#Solar100’s Bryan Birsic: The Tony Stark of C&I Solar

Originally posted on pv Magazine USA.

In this #Solar100 Interview, Richard Matsui, Founder and CEO of kWh Analytics, speaks with Bryan Birsic, Co-founder and CEO of Wunder Capital.

While Bryan Birsic probably doesn’t self-identify as a “genius-billionaire-philanthropist-superhero,” elements of his story mirror that of Marvel’s business magnate Tony Stark.

Leveraging their tech expertise and respective skillsets, Stark and Birsic both changed their careers to respond to important needs they saw in the world around them. For Stark, this means using tech and physics to stop villains, and for Birsic, this means using tech and finance to combat climate change while making returns for his investors. Birsic began his current business after a realization that his previous work wasn’t “addressing the big challenges that humanity faces.” Birsic’s archenemy? Barriers to solar deployment in the C&I lending space. Birsic’s work is resonating with people, and his company recently raised $112MM towards this effort.

In this interview, Birsic discusses finding purpose in solar finance, cracking the C&I market, and the wrong approach for solar startups to take.

Finding Purpose in Solar Finance

Richard Matsui: You first established your career at Bain, then spent 5 years as a VC with Village Ventures. How did you get into solar?

Bryan Birsic: It started when my cofounders Dave, Sam, and I hit a point in our careers where we no longer felt comfortable pursuing tech start-ups that weren’t addressing the big challenges that humanity faces. We wanted to move past only having nights and weekends to pursue our real passions and fulfill what we defined as our purpose. I think this is a common framework for millennials: Looking for jobs that utilize their skillsets and provide good compensation, yes, but also looking to find purpose in their work that extends beyond the requisite financial incentive.

I joke about this, but it’s true: Dave, Sam, and I were basically having a bitch session about how difficult it is to motivate yourself and others to work at the kinds of start-ups where we previously worked. That conversation prompted the questions: What do we care about? What would feel better to work on? And really importantly, are we the right people to do those things?

We convened in Boulder to figure out how we might manifest those ideas into a company. Dave, our CTO who worked at the DOE’s Lawrence Berkeley National Laboratory, came in with this religious fervor about what was happening in the energy space, particularly with distributed solar. He won the day. We saw that there was an under-penetration of software entrepreneurs in solar, and particularly that financing seemed to be an acute problem. On the C&I side, we saw a really big opportunity to grow the solar space with improved financing. All three of us were coming from very different roles—how software applies to finance, advertising, and marketing tech—but those winnowing forces brought us to start something in commercial solar finance.

Founding a Solar Startup

Richard Matsui: You’re a fellow ex-management consultant. Did your management consulting work influence what you bring to the Founder and CEO role today? More broadly, what would you say are the pros and cons of your job as Founder and CEO?

Bryan Birsic: My favorite CEOs are passionate about things like how to structure a company, how to create feedback loops, how to experiment, and how to deliberately create strong cultures and operating principles. The skill of being able to learn quickly, implement that knowledge, and repeat is a virtuous cycle that carried over from the management consulting role to the Founder and CEO role. This is also one of the biggest pros of my current job.

Richard Matsui: That’s interesting. The biggest lesson I learned from my stint in management consulting is that there are very few truly novel problems in the world. The vast majority of problems that any company faces has already been solved before by someone, somewhere. As a consultant, your job is to find that person, learn the answer, tailor the answer to the unique circumstance, and then execute. So it’s a very similar framework to your “virtuous cycle”.

Bryan Birsic: Exactly. And on the con side, it can be very lonely work. You don’t often have the opportunity to share fears or vulnerabilities, at least not in a “I’m having a terrible day” way. You certainly talk about challenging things with your team, but there has to be some “presentation layer” on top of your day-to-day feelings, and that dynamic obviously applies to your investors as well. Even with someone like a spouse, who has some financial connection to what you’re doing, it’s hard to be a 100% vulnerable and honest. That is compounded by the fact that there aren’t a lot of people who can empathize with some of the pressures, demands, and fears incumbent with being a CEO. One thing that I do that I recommend that every CEO do is find a group of CEOs who are all interested in being authentic. Without that resource, the CEO dynamic can be difficult to handle.

Richard Matsui: How does your experience as a VC change that way that you’ve built this business?

Bryan Birsic: Time in VC provided two advantages: The first and obvious one is fundraising, and the second is the focus on the scalability of our software. Non-software teams tend to suffer from diseconomies of scale when they get to a certain size. Our team build and brand positioning as a software-first company stems from my understanding of what my VC audience is looking for. To be really specific, we actively work against the idea that we’re a solar company, because that industry is painted with a slow-to-develop, hard-to-scale brush.

Cracking the C&I Market

Richard Matsui: When I think about Wunder, what strikes me is the difficulty of the problem you are tackling. C&I has been a “next big opportunity” for a long time, despite a lot of smart people working on it. What makes the market so challenging?

Bryan Birsic: I think the reason that there aren’t five Wunders running around is because this work requires a particular knowledge set that doesn’t often come together organically. There are a lot of people who understand this problem space, see the opportunity, and understand that software is required to reduce the fixed and bespoke costs associated with cracking this sub-$2mm, sub-1MW market in commercial solar. However, the folks who have that solar background and see that opportunity tend to be people without technology experience.

Generate, Sol Systems, and Seminole—all firms that I really like and respect—are not software companies, and they all struggle with lending to projects below 1 MW because they have not been able to combine their deep understanding of the problem space with the tools of a software company.

We took a very different approach. I had some knowledge of how software applied to lending, and Dave had experience as an engineer and spent some time at the DOE. We are software people first who only had a few relevant solar experiences. We had to spend two years getting up the curve on some pretty complex topics to gain solar expertise. This approach led us to a different place then a lot of other people who have been in the market for years.

Richard Matsui: There’s a saying that all founders know a secret about the industry they work in, and that secret becomes their company. It sounds like your company’s founding secret was  this software-first mentality. What are the big C&I problems that software solves?

Bryan Birsic: While we use software in many ways, we have identified two main problem areas that software can address.

As outsiders coming in trying to figure out this market, the first thing that struck us was just how much paper and legal work is required in order to get a C&I solar deal done. You oftentimes have three- or four- party contracts, lien or UCC1 filings, regulatory dynamics in different states depending on the size of system, and so on. We mapped out and color-coded all the required steps and realized that around 50-60% of the steps were fundamentally contractual, legal, or involved something regulatory. If you’re an project finance provider in a market where your loan might be a million dollars, and you might make 2.5% as your total closing fees on that loan, that means you have $25,000 to spend, including your margin and fixed expenses, in order to be profitable. If you’re engaging a lawyer or putting contracts together, you’re going to eat most of that $25,000 budget immediately on legal costs. We needed to eliminate the legal-cost table stakes.

So the first thing we built is Docsund, intelligent software that—with five clicks—drafts a custom contract package for each of our deals. Once we encode changes, this system requires no legal costs and no human being to create custom contracts. That is the most important thing we’ve done, and it’s necessary to attack this market.

The second big efficiency that we’ve realized is executing deals quickly. We built Koalify, the second leg of our software stack, to qualify our deals. We’re seeing about two billion dollars of buyer demand annually now, with projects that average roughly half a million dollars each. For each project, we need to first gather the data that requires minimal human interaction, and focus on data that is most likely to kill a deal.

Those are our two big cornerstones. Between those two software products, we’ve been able to realize about a 10X efficiency relative to what we see from manual financing players in the C&I market, taking our minimum project size to $200K from the industry-norm of ~$2MM.

Lending Small and Moving Fast

Richard Matsui: On the borrowers’ side, what is the typical project size that you lend against?

Bryan Birsic: Our average is around $500k or $600k in terms of their debt need, which corresponds to a 200-300 KW system.

Richard Matsui: That’s incredibly small. Late last year I asked Jigar what he was bullish on, and he identified small C&I, saying, “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.”

Bryan Birsic: That’s 100% right. We see the rest of the market as willing to go down to 750 KW, about $2mm, and we just don’t see folks that are down market of that besides us.

Richard Matsui: What do your borrowers want?

Bryan Birsic: We have two value props. The first one is that we understand the solar asset well enough that we’re not going to ask for additional assets from the borrower. What you often see in the small C&I space is that a developer gets a potential borrower excited, they quote the system, but they don’t have a solar specific financing offer for these smaller systems, so they send them to their local bank or credit union. That underwriting team does not have a group specialized in solar, so they’re looking at just the financial history of the business, and will require collateral, for example by putting a senior lien on borrower property.  By contrast, we offer non-recourse debt, so even if our rate is incrementally higher, in almost all cases we’ll win that business because we only have recourse to the solar asset. We can do that because we’re underwriting a wide range of aspects of that solar project’s ongoing value, and are capable of monetizing it effectively if God forbid there’s a default.

Next, our partners would tell you that speed and transparency are the two things they value most in Wunder. Installers and developers generally understand that financing sometimes doesn’t come through, so generally what they like is that we’ll tell them within a couple of days if a project is not going to be approved so that they can stop working on it and reorganize their sales efforts. We’ll also let them know why they were rejected, which can often be a black box with other lenders. Then on the speed side, we’ll promise them an executable document within five business days. That is an order of magnitude faster than some of the folks they’re used to dealing with.

Richard Matsui: From our experience developing the Solar Revenue Put, we have gained some insight into what small scale project developers value most. It turns out that certainty and speed are very important factors because the developer is likely working on multiple projects at a time. Upfront cash is also critical to borrowers in the C&I segment, because they need this capital to develop more projects and run their business.

Bryan Birsic: Absolutely. To your point, we did not realize how important speed would be in that smaller C&I segment. These guys are often trying to fill 10 or 15 projects through their quarter, and financing has really been slowing them down. And to your point about cash, I can say explicitly that with your Solar Revenue Put, which I like, we change our loan-to-value rate that we offer on a solar project.

The Wrong Approach for Solar Startups to Take

Richard Matsui: What does Wunder become in five years? Is it a building improvement lender like a GreenSky for C&I? Or does it become something else?

Bryan Birsic: I love that analogy, given GreenSky’s recent valuation. I think we’ve addressed about half of the solution to date. If you look at GreenSky or Dealertrack, they’ve succeeded in overcoming the primary challenge in technology-enabled lending, borrower acquisition costs. They’re not only a great financing option for their partners, but they also bring their partners borrower demand for free, they pull financing into the sales funnel, they help their partners target customers based on the likelihood to get financing, and help onboard new customers through the relatively complex financing process. Mosaic’s also done some really interesting work along these lines in residential solar.

We need to make sure that we’re not only your financing partner, we are also your partner in cracking small commercial solar through the sales funnel. That’s the next big thing for us operationally. The other big shoe to drop is going to be storage. We believe that distributed PV plus storage is going to be a big market and so between those two challenges, we’ll stay pretty busy for the next five years.

Richard Matsui: What else is broken or inefficient in solar? Put another way, had you not started Wunder and were looking at the landscape today, what would you want to tackle?

Bryan Birsic: I think pure customer acquisition is really interesting. We see a lot of folks that are trying to generate leads and then kick them over the transom. Part of the reason that we didn’t start there is because if I send you a lead for a $500k system that you can’t get financing for, solar developers probably won’t even want the lead. We had to start with financing before folks would be interested in solving that customer acquisition problem. The really hard thing is getting a business efficiently through the landlord tenant dynamic. How do you solve that? We see a big opportunity there.

There’s a real misunderstanding of how to apply software to solve the industry’s problem of soft costs. By the way, I think your team at kWh Analytics is doing it right. There’s a broad and mistaken belief from many solar startups that are thinking like traditional software companies: We’re going to sell software licenses to installers. That simply does not solve what customers are looking for. Installers and developers are not people who want to be on their computer all day. If you’re building them software, you have to consider where they are, not where you think the market should be. If I were to go to the bank and say, “Hey, I’m going to sell you software for small C&I,” they would respond, “We don’t do small C&I.” Software is necessary to bring down soft costs, though I think the big opportunity is in software-enabled services. Don’t show up with the software—use your own software to deliver the value to customers. And that will probably be a better business model and an easier sale, too. I’m highly skeptical of folks that are selling software under a SaaS model, as opposed to using software inside of their businesses to be incredibly efficient or building a differentiated data asset like your team. I think most folks are taking the wrong approach there.

Richard Matsui: That’s an often unsaid but brutal truth about our industry. Even though we offer different products, I think that our teams are practicing a similar mentality. If a solar startup thinks of itself as pure-play software, an honest assessment of the total addressable market will usually be small. And small can be great, because small means lean, which can mean profitable. Folsom Labs is a standout example of this. But if a startup is seeking venture-type results, software-only is a challenging path. Those founders need to answer the big picture question: What is the real pain point here? What is our industry fundamentally doing wrong? Software can play a role in that answer, but software alone is often not the full answer.

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

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

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

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

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

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

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

Starting in Energy

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

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

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

Richard Matsui: Don’t tell Opower.

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

Richard Matsui: Right, fair point.

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

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

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


GTM as a Startup

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

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

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

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


Changing How We Think

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

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

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

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


What’s Up Next

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

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

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

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

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

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

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


VC Trends

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


“Solar Nerds Everywhere”

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

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

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

Shayle Kann: That’s true.

#Solar100’s Katherine Hamilton: The Steve Kerr of Renewable Energy

Originally posted on pv magazine USA.

Richard Matsui, founder of kWh Analytics, speaks with Katherine Hamilton, Co-founder and Chair of 38 North Solutions.

Energy veteran Katherine Hamilton reminds us of basketball veteran Steve Kerr (and vice versa). Here’s why:

  • Both are grounded in years of technical expertise: In the ’90s, Kerr was as a basketball player before becoming a coach, and Hamilton worked as an energy engineer before becoming an energy policy expert.
  • Both are respected as industry experts: As the head coach of the winning team of the 2015 and 2017 NBA finals, Kerr is sought out for his insights on his team as well as the broader sport. Known for her energy expertise, Hamilton has testified before the House Science Committee on renewables, advises world leaders on how to accelerate the global transition to clean energy, and serves as Ambassador to the Secretary of Energy’s Clean Energy Education Empowerment (C3E), President of GRID Alternatives Mid-Atlantic, and Co-Chair of the World Economic Forum’s Global Future Council on Energy.
  • Both are quick to recognize their colleagues (and have a sense of humor): When Kerr was asked to compare himself to Gregg Popovich, he reportedly responded, “Pop’s one of the greatest coaches of all time, certainly top three. I’m not… I think I’m fourth.” Similarly, Hamilton introduced her industry colleague Amy Harder as an, “Awesome new entrant to #Solar100. I dropped down one; like to think was making room…”
  • Both are thoughtful advocates: Whether it’s speaking about gun violence and the need to keep citizens safe or commending player Kevin Love for speaking about mental health, Kerr is known for his ability to speak to the core issue in a way that can reach across partisan lines. Similarly, whether it’s casually describing her experiences as an expectant mother testifying before a male-dominated House Science Committee in the ’90s or speaking about the importance of renewables in local job development, economic growth, and community redevelopment, Hamilton has dedicated her career to finding innovative energy solutions across partisan lines.

Katherine Hamilton’s at the top of her game and is this month’s #Solar100 thought leader.

Starting in Renewable Energy

Richard Matsui:  I read that before 38 North Solutions and your current work in energy policy, you were an English major and then an engineer. What first drew you to working in energy?

Katherine Hamilton:  My grandfather started as a surveyor for Virginia Electric and Power Company, and worked his whole career at what he called “The Company.” He was the family engineer and always wanted another engineer in the family. Given my interest in energy, I was the closest thing, even though I have degrees in English and French.

I ended up taking a summer internship with Virginia Power. Practically speaking, my grandfather also saw that utilities were great companies to work for, providing long-term stability, good retirement benefits, and a career trajectory. After I graduated from Cornell and the Sorbonne, I decided to apply for a full time job at Virginia Power.

The utility was looking for distribution design engineers (and I was obviously not one), so I took night classes in engineering. I had to take a test every six months for three years to ensure that I was doing my design calculations right, that I knew the difference between a wye and delta-connected transformer, etc. It was the best possible training on how electricity works and how systems work. I had to really learn the business, and I enjoyed it.

We were very innovative for our time—this was in the late ‘80s and we were implementing energy storage—ice storage systems—with thermal energy storage rates to deal with growing demand.

Following my desire to work with clean technologies, after a decade at the utility I moved to the National Renewable Energy Laboratory (NREL). There I started new programs for the Department of Energy’s Federal Energy Management Program, including energy audits for federal buildings, water efficiency programs, and increased renewables for federal sites.

Richard Matsui:  Wow, that’s an interesting backstory. How did those experiences with energy engineering then lead to your later work in solar?

Katherine Hamilton:  When I was at NREL, because of my background in creative writing, I was adept at translating what NREL’s scientists were doing into language that policymakers could understand. As a result, I was called upon as an expert on renewable energy, testifying as a witness for the Republicans on the House Science Committee in the ‘90s. That is now sadly the committee that does not seem to believe in science. Back then, Newt Gingrich was Speaker of the House, and Republicans and Democrats were still certainly much closer to the middle then than they are now. The Science Committee had a Ph.D. physicist on it who was a Republican.

[Laughs] At the time, I was also pregnant with the third of my four kids, and I thought those House Members were going to have a heart attack when I walked into the hearing room. But they were still interested in science, and, as a result, I was able to tell the story of renewables on behalf of NREL. Those were the days when renewable energy was not politicized to the point that it is now. It was considered innovative to talk about renewables in the context of science.

Policy Landscape After 201

Richard Matsui:  Section 201 dominated headlines and lobbying resources for months, and now our industry needs to quickly pivot to the next policy struggles. What are the biggest policy issues that a solar developer should be concerned about today?

Katherine Hamilton:  The best thing about having this 201 case done and having the tax bill done is that we have more certainty on pricing of modules and projects as well as duration of the tax credits. Now we need to watch out for statutes like PURPA.

Richard Matsui:  What level are you most concerned about PURPA, the state or federal level?

Katherine Hamilton:  While PURPA could probably use some updating, I view PURPA as a tool that has been used to allow competition in states where there is a utility monopoly. PURPA allows other resources to come in and compete, and both solar and wind have benefitted from PURPA. If you could tweak that statute to allow more distributed energy resources, including storage, you could use PURPA to create even more competition.

The problem with touching PURPA is that—just like the Clean Air Act—in opening the statute, it could be tweaked for the better, but it could also be tweaked for the worse. Because Congress is so polarized, it may be that FERC is a safer place to revisit PURPA.

Richard Matsui:  If you take the three-year view on this, in what ways do you see PURPA changing?

Katherine Hamilton:  Some of the calculations on cost benefits are up for discussion based on new applications and services, as is the one-mile rule. But in both cases, opening up the legislation brings us to a slippery slope. At this point, it is better to not revisit PURPA until we have more support in Congress, to ensure that it is managed very carefully and to the benefit of innovative resources and consumers.

Opportunities and Challenges for States

Richard Matsui:  What are some of the opportunities in solar from a state perspective?

Katherine Hamilton:  We can start with the states that already have high renewable portfolio standards—Hawaii, California, and New York.

Then, we can look at states that are considering raising their RPS, like Arizona, which may be creating interesting opportunities for energy storage as well.

And then there are states that might seem like unlikely candidates but that are opening up dockets on distributed energy resources. I think that is the path by which solar is going to grow more—as part of a distributed energy resource. Those proceedings are happening in Missouri, Arkansas, Louisiana, and other states in the Midwest. Even Florida is opening up a bit. We’re going to start seeing solar in states that are looking at the resource in a context that’s broader than just net metering or RPS, but as a key part of a more distributed, flexible, demand-side resource.

Richard Matsui:  I had not heard of this trend. What’s driving these states to see solar from the lens of distributed energy resources, as opposed to an RPS or other “tried-and-true” approaches?

Katherine Hamilton:  These states see that demand response is having an impact. Demand response used to be just load shedding—you would call customers, they would drop their load, and you would the lower the peak, saving consumers money and benefitting the grid. Demand response has become a lot more sophisticated and now enables resources of all types, including  storage and solar + storage, to be more dispatchable and flexible. Solar and other demand-side resources—whether CHP or fuel cells or small wind—create more dispatchable services at the edge of a grid. And those customer-sited resources are only growing.

Regulators know that they want to get ahead of the curve, so they’re responding: “What does this mean? How do we value it?”

A lot of states are currently going through their integrated resource planning. Utilities have to think several years in advance, so when they look down the road, that’s what they’re seeing for the grid: consumer engagement, solar usage, and technologies in combination with solar that change the way residential, industrial and commercial consumers are interacting with the grid.

Richard Matsui: How is the advent of energy storage shaping solar policy?

Katherine Hamilton:  Storage is like bacon; it makes everything better. You can’t limit storage to just being for solar, although solar certainly has a lot to gain from the use of storage. We can get away from relying on NEM all the time, and instead look at the full value stack of what behind-the-meter solar + storage can bring. It starts to look more like straight-up generation, just from the “load” side.

Richard Matsui:  I tend to be quite cautious when thinking about the future of solar. Yes, we have tremendous tailwinds in favor of our industry, but I’m also always waiting for the other shoe to drop. You mentioned that you are an optimist, and I’m wondering—what makes you an optimist?

Katherine Hamilton:  Innovation is moving so fast, costs are coming down, we’re starting to see solar become much more dispatchable with smart inverters, energy-storage technologies, and with tools like demand response. I also do a lot of international work, and globally, the trends are all toward a huge increase in solar energy. The scale of this change and the trends of costs coming down paired with integrating technology costs dropping makes me incredibly optimistic.

Richard Matsui:  What are the top three states that the industry ought to be most worried about from a state policy standpoint?

Katherine Hamilton:  I think we need to worry about Virginia, North Carolina, and states that are talking about rate-basing grid modernization.

Instead of rate-basing nuclear plants that may never run (like in South Carolina), utilities are trying to find other assets to rate-base—for example, unnecessarily undergrounding high-voltage transmission lines. These investments can suck the air out of the ability for a consumer to benefit from investment in more distributed technologies like solar and other non-utility offerings. Utilities are rightly nervous about their revenue model changing, so they are going to protect what they have and attempt to control their own future. This can certainly have an impact on consumer choice and distributed solar.

Finding Allies and Advocates

Richard Matsui:  Vote Solar recently came out with this campaign against the Duke Energy Power/Forward plan for grid modernization, though at the time I didn’t appreciate why this was an issue for our industry. Now I see it. Is this the right strategy for our industry, to advocate on issues like net metering or RPS that extend beyond traditional solar issues?

Katherine Hamilton:  Absolutely. You have to be able to look at the whole system because it’s all interconnected. I think the industry needs to find allies on the ground and those allies can be unconventional. Allies can include the Chambers of Commerce, groups who believe in competition and the free market. Certainly environmental groups have been traditional allies, but an ally can include those who want to protect consumers and allow for increased local innovation. So yes, look to your state Solar Energy Industry Association (SEIA) chapter, but also other allied organizations to make sure that you craft the messages that work in that state. Particularly in red states, those arguments can be about economic growth, local jobs, and keeping costs lower for consumers.

Richard Matsui:  Which organizations are our most effective advocates?

Katherine Hamilton:  I think Vote Solar has done a lot of really good work with quality analysis to back it up. Different regions have a variety of grassroots non-profit and business organizations that help take the lead, so there are a lot of groups combining forces on the ground.

Certainly, on the federal level, SEIA advocates for the solar industry. SEIA did a great job on 201, organizing diverse groups, leveraging the industry collectively, and creating the right messaging. For small companies with limited reach, it is difficult to be engaged with federal policy on a one-on-one level. You’re managing your own business, so you rely on your trade group for advocacy.

Showing Up, A Free Rider Problem, and the Roles of Companies in Shaping Policy

Richard Matsui:  A couple months ago, an energy policy expert came in and spoke at one of our company’s weekly Lunch and Learns. He told us that when it comes to policy, “Companies are either at the table, or they’re on the menu.” Would you agree? If so, what are the for-profit companies that are taking a leadership role?

Katherine Hamilton:  I don’t think that if your company can’t engage directly in policy work, you’re necessarily on the menu.

I think a better way to put it is: Regardless of your size, you need to show up. Showing up could mean going to your local SEIA meeting and ensuring that the issues you care about are included on their list of priorities, or it could mean attending a town hall meeting, or writing your member of Congress a letter on what you care about. It is important to show up and participate.

You may not have to be in every single proceeding in every single state and in Congress. You just need to ask: “Look, if I don’t have the time and resources to do this, who does? I better figure out who does, and work to ally myself with them.”

Richard Matsui:  So, there are different ways of being at the table, without hiring a policy team.

Katherine Hamilton:  There are companies that have big policy teams. It’s great that they have those resources, but not everybody does. So the reality is, you need to be able to work with what you’ve got.

Richard Matsui:  But I wonder about the free rider problem that our industry has always had. Policy teams are a business function that only large companies can afford, and historically, we’ve had publicly-traded giants like SolarCity and SunEdison that would invest in policy on behalf of the whole industry. With the collapse of some of those leaders and, therefore, their policy teams, have we seen a reduction in our industry’s ability to advocate successfully?

Katherine Hamilton:  We are seeing that impact on the state level, because some companies used to be in every state but no longer have the bandwidth. We had more companies on the ground in every state, and then they could work together and leverage resources.

The reduction in the number of companies in each state policy battle increases the importance of finding allies. When we’re the last solar policy group left in a state, we better find allies. We need to ask: “Who else is out here that maybe is not doing solar specifically, but with whom we have shared goals?”

Solar in the Trump Years

Richard Matsui:  How can our industry effectively advocate for itself in the Trump years?

Katherine Hamilton:  Good question. SEIA and other coalitions worked hard to reach the administration in the tariff case and explain that Republicans should care about solar.

What has been most upsetting to me over the last fifteen years is that renewables have become partisan. Part of that has nothing to do with renewables, but it has to do with interest groups influencing Congress and previous Administrations to create a zero sum game between renewables and traditional energy resources. This has polarized the industries—fossil to Republicans and clean energy to Democrats.

I think part of our job is making sure that we change that narrative. For example, 85% of wind projects are in red states. Let’s make sure that we talk about solar in a way that’s very much about jobs, economic growth, and community redevelopment, rather than only about cleaning the planet or having a green resource. We need to be strategic, using words with different policymakers that speak to their concerns.

With the current administration, we need to lead with our business-first points and speak in that language. We have cost-competitive technologies that are challenging and beating the incumbents.

#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.

#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.

#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.

#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.



#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.



#Solar100’s Danny Kennedy: The Most Interesting Man in Solar

Originally posted on pv magazine USA.

As the first interview in the #Solar100 Thought Leaders series, kWh Analytics Founder Richard Matsui speaks with Sungevity co-Founder and Managing Director of the California Clean Energy Fund Danny Kennedy.

It seems fitting for our inaugural monthly #Solar100 interview to be with activist turned entrepreneur turned fund director, but ever the solar advocate, Danny Kennedy.

Kennedy believes the different roles are not at odds, noting, “Entrepreneurs are the classic ‘won’t take no for an answer’ activists, really. They just use business tools rather than community organizing.”

Though the tools may change across roles, Kennedy’s means and ends—his theory of change and his ultimate vision—are decidedly centered on people. He believes people will drive the necessary changes towards clean energy, and that changes towards clean energy are necessary to protect Earth and its people.

It is striking how easily Kennedy uses a broad “we” and “us” in the place of “solar”; or how quickly he can name examples of off-the-radar startups and activist campaigns that are contributing to the revolution for clean energy; or outside of this interview, how often we hear Kennedy’s name cited among solar groups just getting their start.

Kennedy speaks like an activist, builds community buy-in like a grassroots organizer, can leverage financial tools like a capitalist, and at kWh Analytics, we think he’s the most interesting man in solar.

Solar’s Biggest Challenges

Richard Matsui: In Rooftop Revolution, you identified the challenge of building a movement for solar amidst the many marketing campaigns started by solar’s opponents—that it is expensive, inefficient, subsidy-driven, that it can’t be scaled, that it takes away jobs, etc. As you look at the landscape five years later, what are the top 3 challenges you see in solar now?

Danny Kennedy: There’s an irony in how things have progressed since 2012 when I wrote that book—then, we were “too small to be significant” for everyone—from Bill Gates to Donald Trump. And now, we’re becoming “too dominant.” It’s a complete turnaround that we’re now being depicted as a problem in the grid because we produce too much free electricity. I find it stunning that regardless of how many anti-solar marketing myths are refuted or how much progress is made, certain people will create excuses in attempts to stop solar.

I would say the three biggest obstacles are:

1) Fossil fuel interests trying to protect themselves. The only way coal survives is a political choice for it to survive. There is no economic or social rationale otherwise. But we’ve seen that political choice being made by governments from America to Australia: subsidies being crafted, policies being set up to literally overturn the outcome. Fossil fuel interests will obfuscate, make up crap, and create crazy stories to defend coal and gas. That’s the number one obstacle: political power of the vested interests.

2) Sustaining popular commitment to the cause against fatigue. We cannot relent. We have been driving fast to get from one to three to maybe ten percent of the electricity supply in some states, and we’ve done really well. But we’re still a fraction of the supply and have to continue doubling. That demands consumers and citizens and activists all carry on building the market—movements make markets as much as businesses do, and we cannot forget that.

3) Technical. I think getting to 50% renewables is relatively easy; getting from 50% to 100% will present some new technological challenges. And so as solar grows towards dominance in the grid, there will be some new technical challenges, which are not insurmountable, but which will still need to be addressed.

RM: When we have this conversation in five years’ time, what do you think will be solar’s top three challenges then?

DK: A lot does depend on what happens in the next four years. Politics can get uglier still. People ask me what can slow down the inevitable rise of renewables, and I think war could do that. The world could fall apart like a pig in a blender, go back to its corners, do what it knows and not be advanced, adventurous, or push the boundaries of technology and good things. And I think war is very possible. That’s the big one that risks all the progress we’ve made. Other than that, in 2022 the main obstacle and question will be: How fast can we make the change to solar?

RM: Can you talk about an off-the-radar startup that’s tackling one of these big issues?

DK: When it comes to building the buy-in and commitment of a community to solar, my favorite right now is called Solar Ear. They are working to make hearing aids available to the hundreds of millions of humans who can’t get them because batteries are expensive and hard to get into remote and emerging markets. Solar Ear’s solution: a solar-powered hearing aid, which effectively recharges the battery rather than disposes of it, making it more advanced than the current crop of hearing aid technologies, as well as much more affordable and available. And their business model is really cool—it’s driven by deaf people doing this work in these countries for deaf people.

And I love it because it doesn’t sound like a direct response to any of the obstacles I just listed, but the political will and cultural commitment to the transition we were talking about has to happen most in emerging markets. The billion plus people under 30 in Asia and Africa that are looking at the world and wondering what their future is need to be engaged by this to carry it forward. That’s where electrification is going to happen. America’s an interesting, small portion of the movement in terms of the Gigawatt capacity that will be built in America, so building movements worldwide and empowering people literally and figuratively with solar products is really important. In terms of demonstrating how solar can have a really meaningful impact in peoples’ lives, that’s one company that touches me.

Activism, Entrepreneurialism, & Building the Movement for Solar

RM: As a leader in solar, you have a particularly unique background as an activist in Greenpeace. In your 2013 TEDxSydney talk, you mentioned the profit motive as a driver for change, and this line made me chuckle: “Capitalists are coming for your rooftops. It means the solution will come.” I think it’s fair to say that you are now a capitalist, although perhaps a conscious capitalist. What sparked that change for you?

DK: First, a lot of Greenpeace’s successes over the years and strategies are capitalist. I don’t think the two are mutually exclusive. To give an example, I ran a lot of forestry campaigns trying to save forests in places like Papua New Guinea. It’s often the case that you can use market forces to make change as an activist, such as forcing good wood procurement practices as a way of protecting ancient forests. That’s been the strategy for the climate and clean energy case for a long time, as in adding cost to carbon. Small businesses can be agents of change, and entrepreneurs are the classic ‘won’t take no for an answer’ activists, really. They just use business tools rather than community organizing.

Second, that doesn’t mean that I’m not also a socialist. My personal thinking is that capitalism has its uses, but it’s pretty simplistic to just stick with one or other of the -isms. We have to find the blend that makes sense for the 21st century. Capitalism has had its use in unleashing the energy innovation that we’ve seen in the last decade, but there was also chronic market failure before it—capitalism had failed for most of the 20th century in creating any innovation. That’s the hundred years prior to the California Solar Initiative, which was kind of a socialist model, and certainly up to Germany’s Energiewiende, wherein the market was somewhat constrained by strong industrial policy. Prior to those the energy industry had been failed by monopoly capitalism. For me, market force is a means to an ends—market force works, but that doesn’t mean it excuses us from the bigger conversation of what capital is for and what market force should lead to. I believe in a guided market, at the very least.

RM: I like that point you’re making—this idea that market forces are very capable of doing certain tasks, but maybe not great at all tasks. The forestry example is new to me, but I think you were working with Jeremy Leggett on the divestment movement to put financial pressure on institutions to do more. Is there another big campaign that you’re working on?

DK: I think the focus on stranded assets is really important. There is a phenomenal amount of money that is being wasted by the fossil fuel and nuclear industry as they enter their dying days, with examples like Adani’s Carmichael coal mine in Australia or the gas pipelines from Texas to Mexico. In Australia, $1 billion tax dollars are being used to subsidize a coal mine that should not be opened in in a region that represents 2% of allowable carbon pollution left for the atmosphere. It’s just wrong. In Mexico, they’re spending billions this year on natural gas pipelines from Texas, which is going to lock them into debt payments on those pipes whether or not the gas price stays low, whether or not they decide to make the transition to wind and solar, which is much cheaper than gas already in Mexico’s reverse auctions, to electrify vehicles, etc.

The stranded assets campaign is really about avoiding “locking in” communities to uncompetitive infrastructure. Remember when Shell went up to the Arctic from Portland? The drilling rig was blockaded by canoeists and people like those I used to work with for a while, but the rig got out. And then they failed to find anything worth developing, which was predictable. It forced Shell to report a write-down of $7b dollars within about six months. The Arctic exploration effort of the oil majors generally has led to tens of billions of dollars of write-downs by those companies. There’s no accountability and instead there’s still support from government. There’s a huge contrast between the waste of money on the dirty side of the ledger versus the amounts we’re profitably deploying on the clean side of the ledger. There’s a capital market campaign I would love to run against the stranding of further assets in light of climate change. And maybe I will.

RM: Given that you’ve gone from activist to solar entrepreneur to clean energy investor, how are you liking this new role, and how is it different?

DK: It’s different in that I get to play with a lot of entrepreneurs instead of just a couple companies, like Sungevity, Mosaic, and others that I helped get going. The job is working more on the system than in the system, in the entrepreneurial ecosystem itself. It’s a different layer of responsibility. I really like our work, both because managing other peoples’ money effectively is important and challenging, but also because it’s about open-sourcing a lot of the lessons we’ve picked up over the last decade in California. The solar coaster, as we call it, has been tumultuous—plenty of lessons for future entrepreneurs that we hope to make transparent and share with the world. California’s like the lab for the world—we actually should get to 100% renewable energy by 2030 if we can. The main focus now for me is not California, as important as it is—it’s on continuing this work in Africa and Asia, otherwise we don’t turn the carbon dial.

RM: Fascinating. Given that you’re looking at this ecosystem more holistically now, are there gaps you perceive in the ecosystem that others can help supplement?

DK: Oh, god yeah. There’s this wrong belief that now that clean energy’s got some poster children that have been successful and have made it public and disrupted some categories like private vehicles that it’s inevitable that we will succeed in time. But that’s not true at all. We’re talking about a trillion dollar value creation story annually for the next 20 years. We need hundreds and thousands of highly successful companies, from entrepreneurs working in niche segments to entrepreneurs working on broad electrification. 100% renewable energy is not going to be done by a couple businesses out of California that expand their models to Africa. It’s going to be carried forward by African entrepreneurs. The future of the energy demand in the massive new urban realities in Asia—these mega-cities in India, China, Indonesia, and elsewhere—how will their needs be met in a uniquely local and specific way? Leveraging learnings and technologies from afar no doubt, but the distributed nature of renewable energy suggests that it’s going to be accomplished through a combination of ideas, and those are going to come not just from people in Palo Alto. We need to find and fund many more entrepreneurs.

There are big human capital gaps, as well as massive financial capital gaps. Emerging markets get no joy, even though that’s where the work is. Early stage gets very little investment these days, as you know, because investors prefer to do project finance now that they’ve kind of got their heads around wind and solar farms. We still need to do a lot more in different segments, whether that be community solar in America or off-grid in developing countries. Or diesel displacement, which can be very lucrative and great investments, but for other reasons people don’t want to make them, like presumptions or prejudices they have about those markets. There are also major policy gaps, which is why I’ve joined the board of Power For All, a campaign to bring distributed renewables to the 25 countries in the world with the least electricity by 2025.

Lessons Learned & Advice for Entrepreneurs

RM: What advice would you give to an entrepreneur? Given that you witnessed and helped drive the founding of the first generation of solar startups, at least in the states, what is the one thing that you take from that experience that you think is broadly applicable to other founders?

DK: The one thing? Oh, I’ve got lots of lessons. If just one, I would say pick your investors carefully so you can control your own destiny. That’s one of many, if I had to choose just one for other founders. Another is plan for the long haul. Beware this is going to go all kinds of crazy…

RM:  Has your time in CalCEF working more broadly on the clean energy ecosystem, instead of just residential solar, lent additional perspective on the solar industry? For instance, at kWh we look at CoreLogic and say, “Ah, that’s how mortgages are financed, therefore solar must eventually look more like this, and this is how we should think about the data infrastructure for our industry.”

DK: Yes, because so much of solar is about the financing of solar—which now involves a lot of your data and statistical insights—I think the microfinance experience is very relevant to the solar industry as it goes forward, again, in the emerging markets. It sounds obvious, but it has not happened yet.

RM: That’s surprising. What’s the gap there? I would assume if you’re doing microfinance, I would assume you could make the argument very easily for why solar-powered light allows someone in the BOP (“Bottom Of Pyramid”) to be more productive in the evening, which would enable loan repayment.

DK: I just don’t think we’ve gotten there yet. We’re talking about hundreds of millions of people who lack basic services like electric lighting. So, those entrepreneurs that are there are still using the most expensive type of money there is—equity, like we did for early establishment of US residential solar—to do solar as a service. Mainstream microfinance reaches hundreds of millions of people today, which required a system of controls to be built at the village-level. I think solar will follow this path, to create a de-centralized market of electricity of the future.

Call to Action

RM: Everything I’ve ever read or heard you say points to an underlying theme of people as entrepreneurs, as agents of change. You identified entrepreneurs as activists and talk of social movements that are leading the solar revolution. This hopeful picture stands in stark contrast to the brutal “solar coaster” we live on. I think the people in our industry are actually feeling quite depressed right now, even though our numbers on deployment and costs have never been better. What would you want to say to the people working in solar?

DK: I think you’re right on. Solar has been so wildly successful on important measures like $/kWh—but this is not the same as profitability. I would say my recommendation is people should take care of one another. And particularly, to bring up leaders to step into our shoes, follow in our footsteps. This is a long haul. And I think you’re right—at Sungevity, we were one of the vanguards to modernize solar, rode the wave as it crested. Kind of like Netscape for the internet. [Laughter] It was a necessary precedent to Google Chrome, Mozilla’s Firefox, and all sorts of newer and better ways of doing it. And those people doing that work needed to be supported by the people before them. Leadership development, mentoring, investing in young upstarts. And diversifying that leadership. Because if our movement is not inclusive of women and minorities locally and internationally, and if we just become tech bros, we don’t go global and we don’t achieve the climate justice that we’re meant to be about.