#Solar100’s Keith Martin: The Chuck Todd of Solar

Originally posted on pv magazine USA.

If you try to recall the keynotes at the past five solar conferences you’ve attended, we suspect that at least one—if not all five—were given by Keith Martin.

With over three decades honing his craft, Keith has become known for his domain expertise and tireless work ethic. In addition to his day job as a transactions lawyer, he is also the editor of Project Finance NewsWire and the author of more than 160 articles and book chapters.

In this interview, interviewer-turned-interviewee Keith talks about: the best solar developers, his actual dream job, and the coming shakeout.

Among solar financiers, mentioning “Keith” only refers to this one person. Keith is the “Chuck Todd of Solar” and this month’s #Solar100 thought leader.

Getting Started in Solar

Richard Matsui: I wanted to start out by learning more about you—before you created and established Project Finance NewsWire, before you became the go-to speaker at project finance conferences—how did you get started in solar?

KM: I was originally interested in being a politician or a journalist, but burned out too early on the political side. I worked on Capitol Hill for two U.S. senators, Senator Henry “Scoop” Jackson—he was a presidential candidate in 1975-76—and later Senator Daniel Patrick Moynihan from New York. Moynihan’s staff dispersed after it became clear that he was not interested in a run at the presidency—Tim Russert went to work for Governor Mario Cuomo, Mike McCurry went on to serve as White House Press Secretary for the Clinton administration, and everybody went off in different directions.

At that point, because I was a lawyer, it was easier to go into law than to start over on the bottom rung in journalism. I left the Hill right after the 1982 elections and joined some Joint Tax Committee staffers who were starting a small firm and who had invited me to join them. We were overwhelmed with work. We could not hire fast enough, so we merged with Chadbourne by May 1983.

When I joined Chadbourne, the firm represented the paper industry. Paper companies generated their own electricity and were interested in using PURPA, a 1978 statute, to sell excess power to utilities. Chadbourne litigated against utilities in 20 states to open markets and took a case to the U.S. Supreme Court in 1983 to establish the enforceability of PURPA. Chadbourne got in on the ground floor. Chadbourne represented most of the major independent power companies who were just growing up in that era. That’s how the project finance group that I co-head got started.

The project finance group was basically a bunch of misfits within Chadbourne, who were not part of any other group.  We built a new practice together that was focused on serving the new independent power industry.  It has been almost a 40-year effort.  The group did $53.5 billion in financings the last two years.  It has a wonderful esprit de corps. It did not hurt that I had also been working on Capitol Hill when the solar investment tax credit was first enacted after the Arab oil embargo as part of the Energy Tax Act in 1978. Knowing the history made it easy to shift to advising people on its application.

Developers & Successful Teams

RM: Having seen solar since the ‘80s, what traits do successful developer teams share?

KM: Four things: Versatility, focus, intellectual curiosity, and a manageable burn rate.

I read a piece in The New Yorker several years ago about Cory Booker, the New Jersey Senator. When he first started running, one of his fundraisers told him that in the business world, people bet on other people, not on the business plan. Business plans rapidly become obsolete. It used to take twenty years to build a big business. Now, a business model may be obsolete in five years, so you have to be versatile. My number one lesson is: Bet on a team that can figure its way through the changing market.

Focus is also important. Probably the worst thing you can say to potential investors is, “I have a pipeline of 25 projects.” You cannot possibly develop 25 projects if the answer to the next question is, “How large a team do you have?” and the answer is five people. It shows that the developer is just not focused enough. Investors want to see a laser-like focus in getting a project across the finish line, and then move to the next one.

Third, because there are a lot of sophisticated people in the market, it is important to know what you don’t know, and not be afraid to ask questions.  Be intellectually curious.  Learn as much as you can. There is always a learning curve, and you have to work hard at moving up that curve.

It is also important to keep an eye on burn rate. When you are starting a company, you can staff too many people with too many senior titles—all executives, no workers—and just burn through capital before you have anything to show for it.

RM: With these traits in mind, what team do you admire most?

KM: I spend a lot of time talking to CEOs, and it is interesting to hear how they got started, how they read the market, and the different business models each pursues. There are many highly capable people:

Ed Feo at Coronal—he is invariably impressive.

Tom Buttgenbach at 8minutenergy Renewables—he is a physicist by training. All disciplines, whether law, economics, sociology, physics, medicine, teach how to think through problems in a disciplined way. I like the exposure to people who come at issues from different perspectives; he is one of them.

Ryan Creamer at sPower—he just created something out of thin air. He managed to create a substantial company from a standing start.

Paul Gaynor and Michael Alvarez at Long Road Energy Partners. They built a substantial company, First Wind, sold it to SunEdison, and are now doing it again.

I have had the good fortune to run into many, many impressive people; it would be hard to name them all.

RM: Is solar development a commoditized service at this point?

KM: Gabriel Alonso, the CEO of EDP Renewables, said there are two things his grandmother could do—one is develop a wind farm in Texas, and the other is develop a solar project anywhere in the United States. He thinks it does not take much.

But I am not sure that is fair—there is a lot of knowledge and just pure grit that is required. Is it a commoditized service? There are people who offer contract development services. My impression is that there are probably easier ways to earn a living. If I were trying to jump into the business, I would be a true developer. I think that is currently the scarce resource in the market. There is plenty of capital; there are too few projects.

RM: Right. From our position in Silicon Valley, I like to say that if you’re in solar to make a quick buck—you’re in the wrong place. Finding the next ‘Instagram’ is easier. Solar is hard and chaotic.

Capital Landscape

RM: The “wall of capital” you often allude to now seems to be a double-edged sword: there is a lot of investment interest, but margins for all participants are razor thin. Do you see a massive shakeout coming if this continues?

KM: Among the developers, there are two trends: gradual consolidation and low barriers to entry for solar. Notwithstanding the gradual consolidation, there are not really any large pure solar companies like there are larger wind companies. The big balance-sheet wind companies are shifting resources to solar.  They may eventually come to dominate the sector.  At the same time, the low barrier to entry in solar, particularly for PV, has been a brake of sorts on scale..

Turning to the capital providers, I remember the last shakeout among the banks was when Enron collapsed. Prior to that, the banks had moved to finance merchant gas projects. It seemed toward the end of the cycle as if there was a merchant gas project on every street corner in Texas. There was too little product, and there were too many bankers and banks chasing deals. There are some parallels with the current cycle, but there are also differences.

Tax equity has always been somewhat scarce—the yields are frustratingly high from a sponsor perspective, so there is probably more room in that market. There is also room for more capable developers.  The deal flow has been pretty weak.

RM: In the utility-scale segment, I think we’re seeing 2 fundamentally different models of solar development compete. Fully vertically integrated firms versus a fragmented “network of specialists” comprised of part-time, hyper-local land developers, permitting specialists, independent EPC, and pension funds as long-term owners. Is that how you see utility-scale solar?

KM: I think of it differently—I think of tiers of developers. The tiers are a little easier to see in the wind industry where you have first-tier, balance-sheet players like NextEra, EDP, Avangrid Renewables, EDF, Enel. Then you have some that are just slightly below that: Apex, Invenergy, Long Road, Geronimo, Tradewind, Lincoln Clean Energy. These are substantial players who built scale. And then you have the smaller players, all the way down to the two guys and an Avis card who are out just trying seed projects. Maybe they will get a site. They used to be able to get a power contract, but they have had a harder time getting traction since the utilities began requiring large letters of credit be posted to hold interconnection queue positions. It is harder for the little guys to get the traction they used to.

In the solar market, you have different market segments:

First, you have residential rooftop. Several companies—SolarCity, Sunrun and Vivint—made concerted efforts to create national brands. They assumed that once they built the brand, they would be able to open up substantial distance between themselves and the nearest competitors. They have been facing challenges since the market got spooked after SunEdison collapsed.

Second, you have C&I, which has never really gotten scale. The reason is lawyers. C&I off-takers do not just sign form power contracts. They negotiate the terms. Every deal has its own power contract, which makes the transaction costs to finance portfolios of such projects prohibitive.

Third, you have utility-scale solar. There are a number of capable developers who know what they are doing—8minutenergy, Cypress Creek, Strata, Origis, Coronal, Recurrent, sPower—but it is hard getting to scale by building 20- and 30-MW projects.

Solar is a different animal than wind.

RM: At the last Infocast conference, a few mezzanine lenders describing their rates as somewhere between 9-11%. I was surprised to hear that number. What does the rise of mezzanine debt say about our industry?

KM: There are two types mezzanine debt. There is mezzanine debt offered by private equity funds that is being offered to companies that do not have the same options as the big players, and so they need to end up paying more for capital.

And then there is back-levered bank debt, a separate type of mezzanine debt that is for more established companies, who are pricing it below the tax equity yield, even though it is behind the tax equity in the capital structure. Back-levered debt might be 25 basis points over what a senior-level loan would bear, and senior-level debt for the best deals and developers is 162.5 to 175 basis points over LIBOR—it is very cheap money.

RM: As solar matures, it is interesting to see specialized forms of capital come in to take specialized risk. For instance, a sponsor can now buy a “wrap” on tax recapture risk. We use insurance capital to “wrap” energy production risk, through our solar revenue put. Over the long term, how do you see specialized risk allocation evolving in solar?

KM: That is an interesting question. Project finance is an exercise in risk allocation.  Nothing gets financed until the parties have catalogued all the risks and allocated them among the various parties at the table.

The basic rule of thumb is, “He who best understands the risk takes it.” Sometimes someone who is not at the table—an insurance company or other specialized party—has taken the time to understand a particular risk and is willing to bear it at a tolerable cost to the project.

An example of dividing up risks that is more transactional in nature is yieldcos. The idea was to create value value by separating higher-risk development assets from lower-risk operating projects. If both types are folded into a single company, the company cannot raise capital as efficiently as it could if it disaggregated the risks and raised different types of capital. There are other meaningful opportunities to create value, as you have found through your solar revenue put.

RM: Where will the next opportunities for specialized risk transfer be?

KM: A clear one is basis risk for corporate PPAs. Nobody feels able to quantify that at the moment. Developers usually end up bearing it, but it is not a comfortable risk for them to bear. Another area is merchant risk in solar projects—the price risk. You have merchant wind farms because people are willing to put a price floor under the electricity, but we have not yet seen deals close on a merchant basis in the solar market, although they are coming.

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

KM: The U.S. power market is a competition for market share among three big players: independent generators, utilities, and rooftop solar companies.

The independent generators and utilities had reached a stalemate in terms of the shares of generating capacity. For the independent generators, previously the only way to customers was through the utilities, but now they have bypassed utilities and are going directly to the large corporations. Until recently, the utilities had not been doing enough to try to retain these customers.  Meanwhile, the rooftop solar companies have been picking off the best residential customers from the utilities. Blockchain, or open ledgers, are opening up new possibilities.  People with rooftop solar can sell excess electricity to their neighbors and creating neighborhood microgrids. New business models are appearing.

The interesting question will be how this sector transforms itself. I do not think California with its CCAs is exactly the right way to do it—there are just too many frailties in that model and in the equities. But I think we are in a period of transformation as significant as after the Arab oil embargo in the 1970s when the independent power industry was born. It is a little difficult to see what emerges from it exactly, but it is a fascinating time.


#Solar100’s Jigar Shah: The Kanye West of Solar Finance

Originally posted on pv magazine USA.

As the Founder and CEO of SunEdison, Jigar Shah pioneered “no money down solar” and unlocked a multi-billion-dollar solar market. He has become one of the leading voices on the solar stage, holding the top spot on #Solar100 for months on end.

And ‘meek’ is probably the last adjective a person could use to describe him. In this interview, Jigar talked about how, “It is the top 5 solar companies who are always on a death wish” and SunEdison’s later actions that make a person ask, “What the hell?” Needless to say, Jigar has controversial opinions, and he’s not afraid to state them.

Both are incredibly accomplished, uniquely famous or infamous depending on whom you ask, and the impacts they have had on their respective fields are undeniable.

Investing in Solar & Clean Energy

Richard Matsui: When I think about Generate Capital, the analogy that comes to mind is: What SunEdison did for solar (in terms of riding the wave of cost of capital reduction), Generate is doing for the rest of clean energy. As Generate’s co-founder, is that how you think about Generate?

Jigar Shah: Absolutely. When you think about clean energy, there have been hundreds of technologies, but what you find is that the vast majority of them are not yet blessed by the capital market. Not like solar, at least.

And now, the question becomes: How do we get that blessing for other technologies, like waste-to-value and energy storage technologies? There are so many sectors in which these technologies exist and the entrepreneurs in those sectors are generally experts in technology, not experts in business models.

RM: Given that backdrop, I was surprised to hear Generate started financing solar again, albeit projects that are more on the fringe of acceptability like community solar and small C&I solar. What was the lightbulb moment or the insight that drove you to say, “Despite the relative maturity of solar, there are still some great opportunities here in solar”?

JS: Our criteria is always the same: Is there a deal that is worth funding because it is simply misunderstood by the marketplace?

I didn’t think the answer to that question was going to be affirmative in the solar space, because I just figured that there are so many investors. Eventually one of them would actually get it, right? But we are finding that there are sectors within solar that are just not being covered, such as solar for Real Estate Investment Trusts (REITs).

For REITs, their biggest problem is vacancy risk. They are already taking vacancy risk with their real estate. If their properties are empty, they do not also want to pay electricity bills for electricity that no one is using. So, they want someone like us to take the vacancy risk. Now if the building is empty, then we stop charging them for the power. And we figured out how to get comfortable with that.

RM: That’s fascinating. What makes Generate uniquely positioned to underwrite those risks?

JS: Our company is structured as a “C Corporation.” All our investors own a share of Generate. So, we really look like a company whose job it is to invest in these assets, then operate these assets, and try to get the most out of the assets over time.

You find that the vast majority of investors, typically in solar but also in other industries, are trying to make money by flipping assets. They buy assets at 7.5%, use the data tools from kWh Analytics to prove asset quality, then sell them to somebody else at 7.1% and then they make a profit on that .4%.

So, you can imagine if they do not think they can immediately sell those assets to the person who is paying 7.1%, then they might be stuck owning the project at 7.5%.

RM: So it’s a straight cost of capital arbitrage.

JS: Yes, whereas for us, we are not looking to flip our assets. Now, in the future we may end up finding people who want to buy them at a low discount rate. But right now, when we underwrite our deals, we’re saying, “If we acquire 100 of these projects, what are the odds that the portfolio will generate a very nice return for us?” If the answer is, “Pretty high,” then we think, “Great. We’ll invest in it. We’ll hold it for the foreseeable future.”

RM: That makes sense. When you look at solar today, what else is being mispriced? You had mentioned Community Solar, C&I, solar for REITs.

JS: With Community Solar, the problem is that everyone is so risk-averse that they are saying, “You need to have 100% of the off-take secured before we actually jump into financing.” And then on top of that, they are saying, “Wouldn’t it be great if you had Walmart and Target as the off-taker? That would make our lives super easy.”

But then in Minnesota, residential rates are 13 cents a kilowatt hour and Target wants to pay seven cents. So, you’re giving up almost half of the revenue, just to satisfy some bank and some tax equity investor. That makes no sense. Why not sign up residential customers? Further, why not sign up LMI (Low to Medium Income) people? Why not sign up churches and bodegas? The beauty of Community Solar is if someone stops paying, you can immediately remove them from the stack and replace them with someone else.

It’s basically another vacancy risk calculation—what is the chance that you can replace somebody fast enough so that you don’t have unsold power for a long time?

RM: There’s a vibrant debate on whether CCAs or the merchant tail are being mispriced. Any thoughts?

JS: I don’t think they are being mispriced. I think that CCAs definitely have a lot of risk associated with them. If you are in Marin County and have been around for a long time, you might think, “Maybe I’m being mispriced because Marin County has shown a dedication to CCA.” The same is true with Sonoma.

But if you are a new CCA, it is entirely possible that it gets mismanaged in the first two years and the county says, “We are getting out of this—these guys don’t know what they’re doing, and they’re screwing around with everyone’s electricity bills.” And if it gets unwound, which they have the right to do, then what happens to your CCA contract?

From this perspective, I don’t think that CCAs are mispriced. If you think about the people who are paying the absolute lowest possible interest rate for utility scale assets, CCAs have some real risk. In fact, utilities have real risk.

For instance, if you think about Duke Energy over the last three years, Duke has taken debt to pay their dividends because they do not have enough cash flow for operations. Some of these utility companies have been showing a lot of underlying weaknesses. And that is a big deal.

So, when you are a rating agency like Moody’s or a buyer like Prudential, you want to know, “What is the likelihood I’m going to get paid back over twenty-five years?”

Opportunities in Solar & The “Top Five Companies Who are Always on a Death Wish”

RM: What under-the-radar solar or storage startup are you most bullish on?

JS: In solar, I’m most bullish on the small commercial market. I think that there are a tremendous number of people that can host 250 kW projects that we can very cost effectively install and maintain and compete favorably with their electricity rates. For whatever reason, the investors have all said, “We only want to do deals that are 750 kW and up,” which I think is huge mistake.

On the storage side, I think ‘resiliency’ is a buzzword we all use but do not actually understand what it means.

RM: Or how to value it.

JS: Fundamentally, there are a lot of people who do value it. When I talk to county administrators, they say, “Don’t get me wrong, solar is good. And I love the fact that we save 20% on the PPA, but that 20% is not a lot of money. Sure, you’re saving me $7.8 million over 20 years, which is great. But that’s only $390,000 a year, and my school budget alone is $100 million a year. So, you’re saving me $390,000 a year on $100 million. Now if I had batteries on all those solar projects then all of those schools can also serve as emergency shelters. In that case, I am more willing to trade some of the $390,000 of savings you are promising me for batteries.”

If I have a lot of battery storage capacity in there with less solar savings and I get all this resiliency benefit, that’s a good trade.

I think that solar people need to move away from savings and really start to focus on value to the customer, because the customer values a lot of things beyond dollars.

RM: Fascinating. Though if developers shouldn’t sell on savings, I doubt they should sell on resilience either, right?

JS: I don’t think leading developers are selling resilience—they are selling professionalism. They are saying, “Look, we’re better capitalized, we’re bonded, and when we have a contract with you, we will immediately construct this project.” I think that people are willing to pay a premium for quality and I also think that they are willing to pay a premium for resiliency.

RM: What is the next publicly traded solar company going to look like? Is it going to be something disruptive, like someone who has a killer residential storage technology and a new value proposition, or will it look more like an incremental iteration of business models we have seen before, like Cypress Creek?

JS: It is always what we have seen before. I have been in the solar energy industry since 1995—so 22 years.  It has always been the case that the companies ranked 6 through 20 in the country are solidly profitable because they are really good business people, they never lose money, they give generously to their community and their local SEIA chapters, etc.

It is the top 5 solar companies who are always on a death wish.

Think back to AstroPower in the 90s. They made modules very profitably using discarded test wafers. But then they said, “We want to be much bigger.” And then, they bankrupted themselves.

The same thing is true with SolarCity. SolarCity is a really good model but then they said, “What if we spend $150m on marketing?” SolarCity never got that money back.

The same thing is true with a lot of other companies—they run on fumes in the tank and then you see that everyone wants to write about them because they are sort of a reality television show.

RM: I tell people a version of that same story: When you go to Solar Power International, look for the biggest booth at the conference. That is the company whose shares you need to sell short.

JS: Exactly. That is the company that is going out of business next year.

I do think that the solar industry has learned its lesson. When you look at Sunrun, a lot of people complain about the fact that Sunrun does not have a higher profile, that very few folks have met Lynn. But they are building a business. I think they are doing it the right way. They are not trying to hype themselves up. I think they are trying to be ‘slow and steady wins the race.’

Solar Financing & Optimizing a Project’s Capital Stack

RM: I’m a big believer that history has a lot to teach us. When we look at mature industries and how they finance assets, obviously the last “big idea” solar borrowed was the idea of YieldCos from the MLP industry, to mixed results. Is there another “big idea” that solar should consider borrowing?

JS: I think that the solar industry is intellectually dishonest about how they compare themselves to other industries.

For instance, solar companies often say, “We should be the same as REITs.” That is really dumb. Solar power plants and wind power plants depreciate in value. At the end of 20, 30, 40, 50 years, you really do need to replace all of that asset. Real estate is not the same. Yes, you have to refresh the building and put in a new lobby every once in a while. But fundamentally, the building has value and you will have that for a really long time. And that distinction matters.

I think that we have to be very honest with ourselves about what it is that we are doing. We are probably more like auto finance and less like real estate finance. But even in auto finance you find that, automobiles are much easier to repossess because they are already on wheels.

I think our business structure in the solar contractor community is pretty much the same as that of the roofing, plumbing, or electrician industry. There are very few dominant players in that space. The largest roofers in the United States have 1% market share. It is a very fragmented business. Success is about building trust locally in the community, and getting people to trust you with their roof, plumbing, or electrical work.

I think our business is a lot like that, where it is really about trust, bonding, and training. Everyone wants us to be a tech company, but we are not. We are really much more of a construction/service company.

RM: Yeah, SolarCity was obviously the biggest contrarian bet there. Back in 2007, there was a broad consensus that given that HVAC and other contractor trades are naturally fragmented, why would solar be different? Well, if there’s a multi-year period where VCs and the stock markets are willing give you, like you said, $150m to burn on marketing, you absolutely can defy the economic laws of gravity, but it lasts for only so long.

JS: Well and SunEdison did the same thing, right? That was after we sold it, but SunEdison borrowed $2 billion from people who thought they were going places, and then squandered it by overpaying for assets. The price that they paid for the Invenergy assets was like 25% more than the second bidder.

RM: Wow.

JS: Right? And you’re like, “What the hell?” But they were like, “Oh, our stock price just keeps going up.” Then, of course, eventually it stopped.

RM: As we think about the continued reduction in the cost of capital for solar, if it’s not YieldCos, then what will continue to drive down that cost?

JS: In general, I don’t really believe in reducing the cost of capital. I certainly understand that we should reduce risk. The thing that I find annoying is that there’s an extraordinary amount of opportunity and instead of focusing on value equation, everyone is focused on the cost of capital.

Now, of course, when it comes to optimizing a project’s capital stack, there’s space for the Solar Revenue Put product that you’re providing. It’s inevitable. But really, it’s the data that you are providing, that historical certainty that solar just works.

I think there are people who really want to own these kinds of assets. When we sold sPower to AES and AIMCo, we saw that these pension funds really want to own these assets. At the end of the day, that is the industry’s cost of capital: The rate of return that the insurance industry and pension funds are willing to accept for these assets.

What Data Can Solve for Our Industry

RM: As you know, we are building the “Experian” or “CoreLogic” for the solar industry, and while we are not yet at 99% of our asset class, we are now at 10-20% and growing. What are the most interesting problems in our industry you think we should be tackling as we grow?

JS: I think there is a real blind spot in the industry when it comes to Actual vs Projected energy generation, and you guys are tackling that. There should be a designation for solar projects, two years after they’re built, to fact-check the Projected numbers. Yes, developers tend to stretch the truth, that’s fine. But that should be corrected with Actuals, which would place greater reward on proper care for the operating assets. Once you solve that, then that will lead to far more change, specifically from management. Management teams today are all focused on cost reduction as opposed to increasing asset value.

So that’s one piece. And then the second piece is I think that there are a lot of projects that are just underperforming for a variety of reasons, from bad engineering to uneven module degradation. And I do think that there is value in buying up those projects and fixing them.

RM: I can think of a few firms that are actively pursuing that thesis.

JS: Yes, I think that that’s right. There is room for specialists that buy distressed assets, fix them up, and sell them off.

RM: We have seen an interesting problem where if a sponsor is buying and fixing up assets, they still need to convince the financiers that this asset is indeed fixed. And so, there is an opportunity for our insurer partners to insure that. By putting up a big investment-grade balance sheet that guarantees a certain level of energy production, a sponsor can say, “We can guarantee this asset is going to produce that amount of energy, which increases the asset’s value.”

JS: Right. I think that’s such a great product you’ve got there.

What’s Next for Solar?

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

JS: I think the U.S. market is going to grow substantially in 2018, and I think there are a lot of people who are down on the U.S. market right now. But, I think the U.S. solar market will be on a growth tear for at least the next 5 years.

RM: What’s the growth driver that people are underestimating? Because I agree with you, there’s a strong consensus that 2018 is going to be a rough year.

JS: There’s just persistent lack of understanding about how much business model innovation happens in the solar industry. I think my spreadsheet from 2008 is the only spreadsheet I know of that accurately forecasted where solar deployment numbers actually ended up. That’s because I believe in our solar developers to figure out how to grow the market.

RM: I built a similar model for McKinsey back in 2007. I think I was off by an order of magnitude.

JS: Yes, I think everyone, including Greenpeace, was too conservative. And I think the reason is that everyone bets against us. They’ll say, “Oh, you’ve already used up the available rooftops.” But there are a ton of open parking lots. Or, “Oh, you’ve used up all the FICO score customers above 720.” There are a lot of people below 720 that are worth chasing.

There is always another market for us to go after, like with the utility-scale project. Okay you’ve used up the RPS, but there are tons of rural electric co-ops and municipal utilities who want to do solar for their residents. The naysaying forecasters consistently underestimate the innovation in the industry, but solar is always finding more opportunity.

JLT Re and kWh Analytics Announce Partnership

Originally posted on JLT Re. Additional coverage on Reinsurance News, Intelligent Insurer, and Insurance Day.

  • JLT Re continues to build leading reputation in Insurtech sector
  • Partnership will offer new product to the emerging solar industry

SAN FRANCISCO (September 20, 2017) – JLT Re, the global provider of reinsurance broking and consultancy, has partnered with kWh Analytics, the leading data repository and risk management provider in the solar industry, to create a risk transfer product insuring solar energy output.  Leveraging their industry-leading database, kWh reduces the overall cost of financing by providing a Solar Revenue Put that reduces the risk of loss for lenders, thereby enabling lenders to reduce debt service coverage ratios for asset owners.

San Francisco-based kWh Analytics worked with JLT Re to secure a preferential relationship with a global, investment grade insurance company to offer a product insuring $100 million of coverage. The relationship will bring liquidity to the growing solar energy industry, which is currently estimated at $500 billion with another $500 billion slated to be completed in the next few years – creating the next $1 trillion asset class.

“kWh Analytics is extremely pleased to bring this unique product to the market and to tie the financial strength of the global insurance industry into the solar asset class.  Kudos, our Solar Revenue Put, improves lender terms and reduces the cost of capital for asset owners by guaranteeing up to 95% of solar production with investment-grade balance sheets,” said Richard Matsui, CEO, kWh Analytics. “JLT Re was instrumental in bringing this solution to market, helping kWh Analytics from the beginning of the process through to completion.”

“We are delighted to represent the foremost company in the solar field, especially in an industry that benefits our broader society”, said Ed Hochberg, CEO of JLT Re (North America) Inc.

“kWh Analytics is at the forefront of a wide-ranging trend we see in Insurtech, wherein data companies apply best-in-class data repositories to transform unquantified uncertainty into quantified risk that the insurance industry can then efficiently price,” said Gregg Holtmeier, JLT Re Insurtech Leader.

JLT Re continues to build their leading reputation in Insurtech with this insightful solution. Read JLT Re’s Insurtech Report here.



Isabella Gaster
Tel: (+44) 20 7558 3387
Email: Isabella.Gaster@JLTRe.com

Elizabeth Miller
Tel: +1 215 309 4590
Email: Elizabeth.Miller@JLTRe.com


About kWh Analytics

kWh Analytics is the market leader in solar risk management. Founded in 2012, kWh Analytics has built the industry’s largest data repository of solar asset performance, with over 100,000 operating systems, representing nearly 20% of the U.S. market.

HelioStats, kWh’s risk management software, helps solar investors deploy more capital more intelligently by providing data warehousing, analytics, and benchmarking for distributed solar portfolios. Kudos, kWh’s Revenue Put, improves lender terms and reduces the cost of capital for asset owners by guaranteeing up to 95% of the solar production.

Customers such as Google (the world’s largest non-utility investor in renewable energy) and PNC Bank (America’s 5th largest bank) rely on software and insurance solutions from kWh Analytics to enhance their investment returns.

kWh Analytics is backed by private venture capital and the US Department of Energy.

About JLT Re

JLT Re’s trusted team of 700 colleagues worldwide combines market leading expertise and proprietary analytical tools with the freedom to challenge conventions.

Deep specialist knowledge and extensive experience of both the reinsurance market and clients’ own industries and sectors enables JLT Re to ask smarter questions, innovate and deliver better results tailored to meet client needs.

JLT Re is a trading name and logo of various JLT reinsurance broking entities and divisions globally and any services provided to clients by JLT Re may be through one or more of JLT’s regulated businesses.

JLT Re is part of the Jardine Lloyd Thompson Group plc.


About Jardine Lloyd Thompson

Jardine Lloyd Thompson is one of the world’s leading providers of insurance, reinsurance and employee benefits related advice, brokerage and associated services. JLT’s client proposition is built upon its deep specialist knowledge, client advocacy, tailored advice and service excellence.

JLT is quoted on the London Stock Exchange and owns offices in 40 territories with more than 10,600 employees. Supported by the JLT International Network, it offers risk management and employee benefit solutions in 135 countries.

For further information about JLT, please visit our website www.jlt.com.

HelioStats 3.0 & ‘Best Practices for Solar Risk Management’ Released Today

solar risk management (sō-lər \ risk \ ma-nij-mənt ) noun 1. The practice of managing and measuring risk within a solar investment portfolio; a term of art directed at financial investors with exposure to operating solar projects in the form of structured investment vehicles, and in particular investors providing various forms of debt, tax equity, or cash equity.


Two big updates on the next era of solar risk management:

1) Today SEIA and kWh Analytics released ‘Best Practices for Solar Risk Management.’







In collaboration with SEIA and the US Department of Energy’s Orange Button program, we are proud to publish the first definitive guide to help solar financiers successfully navigate investment, compliance, and risk management.

“This guide will serve as a valuable tool to both experienced investors looking to grow their businesses, as well as newer investors unsure of how to review the relevant risk factors,” said Mike Mendelsohn, SEIA’s Senior Director of Project Finance and Capital Markets.

With over 10GW and 100,000 systems under management, more than five years of experience building the industry’s leading risk management tools, and the privilege of working with top solar investors, here’s what we’ve learned: Download the report.

Learn more by attending an upcoming webinar with KWH’s Jason Kaminsky and SEIA’s Mike Mendelsohn, facilitated by Keith Martin (Norton Rose Fulbright). E-mail us if you’d like to join.

2) HelioStats 3.0 is now live!

Your portfolio is growing, but so are your team’s questions about risk and compliance. Enter HelioStats, the only platform designed specifically for the needs of financial institutions. HelioStats provides:

  • Data Integration – Collection, cleaning, and transformation of financial and production data from over 100,000 systems to generate insights.
  • Portfolio Analysis – Simple analysis of production and financial risks.
  • Benchmarking – Easy comparison to industry performance and indices.
  • Reporting – Reports on the entire portfolio of multiple developers and funds.

Reach out for a preview of how SEIA’s Best Practices are being implemented by industry leaders like Google and PNC Bank. Schedule a demo by e-mailing us at contact@kwhanalytics.com.

Welcome to the next era of solar risk management.


Richard Matsui
Founder & CEO

SEIA and kWh Analytics Release the Best Practices for Solar Risk Management

Originally posted on SEIA’s latest news. Additional coverage available on Solar Power World, pv magazine USA, AltEnergyMag, Solar Novus Today, Solar Industry.

WASHINGTON, D.C. – In an effort to simplify the complex world of tax equity and debt investment, the Solar Energy Industries Association (SEIA) and kWh Analytics released today the industry guide on the Best Practices for Solar Risk Management.

Informed by some of the largest financial institutions investing in U.S. solar assets, SEIA’s Solar Energy Finance Advisory Council (SEFAC), and the U.S. Department of Energy’s Orange Button program, this guide is designed to help financiers of solar projects and portfolios successfully navigate their solar investments from start to finish.

“Our goal is to facilitate new sources of investment capital for solar projects across America by communicating and leveraging the standards and practices the industry has already developed to measure and manage risk,” said Mike Mendelsohn, SEIA’s senior director of project finance and capital markets. “This guide will serve as a valuable tool to both experienced investors looking to grow their businesses, as well as newer investors unsure of how to review the relevant risk factors.”

Featuring a risk management checklist, the analysis outlines current industry standards and benchmarks, alongside the solar industry’s robust compliance infrastructure.

“From our experience serving multiple investors, we have a privileged vantage point to help our industry codify best practices and ensure healthy industry growth,” said Jason Kaminsky, COO of kWh Analytics. “We are pleased to have been invited by SEIA to co-author the industry guide that enables investors, large and small, to manage the unique risks posed by the solar asset class.”

SEIA will routinely update the document as needed as part of its ongoing industry coordination efforts to streamline project development, open new sectors for solar deployment, and open new sources of low-cost capital.

To download the complete guide, go to https://www.seia.org/research-resources/best-practices-solar-risk-management.


About SEIA®:

Celebrating its 43rd anniversary in 2017, the Solar Energy Industries Association® is the national trade association of the U.S. solar energy industry, which now employs more than 260,000 Americans. Through advocacy and education, SEIA® is building a strong solar industry to power America. SEIA works with its 1,000 member companies to build jobs and diversity, champion the use of cost-competitive solar in America, remove market barriers and educate the public on the benefits of solar energy. Visit SEIA online at www.seia.org.

About kWh Analytics:

kWh Analytics is the market leader in solar risk management. Founded in 2012, kWh Analytics has built the industry’s largest repository of solar asset performance data, with over 100,000 operating systems, representing between 10-20% of the U.S. market.

Customers such as Google (the world’s largest non-utility investor in renewable energy) and PNC Bank (America’s 5th largest bank) rely on software and insurance solutions from kWh Analytics to enhance their investment returns. kWh Analytics is backed by private venture capital and the US Department of Energy.

Media Contacts:

Alex Hobson, SEIA Senior Communications Manager, ahobson@seia.org (202) 556-2886
Sarah Matsui, kWh Analytics Senior Communications Manager, contact@kwhanalytics.com (415) 891-9601

Announcing DealFlow from kWh Analytics


We can talk about data all day long, though there’s another topic that solar financiers love even more: Deals.

Because we are in the business of helping sponsors to achieve greater leverage (and to help lenders safely deploy more capital) with our Revenue Put, we see a number of deals that seek debt financing.

We also collaborate with sponsors and lenders to compile an index of prevailing debt terms in the market.

We’ve formalized this knowledge into DealFlow. In this first newsletter, you’ll find:
– Two featured deals seeking debt financing
– The market summary of indexed deal terms that lenders offered in 2017
– An overview of recent transactions that have closed in the market

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 dealflow@kwhanalytics.com.

PDF Available Here: http://www.kwhanalytics.com/DealFlow-Fall2017

Deal Flow 2


Richard Matsui
Founder & CEO kWh Analytics

#Solar 100’s Nancy Pfund: The Queen Midas of Cleantech

Originally posted on pv magazine USA.

The original VC behind SolarCity talks about what the next challenger to SolarCity will look like. As the third interview in the #Solar100 Thought Leaders series, kWh Analytics Founder Richard Matsui speaks with Founder and Managing Partner of DBL Partners, Nancy Pfund.

In Greek mythology, King Midas was known for his “golden touch”—things he touched would turn to gold.

In the cleantech industry, Nancy Pfund has the singular best claim to that title, with early investments in Tesla, SolarCity, NEXTracker, and Powerlight. Nancy is arguably cleantech’s most successful investor.

Equally impressive, her venture capital firm is not only known for its financial successes—‘DBL’ stands for ‘double bottom line.’ Bucking conventional wisdom, especially in 2008 when DBL was founded, Nancy’s firm advocates a second bottom line of social, environmental and economic improvement.

In the theme of moving against the status quo, she is also a strong advocate for gender equity in the VC world. According to a survey conducted by the National Venture Capital Association in 2016, women represent only 11 percent of investment partners or equivalent on venture investment teams. Not only does Nancy lead a successful VC career, but she recognizes the support she’s received along the way and “feels it’s a matter of responsibility” to work to help others and increase access to opportunity.

Nancy has established herself as an advocate for gender equity, a #Solar100 thought leader, and we think she’s the Queen Midas of Cleantech.

The Second Bottom Line

Richard Matsui: I wanted to start off by talking about DBL’s second bottom line. I recently listened to an episode on Charlie Rose, in which investor Jeremy Grantham said something like, “When managing money for others, we have no right to impose our personal values on them. They should make up their own mind where the lines are that they would draw in the sand. It’s not for us to do that. It’s for us to listen to what they want and then make as much money as we possibly can for that.”

That line stuck out to me because Grantham’s opinion does seem to represent the status quo—that there’s only one bottom line (to make money), and that it would almost be wrong to acknowledge any other. My questions for you: What did you experience as the status quo when you first started out as an investor? And what has shaped and solidified your commitment to make DBL have a second bottom line?

Nancy Pfund: About 15 years ago, the status quo was to separate the two goals of financial return and social return. There were biases, but that’s what they were—they were biases.

Those conventional beliefs weren’t based on specific portfolios that had been designed to accomplish a double bottom-line impact. That’s what had been missing from the dialogue: actual results.

We started DBL with the premise that we don’t have to sacrifice financial returns in order to have positive social impact—Tesla, SolarCity, NEXTracker, PowerLight, and other grand slams in our portfolio prove that. DBL really started out to prove that it’s pretty old-fashioned to believe that you can’t do good and do well at the same time.

Today, none of the people that come and want to invest with us have those reservations, because this is a growing worldwide field and proof-points are being established.

RM: Is it accurate to say that DBL was the first to be able to demonstrate that there’s not necessarily that trade off that many others assume?

NP: I don’t know of all the funds out there, but I can say it was certainly one of the first, and one of the largest, to have demonstrated that.

After Paris: The Role of Climate Innovation

RM: In your Forbes interview last year, you talked about the role of innovation taking center stage at the Paris talks. Now that Trump has withdrawn the U.S. from the Paris climate accord, what do you see as the role of innovation—and of startups in particular—given this current political context?

NP: To start, the fact that the Trump administration has bowed out of Paris does not negate the value of Paris. There are plenty of other countries that are doubling down, many Americans support the Paris goals, and, as you know, most solar, cleantech, and electric car companies are global in nature. It does not cramp anyone’s style in terms of bringing more innovation to bear to address climate change.

That said, I think that the role of innovation is more important than ever as we break down some of these hard barriers, like storage costs, solar panel costs, and electric vehicle costs. Cost are all coming down at very attractive rates, allowing for a whole new generation of innovative business approaches like yours at kWh Analytics.

Innovation continues to play a critical role in transforming many 19th and 20th century business models in energy, agriculture, transportation, and other sectors. The world requires new business models that address 21st century challenges and opportunities—not 20th and 19th century ones.

Advice for Solar Entrepreneurs

RM: As arguably the most successful cleantech investor—I mean, you can count Tesla, SolarCity, NEXTracker, and PowerLight among your cleantech investments—what advice do you have for solar entrepreneurs?

NP: There is an enormous opportunity for solar entrepreneurs to jump in and ride the growth wave of cost reductions, storage innovations, international opportunity, and so forth. While the market is growing quickly, we are still at very low levels of solar penetration globally. Both locally and internationally, there are incredible opportunities ranging from novel financing approaches to next-generation software and hardware. I also think that there’s an opportunity for a “next generation” of SolarCity or Sunrun.

RM: That’s interesting. What will differentiate a “challenger” SolarCity from SolarCity itself?  Will it be a product company, rather than a service company?

NP: I think it will look very similar in many respects—the challenger will have to take care of both the product and the service elements, including financing, customer acquisition, and everything else. It will need to go beyond just selling solar or storage hardware and be a “full-stack” company. I think the challengers will need to differentiate by offering holistic solutions, and reimagining the home as a virtual power plant, along the lines of the innovation we are currently seeing from companies like DBL’s Advanced Microgrid Solutions at the commercial and utility levels. Focusing on this vertical – which is huge – will be an advantage as other market participants have many more legacy markets and customers that may take priority.

For this reason, emerging world markets like Africa and India are also ripe for entrepreneurial clean energy approaches like Off-Grid Electric (a DBL portfolio company) and M-Kopa. Much of the world’s population growth over the next few decades will occur on these continents, and it’s an open clean energy territory that has the potential to bring climate, economic, and job creation benefits to a whole new level.

Women : Venture Capital :: Renewable Energy : U.S. Energy Supply

RM: I thought your 2012 Forbes opinion piece was incredibly insightful—the one in which you drew a comparison between women in venture capital and renewable energy relative to the U.S. energy supply. You made a compelling case, listing that both were the exception to the rule, and both were subjected to double standards and an unlevel playing field. Five years later, what is still the same and what is different about the double standards?

NP: There’s good news and bad news for renewable energy.

Unfortunately, there is a federal push to develop fossil fuels on public lands. There was also an attempt to remove methane regulations, which was ultimately unsuccessful. We face a political climate where there is clearly more interest in furthering the progress of some of the past century’s fossil industries. That’s the bad news.

The good news is that because renewables score so high on economics and in public opinion, renewables are making progress despite this shift in sentiment from the federal administration. As usual, the economics weigh in very heavily even in a climate where yesterday morning included a New York Times story on ‘Under Trump, Coal Mining Gets New Life on U.S. Lands.’ That may be a good sound bite for the Trump base, but when you unpack that, even setting aside all the environmental and climate issues, that is still very hard to justify because the cost trajectory of the 20th century fossil approach is just not sustainable.

And meanwhile, renewables and electric vehicles are only becoming more and more attractive from an investment point of view. I think that the reality is not as bad as one might assume from hearing only the sound bites.

As for double standards that women face, I would say that since I wrote that opinion piece five years ago, I have been heartened by how much more public dialogue there has been about the need for increased diversity in industry and politics, and that includes the solar industry and policy circles.

There are also more opportunities now, including women in solar groups, C3E that works to close the gender gap in cleantech, and The Hawthorn Club for professional women in energy. There is a lot more collective activity, measurement, and celebration of progress while still recognizing that we still have a ways to go.

But, you know, I always say, if you look at the solar industry’s numbers, yes, we could have more women. Yes, we could have minorities. But for context, we in solar have a lot more women and minorities than a lot of the industries we are replacing, and even more than the tech industry.

As we continually work to improve—because we can always improve—I do think that shining a light on the issue, building awareness, and organizing networking activities, all of that is making a big difference.

RM: I hadn’t heard that point before on comparing solar to the industries that we are replacing or to the other intersecting industries. At first glance, it doesn’t take a statistician to look around SPI and realize, “Oh wow, there are a lot of men at this conference.” But solar also overlaps with finance and construction, which are both male-dominated industries.

NP: Yes, we have written about that, and the Solar Foundation has as well.

RM: On this topic, female friends have commented on how difficult it can be for women to get into VC. Where did your commitment to pushing for more women in leadership roles, particularly on the VC side, come from?

NP: Having been in venture capital for over two decades, I’ve been very fortunate to have the support of men and women throughout my career, and I know firsthand how important it is to have that senior advisor and mentorship. So, when I think about what I was able to achieve with the help of others, I just feel that it’s a matter of responsibility to make sure that I help others do the same. And it’s also fun! I mean, it’s great for me to meet all these accomplished women, and it’s a wonderful recruiting opportunity as I’m constantly looking for people on behalf of my companies. The more I can tap into women in solar and women in cleantech networks, the easier my job is.

Call to Action

RM: Several leading solar companies have declared bankruptcy this year, and my perception is that people in the industry are feeling quite down right now, even though our numbers on solar deployment and cost have never looked better. What would be your call to action for people in the solar industry?

NP: Sure. This is an industry that is no stranger to ups and downs. Every time we had to go through the ITC renewal or another net metering dialogue state by state, you know, it can feel like we’re always on call for fighting the good fight, and that does get tiring.

But rather than get frustrated by that, we need to remember that this is what happens when innovation comes to disrupt centuries-old models. That’s very difficult, and it does not happen overnight. We all need to work together and understand that there are going to be times when things don’t go right, but then there is also a lot of good progress to report. For example, I think people were disappointed with the outcome regarding Nevada a few years ago, and now, that has largely turned around. I think we have proven to ourselves that when we work together, when we build bonds with a variety of stakeholders, that “Americans heart solar,” and increasingly, the world does as well.

This is more than a traditional corporate challenge. This is a challenge for our generation.

And we have an answer that is broadly appealing. It’s not just the archetypal California tree-huggers who are invested in solar. It’s people of all political persuasions—red, blue, purple. It’s people of all income levels. It’s people of all ethnic diversities. And it’s people from all over the country, and all over the world. So, I think we must do a better job of getting outside of our own comfort zone. I live in California, so that’s my world, but I and others have been looking at Florida for years. Florida is very interesting. In those moments when you feel that you are constantly battling this or that, and there’s the role of utilities, the role of regulators, the role of the public, the role of the feds, just remember that a state like Florida that is the third-largest state in the country where solar was not happening at any significant level, is now beginning to be open to solar.

And so, when you start to build momentum in these states—Nevada is incredibly important because of the high level of solar penetration—but when you also have momentum with these large states like California, Texas, and Florida, you know, suddenly you’re talking about a very significant percentage of Americans. When you add the international opportunity as whole new continents largely skip the centralized fossil grid and go straight to solar, it is clear that much of solar’s history has yet to be written.



Addressing Solar’s Growing Pains with Data Standards & Analytics

Originally posted on pv magazine USA. Written by Data Engineer Paul Young.

It is hard to fathom just how much solar has been installed in the last few years—over 1.3 million systems added 36GW of capacity to the grid.  As the industry catches up to this rapid growth, it is important to take stock of some of the challenges that lie ahead.  While solar has been around for over forty years, 90% of solar systems are less than five years old.  Only a handful of industry players have experience managing, monitoring, and maintaining large distributed fleets, and fewer still have done so with fleets of any significant vintage.

At kWh Analytics, we have aggregated the solar asset performance data of nearly 20% of the U.S. market, allowing us to study the challenges that these organizations face as they grow and mature.

Challenge No. 1: Scaling data management practices.

Processes that worked while managing hundreds of systems start to break down when managing thousands of systems.  Building out databases and servers, handling multiple monitoring systems, and setting up robust quality control processes and pipelines require good planning and timely execution.  Fast growth can wreak havoc on these processes, as teams will often find themselves continuously struggling to scale up their data management tools in order to keep up with the company’s growth.  In the software engineering world, we refer to this problem as ‘technical debt.’

While there are no precise definitions of technical debt, here is the general concept: A debt is created when engineering teams sacrifice quality for speed.  This concept originated in the software engineering world, but it is very applicable to data management and warehousing projects.  While some technical debt is normal, if teams let it build up too much, it can create problems.  Quality control issues, software bugs, and long execution times are all symptoms of excessive technical debt.  Good software teams will plan regular cycles of code refactoring and maintenance in order to ‘pay’ down their debt, but this is difficult in a fast-growing environment.  As new solar systems come online and more data sources get added to the pipeline, data teams find themselves overwhelmed. Carving out the time to step back and properly build out the necessary infrastructure becomes increasingly difficult, if not impossible.

Challenge No. 2: Finding cost-effective ways to diagnose O&M issues across large fleets.

This challenge will become more pronounced over the next few years. The vast majority of installed capacity is relatively new, so there is limited data available on how well current modeling techniques predict the performance of aging fleets.  Revenue models usually account for module degradation, defaults, and O&M costs.  But residential O&M presents unique challenges due to the distributed nature of the systems.  Smaller O&M issues (I like to call them micro O&M), like moderate soiling and gradual increases in shading, can be hard to detect because the signal-to-noise ratio can be too small.  And even if we could reliably detect these micro O&M issues, sending maintenance crews out to fix these problems would be cost prohibitive.  But spread across a large fleet, these micro O&M issues could add up to real revenue loss.

Data analytics can be a valuable tool to assist fleet managers in distributed O&M efforts by allowing them to remotely diagnose problems and prioritize their O&M efforts in order to maximize ROI.  Analytics allow us to accurately identify underperforming PV systems and to diagnose the specific problems associated with those systems.

However, in order to implement these tools, you need good data.  And one of the lessons that we have learned at kWh Analytics is that data availability and data quality varies greatly across the industry. Data rarely lives in a single silo.  Equipment manufacturers, installers, monitoring companies, developers, and financial institutions are all generating, sharing, and consuming data.  This has resulted in a byzantine landscape of nomenclature, data quality, and data formats.

Where do we go from here?

As solar scales, data standards and analytics become more important than ever before. Making smart investments in data infrastructure can pay dividends on many fronts:

On an organizational level, investing in data enables teams to better prepare for growth and allows for smoother scaling of operations.  And as the organization grows, data becomes increasingly useful for business intelligence and analytics driving further efficiencies.

On an industry level, creating unified data standards can help the solar industry reduce market inefficiencies and lower costs for consumers. To move our industry forward, Orange Button, a program of the U.S. Department of Energy SunShot Initiative, has organized the creation and adoption of industry-led open data standards.  As a part of Orange Button, kWh Analytics is creating a new data translation tool that will ease the solar industry’s transition to a unified solar dataset by translating original data formats to consistent data standards. This technology is currently being developed with lessons learned from the development of our HelioStats platform, which is capable of synthesizing thousands of data points on project payment and performance. Leading solar companies now implementing Orange Button include Wells Fargo, Sunnova, and Sunrun.

If you would like get involved with the Orange Button initiative, visit the Orange Button website or come meet with Orange Button participants at SPI.

Solar Hedge Opens Door to Greater Leverage, Says Analytics Firm

By Richard Metcalf, originally posted on Power Finance & Risk.

A solar analytics firm called kWh Analytics is marketing a production hedge product that it claims will allow sponsors to raise more debt on contracted solar projects in the U.S.

The product, called a solar revenue put, could allow sponsors to reduce the debt service coverage ratio for their projects from the existing market standard, which is between 1.3 times and 1.35 times, to 1.1 times, according to Richard Matsui, CEO and Co-founder of kWh Analytics.

“The value of that debt is greater than the cost of the insurance product,” he told PFR on Tuesday in New York, where he was meeting bankers to discuss the application of the hedge.

The San Francisco-based firm has so far provided quotes for $450 million of projects, and has discussed the solar revenue put with about 30 lenders.

Two project finance deals involving the hedge are under scrutiny by commercial banks’ credit committees, says Matsui.

“Getting this through credit committees is going to be really hard,” he concedes. “But something we’re seeing in the market is that there is just a ton of capital out there, and there’s a lot of lenders chasing few deals, so this is a way lenders can differentiate themselves.”

Bankers say the solar revenue put has the potential to be a useful innovation, so long as it is priced appropriately, but add that it will be up to sponsors to take the lead.

“It’s certainly a product that needs to be initiated by the borrower-sponsor,” says a project finance banker in New York who has discussed the hedge with Matsui. “In theory it could bring them more debt… then it comes down to a cost-benefit analysis.”

“Like any insurance product, it’s useful to the degree it’s priced efficiently,” says PJ Deschenes, a partner at boutique investment bank Greentech Capital Advisors in New York. “It could allow you to finance something you wouldn’t be able to come up with your equity check for otherwise, but the question is what are you giving away to realize that?”

While kWh Analytics underwrites and distributes the solar revenue put through its own licensed insurance brokerage subsidiary, Kudos Insurance Services, investment grade insurance carriers provide the necessary balance sheet support.

The solar revenue put is not a replacement for title insurance and does not cover curtailment risk or loss of revenue due to operations and maintenance contractors failing to carry out their duties.

While traditional insurance companies have made attempts to provide solar production guarantees in the past, their policies were either too expensive or worded in such a way that the coverage was not comprehensive, says Matsui.

Unlike the conventional insurers, kWh Analytics is able to leverage a large database of U.S. solar projects, which it has obtained as a result of selling its risk management software to tax equity investors.

The firm works with more than half of the tax equity investors in the market, including PNC Bank and Google, says Matsui. “What that means is we have data on 10% to 20% of all operating solar plants in the U.S.”

“That’s huge, to have that quality and quantity of data and that vote of confidence from these players,” says Richard Dovere, CEO of solar project sponsor C2 Energy in New York. “There’s definitely going to be a place in the market for this.”

“It’ll be another tool within the market,” says Conor McKenna, M.D. at CohnReznick Capital in New York. “Whenever you gain data in a market where there is a lack of clarity or the lack of an aggregation set there is value.”

#Solar100’s Varun Sivaram: The Hamilton of the Solar Industry

Originally posted on pv magazine USA.

As the second interview in the #Solar100 Thought Leaders series, Richard Matsui, Founder of kWh Analytics, speaks with Varun Sivaram, the Philip D. Reed Fellow for Science and Technology at the Council on Foreign Relations and a professor at Georgetown University.

Even before his meteoric jump within weeks, starting at #40 and peaking at #3 on the #Solar100, we knew we wanted to catch up with Varun Sivaram.

Varun reminds us of the solar industry’s very own early Alexander Hamilton. Bold claim, we know. But hear us out:

  • Both are polymaths. Hamilton studied math, medicine, and law at King’s College (now Columbia University). Varun studied international relations in college, and finished a PhD in condensed matter physics in two years on a Rhodes Scholarship to Oxford University.
  • Both started careers as advisors: Hamilton held his first important public office as a colonel on George Washington’s staff when he was only twenty years old. Within the first decade of his career, Varun’s managed to hold a position as a Georgetown professor, as a senior advisor to the Mayor of Los Angeles and the Governor of New York, and as a McKinsey consultant advising C-level executives.
  • Both have big ideas and are compellingly articulate about those big ideas: Hamilton for the American Revolution, and Varun for the ‘Solar Revolution.’
  • Both are prolific writers. Hamilton is credited with most of the Federalist Papers. Varun publishes regular op-eds on clean energy, and he also has a forthcoming book with MIT University Press.
  • Both are not afraid of going against the grain, and maybe even enjoy it. Hamilton was based in New York, the hub of loyalists, and still regularly and loudly challenged conventional thinking. Varun was recently cited in a NYT article titled, “Fisticuffs Over the Route to a Clean-Energy Future.”
  • Both are influential spokespeople for their groups. Hamilton became the leading spokesperson for the Federalist Party. It is not difficult to imagine that Varun will represent a set of thoughts and people in the future of the solar industry.

While Varun is early in his career, having only finished his Oxford PhD from 2011-2013, he is undeniably scrappy and hungry, and he is already establishing himself as a thought leader in our industry.

A Happenstance Beginning

Richard Matsui: Your educational background is in International Relations and Condensed Matter Physics. What drew you to working specifically in solar?

Varun Sivaram: You know, it was initially a little bit of happenstance. Right out of high school I got a job working for Nanosolar, a CIGS company that went on to raise half a billion dollars. Nanosolar was the first company I had ever worked for, and it was infectiously optimistic. I learned everything I knew about solar power from Nanosolar—which was a very skewed way to learn about solar. I learned that today’s solar panels are obsolete, that the future will look flexible and lightweight, that silicon will be replaced by necessarily superior materials, and that the Silicon Valley model of disruption is going to work great for this entire industry. It turned out many of those things would be wrong, at least for the next decade. But I stuck with solar.

At Stanford, I studied Physics because I was interested in solar, as well as International Relations because I had always been interested in policy. And at Oxford, I applied to study under a scientist, Henry Snaith, who just so happened to be on the cusp of discovering perovskite photovoltaics, a technology that has rocketed to over 22 percent efficiency in just five years. I was so lucky—it felt like the most exciting place to be in all of academia. And I was the only person in the lab who had startup experience. It was an interesting perspective, having been at Nanosolar, and while I was doing my PhD I was watching Nanosolar explode.

And it hit me that even though everybody in academia thinks that perovskite’s going to be the next big thing, it probably is not going to work in this environment, because there are various external factors that make it really hard for innovative solar companies to go to market. And I thought, “You know, even though I’m likely in the best position possible from a science perspective, I need to go out and solve this problem another way,” and that’s why I eventually made my way into policy.

Controversial Bylines & Technology Lock-In

RM: Speaking of policy, of the thought pieces you’ve written for local papers, journals, or CFR, which, if any, do you think have been the most controversial?

VS: I think there are two pieces in particular that have been controversial. The first piece is a report I co-authored through the MIT Energy Initiative called, “Venture Capital and Cleantech: The Wrong Model of Clean Energy Innovation.” The Greentech Media guys just skewered us for that one because they basically asked, “How can this be true? We see cleantech is having all kinds of successes—look at all these software companies.” And we should have been more careful in choosing the title. Our title should have specified hard Cleantech—materials, chemicals and processes—those are the wrong kinds of companies for VCs to invest in.

The other controversial piece was an article I wrote for Issues in Science and Technology titled, “Unlocking Clean Energy.” It’s about technology lock-in, and here’s the situation: There are first generation clean technologies—silicon for solar PV, compact fluorescent lights for efficient lighting, light water reactors for nuclear, and corn ethanol for biofuels. And many of these first generation technologies make it really hard for the next generation to take their place. When that happens, I argue we get stuck in what’s called technology lock-in.

Some fields have managed to beat technology lock-in. For example, LEDs have beaten CFLs, and so efficient lighting is not a victim of technology lock-in. But other fields—nuclear is the best known example—have gotten stuck in technology lock-in because people were not forward-looking enough to invest in innovation. And as a result, nuclear’s share of world electricity peaked in the 1990s and has declined ever since.

I fear that we in solar are approaching technology lock-in. I also suspect that technology lock-in could take hold for lithium ion batteries. These incumbent technologies are getting so entrenched, and their costs are declining as a function of scale, that new technologies just won’t be able to break in.

The conclusion is that it is really difficult to get around lock-in. Some public policies can worsen the situation by entrenching the incumbent, such as the renewable fuels standard or indiscriminate tax credits. But other public policies on support for R&D and public procurement of emerging technologies can also help; for example, by procuring emerging flexible PV technologies for use in battlefield, the military could encourage technological succession.

That’s the article. People hate it, obviously, because it basically takes everybody to task. It says existing policies are often ineffective at countering lock-in, and that today’s solar industry—though it’s come a remarkably long way—is in need of disruption and technological change.

Why Write a Book?

RM: You’re the author of the forthcoming book, Taming the Sun. The back story for you personally is fascinating, and I’m curious— why did you write a book and what  are you looking to add to the discourse?

VS: I wrote the book because I feel like I’ve been very fortunate to see solar from different perspectives: from science, from startups, from the McKinsey experience of analyzing utilities, and from making and assessing public policy at the state, national, and international levels.

Each of these different perspectives has an incomplete view of what solar will need. The scientists think that obviously the next theoretically superior material is going to win. The business people understand the business constraints best and so are understandably biased toward minimizing risk. For example, I’ve heard utility executives caution that, “Changing the grid’s clean energy make-up is like switching out the engine of a 747 in flight, so why would you go and add technology risk?”

These different perspectives mean that everybody comes to solar with their own siloed views. And there are also a lot of unbalanced headlines that pose an additional challenge for folks interested in learning about the field. Some argue that we already have all the tools we need for a 100 percent renewable energy future; others slam subsidies for solar as wasteful handouts. Folks don’t have a single one-stop place to go to get an even-handed story. That’s what I was trying to create. The book aims to present an authoritative, even-handed view of solar’s coming of age, including both the terrific progress that’s been made and the innovation that’s still needed to harness the full potential of solar energy: creative financing, revolutionary technologies, and flexible energy systems.

Solar’s Biggest Challenges

RM: On the topic of what needs to change, what do you think are the top three challenges coming up for the solar industry?

VS: When I think about the rise of solar over the next few decades, without three kinds of innovation—financial, technological, and systemic—solar could hit a wall. That would be catastrophic, because we need solar to anchor the transition to a nearly completely decarbonized power sector. Fundamentally, solar’s rise could stall because the cost of solar power, although it’s declining, could get undercut by its sharply falling value.

The three kinds of innovation collectively work together to ensure that solar’s value stays above its cost, so that it stays economically competitive:

First, financial innovation is needed to massively increase capital flows into the sector, continue solar’s near-term growth, and continue to drive down costs as the industry gains experience with producing and deploying solar PV. I know I’m preaching to the choir here, but the world’s biggest investors have overlooked solar so far, and for solar to continue its growth will require trillions of dollars in capital that existing sources are not going to be able to supply.

The industry faces the challenge of attracting institutional investors with appetites for long-dated, yield-oriented investment opportunities—solar lines up with this perfectly, but they just need a way to invest in it. In the developing world, however, oftentimes solar’s great advantages are overshadowed by country-specific challenges: political risk, currency risk, offtaker risk, credit risk, etc. Policymakers need to improve the investment environment to make solar’s inherently low risk and stable cash flows shine for large investors.

In summary, I think that solar needs financial innovation to help the industry access public capital markets, for example through securitization and maybe even the next generation of YieldCos. Data will be crucial to drive down the cost of capital, and firms such as kWh Analytics can enable investors to prudently invest in solar.

Second, technological innovation is also needed to bring down the cost of solar even faster. Let me use a figure from my upcoming book to explain why [figure appears below]:

Panel 1, on the left, plots the global average cost and value of the next unit of electricity from solar panels as the total installed solar capacity increases. Thanks to financial innovation, more and more solar panels get produced and installed, and the red curve shows costs declining steadily as a result (both axes are logarithmic).

But the blue curve shows how much a marginal kWh is actually worth, and that figure declines steeply as more solar power comes online in each region of the world. That effect, known as value deflation, occurs because solar starts to oversupply the grid in the middle of the day. We’ve already seen value deflation in a place like Chile. We had a bunch of solar on merchant contracts and then suddenly solar, in the middle of the day, started to get a price of zero dollars per megawatt-hour. And this is a problem that afflicts solar more than, say, a natural gas generator, because natural gas is dispatchable, whereas all the solar kilowatt-hours come at the same time. So, supply and demand tell you that with an oversupply of solar kilowatt-hours, you’ll have a mismatch in low prices with demand. A lot of people say, “Hey, solar won’t have this problem because it’s contracted on long term PPAs.” Those PPAs are basically masking the fundamental issue, which is value deflation. It doesn’t matter how you’ve done the contracting; if solar’s economic value is falling, you’ve got a problem.

Pretty soon, when solar produces 10 or 20 percent of the total electricity (kWhs) on the system, the value plunges below the cost. But with technological innovation, you can delay that point. Panel 2 shows the red curve falling more steeply, as new PV technologies, such as perovskites, enable dirt-cheap solar that falls in cost way faster than waiting for silicon PV to ride down the experience curve. New materials enable these cost reductions not just because they use cheap materials, but because they can be highly efficient, slashing balance-of-system costs. Still, I said that technological innovation only delays the point where solar value dips below cost. To prevent that from happening, we’ll need a third kind of innovation.

Third, systemic innovation is needed to prevent solar’s value from dropping so quickly, enabling it to remain above solar’s cost and making solar economically attractive. Systemic innovation entails reimagining energy systems, starting with the power system. A power system that can better match up solar supply with customer demand will mitigate value deflation by using every marginal kilowatt-hour of solar more effectively when demand is high. So in Panel 3, you can see that by adding systemic innovation, the blue curve becomes less steep—i.e., the value of solar drops less rapidly as more solar is installed. As a result, the blue curve always stays above the red curve, driving ever more solar deployment.

Systemic innovation encompasses modernizing the electricity grid, to make it bigger and also smarter. Connecting a diverse range of resources—from load-following nuclear plants to concentrated solar power plants with thermal storage to batteries to demand-side management tools—also helps to accommodate a high penetration of volatile solar PV on the grid. Another example of systemic innovation will be via sectoral linkage. For example, if you link the transportation sector by intelligently charging electric vehicles whenever there’s a surfeit of solar energy on the grid, or the heat sector by using electric heat pumps to track solar output, or even the water sector by modulating the operation of desalination plants, you’re basically making new ways to store intermittent solar power. This sectoral linkage reduces value deflation, because we will have many more valuable uses of solar power, no matter when it’s generated. And by keeping solar’s cost below its value, it can break through the ceiling that its penetration would otherwise hit.

RM: I hear you. My favorite iteration of that idea is that at some point, someone is going to realize that solar’s so cheap that you should hook up a Bitcoin mining machine to a solar panel. That could be a great way to make money from solar. Some day.

VS: Wait, hang on, that’s so interesting—Bitcoin is acting as a battery.

RM: Right. The same way that you’re describing desalination, it’s the idea of storing the value of energy not as energy but as something else that’s valuable.

VS: I love that idea. Has anybody written anything on this?

RM: No, it was my idea, but you should feel free to take it. You had already come up with the broad idea, I just said that specific iteration of it.

Data & Resource Based Financing

RM: As a data company, we think about data a lot. Are there areas for which you think data is uniquely positioned to cause systemic change?

VS: There’s a paper out from David Sandalow and colleagues from Columbia University called, “Financing Solar and Wind Power: Insights from Oil and Gas.” It’s interesting. They basically pick three different financing options from the oil and gas industry and ask, “Could we use this for solar and wind?” Data would help enable these options.

For example, in resource based financing, oil and gas companies get to basically take out loans in advance based on the value of the proven reserves, and they also get financing based on promising a cut of every barrel of oil they sell.

You can imagine a solar company could do the same with good data. Right now, banks think solar is too uncertain, and as a result it is hard for solar to get debt. A solar company with a parcel of land, plus good data on how much their projects produce in this particular area, plus an analytic model on how much money it will make—it would be a game changer if investors would look at that land that’s prime for solar development and value it for its solar potential, the same way that investors look at land with oil under it, and value the land for its oil reserves.

Call to Action

RM: It’s August 2017, and in the past few months, Trump announced that he’s pulling the U.S. out of the Paris Climate Agreement, some leading solar companies, such as Sungevity, have declared bankruptcy—my perception is that people in the industry are feeling quite down right now, even though our numbers on solar deployment and cost have actually never looked better. What would be your call to action or your parting thought for the people and the policy makers in the solar industry?

VS: I am infuriated with the Trump administration’s policy because first, I think the Paris Agreement is important for political and diplomatic reasons. And second, I think funding energy innovation through Trump’s budget proposal and supporting it through initiatives like Mission Innovation are really important, but he’s stepping away from both. He wants to slash energy innovation funding by half and cut support within the Department of Energy. I think that’s terrible.

Also, I think that profit compression in the solar industry, which we’re seeing both upstream and downstream, is an inevitable byproduct of a lack of innovation. If you’re making commodity profits and everybody’s trying to do the same, obviously you’ll have profit compression. The lack of innovation is what’s causing this compression. Given a commodity with no differentiation, no one makes any money. The fact that the value of solar is falling faster than the cost of solar—value deflation—is a critical problem for our industry’s future.

What is my call to action? Innovation funding in this country has stagnated for two decades. We certainly can’t afford for it to fall now. We instead need to strengthen it. We are not paying enough attention to this problem. Innovation is important both because it brings down the cost of solar to outrun value deflation, and also because it makes some producers more competitive than others, thereby enabling there to be profits in the industry. Innovation enables American companies to make money, as long as we’re the ones investing in innovation.