Norton Rose Fulbright Project Finance Newswire: Overestimation of solar output

Originally posted in Norton Rose Fulbright’s Project Finance Newswire.

The solar industry has anecdotally begun raising concerns about whether solar power plants are underperforming compared to their P50 output forecasts.

What began as hushed conversations at industry conferences is now widely discussed and analyzed. Individual engineering firms and asset owners are beginning to review their portfolios to assess whether or not their original P50 forecasts were accurate.

DNV GL published a piece in the annual “Solar Risk Assessment” report identifying a 3% to 5% overestimation bias in P50 forecasts, even after adjusting for weather. NextEra published a technical discovery around biases in hourly-resolution energy predictions that overestimate solar resource availability. Behind closed doors, asset owners will also acknowledge struggles to hit P50 figures as consistently as the definition attributes.

Diving Deeper

Under a P50 forecast, a project is supposed to have a 50% chance of performing at least as forecast. This figure is the base case for the project and is generally the most optimistic projection used in financings. Financiers also run sensitivities by looking at other forecasts — for example, P99 and P90 — as well. A project should have a 99% chance of performing at least at the P99 forecast, if not better.

Generating a production estimate integrates weather forecasting and equipment performance expectations into complex physics models. As with any technical model, results vary based on the assumptions used.

kWh Analytics collaborated with 10 of the top 15 asset owners in the United States to conduct the industry’s largest cross-sectional energy validation study, quantifying the accuracy — or inaccuracy — of solar projects’ P50 estimate. We looked at data from 30% of the operating utility-scale and distributed solar capacity. The results are reported in an inaugural “2020 Solar Generation Index” report.

Projects on average underperformed by 6.3%, even after adjusting for weather.

This means that actual performance of the US solar fleet is closer to P90 expectations than the P50 definition used by project stakeholders.

 It is important to note that while 6.3% underperformance is the average, there is a wide distribution that highlights significant variability among projects. In the bottom quartile, projects are falling more than 10% below forecast while the top quartile performers are meeting their P50 expectations. As a result, we can see that each project is indeed unique, even if the general trend points towards a 6.3% bias.

The issue of energy estimation is not unique to solar. The wind industry similarly struggled to align lenders, owners and operators on expectations around energy output and is still developing tools to address accuracy and biases.

Implications for Shareholders

If unaddressed for solar, systemic asset underperformance can have serious implications for the equity holder cash flows, investor returns and the long-term financeability and credibility of solar as an asset class.

The impacts are discernible from day 1 of operation.

For an equity investor or sponsor who sits last in line behind the tax equity and debt, P90 performance realities mean equity cash yields are cut in half for the life of the asset. For lenders, given the prevalence of P90 scenarios, underproduction poses a risk to debt coverage.

As a risk management company that enables insurers to provide all-risk production coverage to solar assets, kWh Analytics is also observing this trend firsthand through claims against a “solar revenue put” product that actual output will be at least at a guaranteed level. (For more information about solar revenue puts, see “New product: solar revenue puts” in the October 2016 NewsWire.)

To date, insurers have continued to pay all claims in full within 30 days and remain committed to providing sponsors with credit-enhancing insurance products.

However, if unaddressed, inaccurate production estimates and return uncertainty will have long-term consequences for the solar industry.

Every major asset class leverages market data to improve the accuracy and certainty of investment returns. If we look at other mature asset classes like consumer credit or mortgages, companies like Experian and CoreLogic exist to provide market data to validate asset performance and modeling assumptions for investors. Solar is at an inflection point now where we have more than a decade of asset performance data that can be leveraged to inform diligence and improve operating assumptions.

kWh Analytics is using its industry database to offer objective market comparables to evaluate expected yield and performance estimates for pre-construction and operating plants. This new offering, the Solar Technology Asset Risk (STAR) Comparables Report, equips deal teams with historic performance of similar plants to help evaluate performance and financial risk of their projects. In addition, it has helped asset management teams contextualize their portfolio’s performance against projects in the field to improve O&M and asset management strategies.

The solar industry has generated the data required to improve the forecasts. The next step is to leverage that data in investment decisions.

KWh Analytics study suggests US solar fleet underperforming

Originally posted on S&P Platts.

A study of approximately 30% of utility-scale and commercial and industrial solar generation operating in the US between 2016 and 2019 showed the average system underperforming by 6.3% compared to what the performance was expected to be during financing, according to solar risk management company kWh Analytics.

The San Francisco-based consulting firm noted that reliable production forecasts "are the cornerstone to solar financeability." The report said 30% of the fleet that was studied, "a quarter of the projects missed their production targets by over 10%, even after weather-adjustment."

"Fundamentally, it is our hope that this report serves as a platform to discuss the data-driven approaches to inform deployment of capital,"said Richard Matsui, CEO of kWh Analytics, in a statement accompanying the report.

The kWh Analytics report is titled "2020 Solar Generation Index," and was released Oct. 5. It noted that every asset class is governed by market cycles and modeling assumptions, and those assumptions "naturally swing between optimism and conservatism."

There is "optimism that naturally emerges from market growth [that] can inadvertently undermine the long-term stability of the industry as a whole."

The solar asset class has now generated a decade of actual data, kWh Analytics said, that can be used to guide sustainable growth, and some of the data "affirms positive attributes."

But some of the data also reveals "that we have collectively turned a blind eye to realities of solar asset performance," the report said.

P50 expectations

The consulting firm said its study was a "coordinated initiative" with 10 of the 15 largest asset owners in the US.

"Combining the contributed data and kWh Analytics' HelioStats database, this analysis encompassed over 30% of the industry's non-residential solar projects across more than 30 different asset owners," the report said.

It said that all projects analyzed were larger than 1 MW in DC capacity.

The analysis compared data relative to P50 expectations. The P50 estimate is a statistical measure that indicates the base case of predicted energy yield.

"P50 expectations were degraded annually based on the annual degradation factor assumed by the asset owner," the report said. "The results do not incorporate system losses due to utility curtailment."

Stakeholders in a project can be "financially motivated" to increase production estimates, as it is directly correlated to the amount of capital that can be raised. Moreover, developers may be concerned about the near-term impact on solar asset valuations resulting from adjusted P50 estimates.

The analytics group said it believes a "course correction" will enable the solar industry "to continue the structural trend of lower-cost capital entering into the industry."

Real-world data

The report contends that most in the solar industry have used the same software tools and engineering firms to generate production estimates.

"The lack of accepted standards means that production forecasts can vary dramatically depending on who is running the model," it said.

Until now, data has been unavailable to validate production forecasts with real-world operating data at scale, the report said.

"This research highlights the need to bring this real-world data into the project evaluation process to meet investment return expectations," Matsui said.

Predicting energy yields for generation sites did not begin with solar: other generating assets like natural gas and wind also rely on modeling by engineering firms to assess energy yield potential.

"When lenders began doing their due diligence on solar projects, they often borrowed the same 'playbook' to model their exposure and return expectations off of predicted production estimates," Hao Shen, head of data products at kWh Analytics, said in an interview Oct. 7.

"What started as the concerns of a few asset managers has evolved to be the topic du jour at conferences and in the boardroom," Shen contends. "However, these conversations to date have largely been based on anecdotal evidence from single projects or portfolios."

kWh Analytics launches tool to address optimistic pricing, underperformance in solar projects

Originally posted on pv magazine USA and pv magazine International.

kWh Analytics is introducing a new tool to address the solar industry’s systemic overestimation bias and accelerate the adoption of a more data-driven approach to arriving at production estimates.

Finding a way to address and correct the industry-wide bias toward optimistic performance expectations is important because accurate production estimates are a key ingredient to the financeability and growth of the sector, said Hao Shen, director and head of data products at kWh Analytics.

On a weather-adjusted basis, solar assets underperformed their target production on average by 6.3% between 2016 and 2019, according to a recent report by kWh Analytics. One-quarter of projects studied by the company missed their production targets by more than 10%, after accounting for weather.

Production estimates factor into the market valuation of a solar system and the financial models underpinning a solar power plant’s economics, but until now asset owners have not had access to data that could contextualize their portfolio’s performance, kWh Analytics said.

According to Shen, the use of market data to improve the financeability of an asset is an inevitable step in the maturation of the asset class, and kWh’s Solar Technology Asset Report (STAR) Comp took aims to address this gap for solar.

Popular content

Using its STAR Comps, asset owners and investors can input their metadata and receive objective performance yield, weather and loss assumption metrics reports that show how a solar asset stacks up relative to a peer set of comparable industry systems, Shen said.

The solar industry needs these types of risk management tools now because its continued success depends on its ability to reliably deliver the results that it promises to investors, he added.

“The use of objective market data will force accuracy,” said Jigar Shah, co-founder and president of Generate Capital.

In June, kWh Analytics likened the solar industry’s bias toward overly optimistic pricing to the big three credit rating agencies’ pre-financial crisis, saying that the independent engineers that are hired by solar developers to give solar production estimates have an inherent profit motive for giving aggressive projections. At that time, it said that investors needed to take a step back and adjust to the reality that unreliable energy estimates have been baked into projections.

Norton Rose Fulbright Currents Ep123: 2020 Solar Generation Index

Available on Norton Rose Fulbright.

“In Episode 123, Richard Matsui, CEO and founder of kWh Analytics, joins us to unpack a new kWh study that found US utility-scale solar projects are underperforming P50 production estimates on average by 6.3%.”

kWh Analytics Releases 2020 Solar Generation Index and Issues First STAR Comps Reports to Address Biases in Solar Production Estimates

Originally posted on BusinessWire.

SAN FRANCISCO – kWh Analytics, the market leader in solar risk management, today released the “2020 Solar Generation Index” (SGI) in collaboration with ten of the industry’s fifteen largest solar asset owners. In parallel, the company announced that it issued the industry’s first Solar Technology Asset Risk (STAR) Comps reports with leading sponsors and asset owners, including New Energy Solar and Captona, to use industry data to validate solar production estimates on more than 1GW of solar assets.

The 2020 SGI report is the largest industry-wide energy validation study. The report analyzed over 30% of the market’s non-residential systems in the U.S. and found that on average, systems underperformed their initial estimates by 6.3% on a weather-adjusted basis. The report concluded that performance estimates are systemically over-estimated and that assets are often not yielding the expected returns.

Every mature asset class requires market data to improve the accuracy and certainty of investment returns. To address this need, kWh Analytics released the STAR Comps reports to provide an objective standard to assess solar performance for solar asset investors.

STAR Comps leverages the industry’s largest database of solar performance to validate or invalidate performance estimates and loss assumptions for similarly designed systems. The STAR Comps report supports deal teams by improving efficiency and accuracy of asset diligence for projects under construction or under consideration for M&A. It also provides asset managers with context on asset performance to identify addressable versus exogenous performance issues.

“The STAR products are an innovative set of tools that combine analytics and industry data to offer unique insight into our systems' performance. Our asset management team can now validate and contextualize what we see in the field with industry metrics and more accurate weather analytics to inform our O&M strategies,” said Paul Whitacre, Director of Asset Management at New Energy Solar Manager.

“kWh Analytics has data on production results that were previously 'best guess' estimates. It was only a matter of time that we began using market data to validate those numbers,” said Captona Founder and Partner Izzet Bensusan. “The STAR Comps product helps bridge the gap between the Independent Engineer reports and actual performance of projects and provides insight into what we can expect as the future owner and operator of a project.”

“Although underperformance impacts multiple stakeholders, the long-term equity investors are the most exposed to inaccurate energy forecasts. Change won’t happen on its own. It is up to us as an industry to collectively allow hard data to overcome opinions, however well-intended,” said kWh Analytics CEO and Founder Richard Matsui. “We look forward to the shared work of improving our solar industry and accelerating the clean energy transition.”

Equipped with objective data and comparables through STAR, the solar industry can course correct and improve accuracy and certainty of its investment returns. 

###

Learn More about us: www.kwhanalytics.com & https://www.kwhanalytics.com/star 

Follow Us at: @kwhanalytics

Media Contact:

Sarah Matsui

sarah.matsui@kwhanalytics.com 

About Solar Technology Asset Risk (STAR) Comps

kWh Analytics leverages the industry’s largest database of solar assets (>30% of the U.S. installed base) to develop representative market comps and objective metrics to benchmark system performance, weather factors, and underlying loss assumptions against your development or operating asset.

About kWh Analytics       

kWh Analytics is the market leader in solar risk management. By leveraging the most comprehensive performance database of solar projects in the United States (30% of the U.S. market) and the strength of the global insurance markets, kWh Analytics’ customers are able to minimize risk and increase equity returns of their projects or portfolios. kWh Analytics also provides HelioStats risk management software to leading project finance investors in the solar market. kWh Analytics is backed by private venture capital and the US Department of Energy.

About New Energy Solar

New Energy Solar was established in November 2015 to invest in a diversified portfolio of solar assets across the globe and help investors benefit from the global shift to renewable energy. The Business acquires large scale solar power plants with long term contracted power purchase agreements. In addition to attractive financial returns, this strategy generates significant positive environmental impacts for investors. Since establishment, New Energy Solar has raised over A$500 million of equity, acquired a portfolio of world-class solar power plants. The Investment Manager, New Energy Solar Manager Pty Ltd, has a deep pipeline of opportunities primarily across the United States and Australia.

About Captona

Captona is a North America-focused investment company specializing in power generation and energy infrastructure assets. The Firm seeks to acquire operating and development assets within the North American power sector and aims to create value through technical and financial restructuring.

#Solar100's Jigar Shah and Van Skilling on The Evolution of The Solar Asset Class

Originally posted on Greentech Media. In this special edition #Solar100, Founder and CEO of kWh Analytics Richard Matsui speaks with Co-Founder and President of Generate Capital Jigar Shah and Former CEO of Experian and Chairman of CoreLogic Van Skilling on the future of the solar industry.

The solar industry continues to grow, even in these unprecedented times. In addition to being a source of nearly 250,000 jobs in America and a systemic response to climate change, solar is also a growing, maturing asset class.

In this special edition #Solar100, solar expert Jigar Shah and data expert Van Skilling meet to discuss the evolution of solar as an asset class

As the Founder and CEO of SunEdison, Jigar Shah unlocked a multi-billion-dollar solar market. He has led a number of the industry’s firsts, including hiring the first Independent Engineer for solar and pioneering “no money down solar.” He’s known as both an expert and as well as an influencer of solar’s history.

As the former CEO of Experian and Chairman of CoreLogic, Van Skilling has overseen the growth of industries ranging from consumer credit to home mortgages. He’s become the expert on all things asset class evolution.

Bringing their respective areas of expertise to bear, Shah and Skilling contextualize solar’s past and present, identify solar’s parallels with other investment asset classes, and forecast the future of the solar industry.

—

Looking Back: The Early Days of Solar as an Asset Class

Richard Matsui: I am excited to be joined today by Jigar Shah and Van Skilling, both titans 

in their respective industries. Our company happens to be at the intersection of both asset classes, solar as well as consumer credit, and in this interview we’re inviting Jigar and Van to contextualize and lend insight into our industry’s past, present, and future.

Jigar, this first question on solar’s history is for you. We, alongside ten other solar firms, published this year's Solar Risk Assessment to share quantitative data on qualitative trends we’re seeing in the industry. Contributors included industry leaders Wood Mackenzie Power & Renewables and NextEra. A big headline-grabber this year: DNV GL reported that solar assets nowadays are underperforming by 5.4%, on average, even after adjusting for weather. In the early days of solar, solar was constantly overperforming estimates. Is this a trend you’re seeing in the industry as well, and can you help contextualize this?

Jigar Shah: Yes, and it's a natural phenomenon. When you think about where solar was in 2010, people were getting loan guarantees or being forced to sell their projects to Warren Buffett at highway robbery costs. Then in 2012 people started saying, "How about we make this more efficient?" Then the Chinese solar tariffs came in, and people began to ask, "Where do I flex to make my numbers work?”

Solar developers started shopping around for Independent Engineer reports, in an attempt to get a better fair market valuation and more tax equity. Every variable adjusted in the model was a couple basis points, then a couple more basis points, and so on.

Now that time has passed, I think people are going back through the data and realizing, "Hey, these estimates weren’t true. This valuation wasn't real, and now it's time for a correction." I don't think this course correction is going to kill anybody, though I think some of the returns will be lower for some of the equity holders.

The bottom line is, as an industry, I think that we can do better and we should do better. 

Richard Matsui: Let’s turn back the clock to the first deals you were financing with SunEdison—did this industry always use IEs? How did technical questions get solved in early deals? 

Jigar Shah: At SunEdison, we hired the first IE for solar. I remember we signed a deal with Goldman Sachs in 2005, and Goldman asked us, "Who are you going to use for an IE?" So I went out to the most skeptical solar people that I knew, and I hired them. And they gave me a crappy report that said it would generate 8% less than we all thought. Goldman and SunEdison financed the project using the IE’s estimates.

We were extremely conservative in the early days. We sold a lot of those projects to Wells Fargo in 2007. Today, most of those Wells Fargo projects outperform by about 6-8%. In terms of production, we swept the excess cash so it was a good deal all around. Terms got tighter and tighter after that, but we were forced to be pretty conservative in the early days of solar. 

Richard Matsui: You’ve summarized it well—any incentive structure guides behavior. Lenders, tax equity, and the entire financing edifice rely on IEs for production estimates. These production estimates come from IEs that are hired by either the sell-side or buy-side developer who have a profit incentive to see a certain number from these IEs. When you talk to the IEs with the mics off at a bar at SPI, they'll tell you that they're all competing with thirty other IEs for business, and that there's a very clear outcome that their client is trying to achieve. A prominent solar developer told me that for every large project they sell, they'll hire five different IEs to provide production estimates, and then they're going to pick the highest number. From a pure cost-benefit analysis, you can’t refute the strategy to pay $10,000 for each IE estimate, because they can get a higher P50 that translates to millions in the asset sale price. And over time, there’s a resulting drift in P50s as you said with -- “a couple basis points here, a couple basic points there; turning the soiling knob here, turning the shading knob there.”

It seems IEs haven't seen an end in sight because the industry just continues to push further and further in this direction. How does that line up with you? 

Jigar Shah: The buy-side is into this trend, too. A lot of players on the buy-side actually really wanted the volume and were willing to compete for it. Remember these were funds making fees. They didn't really care about what the LP returns were. 

It is the same in solar; the whole dynamic with IEs was basically the blind leading the blind. But as an industry, we've got another trillion dollars of solar to put to work over the next six years. It's time to course correct, address the problem of incentivized over-estimates, and make sure that everyone gets a more fair deal going forward. 

Richard Matsui: Right. All that behavior between IEs and developers is rational, but it's fundamentally changed the role IEs play; in practice, IEs are now hired to help the buyer or seller to achieve a better asset valuation. This reminds me of the role that lawyers play in the American legal system: Both sides hire lawyers not to find an objective truth, but to argue their respective strongest case. This is sensible in the subjective world of justice, but this is engineering, not philosophy. What do you see as the trajectory of this market incentive structure and its implications? 

Jigar Shah: Well, we're going to fix it now. When a report like the Solar Risk Assessment comes out, and the bosses of the people who had to put money out the door for projects read it, the bosses are going to confront this behavior and say, "Hey, let's stop doing that crap. As we go into the next phase of growth we have to do better.”

The reason our industry is in a good place is because it's inevitable that the industry begins using market data to shine a spotlight on the excesses and biases. With companies like kWh Analytics publishing these insights, we can then fix those estimates. 

It’s also an opportunity to realign the role of market participants and allow them to focus on their areas of expertise; IEs providing technical assessments and not solely relied on for financial estimates.

Van Skilling: Jigar, that realignment reminds me of how home inspectors and appraisers operate in tandem in real estate. Home valuations still leverage technical expertise, but appraisers and now databases like Zillow can help supplement with valuations data using market comps. 

Moving Forward: The Maturation of Solar as an Asset Class

Richard Matsui: Solar is still a relatively young industry. Van, when you look at the evolution of other asset classes, do you see any parallels? 

Van Skilling: I certainly do. Let’s look at an industry I’m very familiar with: consumer credit. Today, consumer debt drives the U.S. economy. And the fuel for that consumer debt is the consumer credit data, which allows the debt to be incurred and repaid.

Ten years from now, I both hope and expect solar, as a growing source of clean energy, to be our largest source of energy. So having the data to support that growth and to allow it, I think, is very important. 

Credit has been around for thousands of years, but it's really a relatively new business. Credit as we know it now was actually started in the 1930s by Sears, who was the Amazon of their time. A substantial number of houses in America had a Sears catalog, and you ordered whatever you needed from the Sears catalog. And so Sears kept credit records of their own customers.

As an industry, credit really didn't take off until 1950 when Diners Club came up with a credit card. With that success came other credit card companies: American Express, VISA, and MasterCard . These were credit companies, but they maintained their information on pieces of paper in these high-tech devices called Rolodexes, and they communicated between their offices by telephone.

In late 1960, one of the founders of TRW, which became Experian, said, "There's going to be a cashless society that captures data on computers. And we know more about using computers for data than anybody else. So we have to get into this business."

As a result, TRW, now called Experian, introduced computerization and data aggregation into a business that improved accuracy and efficiency in credit underwriting. This evolution in credit was inevitable given the availability of data in the market. And I think you're going to see a similar evolution in solar, where the use of data is going to make solar financing better, easier, faster and more reliable. 

Richard Matsui: You’ve pointed out an interesting parallel. To expand on that, today everyone knows what a FICO score is-- a universal market comp for lenders and consumers to assess credit risk. Obviously, there's a time when FICO scores didn't even exist. What was the inflection point that enabled TRW / Experian to gain market adoption and create that standard of comparables to the rest of the market?

Van Skilling: For context, FICO depends on Experian’s data for their model—FICO’s model relies on consumer credit database. FICO scores are universally accepted today, but that wasn’t always the case. What precipitated that change was that all credit investors found that it was in their best interest to contribute their information to the credit bureaus. The more information there was about the individual, the better credit records they could maintain. This enabled a source of truth for market participants to rely on and improved underwriting.

Prior to recognizing the value of contributing data, the consumer credit industry looked similar to the solar industry today, in the sense that each investor largely kept their own records of their assets in-house. If they shared those records, it was only shared on a local or regional basis. So each investor was dependent on a very narrow database to be making your decisions. Consumer credit hit an inflection point in the 90s when stakeholders realized they could improve efficiency and accuracy by granting data access to a database that they could use for finding new customers as well as maintaining their own customer base. Combined with computerization, the database became global. Now virtually everybody uses a FICO score, which is based on consumer credit data.

Jigar, going back to your earlier point about use of data, it sounds like you think solar will undergo a similar inflection point to use market data to fix inefficiencies?

Jigar Shah: Right, I think data will inevitably get reported, the truth will come out, and smart money will demand better. That ball has already started rolling because there's actually a dataset out there. kWh Analytics has a dataset. And there are others who have a dataset. So at some point, use of objective market data will be fully normalized. And to the extent that estimates deviate from that normalization, the buyer side will expose it very quickly, because they're going to say, "Well, the last three deals done nearby had X in their IE report so how is it that you think that your system's going to produce 6% more?" That level of transparency will force accuracy.

Then the fight will be over the next generation of tracking software or panel technology improvement. And frankly, we want to keep encouraging that level of innovation. 

It's constantly a cat and mouse game, but my sense is that the deviation will be lower over time. So instead of a 5% deviation, as we found this time, my sense is that deviation in the future will be 1% or a half percent. And I think that that means that there'll be a little bit more comfort within the financial soundness of the system. 

The people getting screwed now are very sophisticated equity investors who should know better, and what data they're using. So if they are not reading your market reports or listening to the Currents podcast or figuring out how to educate themselves, then shame on them. 

Richard Matsui: Fascinating. You’re right—as an industry, we have the tools to course correct and guide the evolution of solar. It is up to us to take that step forward.

World Bank Report ‘Enabling Institutional Investment in Climate Smart Infrastructure’

Full report available on The World Bank.

A new World Bank report on renewable investment and climate change, "Enabling Institutional Investment in Climate Smart Infrastructure," highlights the Solar Revenue Put in a case study on refinancing on better terms.

“Refinancing and securitization can create opportunities not only for lenders to free up capital so that they can finance additional greenfield projects, but also to create ways for institutional investors who may lack the capacity or ability to invest directly in projects that support climate-smart infrastructure. New financial products can help further unlock value when used to refinance climate-smart infrastructure (kWh Analytics 2019).”

Norton Rose Fulbright Currents Ep112: Solar Risk Assessment Report 2020

Available on Norton Rose Fulbright or Apple Podcasts.

“In Episode 112, Richard Matsui, CEO and co-founder of kWh Analytics, and Dana Olson, solar segment leader at DNV GL, are back to discuss the second annual "Solar Risk Assessment" report in which they, along with industry experts from nine other companies, share their quantitative insights on solar production risk. We get into the trends that are being seen in the market, the underperformance that is being found, what is causing it and much more. "

Bank of America on Utility-scale solar: Trending a bit below output expectations?

Originally posted on Bank of America by Research Analyst Julien Dumoulin-Smith.

Key takeaways

• We recently hosted a conference call to breakdown trends on utility-scale solar asset under-performance: why & where?

• In among the first most meaningful studies of US trends, under-performance driven by factors incl short-term shading

• 3% underperformance overall, but when excluding 1st year of ops underperformance is 1.7%: compounding effect on equity FCF

Latest takeaways on utility-scale solar production trends

We recently hosted a conference call with Richard Matsui, CEO of solar risk management company kWh Analytics, and Dana Olson, Global Solar Head of independent engineering certification accreditor DNV GL. Discussions emphasized key takeaways from their recent joint Solar Risk Assessment (SRA) '20, which stressed wider under-performance of solar assets relative to anticipated levels than previously contemplated. This follows an even more pervasive trend of over-estimation of output in the wind industry. Notably, thus far there has been limited data to measure this trend holistically in solar and the latest study represents input from among the largest incl NEE.

Solar production underperforming initial assessments

With the latest SRA '20 report, kWh Analytics highlights trends indicating utility-scale solar assets critically underperforming modest energy production expectations. Across its data set of 300K+ operating solar projects in the US (~20% of the US solar assets installed), kWh Analytics found that P90 production downside scenarios actually occur around a 1-in-3 year probability (rather than 1-in-10), with P90 scenarios of initial independent engineer assessment forecasts actually closer to P50 scenarios. Discussions emphasized rather than underlying asset underperformance, trends could also well be driven by production overestimates in independent engineer (IE) forecasts, with project developers often consulting multiples IEs with production estimates varying by ~3%. Similarly around production trends, DNV highlighted that based on 39 projects (~1.2GW) that it had conducted the initial pre-construction assessment for as the IE, it found ~3% weather adjusted under-performance for energy yield (based on EIA operational data) relative to its initial expectations. That said, DNV notes that a meaningful portion of the underperformance is driven by initial start-up issues for projects, with underperformance dropping to ~1.7% when removing the first year of operations. We emphasize this as a meaningful read-through to our YieldCo coverage, with CAFD underperformance often attributed to poor renewables resource, with potentially overestimating underlying energy yield, with cash impacts exacerbated by fixed associated project O&M expenses. Indeed discussions emphasized a need for project sponsors to scrutinize underlying assumptions for solar production estimates from developers given the meaningful impact of lower revenues to associated cash flows back to sponsor equity and project returns, particularly given tight return profiles and competitive cost of capital for assets.

Inverter availability a key driver of non-weather loss

Additionally, discussions highlighted that analyzing a 3GW fleet of utility-scale assets showed inverter availability of ~97%, relative to 99% availability assumed in production estimates, driving production underperformance relative to expectations. Inverters are highlighted as responsible for ~80% of non-weather production loss across the fleet. Further, discussions emphasized varying quality across inverter OEMs (of 12 within portfolio, with top performing OEM's inverters having 99% availability relative to worst-performing at 94% availability). Further exacerbating inverter availability issues, discussions noted inverter OEMs often require inverters to be serviced by the OEM rather than asset owner given potential warranty issues, though owners often carry spares.

#Solar100’s Brad Bauer: The Captain James T. Kirk of Solar Finance

Originally posted in Greentech Media. In this #Solar100 interview, Richard Matsui, Founder and CEO of kWh Analytics, speaks with Brad Bauer, Co-Founder and Partner of Lacuna Sustainable Investments.

As one of the first investors in the U.S. solar market, Brad Bauer’s led teams to “boldly go where no one has gone before.” In his fifteen years working in renewables, Bauer co-founded one of the industry's first private "YieldCos", raised nearly a billion dollars for one of solar's brightest burning stars, and started a new company built on the lessons learned from the last one.

In this #Solar100 interview, Bauer discusses lessons learned from Cypress Creek, the evolving market structure of the solar industry, and the future of development capital.

---

STARTING IN RENEWABLES

Richard Matsui: You majored in political science and economics, got your JD, then started your career at KPMG focusing on M&A. When did you first decide to work in renewables?

Brad Bauer: I actually started out working at a law firm in Boston then tagged along with my then-girlfriend now wife when she finished school and started practicing in San Francisco. I wasn’t enamored with practicing law—it certainly wasn’t something I wanted to do for the rest of my life. So I joined KPMG, one of the Big Four accounting firms and was admitted to the partnership a few years later.

KPMG was a really incredible place, as it gave me the opportunity to build a proactive practice focused on increasing project returns and corporate profitability and afforded me the opportunity to work with large company CFOs and Board directors at a really young age. I realized what I enjoyed most about my work was the creativity required to advise sponsors and investors on project based transactions. I didn’t work on any solar projects at KPMG but was involved in what were, at the time, some good-sized wind transactions. I left KPMG thinking solar had many of the attributes that made wind attractive and thought I’d have a chance to use what I’d learned and the relationships I’d built in solar.

After leaving KPMG I co-founded MP2 Capital, which was one of the first equity investors in U.S. solar assets. There I had the opportunity to partner with Mark Lerdal, a brilliant lawyer and executive, not to mention a great person and Jeffrey Glavan. We weathered the global financial crisis and developed a good sized portfolio of operating assets that we sold-off in a piecemeal fashion throughout 2014 and 2015.

Following that, I took a year off before joining Cypress Creek Renewables, where I was the Chief Capital Markets Officer and a member of the Board of Directors. While there we raised $450 million of corporate debt and another $300 million of equity.

I left Cypress last summer and formed Lacuna Sustainable Investments with Patrick McConnell and David Riester. We closed our fund in March of this year.

CYPRESS CREEK: THE THESIS, THE WHIPSAW, AND THE LESSONS LEARNED

Richard Matsui: I’d love to hear your experience of Cypress Creek, starting with the early days of the startup and its thesis.

Brad Bauer: What made Cypress unique was the identified opportunity to build solar at scale, quickly. We sold MP2 Capital because we didn’t see a path to scale without a great deal of third-party capital and resulting loss of control. Cypress, on the other hand, invested in a nascent market that evolved into a fantastic market, and used the resulting development investments as collateral for its initial corporate facility. As the development investments matured the company was able to borrow more money, which fueled additional investment. The market, of course, was North Carolina, where the combination of the public utility commission’s implementation of PURPA, the North Carolina state tax credit, the federal tax credit, and to a more limited extent, the state RPS and property tax abatement, created the market. In many ways, North Carolina was the perfect opportunity, not only did you have the financial characteristics just mentioned but you also had plenty of inexpensive land, clear interconnection and entitlement processes and reasonable labor costs. The speed at which equipment prices dropped didn’t hurt either.

All this allowed Cypress to acquire, build, and finance a large number amount of assets in a short period of time. It was uniquely exciting and yet unsustainable opportunity, with an unbelievably talented group of people motivated to do great things. 

Richard Matsui: As Cypress grew its headcount to 400+ people, everyone in the industry was talking about Cypress. Invariably the conversation would involve some version of, “Wow, that is incredibly aggressive growth,” followed immediately by, “But the team there is really strong.” I’m not a project developer myself so I can’t assess development skill, but I do closely observe reputations. Despite having such a strong team, things didn’t go to plan. What happened? 

Brad Bauer: Ultimately, Cypress developing at scale outside of North Carolina, while managing the growing cost structure, was problematic. And saying Cypress was a pure greenfield developer is a bit of a misnomer. While there was some early-stage development at work, Cypress had access to capital (corporate and project level) and went out and acquired projects from local developers at a pace and volume tacked to maximum use of available capital. The sheer number of acquisitions and the resulting need to move a large number of small projects through the system led the company to build an army of people focused on all aspects of design, engineering, construction and financing. And for a time, it worked when the market was lucrative and conditions relatively static. Unfortunately, value is ultimately determined at the company, rather than project level, and if your cost of production exceeds the value of what you have produced, well, that’s not a good thing.

The board dynamic was tough as the equity chose growth over value creation, the lenders took a laissez faire approach based on their underwriting of asset values and both decided to ignore the reality that the North Carolina market was unique and unlikely replicable elsewhere. As it turned out, the North Carolina market changed for the worse, new markets did not develop, asset valuations were overly optimistic and the company could not keep up with the constant need for capital. As a result, the company’s lenders became the equity and have spent the past couple years in the market looking for answers.

Cypress’s cost structure wasn’t that of a successful developer. It was structured more along the lines of a manufacturer with disparate groups tasked with moving a large number of small projects through design, engineering, construction and financing. Definitely not the sort of lean, value creation focus one sees in a successful developer. While we did raise some preferred equity late in the life-cycle, for most of its existing the company was funded almost entirely with debt, and a lot of it. To service the debt, it had to maintain a constant velocity and volume of projects that would generate a projected value. Overly optimistic assumptions as to development timelines, MWs or project values create massive problems when you have high SG&A and quarterly interest obligations.  If the sale market slows, a market doesn’t materialize or financing assumptions decline, the only way to meet your fixed and variable cost demands is to raise additional capital.  As these things occurred, the company  needed more, and more, and more money. But absent  profits or value creation this became an uphill battle. Development takes time and valuation is dynamic. So if you’re not able to build as many assets as you thought as quickly as you thought, and they don’t have as much value as you thought, it’s a whipsaw. You’re in trouble. 

Richard Matsui: You seem to be pointing out two sides of the same coin—the aggression is what enabled Cypress to have that scale of impact, but it also created some structural challenges. When you take a step back, what lessons do you draw from that?  Because in the end it’s not as simple as, “Don’t be aggressive,” right? 

Brad Bauer: Absolutely. Lesson number one: Profitability, value creation, and liquidity are absolutely necessary for long-term success.  If you’re not profitable or if you’re not creating value you are not going to have access to the cash you need for very long, And without it you are not going to survive.  

Lesson number two: Even a great culture needs a strategy. Cypress had an incredible group of extraordinary professionals focused on doing great things. A really great culture.

Lesson number three: Just because someone is willing to loan you money doesn’t mean you should take it.

Lesson number four: Owning assets isn’t for everyone.  If you think it is for you, you need to know what you’re trying to accomplish. Why do you want to own the asset? Can you afford to own the asset? What are you going to do with the asset? Are you the best, cheapest, owner of the asset? Is ownership the highest and best use of you limited resources?

Lesson number five: People who don’t prepare for a rainy day just haven’t been around solar long enough. This goes to capital structure. Make sure you are capitalized such that you can thrive in good times and survive the rocky ones. And choose the right partners.

Ultimately, you’ve got to focus on your “bottom line”; take actions consistent with your short and long-term goals; make sure if you take other people’s money you have a good use for it; and prepare for the inevitable cloudy day so you can get to the other side.

Richard Matsui: I’m reminded of a previous Solar100 interview with Ed Feo, in which he said that having a fixed annual MW target is a fundamental mistake for a development business, simply because markets change constantly. How do you think about that?

Brad Bauer: I agree. It comes down to capital structure. If you are capitalized with debt, the die is cast. You need to build X MW at Y margin in order to meet SG&A and capital obligations. If the markets change, you are in trouble. If you can’t meet your capital obligations, you are in trouble. That’s the challenge. People love the idea of preserving equity upside but often fail to recognize how it impacts risk.  It is hard to get off the debt treadmill . A capital raise feels great, but investors and lenders expect returns of and returns on capital and if you are not creating value in excess of these amounts all you are doing is making money for others.

Richard Matsui: Related, you’d written about choosing development capital paths, and I thought this line was really well put: “Alas, conservatism and prudence are not the first two words that come to mind when one considers developers, so the growth treadmill is common.”

MARKET STRUCTURE EVOLUTION

Richard Matsui: I’m intensely interested in theories of how the market structure of our industry will evolve, and so I really enjoyed the 3-part series your firm published on the future of development capital. Clear thinking is hard to come by. Can you outline that thesis?

Brad Bauer: In a sentence, it is that your choice of how you capitalize your company and assets ultimately dictates the actions you need to take. Developers frequently take the road that offers the greatest possible upside, but don’t think about how capital structure creates risk in achieving that upside. In that paper, we posit that anytime you take somebody else’s money, you’re giving up something. And you have to understand what it is that you’re giving up and how that impacts you personally. Which I think Dave, who wrote the article, does a great job of laying out.

Development is an incredibly cash-intensive business, and when you’re short on cash it ultimately takes away opportunities. So you really have to be thinking about capitalization at all times. There is no one right answer by any stretch of the imagination, but there are a few answers:

1.      Self-financing, if you can do that, is absolutely fantastic, but you have to have a lot of conviction or you need to have a heck of a lot of money.

2.      For developers trying to raise cash at the corporate level, you have to have a heck of a good thesis and you have to have a market that you can “exploit” and not have bigger dreams of going outside that market at the outset.

3.      Selling to larger developers can be a great situation, though it’s fraught with challenges because everybody is competing for capital. That inevitably creates a project hierarchy, and capital flows to the highest and best opportunities. And once your project is in somebody else’s pool, you’ve lost control over it.

4.      Raising project level development capital is challenging and costly, but it does allow for some of the benefits of both self-financing and corporate-level financing. It allows you to control your own destiny to a greater extent.

Richard Matsui: The article raised an interesting analogy with tech, real estate, and pharma: in other industries you see the emergence of early stage, true equity risk capital. Equity capital is able to take on that risk, despite the unique complexities to each of those asset classes. Why has 3rd party development equity been so scarce for our industry? I understand why it took a while for tech VC to emerge, but power plant development has existed for a long time. 

Brad Bauer: I think it comes down to the risk adjusted return potential and the effort required to source, diligence and monetize the investments.  When you think about an early stage technology or biotech investment, there is often an established market for the investment and a single investment can carry an entire fund.  There’s effectively unlimited upside to those investments because of the nature of what’s being produced.

In contrast, solar and storage development investments are pretty complicated and painful to invest in; it’s niche work with a lot of documents and models. There’s binary risk. The check sizes are pretty small. It’s a tough space to deploy large amounts of money, and there is a limitation on the upside potential of the investments. Along these lines it is not difficult to imagine owners and developers looking to Solar Revenue Puts as a means of eliminating downside risks, which would, in-turn, improve risk-adjusted returns for investors and decrease capital costs for developers.

Marketplace dynamics also change rapidly. As off-take contract terms get shorter and shorter, investors are who want to deploy money into the U.S. solar market are being forced to take more and more merchant risk, which will create winners and losers. 

Richard Matsui: I think the “low-upside, high-downside” observation is very astute; I haven’t heard it before. On merchant risk, I’ve been astounded by how quickly equity went from taking zero merchant risk to accepting the highest merchant curve it can find. One would have to assume the next logical step will be for investors to accept Ventyx at 3x.

Over the past three years there has been a strong shift towards the tie-ups between developers and the long-term asset owners. The asset owner’s motivation is clear: access to deal-flow. But it’s less clear to me why developers have taken this path. BlackRock with Distributed Solar Development, Capital Dynamics with Sol Systems, Osaka Gas with SolAmerica. What changed on the developer’s side?

Brad Bauer: Fundamentally, it’s a need for capital. Development pipelines are a very thirsty plant: they need a lot of cash at the outset, and even more cash as they mature. Most developers don’t have the cash to handle the magnitude of investment required to support PPA deposits, hedge deposits, and interconnection deposits on a project or portfolio basis. Further, as we’ve discussed, there are so many variables to juggle while developing solar. Locking in perhaps the biggest one—buyer pricing assumptions—even if it is not the top of the market, can be very attractive.

Richard Matsui: Does solar development become more or less fragmented over time? What I find fascinating about your post is that while it’s become less fragmented recently, it would appear that you think there will be more.

Brad Bauer: Large developers that can create a great deal of “product” for long-term investors are incredibly attractive. However, development is primarily local, and large national developers are hard-pressed to make that work. We’ve all seen this play out over the last 10 years.

The entrepreneurial nature of developers is that they generally want to be small shops. Developers want to take as much risk as they can—preferably with other people’s money—and taking project-level capital creates that opportunity. As the projects move toward NTP, the check sizes become larger and larger, and at that point in time you hope to be able to find the right long-term owner, as opposed to having that middle step along the way where it goes from local developer who created the opportunity, who sells it to the larger developer who takes their cut, and then it is ultimately sold to the right long-term owner. If the developer can skip that middle step there’s more money in the deal for them. 

Richard Matsui: If your thesis is correct and third-party development capital continues to grow in share, what are the second order effects that you anticipate? For example, do you see more “Cypress Creeks”, development platforms-turned-asset owners, emerging?

Brad Bauer: A successful development business must be good at managing capital and risk. As companies grow and attempt to capture more and more of the value chain, the necessary focus is often lost. So the core question has to be whether vertically integrated developer/IPPs can be as efficient and disciplined as necessary to be successful. Can they determine how best to allocate finite resources in a manner that allows them to be profitable and create equity value. It is hard to think of an example of a large developer that has gotten this right in the solar space.  The pages of solar magazines are filled with people who had aspirations of greatness but were unable to make it happen. Energy markets in the U.S. are fragmented, ebb and flow with public policy, and it is tough for large organizations to manage this dynamic. In contrast, smaller organizations that are nimble, quick, and have access to capital are often better positioned for success.

It is certainly possible that policies, economics, or costs will change in a way that large national developers and IPPs will have an advantage, just as it is possible that efficient organizations will grow out of new markets. But I think the former is going to take some time and the latter seems rather unlikely. So my money’s on the smaller nimble shops who pursue the right opportunities, pick the right partners and have the capital necessary to turn ideas and opportunities into projects.  

#Solar100’s Benoit Allehaut: The Ethan Hunt of Solar Investing

Originally posted on Greentech Media. In this #Solar100 interview, Richard Matsui, Founder and CEO of kWh Analytics, speaks with Benoit Allehaut, Managing Director of Capital Dynamics’ Clean Energy Infrastructure team.

Throughout his fifteen years working in renewables, Benoit Allehaut’s completed a number of ‘mission impossibles’: he's made a career in an emerging industry nicknamed 'the solarcoaster' for its ups and downs, he’s established himself as an expert on both development as well as financing, and he’s built up the second largest portfolio without relying on merchant risk.

In this #Solar100 interview, Allehaut discusses M&A in the post-virus environment, “detrimental investor behavior”, and advice for young people who want to work in renewables.

---

FROM FOREIGN SERVICE TO RENEWABLE ENERGY

Richard Matsui: You have a surprising career background. It seems like almost everyone in solar comes from either real estate, finance, or law. You’re the first person I’ve met that started off in an embassy, which is also how I got my start. How did that become your first job out of college?

Benoit Allehaut: I was avoiding military service—in France it was mandatory at the time, and the only way you could avoid it was to either work for an administration abroad or a company abroad. I chose the administration option.

More interestingly, I had an opportunity to go to Guatemala, Taiwan, or Moldova. Moldova was probably the last place on earth  I wanted to go—so I chose it. When you’re in your early twenties, adventure is everything. And from a personal formation standpoint, if you take the easy path, you don’t learn. In Europe, everybody knows about Albania; nobody knows about Moldova. Moldova is the most economically challenged country in Europe. It’s a tiny country that’s split between the two regions of Moldova and a separatist region called Transnistria. My work was tough, but I learned a lot. The experience helped me get out of my comfort zone moving forward.

Richard Matsui: What prompted you to move on from that experience?

Benoit Allehaut: The embassy was very nice, but I was never going to be a civil servant. There was always an entrepreneurial side of me that wanted to work in the private sector.

During my foreign service, I had an extraordinary opportunity when the French president visited Moldova. People work in foreign affairs their entire lives and never have a presidential visit, and I got one. I was invited to decide who would be part of the presidential delegation and I chose Paris Mouratoglou, CEO of SIIF Energies, and Francois Roussely, CEO of EDF. Paris pitched to Roussely an investment in SIIF in exchange for the exclusivity in renewable energy. A few months later a deal was cut. And thus I played a role, albeit small, in the creation of what became EDF Renewable Energy!

Richard Matsui: Moving on to your work in renewables, you’ve been on the development side at General Electric (GE), then OptiSolar, which then subsequently became First Solar’s project development arm. Then you switched to the capital side with BlackRock, and finally Capital Dynamics. You have a wide range of experiences. How did you decide what roles to take?

Benoit Allehaut: I took the view that wherever I went, I had to give my best, make myself redundant, and move up. I prioritized learning, because I always felt that the day I stop learning in an organization would be the day I get bored.

Throughout my career, I also wanted to work for market leaders. I wanted to work for GE because when I first joined them, it was at the beginning of a J-curve in renewables. When I joined First Solar, similarly, there was an explosion in the solar market. Working with the dominant player in the market was incredibly useful at the time. That said, I also need an entrepreneurial environment to thrive. Now at Capital Dynamics we have both a market leader and an entrepreneurial team.

Richard Matsui: Having developed and financed renewables since the early days of this industry, what macro lessons have you pulled from those 15 years?

Benoit Allehaut: My biggest lesson is on alignment and investment behavior. Looking back at the wind business in particular, there was a lot of work being done with independent engineers to extract the most favorable reports to make an investment look good, and thereby extract the best financing terms. But when you’re a sponsor and long-term owner and you’re not flipping an asset, you’re a value-based investor. In wind, this has led to detrimental investment behavior.

STATE OF THE MARKET

Richard Matsui: Keith Martin says the “wall of capital” continues, which leads to behavior from sponsor equity that’s hard to explain. You were the first person to tell me about sponsors bidding negative IRRs during the contracted period, accepting aggressive merchant curves and IE “P50s”. This was already common behavior two years ago, so one would presume that it’s gotten progressively more aggressive. You’ve observed that there was a correction in wind. In solar, is there evidence that the coronavirus pandemic has fundamentally impacted behavior or are we still continuing on the same trajectory?

Benoit Allehaut: The economic theory of market equilibrium can be frustratingly long to realize. We still see ERCOT deals being done with hedge contracts marketed as “PPAs” and basis risk being presented as positive. One of my favorite books and movies is the Big Short. In the movie there are some epic scenes, including one where the S&P employee says, “If we don’t give the banks the AAA rating, others will.” There is a lot of truth to that. As long as the market of investors continues to expand, there will always be a chance that investments get made without an understanding of the risks involved. A huge part of my job is to understand and mitigate risks.  For every investment that we make, we take pride in the fact that we do so with our eyes wide open. 

Richard Matsui: So, if not during a global crisis, what event will force market discipline? Is it 10 years from now when these closed-end funds need to liquidate? Or does it happen sometime sooner?

Benoit Allehaut: This is the crystal ball question and my answer is “I don’t know”. We regularly see new investors arrive in the U.S. market, and it is not always clear they understand the idiosyncrasies of the U.S. market.  For example, investors in the European wind industry where asset performance is fine because the standard deviation is lower, come to the United States think it’s going to be the same, but it’s not. They don’t understand tax equity structures, and they don’t know that resource risk in the U.S. is much higher.

The market is dividing between folks who have a good understanding of the risks being taken, and those who don’t have access to the deal flow and are dependent on the conveyor belt of sell-side advisors. In general, when you look at the deals available in the market, it’s a mixed bag. It’s easy to say this, but it’s important that the entire industry makes good investments because at some point there will be reputational damage. I think everyone would benefit from more discipline in PPA pricing, PPA tenors, merchant assumptions, but when will it happen? Not too soon.

Richard Matsui: What’s a good investor to do in this environment? You’ve built up the second largest portfolio without banking heavily on merchant risk, which still strikes me as mission impossible.

Benoit Allehaut: First of all, you have to come at the right time. I think if you were to try to do this today, it would be very difficult. We were very fortunate on Moapa, California Flats, and Mount Signal. 8point3 was a one-of-a-kind transaction, and there is no other 8point3 readily available. That gave us the scale to then do proprietary origination. We took a view that, while we were “private equity”, we were really infrastructure investors representing large, long-term institutional investors.  It was not about flipping but rather about long-term cash flows and value. This industry needs to move to making solid investments with balanced risk/return targets. Finally, you need to work with the right people, and I think the world of each member at Capital Dynamics and our affiliate Arevon.

We have a value based mindset. Our team quickly learned that it takes a lot of time and energy to address a problematic asset. We do our best to avoid them. I know that teams are under a lot of pressure, but it’s a reckoning with the agency issue: Why is somebody selling? Why is somebody buying? There is a whole protocol that needs to happen to make sure that good investments are made.

Richard Matsui: I think the Principal-Agent problem is a big one, and only discussed with heavy drinks. I spoke with a banker recently who said the job used to be about applying best judgment to structure good loans that would get repaid. But now, there is so much internal pressure to do more renewable deals that the job is now simply about presenting deals to credit and letting them decide, because there are good odds that those loans won’t get repaid. It’s strange to hear a banker say “I’m no longer sure that we actually care about getting our money back”, but that’s where we are now.

Benoit Allehaut: That’s terrifying, but I hear similar observations. Tax equity historically created very perverse incentives for wind projects because tax equity is remunerated based on PTCs, cash and depreciation, but PTCs follow cash. When a project underperforms, tax equity earns a higher multiple on invested capital, so there was almost an incentive for tax equity to have assets underperform. You still want the asset to flip, but if you underwrote for 10 years and the asset flipped in 20 years, that’s actually the best outcome for the bank. You have a piece of the capital structure that is fundamentally misaligned. It’s scary when a tax equity investor will underwrite knowing that the asset will fail because it might facilitate the sale of a wind turbine. We have to hope that there will be a return toward more traditional and rational investments because that will benefit the entire industry.

Richard Matsui: Where is relative value in the solar market today?

Benoit Allehaut: In the past, we all lived with Unit Contingent PPAs, which means whatever the plant produces, the buyer buys all of the power. The market now can offer something much closer to what gas or coal has historically provided with the combination of solar plus storage or solar plus energy management. That’s better risk management and better value, ultimately, for buyers of the power.

Richard Matsui: Everyone says, “Storage is where Solar was 10 years ago.” First, I’d love to hear if you agree or disagree, as you have a massive storage fleet under construction. Second, every analogy has flaws. What are the major points of difference that you see?

Benoit Allehaut: First of all, storage is much more complicated than solar. It is not plug and play. Solar farms today are blocks of panels with inverters being throttled to the MPPT so that the farm achieves the maximum output at the point of interconnection. Now suddenly you have a battery that will take energy and then re-dispatch it. From a SCADA standpoint and from a system architecture standpoint, it’s a lot of work.

Second, storage complexity really varies with application. Load shifting is much easier than if you provide multiple services simultaneously. You also have multiple players that come with storage. You’ll have the asset owner and also the energy manager sending the signal as to when to charge and discharge a battery. I think there is truth in the saying that storage is the early days of solar, but it’s not just about a cost reduction curve.  It’s a more complex product and has varying applications. It’s true that the storage industry is piggybacking on the EV market globally, but how fast costs will go down remains to be seen. It is very important to look at quality, given what’s in the box varies from one supplier to another. We see a lot of people on the development side but again, as a long-term owner, we tend to be more conservative and think through all the implications of what is in the box over the life of the asset. 

Richard Matsui: In a year defined already by uncertainty and unknowns, what’s your biggest non-consensus bet for the remainder of the year?

Benoit Allehaut: I think that the outcome of the election matters much more than we want to believe. We need to navigate through regulatory uncertainty in our decision making. 

ADVICE FOR NEW GRADS WHO WANT TO WORK IN RENEWABLES

Richard Matsui: When you meet a fresh MBA or a college senior who says they want to get into renewables but don’t know where to start, what do you recommend? Looking at your background, fifteen years ago, wind would have been a really good place to start, particularly because there the solar industry did not really exist then. Where is that good place to start today?

Benoit Allehaut: I tell all students the same thing: This industry attracts a disproportionate number of talented people. Unfortunately, it also creates a lot of competition. Everyone wants to work in an industry with meaning. What I recommend to everyone is to just get in the industry. Don’t set requirements—you’re here to learn. Start somewhere, be great at what you’re doing, and then look for the lateral move and the opportunity to create something. Coming in with demands and expectations is very dangerous because it really impedes long-term growth. You can even work on something as boring as insurance—kidding, Richard—it really does not matter. Talent and hard work is always rewarded in the long run.

kWh Analytics Closes a Solar Revenue Put with Capital Dynamics, Commonwealth Bank of Australia, Rabobank, and Swiss Re Corporate Solutions

Originally posted on BusinessWire. Additional coverage in Reinsurance News, Solar Power World, Solar Quarter, Solar Builder.

SAN FRANCISCO – kWh Analytics, the market leader in solar risk management, today announced that it structured a Solar Revenue Put as part of the refinancing of the 173 MW DC Cal Flats 130 photovoltaic facility located in Monterey County, California. The Solar Revenue Put is structured as an insurance policy on solar production and revenues, which serves as a credit enhancement for financial investors. Using its proprietary actuarial model and risk management software (“HelioStats”), kWh Analytics developed the Solar Revenue Put to drive down investment risk and encourage development of clean, low cost solar energy for the Cal Flats facility.

The facility is owned and operated by Capital Dynamics, an independent global private asset management firm focusing on private assets including private equity, private credit, and clean energy infrastructure. The refinancing was led by Commonwealth Bank of Australia (CBA), Australia's leading provider of integrated financial services and among the leading arrangers of renewable energy projects in the U.S., Europe and Australia; and Rabobank, a leading global bank focused on the food, agribusiness, commodities and renewable energy industries. Swiss Re Corporate Solutions, a subsidiary of Swiss Re, the world’s largest reinsurer, is providing capacity for the Solar Revenue Put. This is the first syndicated refinancing utilizing the Solar Revenue Put.

“Capital Dynamics is a leader in clean energy investing and is focused on helping its customers affordably and reliably meet their sustainable energy needs. Community solar farms bring renewable energy to our customers while saving them money on their electric bills,” said Benoit Allehaut, Managing Director of Capital Dynamics’ Clean Energy Infrastructure team. “The Solar Revenue Put helps sharpen our competitive edge by enhancing our returns and reducing our downside risk.”

“As a leading renewable energy financier and customer-focused institution, we’re pleased to continue our support of Capital Dynamics as they deploy innovative renewable energy solutions for communities in the U.S.,” said Alain Halimi, Director of Natural Resources & Energy at Commonwealth Bank of Australia. “Capital Dynamics is one of the largest solar developers in the U.S.; the strong collaboration between Capital Dynamics, CBA, and Rabobank, and the expertise of  kWh Analytics, enabled us to deliver a groundbreaking financing for Capital Dynamics and the market.”

“Rabobank has a strong commitment to driving the energy transition in North America and is very excited to continue the partnership with Capital Dynamics, one of the leading developers and operators in the renewable energy space,” said Greg Hutton, Head of Project Finance Americas at Rabobank. “We always focus on working with our clients to execute the solutions that best fit their needs, and were thrilled to collaborate with Capital Dynamics and the other financing parties in delivering a robust and efficient financing package.”

Across the industry, portfolios supported by the Solar Revenue Put are securing debt sizing increases of 10% on average. The Solar Revenue Put has been structured on over $1 billion of solar assets, and a survey of the solar industry’s most active lenders indicates that more than 50% of active lenders value the Solar Revenue Put as a credit enhancement. The Solar Revenue Put has now been incorporated into both new build financing and refinancing of all types of solar projects, including utility scale, residential, community solar, and commercial and industrial.

###

Learn More about us: kwhanalytics.com & kwhanalytics.com/SolarRevenuePut

Media Contact:

Sarah Matsui

sarah.matsui@kwhanalytics.com

About the Solar Revenue Put

The Solar Revenue Put is a credit enhancement that guarantees up to 95% of a solar project’s expected energy output. kWh Analytics’ wholly-owned brokerage subsidiary places the policy with risk capacity rated investment-grade by Standard and Poor’s. As an ‘all-risk’ policy, the Solar Revenue Put protects against shortfalls in irradiance, panel failure, inverter failure, snow, and other system design flaws. The Solar Revenue Put provides comprehensive coverage that banks rely upon, enabling financial institutions to more easily finance solar projects on terms more favorable to the sponsor.

About kWh Analytics          

kWh Analytics is the market leader in solar risk management. By leveraging the most comprehensive performance database of solar projects in the United States (20% of the U.S. market) and the strength of the global insurance markets, kWh Analytics’ customers are able to minimize risk and increase equity returns of their projects or portfolios. kWh Analytics also provides HelioStats risk management software to leading project finance investors in the solar market. kWh Analytics is backed by private venture capital and the US Department of Energy.

About Capital Dynamics

Capital Dynamics is an independent global asset management firm focusing on private assets including private equity, private credit, and clean energy infrastructure. Capital Dynamics’ Clean Energy Infrastructure (CEI) is one of the largest renewable energy investment managers in the world with USD 6.5 billion AUM[1], and has one of the longest track records in the industry.

The CEI strategy was established to capture attractive investment opportunities in the largest and fastest growing sector of global infrastructure – proven renewable energy technologies, with a focus on utility-scale and distributed generation solar, wind, and storage. The CEI platform’s dedicated asset management business provides highly-specialized services to ensure optimal performance and value from projects. The CEI strategy currently manages 7.3 GW of gross power generation across more than 100 projects in the United States and Europe[2], and is one of the top 3 global solar PV owners[3].

Since the CEI platform’s inception in 2010, over 13 million metric tons of greenhouse gas emissions have been avoided as a result of the firm’s renewable investments[4]. This is equivalent to the power needed to supply more than 2 million homes or passenger vehicles for one year. In 2019, the CEI strategy received top rankings from GRESB (the ESG benchmark for real assets) for commitment to sustainability, and was awarded Global PE Energy Firm of the Year by Private Equity International. For more information, please visit: www.capdyn.com.

About Commonwealth Bank of Australia

The Commonwealth Bank (ASX:CBA) is one of Australia’s leading providers of personal banking, business and institutional banking and share broking services. With 17.4 million customers and a history spanning more than a century, the Group’s purpose is to improve the financial wellbeing of its customers and communities. The Commonwealth Bank is Australia’s leader in digital banking and maintains the largest branch network across the country. Headquartered in Sydney, Australia the Bank operates brands including Bankwest in Australia and ASB in New Zealand. For more information on Commonwealth Bank, visit www.commbank.com.au.

About Rabobank  

Rabobank Group is a global financial services leader providing wholesale and retail banking, leasing, and real estate services in more than 40 countries worldwide. Founded over a century ago, Rabobank today is one of the world’s largest banks with over $640 billion in assets. In the Americas, Rabobank Wholesale Banking is a premier corporate and investment bank to the food, agribusiness, commodities and renewable energy industries, providing sector expertise, strategic advisory and tailored financial solutions to clients across the entire food value chain. Additional information is available on our website or on our social media platforms, including Twitter and LinkedIn.

About Swiss Re Corporate Solutions

Swiss Re Corporate Solutions provides risk transfer solutions to large and mid-sized corporations around the world. Its innovative, highly customised products and standard insurance covers help to make businesses more resilient, while its industry-leading claims service provides additional peace of mind. Swiss Re Corporate Solutions serves clients from offices worldwide and is backed by the financial strength of the Swiss Re Group. Visit corporatesolutions.swissre.com or follow us on linkedin.com/company/swiss-re-corporate-solutions and Twitter @SwissRe_CS.

[1] Capital Dynamics as of March 31, 2020. Includes assets in renewable energy projects managed by Capital Dynamics, including USD 3.7bn assets under discretionary management and USD 2.4bn tax equity assets. Tax equity is a financing solution for renewable energy projects. Capital Dynamics makes no representation as to future size or growth of the CEI program.

[2] As of January 31, 2020.

[3] As of February 4, 2020.

[4] Environmental benefits are based on US Environmental Protection Agency Greenhouse Gas Equivalencies Calculator.

First Repeat Solar Revenue Put Transaction structured on 32MW DC of Solar Power Projects with IGS Solar, ING, & kWh Analytics

Additional coverage in: PV Magazine USA, Solar Power World, Reinsurance News.

SAN FRANCISCO – kWh Analytics, the market leader in solar risk management, today announced that it structured a Solar Revenue Put for a portfolio of 4,000 projects totaling approximately 30 MW DC of capacity located in the Northeast, Florida and California. The facilities are being developed and managed by IGS Solar, a residential and commercial solar developer. The IGS Solar portfolio is being funded by ING Capital LLC (“ING”), a financial services company. Swiss Re Corporate Solutions, a leading global corporate insurer, is providing capacity for the Solar Revenue Put.

This is the first publicly announced repeat closing with the Solar Revenue Put. The Solar Revenue Put supported a financing with IGS Solar, ING and others in November 2018 for a 30 MW portfolio of 4,000 projects located in the Northeast U.S.

The Solar Revenue Put is structured as an insurance policy on solar production and PPA revenues, which serves as a credit enhancement for financial investors. Using its proprietary actuarial model and risk management software (“HelioStats”), kWh Analytics developed the Solar Revenue Put to drive down investment risk and encourage development of clean, low-cost solar energy.

“We have again found efficient and reliable execution with our partners, ING, and kWh Analytics. The Solar Revenue Put enables us to both enhance our returns and reduce our downside risk,” says Mike Gatt, Chief Operating Officer of Distributed Generation at IGS. “kWh Analytics has proven out a reliable claims process for the Solar Revenue Put, enabling cashflow certainty.”

“We are pleased to have incorporated the Solar Revenue Put to support a second financing for IGS,” says Scott Hancock, Director in the Power & Renewables team at ING in New York. “The framework was established with the initial financing with the intention that it could be easily replicated for future financings with IGS.”

A recent survey of the solar industry’s most active lenders indicates that more than 50% of active lenders value the Solar Revenue Put as a credit enhancement. Solar portfolios ranging from thousands of residential rooftops to more than ten utility-scale plants have utilized financing structures supported by the Solar Revenue Put. Portfolios supported by the Solar Revenue Put are securing debt sizing increases of 10% on average.

###

Learn More about us: kwhanalytics.com & kwhanalytics.com/SolarRevenuePut

kWh Media Contact:

Sarah Matsui

sarah.matsui@kwhanalytics.com

IGS Media Contact:

David Gilligan

David.Gilligan@igs.com

614.659.5422 (o) | 614.787.6094 (m)

About the Solar Revenue Put

The Solar Revenue Put is a credit enhancement that guarantees up to 95% of a solar project’s expected energy output. kWh Analytics’ wholly-owned brokerage subsidiary places the policy with risk capacity rated investment-grade by Standard and Poor’s. As an ‘all-risk’ policy, the Solar Revenue Put protects against shortfalls in irradiance, panel failure, inverter failure, snow, and other system design flaws. The Solar Revenue Put provides comprehensive coverage that banks rely upon, enabling financial institutions to more easily finance solar projects on terms more favorable to the sponsor.

About kWh Analytics          

kWh Analytics is the market leader in solar risk management. By leveraging the most comprehensive performance database of solar projects in the United States (20% of the U.S. market) and the strength of the global insurance markets, kWh Analytics’ customers are able to minimize risk and increase equity returns of their projects or portfolios. kWh Analytics also provides HelioStats risk management software to leading project finance investors in the solar market. kWh Analytics is backed by private venture capital and the US Department of Energy.

About IGS Solar

IGS Solar, a turn-key commercial and residential solar developer with significant solar assets under development, provides businesses, homes, and communities with an opportunity to participate in creating a sustainable energy future. As an affiliate of IGS Energy, IGS Solar is dedicated to delivering innovative solar energy solutions. For more information, visit IGS.com or connect with IGS Solar at linkedin.com/company/igs-solar.

About ING Capital LLC

ING Capital LLC is a financial services firm offering a full array of wholesale financial lending products and advisory services to its corporate and institutional clients. ING Capital LLC is an indirect U.S. subsidiary of ING Bank NV, part of ING Groep NV (NYSE: ING), a global financial institution with a strong European base. The purpose of ING is empowering people to stay a step ahead in life and in business. ING’s more than 53,000 employees offer retail and wholesale banking services to customers in over 40 countries. Please note that neither ING Groep NV nor ING Bank NV have a banking license in the U.S. and are therefore not permitted to conduct banking activities in the U.S. 

About Swiss Re Corporate Solutions

Swiss Re Corporate Solutions provides risk transfer solutions to large and mid-sized corporations around the world. Its innovative, highly customised products and standard insurance covers help to make businesses more resilient, while its industry-leading claims service provides additional peace of mind. Swiss Re Corporate Solutions serves clients from offices worldwide and is backed by the financial strength of the Swiss Re Group. Visit corporatesolutions.swissre.com or follow us on linkedin.com/company/swiss-re-corporate-solutions and Twitter @SwissRe_CS.

#Solar100’s Todd Alexander, Emily Kirsch, and Stephen Lacey: Solar’s Podcast Experts

Originally posted on PV Magazine USA. In this special edition #Solar100, kWh Analytics’ Richard Matsui speaks with three solar podcast experts, Norton Rose Fulbright’s Todd Alexander, Watt it Takes’ Emily Kirsch, and Post Script Audio’s Stephen Lacey.

With over 700,000 podcasts out there, the medium has gained unprecedented traction. Leading the pack, here are three of the solar industry’s luminaries when it comes to all things podcasting:

Todd Alexander is host of Norton Rose Fulbright’s Currents, a top 200 podcast on Apple’s Business list. In spite of its very niche project finance focus, in 2020 Currents has surpassed 1 million downloads and now boasts a virtual auditorium of 20,000 people listening per episode.

Emily Kirsch is the host of Powerhouse’s Watt It Takes, a live podcast featuring clean energy founders and CEOs. Watt It Takes’ growing guest list includes powerhouses Sunrun’s Lynn Jurich, NEXTracker’s Dan Shugar, and Generate’s Jigar Shah.

Stephen Lacey is the founder of Post Script Audio and co-host of Energy Gang and Interchange. A podcast veteran of nearly fifteen years, he’s taken multiple energy podcasts from start to success.

In this special edition #Solar100, Todd Alexander, Emily Kirsch, and Stephen Lacey talk about the power of effective storytelling and what they’ve learned from starting and building some of the solar industry’s most popular podcasts.

—

TODD ALEXANDER, PARTNER AT NORTON ROSE FULBRIGHT & HOST OF CURRENTS

Richard Matsui: Currents just hit a million downloads—it blows my mind that there are at least a million instances of people wanting to hear about project finance, and it really speaks to the work you and Emily Rogers are doing. Can you introduce Currents and speak to that milestone?

Todd Alexander: We did recently pass the million-download threshold, but to me the more impressive thing is the growth trajectory. When we started the podcast in 2016, it was geared toward training people who were already in the industry, and most of the initial listeners were at Norton Rose Fulbright. We’ve changed the focus to make it more outward-facing and started having guests on from outside of the firm, including industry thought leaders like yourself, clients of the firm, and only occasionally my partners and or an associate from Norton Rose Fulbright. Over the last 18 months, with that change in focus, listenership has grown exponentially. When we started out, we would have 1,000 to 2,000 listeners per podcast and now we’re at around 20,000 per podcast.

Richard Matsui: Given that shift over time, is there a prototypical audience member that you now envision when you’re inviting guests and putting together interview questions?

Todd Alexander: To be honest, I don’t think about the audience that much. When I was a kid growing up in the suburbs of Chicago, I listened to a talk radio host named Milton Rosenberg, a University of Chicago sociology professor. His show was every weeknight when there wasn’t a Cubs baseball game (because he shared the same station, WGN). I remember him having people like Margret Thatcher on one night, and the next night he would have a gardener from the Chicago Botanical Garden. The show was sufficiently popular, so people would want to be on it, and he could decide to have on whoever he wanted and the audience got to learn about whatever he wanted to learn about. He was one of these polymaths, spoke a few languages, and knew a little bit about everything. I remember thinking, “What a great job this guy has—he gets to find and talk with interesting people.”

A lot of the Currents guests are just people who I think have something to say that interests me and that I’d want to learn more about. My process for selecting guests has been, “Hey, I would love to talk to this person for half an hour and understand what’s going on here, and I think that there are other people out there who are interested as well.” So far, it’s worked.

With such a focused podcast, you’re not going to have Serial type numbers. But we know there are other lawyers like myself and a lot of people in our industry who listen to the podcast.

Richard Matsui: Despite the many podcasts out there and your niche focus area, Currents is still consistently ranked in Apple Top 200 Business podcasts. What’s helped Currents to earn the following that it has?

Todd Alexander: I think the first factor is that the projects group that I am part of is exposed to a lot of the cutting edge trends in the industry, which means I have access to a lot of people that I wouldn’t have access to if I were either at another firm or on my own. If I was part of some podcast network and I was based in a studio in Brooklyn, I wouldn’t have access to the same people.

The second success factor is that the producer of the podcast, Emily Rogers, makes it extremely simple for me. Our podcast topics are subjects I work on on a day-to-day basis, so I typically don’t have to do very much preparation for the podcast. Often, I’ll spend ten minutes before recording with the guest to make sure I know the topic and the person I’m meeting, and then Emily has everything set for me to go. We spend approximately half an hour recording, and then I’m done. With Emily’s commitment, editing skills and behind-the-scenes magic, we’re able to make Currents into what it is. Last year we produced 33 podcasts and we’re on target to do that again this year.

A third factor is consistency. The purpose of the podcast for me is to learn from and talk to people that I find interesting, keep abreast of industry trends, and create brand recognition for Norton Rose. We also want to share information among people in the industry and give the guests, like yourself, a platform to share things that are changing in the market. In that respect, our vision for the podcast is clear. And if you have a consistent product that comes out fairly regularly, people expect it and they know when it’s coming and may bookmark it as a favorite podcast on whichever platform they use.

Richard Matsui: You’ve been hosting for about two years now—what have you learned?

Todd Alexander: I’ve learned a couple things about technique. One is that my natural style of talking is to talk over people. In real life, when somebody is speaking I often don’t let them finish what they’re saying—if I have the gist of what they’re trying to say, I will speak over them. That is a terrible technique in recording a podcast because it’s very hard for the listener to understand. When you’re in a face-to-face discussion with somebody, it’s very common, but when you’re recording it sounds terrible. So one thing I’ve learned is to be more patient and let people finish their thought.

The second thing is, in daily life I like to joke around a lot and I’ve realized that my jokes are not that funny. When I listen to the podcast recordings, my jokes just don’t sound very funny. I’ve tried to make too many little jokes, and they don’t translate well without the body language and the interpersonal relationship. Maybe they never translated well, but I know for sure that they don’t translate well through the podcast.

Richard Matsui: I’m sure that’s overly harsh, but that is really funny.

In the world of project finance, are there types of stories that tend to capture the audience’s attention? Are there trends in what people find interesting?

Todd Alexander: There are definitely trends in terms of what people find interesting. Funnily enough, they’re often the types of complex matters that don’t translate well into a podcast, but they’re also the types of things that people don’t want to spend a few thousand dollars on getting a lawyer to explain to them over the phone.

It’s the topics that people want explanation on but don’t have access to an investment banker or a consultant to tell them what’s going on—how the Solar Revenue Put works, for example. From what I’ve seen, our most popular podcast every year is a recording of a presentation that we make for our clients called Cost of Capital that my partner Keith Martin hosts. It has been our most popular episode each of the last two years, and we just released this year’s version of it.

Anything on the cutting edge is interesting, so changes in tax equity, and changes in energy storage, those tend to be the most popular types of podcasts for which we might get over 20,000 downloads. Then I might do something that I find particularly interesting, like hedging, which is also very tough to follow because it’s very detailed and industry-specific, and that might get only a third of the downloads that something on energy storage or cost of capital would get.

Richard Matsui: Are there any changes to the vision of the podcasts that you want to pursue?

Todd Alexander: I love getting feedback from people in the audience. I often get emails from people saying, “Hey, your sound quality wasn’t so good on this one.” Or “I love this topic.” Or “Can you introduce me to this person?” That feedback is very helpful because it’s not live, which makes it difficult to know what’s effective and what’s not. We try to incorporate the constructive criticism that we receive.

I also want to continue bringing on as many ‘Tier One’ guests as possible, so that people keep coming back to the podcast and it continues to be a good place to educate people about the energy and project finance community in the U.S.

Richard Matsui: It’s stunning to think that every time I sit in that interview room with you, there’s a vast auditorium of 20,000 people listening. Who is your dream guest for Currents?

Todd Alexander: Emily asks me that all the time. I’ve been very fortunate, almost everybody that I’ve wanted to have on the podcast has agreed. We’ve had some people in state government, from the Public Utility Commission and NYSERDA, but I have wanted to get some elected officials on. It’s one thing to be a practitioner in the business, to be a consultant or a developer, and it’s another thing when you’re creating policy for energy more broadly. I would like the chance to pick their brains, and hopefully it would be interesting to people in the audience as well.

—

EMILY KIRSCH, FOUNDER OF POWERHOUSE & HOST OF WATT IT TAKES

Richard Matsui: Can you kick us off by giving an overview of Watt It Takes and then tell us about why you started it?

Emily Kirsch: On Watt It Takes, I interview founders and CEOs of the most innovative companies in clean energy and mobility, and these leaders share how they built their businesses. We record the podcast monthly in front of a live audience at Powerhouse headquarters in Oakland, California.

We started Watt It Takes because the founder journey can be lonely, and as a founder, it’s easy to feel like you’re the only one who has made mistakes or who has ever come close to closing the doors. Watt It Takes shares the realities of that founder journey, both the highs and the lows. We want existing founders to feel a sense of comradery with one another and we want to inspire the next generation of entrepreneurs to start companies. We also want to inspire people in traditional tech companies to join our industry. Listeners of Watt it Takes range from founders to VCs to corporate executives.

Richard Matsui: How does Watt It Takes fit into your vision for Powerhouse?

Emily Kirsch: As both an innovation firm and a venture fund, Powerhouse backs entrepreneurs that are building the future of energy and mobility, so we’re focused on the people behind the most innovative startups in the industry. We connect these startups to our corporate partners like Schneider Electric and Enel as well as investors, with the ultimate goal of creating a decarbonized world. Watt It Takes represents that vision by focusing not just on companies and technology, but also on people. We share how these leaders navigate their journey and hope others are inspired to do the same.

Richard Matsui: There’s so many podcasts out there. Do you have some insights on how Watt It Takes has gained the following that it has?

Emily Kirsch: It’s been great to see the listenership of Watt it Takes grow to over 30,000 listeners per episode. There’s a wealth of information about the energy transition, and there are a number of  podcasts that do a great job covering that including the ones that you’re featuring in this piece like The Energy Gang and Currents. What makes Watt It Takes unique and what draws people to it, are the personal stories.

One of the things I love most about Watt It Takes is that we record in front of a live audience of about 80 people at Powerhouse, and it’s so much fun. There have been many laughs, tears, and the occasional collective gasp. I think doing the shows in front of a live audience makes it feel intimate, like we’re experiencing the founder’s story together. That’s the whole purpose of Watt It Takes.

Richard Matsui: What are some things you’ve learned from hosting the podcast?

Emily Kirsch: We recently worked on a piece that highlighted the most harrowing and motivating founder stories from Watt It Takes from the past two years. There are two things that stood out to me from that review. One is that almost everyone we interviewed said that they thought the hardest thing was going to be the technology, and actually the hardest thing was people. Leading and managing people has been one of the most consistent challenges from founders that we’ve featured.

The other one that stands out is that almost everyone we’ve interviewed has talked about a time when they were a month, a week, days, if not hours from shutting the doors of their company. It’s something you don’t hear on other forums because founders are rewarded for telling everyone that we’re crushing it and it’s going great, but sometimes it’s just not going great. The guests we’ve featured have been willing to be vulnerable and share those tough times, and it speaks to their courage and bravery as leaders. Their vulnerability normalizes something that we all go through but don’t often talk about.

Richard Matsui: You talked about the vulnerability and courage of the people you’ve interviewed, but your podcasts are done with a live audience, in a room full of at least semi-strangers. I imagine it could be pretty intimidating for people to share their stories in a public facing event. How have you built a space that allows for that kind of vulnerability?

Emily Kirsch: It’s a combination of things. Oftentimes I already know the guest and have a relationship with them that’s built on trust. If I don’t know them yet, I’ll spend some time with them before the interview so they know they can trust me. I always tell them that the interview is in their hands and I’m not going to try to get them to say anything they don’t want to say. When people feel comfortable, they’re willing to be vulnerable in a way that they may not otherwise. Both Dan Shugar and Jigar Shah are known to have big personalities and aren’t known for their vulnerability, but those were two of the most humanizing interviews we had. It’s so important for people to see that side of leaders who are otherwise known for their exterior personality.

Richard Matsui: I remember listening to your interview with Jigar when he commented on the state of equality in the industry and his views on what gender equality in solar looks like. You’ve created space for some interesting and frank discussions that I’ve appreciated and found quite memorable.

Emily Kirsch: Women who have started companies so often get asked, “What’s it like being a parent and a founder?” but men don’t get that question. On Watt It Takes, if you’re a parent and a founder, man or woman, we ask how they balance those things. It’s so important to share those stories with our audience, who can relate to the founders we feature.

Richard Matsui: The comedian Ali Wong talks about that double standard in her Netflix special—the questions people would ask mothers but not fathers, who are (at least theoretically) also equally part of the parenting situation. You’re building that into the conversation, the portion that is often omitted, which is fantastic.

What’s the vision for Watt It Takes moving forward?

Emily Kirsch: There are so many inspiring founder stories yet to be told, and we’re excited to continue to bring people in and give them the opportunity to share what they’re doing with our listeners. We’ve featured founders of some of the companies that are most well known in the industry, like SunPower Founder Dick Swanson, the founder and CEO of Sunrun Lynn Jurich, and former CEO of NRG David Crane, but we’re also featuring founders who are much earlier in the process because we know that so many people in this industry are just getting started or are considering starting companies. We’ve featured founders like Etosha Cave, Co-Founder of Opus 12, Leila Madrone, Co-Founder and CTO of Sunfolding, and Christine Ho, Co-Founder and CEO of Imprint Energy; the point being that we want to highlight the next generation of founders and continue bringing those stories to our listeners.

Richard Matsui: Can you share a favorite episode or favorite moment?

Emily Kirsch: It’s really hard to choose a favorite episode, but one that stands out for personal reasons is my interview with Billy Parish, the founder and CEO of Mosaic. I’ve known Billy for 12 or 13 years now, long before he started Mosaic, and I worked with them in the early stages of the company. Ultimately, my experiences with Billy and Mosaic is what led me to start Powerhouse, so featuring Billy felt like we were coming full circle, and it meant so much to me. I’m grateful for his insights, and he’s one of the most thoughtful, intelligent, mission-driven people that I know, which says a lot given how many people fit that description that are part of the Powerhouse community.

Richard Matsui: We’re big fans of Mosaic here, too. Danny Kennedy has been hugely supportive of us from day one. He was our first Solar100 interview and he’s someone who is really supportive of folks who are new in the industry.

You talked about the vision for Watt It Takes moving forward and how you want to feature the next generation. Who would be some of your dream guests on the podcast?

Emily Kirsch: If we could fast forward to 2030, I would love to interview the founders who have done the most over the next 10 years to reduce emissions, to address the climate crisis, and to enable and scale energy and mobility solutions. I think some of the most important founders of our decade and century haven’t started their companies yet and maybe some of those are the very people who are listening to Watt It Takes or reading this piece right now. I would love to find that person who is inspired enough to take the plunge and feature them when they’ve had the kind of impact that the world is looking to entrepreneurs to fulfill.

—

STEPHEN LACEY, FOUNDER OF POST SCRIPT AUDIO & CO-HOST OF INTERCHANGE & ENERGY GANG

Richard Matsui: In the past we’ve gotten the chance to interview both your Interchange (Shayle Khan) and Energy Gang (Katherine Hamilton and Jigar Shah) co-hosts, so this one’s been a long time coming. To start, can you tell me how you first got started in solar and in podcasting?

Stephen Lacey: I first started in podcasting in early 2006. I have a media production background, and I got connected with a startup business-to-business publication called Renewable Energy Access. In the 90s, they were one of the first websites focused on the business of solar. They wanted to launch a podcast at the time when podcasting was really starting to emerge, and the founder of the company wanted to stay ahead of this trend. They brought me in to start the podcast because I had an audio production background, and that was how I got integrated into solar and also how I started my podcasting career.

That show took off and we were able to build a pretty sizable audience because we were the first movers in that space. Over time, however, the interest in podcasting waned a little bit in the dark ages between 2009 and 2013. We saw that audiences were continuing to increase, but there wasn’t as much enthusiasm about the world of podcasting. Over that period, I launched a small show at the Center for American Progress, and we did the Inside Renewable Energy podcast for about five years.

I have known Jigar Shah for a long time, so when I went over to Greentech Media in 2013, he called me up and said, “Hey, both of us love podcasts. I’ve been thinking about this for a long time. What do you think about doing a show where we break down the latest trends and news in clean tech?” And I said, “Okay, that sounds great.”  We’d both been following one of the first shows that did a round-table style conversation on politics, which is now a very common format. Katherine Hamilton was our policy expert over at Greentech Media, and we knew she’d be perfect for the show.” When we started the Energy Gang, there was still a paucity of energy and climate podcasts out there, so the show really took off because we were a first mover. I’ve since launched my own production company, and I’ve been doing a lot of shows in cleantech and in climate change, and beyond in tech and business. It’s been a long, interesting road.

Richard Matsui:  With Energy Gang, it sounds like you started with a combination of the idea, the content experts, and the podcasting. What have you learned about successful podcasting from that experience?

Stephen Lacey:  We knew that people were and are trying to figure out this space.  There are a couple of things that are important in podcasting.  One is consistency in co-hosting, because people get a special connection with the co-hosts. If you can pull together a few people who are able to digest trends and news consistently, that is compelling. People will get attached to that. It’s a really simple recipe, but when you pull it off, it creates something pretty special. We had been listening to podcasts and knew that to be true. Jigar is a big name as a business and finance expert, Katherine has a big name in policy, and I was a journalist, and because we all brought these unique experiences, it just came together and worked. We had some sense of a plan, but once those couple few pieces came together, the show really took off.

Richard Matsui:  It’s an interesting point that you’ve made regarding the trust a consistent host can build with an audience. There’s so much information out there that I can see the value in having someone who an audience can rely upon to filter out noise and help contextualize complex ideas.

Stephen Lacey:  That’s what’s brilliant about podcasting.  If you can communicate effectively, have good production, and have a good presence behind the mic, you can create a sense of authority that is helpful for people. That doesn’t mean that your audience has to agree with you. You can be a sounding board. That’s what the Energy Gang does—we debate. People disagree with us all the time, and that’s fantastic. What we do is provide context and a place for people to start thinking about the issues. We don’t have the definitive take; we don’t expect people to agree with us. What we have is three people who are entrenched in the industry thinking through the subject, and that helps listeners digest the big storylines of the energy transition.

Richard Matsui: According to Tech Crunch, 2019 was the breakout year for podcasts with both supply and demand on the rise. As the founder of Post-Script Audio, you’re now working on podcasting full time. With 700,000 plus podcasts out there, what are some other things that make a podcast stand out?

Stephen Lacey: Number one is investing in pre-production—think through what you’re trying to do. A lot of people assume that because they have something to say, they can just turn on a microphone and say it. That might work for some people, but it’s rare. The shows that really succeed are shows that have a purpose. That means investing a lot of time up front determining the show’s mission and sound.

Number two is investing in decent equipment. There is some pretty good equipment out there for a low cost, and you have to sound good. You can be the best host in the world with the most interesting things to say, but people will not stick around if your audio isn’t easy to listen to. If you put thought into the audio quality, you’ll have so much more credibility with your listeners. Bad quality will detract from the narrative no matter how good your questions are. Think about it—if I went to someone’s webpage to read their article, and it was in four different fonts, and all capital letters and the paragraphs were broken up, I wouldn’t read that article no matter how good the writer was. That’s basically what you’re doing if you have inconsistent audio.

Number three is consistency. There’s a term in podcasting called “pod-fading.” There are 700,000 podcasts out there, but a lot of those podcasts are not being updated. They petered out after ten or twenty episodes because they weren’t quite sure what their mission was or they weren’t getting an audience. Podcasting is a slow build. Podcasts don’t go viral, but when you do get an audience, people stay with you for long periods of time. You have to have consistency to grow a show.  The energy and climate space is starting to get crowded. That doesn’t mean that you shouldn’t be launching a show, but the most important thing for developing a new show is to survey the landscape and ask, “How can I do something differently? What can I do that is unique? And if I develop a show, will I develop something that my listeners will miss if it goes away?”

Richard Matsui: What are the most common pitfalls that you’ve seen?

Stephen Lacey: Bad scripting and the inability to tell a narrative. Conversations alone are not going to do the trick; you have to frame conversations. You have to make conversations matter. You have to create stakes. A lot of people who don’t come from a storytelling background assume that you can just have a conversation and it will matter on its own.  The majority of the time that isn’t the case. Good framing and thoughtfulness about why a listener should be listening is vital. I think that’s the biggest takeaway.

If you’re serious about doing a podcast, don’t just do it because you think that you have something interesting to say. Do it because you have a bigger goal, and you think you can do it uniquely. The podcasts that I see fail are podcasts that are clearly not thought out, or the host hasn’t really thought about her or his role. Thinking about why you want this show to exist in the world is important. In the early blog years, a lot of people thought, “Oh my god, everyone’s going to want to read my personal journey.” That was true for a little bit, but the quality shook out, and the people who were able to tell the best stories and adapt to the format were the ones who could make businesses and create really important messages. You have to have a clear direction and thoughtfulness about what you want it to be.

Richard Matsui: What I’m hearing is that podcasting is a medium, and it’s an important one that allows for a particular benefit and unique way of connecting, but at the end of the day, you also need to be able to tell a compelling story to use that medium effectively and to its best advantage.

What role do you think podcasts have in the solar media landscape, alongside more traditional print media and online articles?

Stephen Lacey: Podcasts create context and special connections to the people that are delivering information, which allows you to dig deeper into subjects. They’re really pivotal in this very crowded, disjointed, and troublesome media landscape. There are a lot of really important stories happening right now in renewables, and they’re underrepresented in the mainstream press. The industry is going through such enormous change, and it’s going to change the world in ways that a lot of people don’t understand. Podcasts enable us to tell those unfiltered stories, and  they give us access to the audience in a way that television news or even a lot of print reporting can’t do. The broader press has started to wake up to these stories, but podcasts still present a special connection with a listener that can tell these stories better. On the business side, they can deliver messaging about how the industry is evolving, what’s working and what’s not working, in ways that’s really compelling.

Richard Matsui: Which stories in solar have been thematically the most exciting to you over the course of your career?

Stephen Lacey: There are so many. One story that I think is misrepresented is just how ubiquitous solar has become in so many states. There has been a rapid rise in employment in workers throughout solar, in installation but also in sales, marketing, and office management. This is an industry that has become an important part of the American economy. Solar has far surpassed traditional industries like coal, and that story hasn’t been fully appreciated. Environmental groups and advocates predicted a rise in solar that a lot of people in the mainstream press and analysis didn’t appreciate, and now everyone’s realizing just how rapid that rise is. The rise in cheap renewables, particularly solar, has surpassed even the most ambitious expectations of ten or fifteen years ago, and the media is not quite grappling with just how transformative this industry is going to be. Is decarbonization happening fast enough? No. Absolutely not. But in terms of technology change and the way solar is going to force incumbent energy players to rethink how they do business, that is an extraordinary story that is still very much playing out. People who are not as familiar with solar don’t fully appreciate it.

Richard Matsui: Why do you think that story has been under-covered or under-discussed?

Stephen Lacey:  Well, you look around and you might think, “Okay, I see some solar on people’s houses, I might drive by a big solar installation on the highway, I can see that solar development is happening around me. But I’m still using natural gas to cook, I still drive my car, and I’m filling up with gasoline.” Solar isn’t around us in the same way.

People assume that something with transformative impact is going to happen in a way that will going to touch our lives  very quickly, and in reality, that energy change is happening behind the scenes. It’s in large companies’ plans, it’s in regulatory documents that influence utilities to build wind and solar and co-generation. It’s hidden, and I don’t think a lot of people who are outside of energy really understand it.

We aren’t going to wake up one day with solar everywhere. It’s really about the margins and how companies, governments, and eventually people change their energy plans.

Richard Matsui: What role do you see podcasts playing in moving that conversation forward and making it more a part of the mainstream consciousness?

Stephen Lacey: Podcasts can provide people with exposure to what is happening behind the scenes. That’s because there aren’t gatekeepers in the podcast space. It’s a very podcaster-to-listener relationship, so there’s an opportunity to do contextualized longform storytelling. Oftentimes you’ll hear professionals or analysts talk about these topics, and talk about why it matters. In my opinion, that’s more effective than just reading an article.

Richard Matsui: What are the parallels and differences between a podcaster and a journalist?

Stephen Lacey: You have to take your role seriously as a podcast host to the same degree that you would take it seriously as a journalist. I come from a journalism background, so I care about making information as factual as possible, as fair as possible, and with as much context as possible.  In podcasting, you have a lot of newcomers who don’t have a traditional journalism background, but you still need to be in service of context and facts. No matter what our backgrounds are, we need to be aware of our obligations to give the audience the best quality information possible, which is difficult. I think if you’re just focused on fairness and trying to get to the truth of something, you can do a lot of good and serve your audience well. Operating in good faith to the facts, the story, and your guests are the most important things.

Richard Matsui: Who is your dream podcast guest?

Stephen Lacey: I don’t have a specific dream guest,  But I have a dream outcome. I want to take a really complicated subject and tell the deepest story possible while keeping it accessible. For example, there was a lot of great journalism that came out of the financial crisis. It was very real to people’s pocketbooks, but people who weren’t connected in the world of finance (and even some who were) didn’t understand what happened. A lot of extraordinary storytelling has come of that. I always wanted to take an extremely complicated story like that and make it accessible to a lot of people. I’m still hunting for the right story around the energy transition or climate change that will have that kind of impact.

Richard Matsui: Are there any frontrunners that come to mind?

Stephen Lacey: It’s difficult for many people to understand how the energy transition is impacting businesses and therefore our lives. For example, we’ve seen these major shifts within huge capitalistic companies, and there’s an opportunity to tell a really deep, detailed story about why that really matters and what it represents.

The impact of climate change is also a very difficult story to tell. It’s a multi-generational, multi-decade story, and it’s becoming real for us for the first time. People are realizing that this is happening today, not far-off, decades from now. It’s happening right now. Telling that story in a way that makes people feel that urgency is something that I continue to strive for.

Swiss Re Inks Agency Agreement with kWh Analytics

Originally posted on Power Finance & Risk.

Solar data and risk management firm kWh Analytics has signed an agency agreement with Swiss Re Corporate Solutions.

The contract formalizes the cooperation between kWh Analytics and Swiss Re, which has already underwritten several solar revenue puts provided to solar project developers since the risk mitigation tool was pioneered in 2017.

Agency agreements typically define the ownership of renewals, commission percentages, and duties and responsibilities of an insurance provider and agent.

Swiss Re has underwritten solar revenue puts brokered by kWh Analytics for clients including GCL New Energy and IGS Solar (PFR 8/29/18, 11/19/18).

…