:  Can you share examples of B2C and B2B companies that have done their marketing effectively?

JP: People like aspirational products, they like products with a cause, but they also like quality and convenience.  I think B2C cleantech companies that hit on all of those points in their marketing will be successful.  So, obviously, you have Tesla.  Nest was also groundbreaking in this regard. And I think the startup SolPad, while it still has a lot to prove, did a good job of making and marketing a cleantech product that looked cool and generated buzz.  They took cues from tech giants and appealed to what consumers already know and care about.

Not every company is selling a product like that, though.  When it comes to marketing a product or service that centers on price, I think Ohmconnect does a good job of telling its story to customers with the simple messaging: “Save energy. Get paid.”

B2C marketing can be very exciting, though I think in many ways it is the work behind the scenes that makes the most successful companies.  The marketing strategy must always be backed up by a quality product and strong business execution.

On the B2B side, EnergySage, while a B2C company, has effectively reached out to the business community.  They have put effort into establishing thought leadership at speaking events and through blog posts.  I think eMotorWerks has also been successful, evidenced by the company’s recent acquisition by Enel and list of strong partners.  The company achieved this by offering a high quality technology, but also by speaking at a lot of events and sharing a steady stream of news.

RM:  Any advice for B2B companies serving utilities or other audiences that seem especially difficult to reach?

JP:  A lot of startups attend big conferences hoping to catch the speaker off stage.  That’s not a bad idea by any means, though perhaps difficult to scale.

Accelerators can play such a key role, especially from the foreign utilities perspective, in creating a low-pressure environment for different groups to meet and discuss challenges.  The new global energy accelerator Free Electrons event has done this successfully by bringing together a number of utilities and companies from around the world.

Joining the right accelerator can be a great opportunity to build credibility with B2B audiences, because there is only so much that social media can do to build those kinds of relationships.

RM:  Are there areas that you currently think are being under reported?

JP:  Yes—energy access.  A lot of European players are active, perhaps because they are closer to the continents of Africa and Asia. I find the U.S. market tends to be more inward looking, however, this is a ripe opportunity for U.S. companies to develop and share energy solutions abroad, and that deserves coverage. Community choice aggregation is another story to watch.

The Solar Industry

RM:  You cover the solar industry and policy as part of your beat.  What do you think are the top 3 challenges in solar today?

JP:  On the consumer side, we are seeing a tension between rapid growth and profitability for the residential installers.  The idea of commoditization of solar is gaining momentum; regional players are starting to do quite well.  One of the biggest challenges is figuring out the right model for that sector. How do you keep consumer interest growing?

On the utilities side, the trade case is one of the biggest challenges.  We have no idea how that is going to play out at this point, but the outcome will definitely impact the utility scale market.  If passed, people are saying that Texas solar installations may not make financial sense, which is a massive market to cut off.

PURPA has been a big issue as well, with a lot of the utility scale market relying on it.  Lawyers are saying that it is going to be one of the biggest battles to come.

The Solar Startup Landscape

RM:  Can you name an off-the-radar startup that is tackling an important issue?

JPRayton Solar is trying to manufacture solar panels that are 60% cheaper and 25% more efficient than the market standard using particle accelerator technology for silicon cutting.  They’ve raised money through crowdfunding, which you do not see very much of in this space.  And their spokesman is Bill Nye the Science Guy.  As the industry evolves, slight efficiency improvements or cost savings can disappear so quickly with a policy shift or tariff.  Perhaps that backdrop will make their cheaper solution all the more interesting.  But Rayton’s technology solution is high cost and complex. Other companies have tried this in the past and failed.

RM:  I recently met an entrepreneur with a Material Science PhD who wanted to build a new solar module company with a new chemistry. He was asking for feedback.  I told him, “I am sure you have already been told 100 times, but that is crazy.  Getting a bank to sign off on financing this sans balance sheet will be incredibly challenging.”  He said he knew and had been told that.  With that said, we discussed some things he could try.  It’s just a very difficult problem.  Hats off to people who are trying to make those improvements happen.

JP:  Agreed. I have a ton of respect for innovators. We will have to see how they do.

RM:  Taking a wide-angle lens, any thoughts on how the cleantech landscape is going to evolve in the coming years?

JP:  I think partnerships with utilities are going to be key, especially as U.S. utilities begin to collaborate more with startups.  When I first started covering the industry, there seemed to be animosity and an oppositional dynamic of startups and clean tech innovators versus the utilities.  There has since been an evolution on both sides.  The utilities have realized that they need to bring some knowledge in-house, or at the very least partner with innovative startups.  The startups have realized that a lot of big money comes from the utility sector. The trend of startups and utilities collaborating has already surfaced internationally, with European utilities taking a much more active role in the cleantech startup space. It will be interesting to see how this plays out in the U.S.

People are also asking who is going to be the next big player to own the smart home. NRG seemed to be going down that road with the startups they bought, but that did not work out. There is an opportunity for someone to disrupt that space.

Looking to 2018

RM:  What’s your biggest non-consensus bet for 2018?

JP:  I have seen a lot of headlines that the electric vehicle revolution is here, but until everyone saying that owns an EV, we are not there. When I host panels at cleantech conferences I’ll ask the audience – people who should by all means be early adopters – if they own an EV, and only a handful of people will put up their hand. U.S. EV sales are going to be up about 30,000 units year over year, which is good, but it’s not hockey stick growth. So don’t start kidding yourself that we are at a place that we are not yet. Don’t get me wrong, people are looking at the Model 3 and are excited about what’s to come. We just haven’t cracked the nut on EVs quite yet.

I do not doubt that globally, we will get there.  Compared to the U.S., adoption is actually happening more quickly in other countries.

Here, we are seeing that it’s difficult to get to that next layer of consumers and have them build EVs into their lives.  This is really an opportunity for startups and service companies to make adoption easier for consumers.  This is an opportunity as much as it is an issue. So my bet is that EV sales in the US will continue to be underwhelming, unless we see a lot more technology, but even more-so, business model and policy breakthroughs.

kWh Analytics Awarded ‘Insurance Initiative of the Year’ at London Market Awards

Winners originally announced on Insurance Day.

kWh Analytics & JLT Re have been awarded ‘Insurance Initiative of the Year’ at the London Market Awards.

kWh Analytics has secured investment grade insurance to offer the Solar Revenue Put to guarantee up to $100 million of production risk, per transaction.

A client received a term sheet for 1.10x DSCR with the help of the kWh Analytics Solar Revenue Put. This ‘step change’ in debt sizing ushers in a dramatic reduction in the cost of capital for solar.

Bank Writes Term Sheet for 1.10x DSCR with Solar Production Hedge

Full post available on Power Finance & Risk.

A bank has laid out terms for a loan to finance a contracted solar project with a novel production hedge developed by kWh Analytics, offering a debt service coverage ratio of 1.1 times.

The term sheet is the first to be provided by a lender for a project with the hedge, called a solar revenue put, which the risk management and datafirm has been promoting for several months.

The 80 MW project is located in the southeastern U.S. and has a power purchase agreement with a utility company. The identity of the sponsor, the lender and the name and precise location of the project could not immediately be established.

The 1.1 times DSCR is “unprecedented” in solar project finance, says Richard Matsui, founder and ceo of kWh Analytics in San Francisco.

The average DSCR for solar debt in the first nine months of this year was 1.44 times, according to a survey conducted by the analytics shop (PFR, 9/11).

A lower DSCR translates into a higher leverage ratio, which boosts the levered return for the sponsor.

The solar revenue put—which is structured as an insurance policy and underwritten and distributed through kWh Analytics’ licensed insurancebrokerage subsidiary, Kudos Insurance Services—guarantees 95% of the P50 case energy production of the solar project for 10 years.”

It could allow you to finance something you wouldn’t be able to come up with your equity check for otherwise,” PJ Deschenes, a partner at boutiqueinvestment bank Greentech Capital Advisors told PFR in August. “The question is, what are you giving away to realize that?”

Matsui says the premiums are more than offset by the potential increase in returns as a result of the greater leverage.

The unidentified solar project is one of two supported by the Kudos put that were going through banks’ credit committees in August. kWh Analyticshas more than a dozen live deals at various stages.”Our intent is to keep these deals moving forward,” says Matsui. “We’re hoping to get one signed before the end of the year.”

Demystifying Solar Risk Management: A Primer for Sponsors and Financiers

Webinar recording available from SEIA.

Join us for a roundtable discussion focused on the newly released Best Practices in Solar Risk Management report, co-authored by SEIA and kWh Analytics.

Recognizing the unique needs of both sponsors and investors, a panel of industry experts will:

  • Discuss what happens within the bank environment to manage risk after an investment has been made
  • Outline the industry standard best practices of leading investors such as U.S. Bank
  • Demystify solar risk management and discuss how sponsors can become their bankers’ preferred clients

Financiers will learn best practices to guide the growth of their solar investment practice.

Sponsors will learn about the bank’s risk management perspective, why reporting obligations are so important, and gain insight into questions such as how U.S. Bank, a leading tax equity investor, underwrites and monitors the operational performance of their investments.

Building on the Best Practices in Solar Risk Management report, the goals of this webinar are to improve transparency for all stakeholders and ultimately create a more efficient industry.


Keith Martin, Co-head of Projects, Norton Rose Fulbright


Jason Kaminsky, Chief Operating Officer, kWh Analytics

Mike Mendelsohn, Senior Director of Project Finance and Capital Markets, SEIA

Ed Rossier, Director of Project Management, Renewable Energy Investments, U.S. Bank