Jon Powers:

Chris thanks so much for joining us at Experts Only.

Chris Archer:

Thanks very much for having me Jon.

Jon Powers:

You’ve got a really amazing background and I’m going to dive into the professional side in a bit. But you were just talking about flying, you grew up in a military family and moved around a little bit. But you ended up in your university years in London. What in that experience really triggered you to get interested in finance and then later in the environment?

Chris Archer:

So I started off doing a civil engineering degree. I actually applied to do a mechanical engineering degree and then spent a year with the British Army Royal Engineers, which was more civil engineering kind of like, well at least military civil engineering, so building bridges and things like that. So switched to a civil engineering degree. And I guess the thing that motivated me to want to be in civil engineering was the idea of being behind, making big projects happen.

Chris Archer:

So for me that was one consideration. And I guess the other consideration was I had a really fantastic economics professor when I was at university. He was a transport economist and he used economics to solve real world problems and particularly real world problems around the provision of infrastructure. So whether it’s roads or whether it’s railways and houses, used kind of economic modeling to create signals for new investment in those pieces of infrastructure to reduce congestion or to make public railways more efficient.

Chris Archer:

So that got me quite interested in how all that works and actually I was more interested in the theoretical models of economics then in the theoretical models of how to stop a bridge from falling down.

Jon Powers:

Right.

Chris Archer:

So I started looking for a job that could combine kind of my two interests, one which was economics and finance and kind of how you pay for things and how you measure demand and pricing. And the other thing, which was making big projects happen.

Jon Powers:

Yeah. And was Macquarie the first place you went post university?

Chris Archer:

Yeah, pretty much. I did a little bit of consulting and a little working for a consultancy that my economics professor ran. But pretty much I joined Macquarie as a graduate, but kind of a year after graduating.

Jon Powers:

And then when did you transition from, you transitioned to the US to sort of lead the green energy for America’s practice. But that’s after having spent a significant amount of time working on these issues in London, right?

Chris Archer:

I guess we were in a team who’s purpose was to find big projects to invest in and sort of pull together the delivery of those projects and guess the equity and then ultimately sell that equity to infrastructure funds or pension funds. And so we were always hunting for the next projects. It was actually, especially in Europe where projects actually had quite, infrastructure projects were procured by governments and real projects had a lot of similarities, the revenue streams were relatively contracted or vested in government banks renewable energy certificates.

Chris Archer:

It was actually for me easier to find renewable energy projects at some point then to bid for these complex government infrastructure projects, which took many years to come to fruition. A renewables project, you could just go chat to a developer and then come to an agreement to provide financing to that project. And it was a much quicker and a lot more opportunity. And I guess that would’ve been sort of 2012 time when we really started looking at that. And we also looked at, across the team I started to look at solar, there was someone else who was looking at the transmission rights for offshore wind. And then we started looking at the off shore wind assets themselves.

Chris Archer:

Energy, which had been procured by government through PDP structures and buying those projects were also a feature. So between sort of 2012 and 2014, 2015, the Macquarie team, that team was just doing infrastructure, really started to branch out doing a lot of renewable energy projects in a lot of different sectors. And the team really grew from that point. And by sort of 2015, it was almost like an independent renewable energy investment business, sort of sitting alongside the infrastructure business.

Jon Powers:

Yeah. Interesting.

Chris Archer:

And then ultimately I guess in 2017 we acquired the UK government’s Green Investment Bank, which had been set up around 2012 to address the need for capital in particularly sort of under served sectors of the renewable energy space, especially off shore wind and waste, waste treatment solutions. And some sort of C&I projects, where there was perceived to be a shortage of private capital in the market at that time. But by 2017, the government had decided there was enough private capital available and it made sense for them to actually monetize the Green Investment Bank and all of its investments. And Macquarie won that bid. It was Macquarie consorting with some pension funds and our infrastructure funds. We won that bid and I was involved in integrating that business into Macquarie. Sort of became the deputy head of the business in Europe.

Chris Archer:

And then in 2018 moved over to the US to sort of launch that brand over here. Which we’re calling the Green Investment Group and we’ve launched that brand now around the world.

Jon Powers:

You guys are doing amazing, I mean Macquarie’s really become a premier investor in this space. But before talking a little more about Macquarie, you’ve been in this space for well over a decade and have seen it mature over the last ten years. Later on I’m going to talk about what the next ten years look like, but in your experience what are some of the really important lessons you’ve seen as this market really emerged from, at best an alternative technology to now a mainstream energy source?

Chris Archer:

It’s definitely been a really interesting time. And I think if we’d sat here talking about what the decade ahead looked like in 2010, I think we probably would’ve been wrong, just we wouldn’t have been as bold or as optimistic about what the future held for renewables and the rate at which technology’s can change. And I think the lessons I’ve learned have been that the role of government is super important, especially in having a clear plan, a clear idea of where support is needed for different technologies, because you know, a lot of the things that are now really major features of the renewable energy landscape, whether it’s offshore, wind, I think is a particular example, especially in Europe or even just the fact that solar is so cheap now, none of that would really have been possible without governments and especially governments in Europe, but elsewhere as well providing some targeted subsidy of those sectors and that really helps them get off the ground. But what I think I’ve also seen is that when you, once you start doing that, markets react quite quickly, supply chains react quite quickly. And I think everyone’s been surprised at the rate at which costs of technologies fall. And so the other thing that’s super important as well as starting the subsidy, it’s removing the subsidy and allowing market forces to really drive investment. Because if you get it right, you get to this point where you’re taking away subsidy yet the rate of build outs accelerating because you actually don’t need to wait for government policy. The market can go and do projects without worrying about when the policy is going to be there or going to not be there.

Jon Powers:

Yeah. You eliminate a lot of the uncertainties, right. That,

Chris Archer:

Yeah so policy’s great and subsidy’s is great to get things going, but also having a very clear way in which that subsidy these steps back is also really important to enable the market, to sort of, get off the ground itself. And obviously you can get that wrong and you can remove subsidy too quickly and we’ve seen that in things like the UK onshore wind and solar, where you basically, and Spain as well, solar, where you have huge build-out and then nothing prepared of yours, but in other markets like on, I think probably the best example is, is UK offshore wind, where the subsidy sort of switched to a market based mechanism where bidding got quite aggressive and prices have just plummeted. And the rate of growth is just continuing to increase. And that’s, I think probably been a good example of a slow withdrawal of subsidy, but in a way that’s allowed the market to continue to accelerate.

Jon Powers:

Yeah, well it’s interesting. I mean, as a former policy maker, I mean, when I decided to transition into the finance space, it was when I was working in the White House and seeing that all these initiatives were moving forward on…I was overseeing what the federal government was doing in terms of a large scale PPA’s and I was the chief sustainability officer for the federal agencies. So we do a lot of third party finance contracts, and it really became very clear to me that not many of my colleagues in the policy space, which included me at the time understood finance at all. Right. So the idea that you could actually, at some point, remove those policies on, at least the market, it was speaking Chinese to folks and we really worked on educating folks on, what are some of the marketing mechanisms that could help unleash this. And I feel like that’s sort of the next…it’s interesting, because now we’re sort of facing what we face in 2008, 2009 was another recovery act initiative coming forward. We’ll see probably more interesting policies moving forward, but at what point do we start to move those out of the way and just continue to let the market address the growth here.

Chris Archer:

Yeah and it’s simple to say that you can, you start the subsidy and then you stop subsidy and the market runs away from itself because what’s going to happen next is going to be a new challenge, whether it’s storage or interconnection capacity or whatever that might be, that will slow the growth again. And that’s the point of which you need policy to intervene and provide the right pricing mechanisms, I guess, to enable in development and investment in areas that need it to keep the rate of growth going. So it’s not, it’s obviously not a simple…if it was simple all governments would do it well. It’s obviously not simple. I’ve certainly…if you look back over the next 10 years, you can clearly see where policies have been really effective, where areas of being over subsidized and Spanish solos probably is a great example of pre-crisis aware of where subsidy has been removed too early and we’ve seen that in certain parts of the UK market. So yeah, that balance is really important.

Jon Powers:

So I want to get to Macquarie deeply here in a second, but just because you have a unique…you having worked in Europe most of our audiences is US-based and sort of knows the domestic US market, but when you transitioned from focus in the UK and focusing in Europe to now focusing in North America, what were some of the big, biggest challenges or hurdles that you had sort of coming into that new space or were they very much similar markets just with different challenges?

Chris Archer:

I think there’s a lot of similarities. I think what’s interesting about the US market is not one market. It’s really multiple markets and I think because of the EU, Europe has sort of imposed a market structure on most countries in Europe. And so there’s actually less differences between the market structures of sort of supply transmission, distribution, generation across Europe, in different countries, even though everyone speaks different languages, and has different cultures that that market structure for, for energy is actually quite uniform and it changes, but it’s relatively uniform. Whereas, in the US you have real extremes. So you have somewhere like the Alcott market, which is in many ways, an even more sort of competitive market than the Europeans have been trying to create. And then you’ll have, you’ll have markets like parts of the Southeast, for example, where they’re really just fully vertically integrated and there’s no competition.

Chris Archer:

And the whole…things are very, very different. So I think that’s probably one difference in the US and that’s one of the really interesting things about working here. The other one is, and the biggest one really is the tax equity market. That method of rather than having a revenue stream where you can, as a financier, you can spend quite a lot of time optimizing what sources capital to bring in. And money dollars are totally fungible. Unfortunately, tax credits are not totally fungible. And in fact, that regulation prevents them from being fairly fungible. So that really restricts the sort of financial innovation and actually leads to US renewable products having a much higher cost of capital than they should do because

Jon Powers:

If you could press the reset button on that right now here in the US would you prefer the sort of European structure where you have those different revenue streams versus the tax equity? It’s always a stock right on a lot of these deals.

Chris Archer:

Yeah I mean, for sure it’s a much more, it might look worse from a policy makers kind of balance sheet perspective, but that’s the kind of, that’s only cause you’re hiding the problem of the policy makers balance sheet. It’s a much less efficient way to subsidize renewables. It’s just that you see the cold, hard numbers of subsidy on your ledger as a policymaker versus tax equity, where you can pretend it doesn’t exist, but for going revenue it’s exactly the same as paying a cost and ultimately it’s a less efficient way for projects to be subsidized because senior debt prices or whatever it is, you’re probably sub 3% right now, tax equity still prices are around 7% and basically they’ve taken similar risks once the once the lawyers have the finished with the cutting the tax equity into the most protective piece of capital infrastructure.

Chris Archer:

So there’s definitely an inefficiency so you definitely reset that if you could, especially from a financiers’ perspective or at least someone who’s an investor, as well as you’ve been trying to always find the cheapest source of capital. And then I guess the final difference and I think that the thing that I find most exciting about the US market is…and it’s actually the argument against what I’ve just said, but because the tax equity market has always demanded that the projects seek effectively a revenue stream like a PPA. And when you’re up there, the sort of PPA almost was provided by the government.

Chris Archer:

And so there wasn’t that need for the developer to go and find a revenue stream in order to secure the subsidy in the US you need to find a revenue stream in order to get to secure the subsidy and the tax equity investor. And because the US developers has had to, and the US market has had always the US PPA market in particular, the corporate PPA market is far more advanced than in Europe. Now I think Europe is starting to catch up now, catch up and starting to get on the same path as the US and with corporates actually, and a lot of projects being sort of underwritten the fact that you’re having that revenue under written by PPAs, particularly corporate PPAs, but the US is well ahead of Europe from that perspective.

Chris Archer:

And for me, that’s super exciting because I really…one of the reasons I moved away from big government infrastructure projects towards renewables was the renewables market was at that time a bit more entrepreneurial and a bit more driven by market forces. And it’s exciting that being in the US really feels like you are building projects for a market need, and there’s a market demand that you’re challenged to be able to deliver projects below the alternative cost of supply. And we’re at that tipping point now in 70 markets, that you really feel that it’s sort of acceleration and excitement of working in a market, that’s supplying something that people want at a price that’s more attractive than they can get it from elsewhere.

Jon Powers:

I feel like it’s those corporate players today who are making dramatic levels of influence on policy at the state level where a lot of this work is being done. When Amazon or Microsoft comes, instead of, we want to build a warehouse or a data center in your state, until we can get clean power, you see shifts that happen in places like Virginia, where it was like trying to roll a boulder up the hill up until they came in and helped unleash some of the really positive gains we’re seeing there.

Chris Archer:

They’re also behind a lot of these regulated utilities, procuring power. I mean this sort of voluntary procurement by utilities is sort of not, it’s kind of semi voluntary.

Jon Powers:

That’s right.

Chris Archer:

It’s responding to a demand for their customers saying go out and buy renewable wrappers so a lot of the PPA’s we’ve signed recently have been utilities procuring on behalf of corporates. The impact of that corporate demand is just enormous at that moment in the market.

Jon Powers:

What would be helpful, I think folks are familiar with Macquarie as sort of a large investor advisor, but can you talk a little bit about some of the different projects that you’ve worked on or are working on with the Green Investment Group?

Chris Archer:

I guess since we’ve been branded the Green Investment Group, we’ve been active across wind in the US at least, across onshore wind, solar and battery storage. One of the first projects we closed and really was up one project we closed around and was part of launching the brand was pretty standard in some ways, but on shore wind project in Texas, which actually had been part of the development portfolio that we’d acquired a few years back and it was an area of Texas where the prices of turbines and things you needed to get them to a point, and you need to get the PPA to the right point to make the project work. And that happened in 2018 and we got that project closed.

Chris Archer:

We also, around the same time, were in our sort of second round of financing and building out a big portfolio of battery storage projects behind the meter battery storage projects in California in partnership with AMS. So that in the end that portfolio now 340 megawatt hours of battery storage projects spread across somewhere between 90 and 100 different sites at large CNI was with large CNI customers. So the projects are on a sort of availability based contract with Southern California Edison, which really underwrites the financing. And that’s a 10 year contract and then the batteries are also able to provide some sort of demand response and sort of peak shaving services for their host customers. So the size on which they’re based during the availability period with SE cause there’s some spare capacity. And then beyond that 10 years, those batteries will be operating in a merchant market or we’ll recontract. And that was, for us, that was a fascinating project because certainly Alpha’s experience of deploying batteries with that kind of scale, and then doing that in this market, the West LA basin, which is a very constrained

Jon Powers:

Yeah, that’s fascinating.

Chris Archer:

So that was a really interesting projects, interesting to work with AMS so at the same time, we’re developing the software to really be able to control those batteries and respond to post contractual requirement from Southern California Edison, but also market opportunities around demand response and peak shaving. So that was a big learning experience. And we were also lucky to sort of take it through two rounds of debt financing. And so the first time we took it to market with the banks and the second time was to get to market for the banks. We saw this and the exciting thing about working in the spaces you sort of educate the market and the second time around everyone feels like they missed out the first time around and pricing falls dramatically and things. So that was a fascinating project.

Chris Archer:

I think our only challenge at the moment with battery project is its just hard to find projects which have… I think utilities are still learning how batteries work and how best to contract them and so there’s just a shortage of projects with solid off take contract from utilities and there’s limited ways to monetize them in the emergent markets and a lot of places. So that’s the challenge we’re seeing. We probably thought when we started doing that original financing back in 2016, that we’d be doing gigawatts of battery storage projects now, and that’s just not materialized in the way that we’d expected. The market’s just been a bit slow.

Jon Powers:

It’s funny you said that because I feel we’ve been looking pretty heavily at storage as well. And it’s not only a state by state game right now, but there’s still so many nascent, there’s only so many nascent opportunities and people are not yet comfortable to really scale it up. First of all that project sounds really fascinating and as a case study right? Looking at it and stepping back and saying, okay, if we need to go to a trillion dollars a year in new, renewable energy capacity investment over the next decade to help keep our climate goals where the Paris Agreement is what are some of the missing pieces then that can help unleash the more of their capital into those types of projects? Because there’s those type of projects that will help us stabilize the grid with renewables, really scale up the last decades worth of work here. So if there’s any magic wand that you had to fix some of these missing puzzle pieces, what would you do?

Chris Archer:

It’s not an easy question. I think that the biggest barrier at the moment, especially to things like battery storage, is that the financing, the people who understand the technology, the people who really understand the value of that asset and where that actually should be and where it can be most valuable and sort of policy makers and regulators are all kind of separated today. And it’s really hard for everyone. I think if you, if everyone can understand what AMS and Southern California Edison did in the West LA basin and the value of that to Southern California as a sermon, what I meant in terms of reduced investment in to the distribution upgrades and stability on the grid and how that meant that they could put more renewables on the system with less stability impacts.

Chris Archer:

I think if everyone understood that and could explain that, and then could develop a model to incentivize people to go and develop more projects like that, and to pay for them, then you’d have this huge number of battery storage projects that would kind of pencil. But at the moment, SCE who actually has all these batteries sped around one of his most congested areas is probably still learning the benefit of those and what the value of having that infrastructure is in their system. Then they’d have to explain it to other utilities of different systems so I think that’s probably the biggest wave, the magic wand. It would be to say that we all are equipped with this very simple mechanism whereby a developer, a utility and a regulator can all understand when it’s better to put a battery somewhere, really what the impact of putting a solar project on the system and this place is and how that compares to how things have been done previously.

Chris Archer:

I think the whole power system is so entrenched in terms of this idea of being very large generators and very large wires, then take the power to distribution that works. The idea of having batteries in that distribution network or having small generators distributing, or generating power which you can’t control. It just seems like a problem that should be avoided I think for most people. Who’ve been in the power market for a long time, rather than being seen as kind of this opportunity to completely be relative to that. It’s super hard, I think, but I think if you were to wave that magic wand, it would be to give everyone that understanding of the benefits and how to, and how to price them. I truly believe that the problem at the moment is that especially in battery storage, which is one of the big barriers to deploy the more renewables, in some cases, especially in Metro stores at the moment, the people who are developing and building projects and investing in projects, don’t actually understand the benefit or the full benefit they’re creating and they certainly can’t monetize a lot of that benefit. On the other side, the people who are receiving that benefit don’t really understand the capabilities of the storage system and developers and the cost of financing it. So it’s pretty hard for the two to sort of meet in the middle.

Jon Powers:

Interesting. I mean, Chris, first of all, I just applaud the work you guys are doing at Macquarie and really trying to solve these complex problems. I think the example, the case study, you showed of one of the projects you’re working on really highlights that a lot of folks just aren’t willing to touch that yet. The fact that you were working on it for years to get it to work and are getting that deployed is phenomenal. We’re going to need more of that to really get through what I think, what you call it before we discussed, or before we got online, you called the decisive decade. To really get where we need to be 2030 and beyond it’s going to take that type of creativity and that type of understanding from investors, not just policy makers and utilities, but from investors to continue to scale this up. So thank you for the incredible work you guys are doing.

Chris Archer:

Thanks very much. We’d love to do more of it.

Jon Powers:

Absolutely. I’d love to find ways to work with you guys too. One thing I always ask all of my interviewees is if you could go back to yourself when you were heading off to university, or maybe even coming out of university and you could sit down and grab a beer, what piece of career advice would you give yourself?

Chris Archer:

I was at university at the same time as Mark Zuckerberg so probably head to Stanford and made friends with Mark and join Facebook or join. I think my peers seem to have created the world’s the world’s largest fund technology firms though. Aside from that, which was a particular period that I lived through at the university…I think the two things that for me are important is find things that sort of interests you or steal your curiosity and then and be honest about what that is. Not what you should like or whatever. I think curiosity is super important. Then go and find a group of kind of likeminded people that you get on with, which I think is super important. That’s what I’ve certainly found at Macquarie. Be prepared to really throw yourself into things and work hard because I’ve certainly found that having that curiosity and that interest in working with a bunch of like minded people that are interesting, intelligent and share that curiosity means that you can work pretty hard.

Chris Archer:

I think I was reading some liquor, can’t remember it was but Jamie Diamond’s only piece of career advice to people was work hard. [Sort of an investment banking M and A view of the world. I think for me if you’re working with fun people and interesting people, when you’ve got a lot of curiosity, then the hard work doesn’t feel like hard work, I guess.

Jon Powers:

Yeah., I agree.

Chris Archer:

Yeah, for me, that would be the advice I’d give to others. And I guess give to myself.

Jon Powers:

Well, Chris, thank you so much for joining us at Expert Only.

Chris Archer:

Thanks very much. Good to chat.

Jon Powers:

Yeah, absolutely. You got a fascinating background. You guys continue to do great work. I want to thank the team at Macquarie for helping to put this together and to thank our producer, Carly Battin for as always the hard work she does. You can get more episodes at CleanCapital.com. Please feel free to submit folks you think we should be talking to. And as always, I look forward to continuing the conversation.