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Episode 58: Live at Solar & Storage Finance 2019

On this special episode of the Experts Only podcast, Jon Powers moderates the keynote panel at Solar Storage & Finance 2019 (New York City, 10/29/19). “Terawatts & Trillions” explores the need for
trillions of dollars in investment if we are to hit our climate change mitigation goals. At the same time, the power sector is undergoing a fundamental shift as generation becomes more decentralized, storage matures and comes down in cost and more technologies hit the sector. These factors create a huge opportunity for investors but the industry needs to provide comfort that the risks are low to attract more institutional funds.

The panel discussion features:

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Full Transcript:

Jon Powers:

Welcome to Experts Only Podcast sponsored by CleanCapital. You can learn more at cleancapital.com. I’m your host Jon Powers. Each week we explore the intersection of energy innovation and finance with leaders across the industry. Thank you so much for joining us. Welcome back. This is your host Jon Powers. Today we have a special episode live from the Solar Storage and Finance USA forum in New York City. We had a panel discussion on terawatts and trillions. The focus was this on how do we get to the trillions of dollars we need to hit our climate change mitigation goals. We have a really top tier panel and I hope you enjoy the conversation.

Jon Powers:

My name is Jon Powers. I am the co-founder of CleanCapital. And at CleanCapital we are working to accelerate investment into the clean energy space by bringing efficiency into the market. Over the last 15 months, we’ve gone from having, we’re on 50 million under management to half a billion because we have a platform is helping us to screen, acquire and then manage distributed generation assets. So we’ve gone from about eight megawatts to about 200 megawatts and are continuing to grow with partners like BlackRock and CarVal Investors and other institutional investors. But I’m also the host of a podcast called Experts Only and Experts Only focuses on the intersection of energy, innovation and finance. That’s what I’m here to talk about today. We have a phenomenal set of speakers, which I’ll get to in a second and allow them to sort of introduce themselves as we get through the questions.

Jon Powers:

But really the mission we have today at the Solar Storage and Finance USA conference is to set the stage for the conversations later. We were specifically even challenged to really talk about how we can start to think big about this market. That’s why it’s called terawatts and trillions. But before we think big, I do want to challenge us to step back a decade. And first there’s a poll, a first poll if you can pull up, ask you to take a look. And the question for the poll is, were you in the solar energy storage or clean energy industry 10 years ago? I certainly was not as our crew to raise their hand if they were 10 years ago. So let’s look back a decade in 2008, the total capacity of solar grew 17%. It grew by 1.265 megawatts the entire year. In Q1 of 2019 we grew by 2.7 gigawatts in solar PV just in the first quarter alone. So what does that mean as the market has evolved?

Jon Powers:

I wrote an article a few years ago in the evolution of solar finance. Looking back at sort of 2000, 2008, 2009 when you just had the energy security act passed by president Bush in a Democratic House and Senate and establishing investment tax credit. You had the influx of capital around the financial crisis, the government capital that helped move the reinvestment act, to help move shovel ready projects forward. And you had a very inefficient market for things like solar. One people didn’t know these panels worked. They didn’t know if there was enough sun in New York to make them work. Very few people had heard of a Power Purchase Agreement and you’re trying to convince a CFO of a big box store that they should put this on their rooftop. Flash forward, and the investors in that space are high risk, high reward, meaning high cost of capital.

Jon Powers:

But to continue to see this market scale, we needed to bring down that cost of capital and really scale in the capital that’s going to drive us to the solutions we need to face regarding climate change. And the timing couldn’t be any more critical. We’re continuing to make greenhouse gases at a rate that’ll result in $54 trillion in damage by early 2040. There are deep capital resource needs and institutional investors are just beginning to move into the space. Some of the investors on this stage today have been doing this for a while, but there’s others that have been talking about, for instance, divesting from fossil fuels but not many are taking that next step. For instance, the Harvard endowment announced earlier this year, they’re going to invest in cryptocurrency, but they think clean energy is still too risky of a bet, but that’s what we face.

Jon Powers:

Series put out a report a few years ago. It’s going to take us $1 trillion in investment a year to help keep ourselves below two degrees. That’s a significant uptick from where we are today. But we are going to talk today about how we get there because the global trends are really clear. The technology is proven. Unicorns like energy storage are following in the path that solar head set moving us to distributed generation with certain policies that are in place and helping it scale. By 2035 more than 50% of global power generation is expected to be renewables. Solar and wind are the cheapest forms of power in two thirds of the world today. This April for the first time ever, renewable energy supplied more power to America’s grid than coal. Amazing transformations that are happening both here in the US but also globally.

Jon Powers:

Thanks to leaders like Alicia and others setting the policy stage. But thanks to many folks in the room who are helping to break these deals apart and bring in the capital and to move it forward. So the opportunities are immense. The challenges are immense. So we’re going to start to talk through those today and I’m going to open up with our first speaker and I’m going to have each of the speakers introduce themselves through a question. That way I’m not just going to sit here and read bios for you, but you can find their bio’s in your book. Mona is the head of a global head of energy and infrastructure for Pillsbury, Winthrop, Sean Pittman, one of our sponsors today. So Mona, we’re seeing tremendous in the space as well as a cultural awakening around climate change. You’re a really well-respected voice in the marketplace as well as the media being on CNN and Bloomberg and other places. Can you discuss a little bit of the macro trends you’re seeing in the market and maybe set the stage of where the market is today?

Mona E. Dajani:

Sure. Delighted to. Good morning everyone. How are you doing? We’re lucky that we don’t have the torrential rains that were predicted this morning. I want to talk just globally on a macro level. Obviously the emphasis today is going to be on solar and storage, but I’m going to go even more macro and just talk about, just briefly about renewable energy. As Alicia and Jon have emphasized, we’ve seen a real big just sea growth of change in renewable energy investments. There was 350 billion. This was one of the numbers that was quoted to me in 2018 just in renewable energy. We’re seeing the entrance of more strategic investors in the space and for example in Europe, Engie has announced that they’re going to be investing between 12.5 billion and 13.5 billion in renewables and behind the meter solutions. And now is saying that they’re going to be developing 11.6 gigawatts of solar capacity in 2021.

Mona E. Dajani:

Meanwhile, here in the US there has been what has been reported as 12.5 billion just in the solar space with their strategic investors. We’re also seeing a lot more financial sponsors entering the space. KKR agreed to make a 900 million energy investment in NextEra. We also have governments that are actively becoming more involved. Such as in Europe, we have Greece and France have announced new energy plans to promote renewables, while in the US we have local government and States have continued to drive the renewable progress with RPS and CPS standards. We have States such as New Mexico, California, Hawaii, Washington, Puerto Rico that have 100% carbon-free goals. Here in the US we also have a lot more corporations that are entering into this space. We have over 200 Fortune 500 companies that have launched renewable and sustainable programs and impact investing.

Mona E. Dajani:

Then while we’re also seeing that the growth in this space has created some challenges for the legacy fossil fuel industry. The Norwegian government has proposed a phase out of certain oil and gas exploration and production and the German government has announced plans to shut all 84 of its coal power plants by 2038. From just to speak a little bit about the energy storage space that has… Forbes was quoted as saying that they expect this to be $150 billion industry by 2023. This was in an article today by Forbes. The two drivers that we’re seeing for storage are the mobility market and also the cost declines in the space. We’re seeing real leadership in four distinct countries. The first one is China. The second one is India. The third is the US and the last we’re just combining all the European countries, EU.

Jon Powers:

That’s an interesting ranking.

Mona E. Dajani:

Yeah. So I think that’s a kind of an overview of both the space just to set the stage a little bit. Jon, if that’s okay.

Jon Powers:

No, that’s great. It’s really helpful. I think one of the untold stories here domestically is what’s happening in China. 40% of all panels deployed last year were deployed in China. They’re growing at a phenomenal rates. I’m going to transition now to Rael who’s the director of real assets and infrastructure and renewable power at BlackRock. BlackRock in full disclosure is an investor of CleanCapital. So as we read you some of these numbers, some of those numbers are coming to us into our projects. Keep them coming. BlackRock’s the world’s largest money manager with over 6 trillion in assets under management and boasts more than 5 billion in asset under management in renewables. There were 250 wind and solar projects both domestically and globally. Rael, can you give some history on BlackRock’s involvement in the space and why is one of the leading asset managers taking such a progressive view on renewables?

Rael McNally:

Sure. Happy to. And thanks everyone for having me this morning. I think if you look at Larry when he’s on his pulpit, he’s a very vocal advocate for the pricing of carbon, externalities. So it’s something that’s close to his heart and it goes beyond just pricing carbon externalities. When you think about the DNA of BlackRock is primarily a risk shop. So the first thing they think about when they think about any kind of investments is downside risks. They’re not thinking about knocking it out of the park. Their orientation as kind of a bond house is always to the downside. So across our client business, which obviously is huge in the insurance universe and the pension universe with long dated asset liability matches, they’re very focused on the impacts of carbon. Thinking about kind of the increased, I guess volatility in weather environments, weather patterns. So it’s pretty natural when you take that kind of top down view that they’re as big as they are in renewables.

Rael McNally:

But they took the plunge over eight years ago, back in 2010, ’11 to start the infrastructure business at BlackRock by taking a team out of a kind of a private equity family office that had its roots in core infrastructure but had over time migrated to clean energy and renewables. So I guess I’m one of the people that’s just about being in solar for 10 years. But at BlackRock that’s the way they wanted to start the infrastructure business. I guess if you objectively think about BlackRock is just six plus trillion, nearly 7 trillion now, you would think a big generalist fund is what makes sense. But for them they wanted to do something that was sector specific, that targeted kind of a growth area and that build an expert in industry team of folks from the space around it. So we’ve got technical folks, we’ve got developer owner operators on our team globally and there’s 45 of us just dedicated to deploying that 5 billion.

Rael McNally:

We’re in the market raising our fifth global product, targeting the space. And it really is for them, it’s that just longer term view. They don’t think three years, five years, they think 20 years. They think about what’s coming down the track and they’re trying to plow a furrow that they felt it wasn’t adequately addressed. I think if you look at any infrastructure manager now, they don’t need to be renewable specialist. Renewables additions for the last five years, year over year have been North of 50%. So if you’re in any generous infrastructure or power fund, you’re in renewables. That was the narrative around where the market was going and they wanted to build a dedicated team. We’ve obviously supplemented that group. We now have 25 billion in infrastructure across debt and equity, across power more broadly, but certain regional strategies, but we’re going to continue to grow. But equally we’re staying strong in the renewables dedicated space.

Jon Powers:

Just a quick followup. You guys are at your fifth raise in the structure and is there any clear… I mean, raising money is never easy, first of all, but is there any clear momentum building after fund in this space?

Rael McNally:

Yeah, there is. I think it’s always, the market is not saying still. So what worked in 2011 doesn’t work in 2019 from a cost of capital perspective, from a risk perspective. Back then it was taking construction risk was a differentiator. That’s not enough anymore. Understanding solar was a nuance that we had that others didn’t have. That’s not enough anymore. So for us it’s now moving closer to the customer. It’s moving to the distributed model. It’s thinking about solar plus storage, standalone storage offshore as kind of the next wave of things. And again, we’ve dipped our toe in most of these things over the last eight years. But we’re constantly looking at three to five years to try and stay relevant. So our first fund was kind of the rise of renewables. Second was probably mainstreaming and this global fund is really about climate infrastructure. So it’s the broader transition of the energy mix, not just in generation, but the overall consumption towards electrification.

Jon Powers:

That’s really fascinating frame. It sort of maps the growth of the industry. So Simms Duncan is a senior director in project finance in M&A at Lightsource BP. First of all, he’s a Navy guy, so I’m not going to hold that against you, Simms. But I will say go army in a month. You’ve got incredible chops in the project finance space and we’ll talk about some more of that later. But first of all, how is BP in oil and gas super majors sort of approaching the solar market and how does that approach differ from others in the space?

Simms Duncan:

So I guess I’d start out by saying that what we observe is a real dichotomy between some of the European sort of super major oil companies and the American oil major companies. So if you think about Total and Shell and BP, all of them going back some number of years have taken pretty proactive steps into the renewable space. ConocoPhillips, Exxon, not quite so much. I think a lot of that is probably driven by their shareholder basis, which are quite different in the pressure that they feel and the sensitivity to the climate change issue perhaps being a little bit more, a little heightened in Europe as compared to the US. So we’re seeing those companies and certainly BP, this is BP’s kind of second trip to the plate with solar for those who have been around. I was one who voted yes in the poll. I have been in the industry for more than 10 years and I have been around to see BP play at this game once before.

Jon Powers:

We own some of those original BP solar pannels.

Simms Duncan:

So I guess that would be my first comment, my second comment would be that there are different approaches to playing in this space and I’m very happy to be affiliated with BP in this regard. You see some of the majors take kind of a venture capital approach, make acquisitions or small investments in a number of different companies to just kind of see what works and what floats. BP has taken the opposite approach really, which is to select a platform in the solar industry on a global basis, lend its brand to that platform, that being Lightsource, now Lightsource BP and really pour a lot of support into that platform. So we at Lightsource BP or are pleased to be one of the very few companies in the BP umbrella that is actually branded with BP on a global basis. And we are their exclusive solar provider globally. BP doesn’t have quite the balance sheet maybe of a BlackRock, but I think it’ll take some big oil and gas balance sheets and other balance sheets coming into the space to advance the industry.

Jon Powers:

So unique focus coming into BP second round, where how has that experience from the previous time BP was playing in solar affects your day to day now?

Simms Duncan:

Well, I guess you could look at it in… Well, the first BP’s first approach to the solar industry was of course a manufacturing approach. That didn’t work out so well when the Chinese kind of took over a huge market share of manufacturing. They’re taking a development approach, which I do think is kind of closer to home for an energy development company that has 100 year history in the industry. That’s one thing I’ll say and then secondly, what we feel every day of course is a tremendous amount of support, balance sheet support, introductions in the marketplace. Just a lot of support coming to us from BP. And there’s just no question that they’re committed to the industry for the longterm. That BP is not going to fail a second time in this industry.

Jon Powers:

Well, that’s great. So we’re going to do another round of questions and I’m going to open it up to the audience. If you’ve got questions hopefully more active in the last open session, please think about them and I’ll open back up to the audience. But I do want to go back to that series study and the fact that we need to get to $1 trillion of investment to hit our climate goals and ask just to poll the audience, how long will it take for us to reach $1 trillion in investment in clean energy? Less than five years, five to 10 years, or more than 10 years. So there’s continued momentum in the space. We’re seeing new players each quarter, bringing down the cost of capital.

Jon Powers:

Mona, my first question is for you with, I mean, you’re seeing so many transactions and the deal ecosystem has really grown in scale over the last decade. But now we’re talking about a need to even triple that. If we’ve got 350 billion this year or last year, if we’re going to get to a trillion a year, is the ecosystem ready for that? What’s got to happen to really scale the deal side of this to be able to get that much capital out the door?

Mona E. Dajani:

Well, I think that from, there’s going to be more… I also have been one of those people that’s been in the industry for more than 10 years. When I first started doing deals in the space, it was over 20 years ago and there were very few specialists in the space. So there are very few like third party, like accountants and engineers, IEs, of course law firms. As I’ve seen this space mature, we’re seeing more proliferation of these third party like support providers. I’m seeing a massive shakeout too because those law firms and those accounting firms and those IEs that are really top of their game are the ones that are doing like us at Pillsbury, soup to nuts everything. And we know everything in this space. We’ve seen it all. We don’t have to ask someone to help us, accounting firm or whatever to understand what for example the tax credits.

Mona E. Dajani:

So you’re seeing a shakeout, there’s a massive shakeout right now. There’s a lot of movements and the stronger players are the ones that are known and that are succeeding and that really do everything soup to nuts in the space. So that’s kind of what we’re seeing. So to answer your question, are we ready? Yes. It’s already there. It’s proliferating. All the stronger players are moving and consolidating with other stronger players.

Jon Powers:

Is that consolidation? So I think about some of the growing markets in the space in general, right? The utility scale spaces is there and grown and a pretty mature, residential solar is happening at sort of a rapid space where policy supports it. But that sort of middle sweet spot of distributed generation, commercial, industrial, the deals aren’t that thick to begin with. So there’s a consolidation of these services and sometimes the cost of that consolidation. How’s that going to affect the ability to really scale up a space like that where you need really almost every piece of the capital sector?

Mona E. Dajani:

Well, I’ll just say how we work at Pillsbury, because we have the expertise and it’s very deep, we can do things more efficiently and faster. So that I think speed and efficiency are very important in this space and you have to be able to react very quickly or else you can lose a deal, you lose your snooze. So that’s really what we’re seeing more of. And you just really, you’re seeing a lot more expertise that can deploy many different work streams all at once.

Jon Powers:

Yeah. Rael. I want to go, you guys are looking not just domestic US but globally, but you mentioned some of the trends of those five different funds and sort of where you guys are today. How is BlackRock beginning to manage moving out of, I think what have traditionally been sort of the utility scale stuff into that mid range distributed sector?

Rael McNally:

Yeah, I think we’re still playing in both to be clear. So I think we just trying to say with the evolution of where the market’s going. Fundraising is slow and tough and the idea that you have marketing and strategy that works now, you find out the markets move by the time, which is what happened, essentially with our first fund. The market was moving as we were a capital raising and by the time we were in the deployment window. Return expectations that tightened, we had to work harder to find the right product and kind of middle of the fairway deal, which is what we sold with that first fund. For us being been global is increasingly important to get that relative value picture because you will always have some issue, be it expiration of tax credits, tariffs, the impact on domestic markets and congestion or concentration risks in any particular market. So for us trying to deploy one in this fund will be two and a half billion of cash equity, we need alternate avenues.

Rael McNally:

We can’t just be kind of banging our head down a single channel. In terms of the different markets like the US is many, many different markets. I actually think in the context of where other markets that historically have been much more straight forward, European markets with feed in tariffs, busbar plug and play a price you get day one, it’s pretty de-risked and very straight forward. The US has always been a more competitive environment with the RFPs and that’s where the rest of the world is going. So understanding that we’ve obviously got a much bigger, deeper liquid power markets, that’s now proliferating. As you look at RFPs that the Iberian peninsula is essentially liquid wholesale power market, the Nord pool or the Nordic countries are another liquid power market. They are starting to mirror what we’re seeing in the US in terms of big commercial and industrial consumers that demand clean energy going direct buy or to partner with projects.

Rael McNally:

So I think a lot of the learnings that we’ve had from being here the last eight years and we have a global team but are now starting to… The scars we have on our back is probably a better way of putting it from the last eight years are now starting to bear fruit in terms of how we think about international markets and opportunities. We’re really excited about APAC because it still has that long dated investment grade busbar off take and it’s got other challenges that need to be worked through. But in terms of the relatively low risk, easy access, opportunities, there are markets you can participate earlier in and kind of disintermediate local pools of capital that ultimately are cheaper. And they were the right buyer and holder for a core asset in that domestic currency. Then the other markets were pretty judicious in how we’re going to target and capital deployments in spite of trying to deploy two and a half billion.

Rael McNally:

But we’re trying to find good partners. So across the 5 billion we’ve got 27 partners that we’ve invested with. So we’ve got more than 260 projects now. So it’s more than 10 projects and partners. We want to find relationships with people that are like-minded, that understand the asset class and that aren’t necessarily looking for that kind of immediate quick book but want to build a book and build business and build capital and value creation for themselves and we’re happy to share that, but we want to participate in that kind of environment. And particularly as you get into the smaller scale stuff and energy storage, which is much more nascent, that mindset is really important to us to find a partner that wants to kind of be in it for the longer term, create value and be a leader and a player in the space. If that isn’t necessarily thinking about how to flip this one five megawatt project and maximize the last dollar.

Rael McNally:

There’s give and take in a broader relationship where the suboptimal deal gets done because some good deals are getting done and we’re all making money in the longterm when it’s much more kind of last dollar or last cent. That’s a really tough place to pay on a case by case basis.

Jon Powers:

Yeah, it’s interesting. And with CleanCapital we are a longterm player and I think what’s interesting is we’ve had these… we’re buying up assets from folks that were buying and flipping. The relationships with the off takers and many times are challenging because of that. You have to go back and rebuild the trust of the facility manager at a university or the school superintendent where you may have 15 different systems and that takes efforts because the previous owner never returned their phone calls and were only interested in holding on long enough to flip out.

Rael McNally:

Yeah, that’s huge for us. The ESG and community engagement piece is massive because that’s over 20 years, you’re going to need to go back and you’re going to need to work with you.

Jon Powers:

Absolutely. We’ve seen obviously solar rise, standalone storage is really on the move and the next phase that everyone continues to talk about is solar plus storage. You’ve got a unique background in this space and led one of the industry’s first financings of the integrated solar plus storage PPA with an infrastructure investor. Can you paint a picture of what that deal look like in some of the challenges you had sort of explaining that new approach to an institutional investor?

Simms Duncan:

So I guess the first thing I’d say about solar plus storage is that it’s not just twice as complicated as solar. It’s like an order of magnitude more complicated than solar. When you think about the power flows, there’s just a lot more places the electrons can go and a lot more losses they can experience along the way. It’s not a single product or value proposition you’re making to the customer. You’re making two or three and stacking them together in terms of energy price arbitrage, backup resilience services, as well as trying to provide a price of energy that’s cheaper than retail grid price. Then of course, all of that is manifested in a contract that is quite a bit more complex than your standard solar PPA. So it’s a complicated business.

Simms Duncan:

But I think part of the question was, is the market ripe? Is the time for the market now? I guess, I would tell you that my first grader yesterday in a little town, a few miles North of Palo Alto where I live, his school had no power because of the PG&E outages of course that we’re reading about in the newspapers. But school was open, so he went to school all day long, indoors in the classroom without any power. The ironic thing is that just this past summer, the school on a hillside, kind of on the backside of the campus, installed quite a large, behind the meter solar system. So it would have been and not that there’s not complexity involved and it would have required a decent size battery system to power a whole school for a whole day.

Simms Duncan:

But you can imagine that there could have been an interim solutions there. What a missed opportunity to power that school? And quite a few parents kept their kids home from school that day and that ripples through of course, but what a missed opportunity to install a battery and keep that school going with power during the day? Obviously 10 years of power outages in the state of California while we fix the system is not a good solution.

Jon Powers:

Yeah, that’s an interesting. We are actually living that situation right now, some of our portfolio, we have… I won’t name the school, the school is in the district. They are being affected by the PG outage. And it was amazing the response we got when we reached out to those superintendents and said, “Would you consider adding storage?” And they said, “Let’s talk tomorrow.” And they didn’t even really know what storage was, but they said, “I have the solar panels sound helping me today. PG is not there.” So I have a theory that the PG&E crisis is going to help us leap frog and transition more efficiently if we can get to not just new solar plus storage, but retrofitting solar plus storage.

Simms Duncan:

I couldn’t agree more. But I’ll tell you that the vendors of generators, diesel generators are out there chasing the same business.

Jon Powers:

Exactly.

Simms Duncan:

You’ve got to be aggressive to get it.

Jon Powers:

So I’m going to open it up to the audience. First off, if there are any questions, please use the mic and any questions for the audience. I’m over here is where we wait for a mic.

Sangeeta R.:

Good morning. My name is Sangeeta Ranade. I’m with the New York Power Authority and we are doing lots of projects with the governmental sector on the solar and the storage side. But we’re able to do that because we’re a state agency. So there’s a level of risk that we can adopt. I was just curious what you would need to see in the storage market to feel like those contracts are bankable, just to get a sense of where you need the market to go to make that more scalable.

Rael McNally:

So yeah, look, I think it’s a nascent market. I think what really helps solar accelerate the way it did apart from the cost savings is the fact that they were getting long dated low risk contracts. I think if you really want to spur growth capital investors with low costs, particularly low cost of capital, to avoid that, to skip the VC phase and the PE phase and to get the infrastructure capital, you want to see high quality investment grade contracts with duration. Batteries generally speaking at the moment anyway, are assumed to have about a 10 year use for life. So at least if you can match that and provide some economic return above kind of the cost of the facility, that’s essentially what people are looking for. The challenge from one of the questions whenever they get them back up is around merchants, standalone storage and that’s a really attractive notional market opportunity.

Rael McNally:

We saw the PJM Reg D market, which is a really shallow high value market. They’re completely saturated. Then they also changed the kind of the signal or the shape of construct that they wanted for the battery, that configuration, which essentially meant that newer technology was already going to make the existing infrastructure obsolete. And that’s the real risk with being merchant in an asset class where the technology is improving so fast and getting cheaper so quickly. But we all see how our iPhones perform when we use and abuse them. I’m probably most guilty of that, given that mine smashed. But if you do that with a battery, we don’t know the use case, we don’t know the opex, they’re all interrelated. There’s a lot of complexity to Duncan’s point. So straight forward homogenous contracts with a decent piece of duration is what’s going to get you the most capital flows that are at a cost of capital that makes it efficient.

Jon Powers:

Any other comments on… Oh, go ahead.

Simms Duncan:

In the CNI space I would certainly agree with you and when I was developing solar plus storage projects a few years ago, we took the [inaudible 00:34:00] sort of standard CNI contract, kind of downloaded it from the website and tried to make as few changes as possible in order to have it look and feel as similar to a standard CNI contract as possible. In the utility space of course the contracts are all custom regardless and that’s not something you’re going to change anytime soon. So I think as long as there is a good solid value proposition to the utility, along with the a credit worthy counterparty, you’re going to be able to get through it.

Rael McNally:

Actually that’s a really good point. The one thing I would say as well, the use case for batteries is so broad. So you’re going to need a contract that matches the use case otherwise that mismatch again impacts useful life cost opex like functionality.

Jon Powers:

Any other comments on the merchant associated question?

Mona E. Dajani:

I’ll just say we’re seeing merchant a lot with a spec-data centers and this solar and storage. I’ve seeing an uptick on that.

Jon Powers:

In the back.

Emily E.:

Emily Easily, with Novus Clean Energy. Jon, this one’s for you, especially since you’re sitting next to your lovely partner there. I recently sat in a room with $72 billion of capital that they wanted to deploy in energy space and they don’t know where to put it. And its endowments, it’s family offices, they’re scared of oil and gas and they’re scared of the returns for clean energy. So from your perspective of CleanCapital, how do you continue to compete knowing that you’re probably not the cheapest capital in the room and drive those returns for your investors?

Jon Powers:

That’s a good question. So at CleanCapital, what we do is focus on that distributed generation space. One thing I didn’t talk about during the introduction is we’ve actually built a technology platform that we use to underwrite those deals really efficiently. I’m going to use a live example of a deal we did almost a year ago. It was 46 megawatts. It was 60 different assets in that transaction. These are all operating solar projects and it got repeatedly passed over by a lot of the institutional investors because it was just too much to due diligence. We’re able to take that technology… our technology allows us to see into those deals in a way that others can’t and quickly and efficiently underwrite them and then come back and say, “Look, understandable, this is a lot easier to do one big deal that’s utility, but look at all the value opportunities across this portfolio that you can optimize and drive future value.”

Jon Powers:

So you’d have a great base case here, but look at what you can do by tweaking this and tweaking that. Great example, people had been owning this thing. We’re paying tens of thousands of dollars a year, almost 100 thousand dollars a year to mow the lawn and one of the solar systems that was in the desert. And we called the OEM company the next day, we’re like, “Hey, that contract is done. Thank you.” But it takes that level of in the weeds and not everyone can do that. And that’s our value proposition at CleanCapitals. We can get in the weeds, not just when we buy the projects, because as we talked about earlier, we are longterm owners. All of us represent any other capital, but we take a really active asset optimization example. So the school’s superintendent and PG&E that we called last week, it wasn’t the first time he heard it from us.

Jon Powers:

The previous owner, this is a system that was all tilt access to solar and all the accesses were different directions when we bought it. And he said, I’m not an engineer, but I know that’s not the way it’s supposed to work. We actually got in, fix the system and then continue to build a relationship, providing for instance, curriculum to the schools that they can use for educating folks on solar. Nothing we developed stuff that we have sort of found it online, built that longterm relationship. So when we called him up, he answers our call and is willing to sort of work with us. So that that is our strategic advantage in this space. Other questions? I’m going to go to the second question here, which I think is interesting. Are we in danger of building too much, too early? Other industries especially telecoms did this and caused sort of the.com bubble. I’m going to first turn to a Mona who’s been in the industry for a while and get your thoughts on that.

Mona E. Dajani:

I think it’s certainly true that we’re moving faster than expected, but we’re seeing both the… there’s drivers that are pushing this to go forward. I mean what I was, the EV market is huge. What I was talking about earlier with mobility is really a driver in this. So there’s this, with the cost of declines together with the demand in energy and mobility is really driving this. Do I think that we’re in danger of building too much, too early? I don’t think so because they still need to be bankable and we still need certainty and good money is not going to go after bad money and it’s very difficult from my perspective. I’m not going to work on a deal that I know is not going to happen. So I don’t think it’s the exuberance that we saw during the.com crisis at all.

Simms Duncan:

To the best of my knowledge, the vast majority of energy storage contracts or integrated solar plus storage contracts are fully contracted off-take. I’m not aware of very many projects that are pure merchant players, so I don’t see there being a risk of an overbuild in the near term.

Jon Powers:

Yeah. Interesting. So I do want to end, we’re a little bit over time. But I do want to just put one last sort of challenge out to the panelist and if you look back, again going back to the series study, we need to get to $1 trillion, folks that you think you saw in the poll, see that as possible in the next five years but there’s a lot of barriers to get there. Just quickly, one, what’s the sort of unspoken challenge that you sort of see in the market that’s not talked about at a conference like these to get there? Then, two give us some hope on why we can get there. I’ll start with Rael.

Rael McNally:

The challenge is vested interests. So it’s the incumbents basing what’s already been approved, maybe it’s no longer efficient. It’s struggled to deal with the intermittency of on-grade renewables. Obviously storage has a role to play in helping mitigate that. I think more diversified generation or consumption moving to kind of a co-location model has a role to play in modifying that. But it’s hard for folks to let go. Like you’ve seen FPL resists incredibly strongly in their footprint, having renewables in spite of being one of the biggest renewables developers to their unregulated arm. But now that they’re activity moving in and building things to go to clients and say you want renewables, we’re building renewables, buy from us. So I think there are lots of ways to facilitate it. I think that the biggest challenge… mostly growth through 2050 is coming in emerging markets in renewables.

Rael McNally:

So as we talk about OECD markets and our market here in North America, it’s dealing with the incumbents and the fact that it is legacy sunk costs that either needs to be recovered or written off. That’s a difficult ask in political cycles, for regulators for lots of different reasons. But I do think the narrative from States, from cities, from commercial industrial off takers and from the consumer base, people are just starting to really push and demand accountability and demand that people take steps on this front. So I think that’s the positive. I think government organizations are starting to open the checkbook for the asset class to try and solve solutions. That could be big bank stopping buying bonds of banks or other companies and starting to focus on green bond procurement to change the orientation around how people are thinking and they think the more of a sustainable kind of longterm mindset.

Jon Powers:

Thank you. Mona.

Mona E. Dajani:

I think that we want to have bankable deals and we want longterm certainty in the space. I think one of the challenges that we have is that we have here in the US mixed policy signals from the federal level and from the state level. And you’ll see certain States that have really, really advanced the cause and they’re attracting a lot more clean energy projects. And there’s other States that have not, but I’m hopeful that based on the demand from consumers, from corporations on the hill that we will change our longterm federal policy for carbon free electricity. That we will also see the need on a more global basis for grid modernization, which is also going to propel the policy and also expansion of RPS and CPS together with reforms that have already been discussed and already both at the federal and state level on permitting and citing.

Jon Powers:

Interesting. One just follow up to that. As someone who’s been in the policy space and worked in the advocacy space, I challenged the audience. One of things we did at CleanCapital is we tagged an intern to go through all of our projects and identify which congressional district it is in. And it was amazing to see the spread of districts, both democratic and Republican. Then we sent a letter recently to those members advocating for the ITC. It’s very simple job, literally driven by an intern. It’s something that has a great voice to say, “Hey, we are providing jobs and support in your hometown, please support this credit that’s going to make a difference.” It’s on all of us to make that fight and make the case to… the policies are in place for us to get there. I’m not sure it’s going to happen before 2020, but we should be advocating for it anyways. So Simms.

Simms Duncan:

So a short time ago we signed a 130 megawatt PPA in the state of Alabama. And Alabama has no renewable portfolio standards. It really has no renewable energy incentives at the state level at all. And we won that contract because in Alabama, solar is the cheapest priced new form of energy. And as a relative Lightsource and Lightsource BP have been around for eight or 10 years, but in the US we’re a relatively new player. We’ve been in existence in the US for two or two and a half years. But with a strong balance sheet and a strong brand, we’re seeing tremendous growth. So I’m not really worried about the growth opportunities. I think certainly policy with the ITC and with tariffs and all that sort of stuff is disruptive and presents a challenge to the industry. But I just hope that some of the exogenous factors like support for coal and nuclear doesn’t sort of take root and cause the problem for us.

Jon Powers:

Well, I ask for a round of applause for our panelists. Thank you so much. You can see the kind of conversations we have at Experts Only. So I sort of challenge you to go to our website at cleancapital.com. You can get more episodes. Just recently had on the CEO of Proterra Bus, have the chief environmental officer of Microsoft talking about some of the interesting trends that they’re seeing in the space. I want to thank you for the audience. Thanks.

Jon Powers:

Want to thank the team for Solar Storage and Finance USA for letting us be part of this conference. It’s a great conference of transactional focused individuals. Look forward to being part of it next year and want to thank our team and Carly Battin our producer. You can always get more episodes at cleancapital.com. I look forward to continuing the conversation.

Jon Powers:

Thanks for listening in today’s conversation. Find more episodes on cleancapital.com, iTunes or wherever you get your podcasts. If you like what you hear, be sure to subscribe and leave us a five star review. We look forward to continuing our conversation on energy, innovation, and finance with you.