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Episode 87: Solar Risk Management with Jason Kaminsky

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Transcript

Jon Powers:    Jason, thanks so much for joining me here at Experts Only.

Jason:               Thank you, Jon, for having me. Great to be here.

Jon Powers:      So, you’re sitting in Berkeley today. You grew up in California, went to UCLA-

Jason:               Indeed.

Jon Powers:      … and Stanford. As a West Coaster, how did you grow up getting interested in clean energy?

Jason:               Yeah. It’s a good question. A lot of it really started, I’d say, really in my formative years at UCLA. I grew up in a suburb of LA. Not a ton of access to the outdoors, but in UCLA I got more into rock climbing, fell into a group of folks, and spent a lot more time outdoors, and, really to fulfill my GE credits, started taking classes in the environment, and learned a lot. And at that time… This is early 2000s… when I was looking at, basically, degrees to take, a lot of the environmental degrees were like landfill design and wastewater treatment plant design. And –

Jon Powers:      Environmental science.

Jason:               Yeah. Environmental science. Yeah. Now UCLA has an institute in the environment. They didn’t have this back then. And I lucked out, in some ways, that I ended up taking atmospheric science as my main degree, with math. And it was basically a climate change degree before they had climate change degrees. And I fell into it because I like sciences, but I wasn’t so into biology. And that was the physical sciences major. But I ended up basically studying climate change in college, which was a-

Jon Powers:      That’s amazing.

Jason:               Yeah, kind of before anyone else was doing it. And the thing I always think back to to that era, is… This was early 2000s, as I noted. The themes were always, “This is going to be so challenging to address because it will never affect anyone in this room. Climate change is a multi-generational issue.”

Jon Powers:      Right.

Jason:               And it was all about discount rates. And obviously, here we are sitting, and Biden is having his climate change day, the fires this season were worse than ever. But it’s amazing how quickly the science has evolved on that front.

Jon Powers:      It is. It is. I had Michael Mann on, who’s a sort of famous Penn State scientist. It was just a fascinating conversation about the science and also the politics of it before. When you finished UCLA, did you go right to Stanford for your MBA? in between?

Jason:               I did. I went straight through. And I was-

Jon Powers:      Why an MBA? What triggered you to think through that you wanted to go that path?

Jason:               It’s a good question. It was one part that policy has a lot of great work. For me, it was not the area I wanted to go spend my career. Science, even though that’s what I studied, I didn’t really view myself in a lab. And the speed of business for transformation, the opportunity there, was really appealing. I’d also say, frankly, I was a little bit naïve. No one told me you’re not supposed to apply to an MBA program right out of college. So it ended up working out. It was a little bit of crapshoot, but I was reading an article about MBA programs with a sustainability bent. This is before An Inconvenient Truth came out. So this was-

Jon Powers:      Yeah, right.

Jason:               It was not really top of mind for a lot of my classmates. But I guess that the topics I was interested resonated with the admissions folks, so I was able to go to Stanford. I was actually there two and a half years because I did a master’s in energy as well. And I spent a lot of time just exploring and learning for myself. was pretty early career. At that time, I wasn’t sure if I wanted to do energy, if I wanted to do CSR… So corporate social responsibility. Carbon trading was big at the time, so I spent a lot of time just really exploring for myself and fell into the energy groove right around the second year.

Jon Powers:      Oh, interesting.

Jason:               Had a few internships, but I got to spend time in Houston with Chevron as one of my internships-

Jon Powers:      Wow.

Jason:               … and it was a good, safe 10 weeks to go be in the belly of the beast.

Jon Powers:      Yeah.

Jason:               I get why people work there. It’s very interesting work. They send you all over the world. But I actually went there, and I spent a lot of time. My boss there was very open to me exploring. And I spent time with Chevron Technology Ventures, doing EC investing with some of their other more clean tech groups. And like, “It’s great that you’re exploring this, but you know that at Chevron, that’s a CLM.” And I asked him, “What is a CLM?” And he said, “It’s a career-limiting move to not work in oil and gas if you’re at Chevron.”

Jon Powers:      Right.

Jason:               And then, a few years later, they pulled all the investment to go invest in a natural gas asset.

Jon Powers:      Yeah.

Jason:               So, it was really-

Jon Powers:      Joke’s on them now.

Jason:               Yeah. Really. I know. It was a great experience, yeah, the two years there, and really was able to focus my own interest on the energy space for all the reasons I assume many of us are in it, just the global implications and the pace of innovation.

Jon Powers:      And then you ended up at Wells, right, working on tax equity.

Jason:               Right out of school, I worked for a company called SPG Solar.

Jon Powers:      Oh, you did. I didn’t realize that. Okay.

Jason:               I did, yeah. So, SPG was one of, really, the biggest developers at the time. This is now kind of 2009 era. And it was really, SPG Solar and PowerLight were kind of the two big competing California developers. A lot of one megawatt tracker projects, which at the time were huge. Yeah, at that time, modules were like $3.50 a watt. And I was in a chief of staff role, basically, to the CEO.

Jon Powers:      Yeah.

Jason:               That was probably where I first began thinking about solar being a lot more complicated than it seems on the surface.

Jon Powers:      Yeah, yeah. Right.

Jason:               We got to go to China and tour factories because we were a big buyer of equipment. So you-

Jon Powers:      Yeah.

Jason:               … in China and they take you around. And you go to one factory, it’s hard to really tell, is it good or bad? But you go to 10 factories, and you begin to see a fact pattern. You get some where they made you put on the booties because it was a clean room environment. And you had others where… the flash testing with the temperature control. You could look at the cells and tell that they were bowed, that they weren’t coming out flat.

Jon Powers:      Wow.

Jason:               As soon as you laminate them, they basically get squashed. So it makes total sense, in hindsight, why SolarBuyer, and CEA, and some of these companies are out there, watching the manufacturing.

Jon Powers:      Yeah.

Jason:               But it was really, yeah, the first time I really began thinking about the risk, I guess, and risk management in solar. And we came back from one of those trips, and we were giddy because we saw on a whiteboard from a conference room we were passing that module manufacturers had a pathway to a dollar a watt. And we were like, “Oh, my God. Can you imagine a dollar a watt for a solar panel?”

Jon Powers:      Yeah.

Jason:               I think they were forecasting 2018 or 2020 or something. And obviously, we beat that by a few years.

Jon Powers:      Yeah. Absolutely. Thanks to-

Jon Powers:      … and other initiatives. Yeah.

Jason:               Yeah. So I was at SPG for a year and a half.

Jon Powers:      Can you imagine the marketing person that tilted the whiteboard so you could see it as you’re… “Show them this.”

Jason:               Exactly. Exactly. I don’t know how planned it was. They were very orchestrated events.

Jon Powers:      It’s China. It’s all planned.

Jason:               Yeah. So SPG, we worked along with SunEdison, too. So we were at EPC. And I think we told ourselves the project financing side was easy, and we wanted to get more into it. And then that

Jon Powers:      Must’ve been drinking at that point, because that’s not easy.

Jason:               Well, it’s not easy. Yeah. I think we were a little bit naïve, to be honest. But anyway, I got laid off from that job. So right out of Stanford, first job, got laid off like any good solar company does. It was, in hindsight, a much more critical juncture than it seemed. I had a job offer from Solyndra.

Jon Powers:      Wow.

Jason:               Like three months before they imploded. And I really liked the hiring manager, and I was like, “Look, I love this job, but I’m pursuing this other opportunity and see where it goes.” Bless him, he let me pursue, and I ended up at Wells Fargo-

Jon Powers:      That’s amazing.

Jason:               … doing tax equity.

Jon Powers:      Yeah. So you got right into the belly of the beast on the tax equity side. And how long were you at Wells?

Jason:               I was at Wells for three and a half years. And I learned very quickly that project financing is not easy at all.

Jon Powers:      No. No.

Jason:               I mean, my first deal, I think I had 800 pages of legal agreements that I had to learn and then negotiate, right out of the gate.

Jon Powers:      Yeah. I do want to get back to that, how that experience transformed the way you’re thinking today with kWh. But for folks that aren’t familiar with kWh Analytics, you’ve got to check them out. But we’re going to talk through some of the transformational work that you and your partners are doing. But for folks that aren’t familiar, give a little commercial on what kWh’s doing.

Jason:               Yeah. So kWh Analytics, Bay Area company, as you noted, although now pretty much operating remotely. And we really view ourselves as the leader in risk management. So the thesis, really started seven or eight years ago, was as industries evolve, the importance of data and the availability of data just increases. So the analogies that we looked at a lot for inspiration were like Experian. Right? Banks are underwriting consumers. And there’s companies that have data on how we perform and then basically provide that back to the banks to inform their underwriting. CoreLogic does it for mortgages. There’s companies that do that across a lot of industries. So we really set out to build a risk management firm, a data analytics firm, to sit at the intersection of finance, solar, and data. And from that, we’ve built out a few products. But that really was the founding thesis.

Jon Powers:      And our teams have worked together in the past. And there’s a bunch of different products that you guys have developed. But I was actually talking to our head of asset management this morning, Zoe Berkery. She really loves kWh and the night vision goggles that you give her.

Jon Powers:      … analyzing the products. She actually, specifically, wanted me to ask you this question. How do we, as an industry, refine our P50 expectations so we can become more accurate in realizing what we’re doing? Because as we’re looking at projects, we rely on that so heavily on the finance side. But really the data’s not true yet, right? So.

Jason:               Yeah. No. It’s a great question, Jon, and yeah, we’ve enjoyed working with Zoe. And the CleanCap team has always been very forward-thinking. Maybe I’ll answer that a little bit, just to set the stage. So-

Jon Powers:      Yeah. Please.

Jason:               I’m fast-forwarding. I’m skipping a step. But we’ve been able to aggregate a very large database about how solar assets are performing. And we’ve done that through some of our products, through some of our industry partnerships. And late last year, we were seeing, both from our own underwriting as well as our conversations with our clients, that a lot of portfolios were not meeting their performance expectations. And we decided to, basically, do a more rigorous study. And DNV had put out a preliminary study last year that basically said their estimates ended up being about 3% aggressive in something called the Solar Risk Assessment, which you can go on our website and find. And we did a more comprehensive study with 10 of the largest asset owners in the industry. And our number over the whole US is 6.3%. So even if take into account weather fluctuations, over the last few years our P50 estimates, the most likely, quote unquote-

Jon Powers:      Right.

Jason:               … rough estimate has just been aggressive. Look. It varies by region. Some of them are fine. The top quartile are performing fine. Some of them are doing even worse than 6.3%. Ever, from the beginning, it’s been our hope that we could use our data to really provide, I’ll call it more direct insight into how these projects could and should perform. And we were fortunate to be able to do that with your team, and more formally last year, and release something that we call the Solar Technology Asset Risk Comps product, basically. And what we’re able to do is take any project, and mine our database, and find an industry cohort of similar-looking projects. So a similar region, some of the same technologies, and look, and say, “Okay. You’re building this project. You have this estimate from your IE, from your independent engineer. And let’s compare that to how 50 other projects are actually performing out in the field.”

Jon Powers:      Right.

Jason:               And maybe your project will perform better, and there’s a good reason for that. But that’s never really been available to the industry. Pretty much-

Jon Powers:      Not at all.

Jason:               You don’t buy a house without knowing how other houses in your neighborhood are selling for. But we’ve been really flying blind for a long time as an industry. So it’s been really nice.

Jon Powers:      Let me ask you two core questions on that.

Jason:               Sure.

Jon Powers:      For the folks that aren’t as familiar with what you do, where are you pulling that original data from that’s now created this pool, right, because of some of the relationships you’ve had, with some of the big financing firms, for instance. Is that where you’re getting the core of this material?

Jason:               It’s a mix. Some of them are from commercial relationships, when we sell people products particularly. We borrowed a lot from other industries. So we typically say, as long as we anonymize and aggregate it, no one can really tell whose data it is. Generally folks are comfortable with that. So it’s one the commercial relationships. In some instances, we’re working with firms who are just like, “Yeah, I think the work you’re doing is important, and we want to support, and frankly, be more competitive as bidders. Because we’re losing a lot of deals because the market’s too aggressive.” So we have both, I’ll call it commercial, and just kind of industry consortia that we’re part of, where that data’s pulled from.

Jon Powers:      CleanCapital is a good example of called the STAR report, right? Is that the-

Jason:               Mm-hmm (affirmative).

Jon Powers:      … name for it?

Jason:               Yeah. STAR.

Jon Powers:      What are some of the other customer profiles? Who thinks that information is critical to them?

Jason:               Yeah. The areas where we’re seeing it being used most fulsomely, one would be just the M&A segment, where there’s a lot of disagreement, turns out, between a buyer and a seller, when you’re looking at a project or portfolio. Usually for a new portfolio… Could even be an operating portfolio, because the way people are looking at weather these days, I’m coming to appreciate often you get it wrong. So that’s one space.

Jon Powers:      Right.

Jason:               The other is the financing market. So there’s been a lot of banks that have come to appreciate going through a lot pain when their portfolios underperform. And I can tell you, when I was at Wells Fargo, I was maybe fortunate, maybe unfortunate, but I worked on a deal that went bad. The sponsor went bankrupt, and they… This was Tioga… ended up selling the assets into what became sPower, so the ending is good. But at the time, it was very, very painful. And when something is not going well, you get a lot of attention in a bank.

Jon Powers:      Yeah, right.

Jason:               So what we’re hearing from the bankers is like, “Look, I can have structural protections, but this is a problem for us when our whole fleet underperforms. And we want to make sure we get it right.”

Jon Powers:      Yeah.

Jason:               So those are the two. We’re doing some work with the asset management side as well, but those are the two main areas we’re seeing it used.

Jon Powers:      One of the other key products you guys have developed is the solar put. Right?

Jason:               Mm-hmm (affirmative).

Jon Powers:      Something that is really being looked at closely by the finance industry. And as we look more and more at the long-term viability of these assets… We talk about it a lot on the show, actually. If you look at the last 10 years the emergence of the market, now the fundamentals are strong. The cost of capital is coming down. But you guys are really one of the first to bring forward such a unique solution to really ensure the long-term revenue of these deals. So could you talk for a little bit about the emergence of the solar put? What drove you all to look at this option? And how did that develop into the product it is today?

Jason:               Yeah. So, if I rewind a few years, the way a project finance lender or tax equity looks at, basically, financing a solar project is, I have hopefully or typically a fixed revenue stream, but I have volatility. Right? I have volatility about whether it’s going to produce. I have credit risk. I have structural risk.

But typically, for those that aren’t super adept at credit finance, if I’m the bank, Jon, and you come to me, you say, “My project’s going to produce a million dollars a year of revenue, or of [EBIDA],” I’m going to say, “Great. I’m going to structure you a loan so that I’m only exposed to 700,000 of that. So if it produces the million, which you’re telling me it will, great. But if not, I don’t want that risk if your production estimate’s wrong, if your inverters go down, whatever the risk is.”

So we looked at it. We said, “Well, hey, we know a lot about production risk. We have a big database about how these projects perform. We know where they’re located. We know the technologies. We can actually charge a reasonable price and guarantee you, the bank, 850 grand.” So if you have basically a large insurance company backstopping the production, and you pair that with a fixed price, now your fixed price or your fixed quantity gives you, basically, a fixed revenue stream. So we’re seeing lenders say, “That’s great. I can actually lend 850,000 instead of 700,000 with these products in place.” So it’s really enabled, I’ll call it optimization of the capital stack. You see in most other asset classes, the banks are lending much more to infrastructure than they are in solar. As an industry, it’s really allowed us to help sponsors recycle their capital or increase their returns on these projects by 30 to 50 basis points.

Jon Powers:      Can you give a case study or two of… You guys have had some pretty major announcements. For instance, on the product project, for instance. Are you seeing this more at the utility scale? Or you seeing it come along in the C&I scale products? And where do you see the most engagement so far?

Jason:               Yeah. It’s a great question. We’ve actually done it on all segments. So we’ve done it residential, [DG], small utility portfolios, and on stand-alone large assets. What we’re excited about for 2021 is the refinancing market. I mean, you have a lot of portfolios that tax equity’s rolled off five or six years now. And spreads are just much lower than they were then. So not only do we think people are going to be refinancing, but if you can get an extra 10% on your loan size to then redeploy into growing your business, we think that that’s going to be the new area. We’ve come along-

Jon Powers:      I’ll tell you, we’re starting to buy those, so we’ll buy them and then refinance.

Jason:               Yeah. There you go. Perfect. Yeah. It’s really progressed. I mean, when we started, we did it with a single bank. Now we have 20 banks plus that have utilized the product. We did our first bond market deal last year. So it’s really, I’d say, adept, kind of agnostic to segment, agnostic to financing type. And yeah. I mean, we’re excited for the opportunity. It doesn’t really make sense, in my mind, for banks, which have to be experts in a lot of things, in credit and structuring, to also be experts in like, “How is this panel going to interact with sunshine?” It’s not.

Jon Powers:      They don’t have the team to do it. They just don’t have the-

Jason:               Exactly.

Jon Powers:      … to do it.

Jason:               Exactly.

Jon Powers:      So, first of all, tell everyone to go to kWhAnalytics.com. You can get a lot of this information on the solar put, on STARS, and some of the other awesome programs they’ve got going on. I do want to, obviously, keep talking kWh, but you also are involved with an organization that focuses on sustainability in data, right? A data sustainability initiative. I want to-

Jason:               Yeah.

Jon Powers:      … talk maybe not so much about that organization, but the role data’s going to play over the growth of our market over the next decade. Because, as you said before, as we’ve emerged from 2009, when people didn’t know if these panels even could function in the sunshine enough in a place like New Jersey to put a project up, to… We’re a pretty well functioning, fundamentally strong industry today. But there’s still so much we can do and learn from the data standpoint to help us really grow in scale and meet the point where we’re going to get a trillion dollars worth of investment a year, which is what we need to do to solve the climate crisis. The recent reports say we’re at 500 billion today. So we’ve got to double that to really solve the climate crisis. What role do you think data’s going to play in helping to unleash that capital?

Jason:               Yeah. I mean, it’s fundamentals. I think the organization you’re referring to is… I help organize a meet-up that used to be in the Bay Area, but is moving virtual as well, called Data Science for Sustainability.

Jon Powers:      How cool.

Jason:               And it has been great for me because I’ve learned a lot about other sustainability industries. I’m a mile deep in solar, but there are so many applications, whether it’s in mobility, or whether it’s in fishery management, or conservation management, or wildfire management, where there’s a lot of innovation and technologies coming to bear now about solutions using data, using cloud infrastructure to help solve it. I guess the way that I think about it is to meet those targets-

Jon Powers:      By the way, just quickly for people that are maybe listening that are interested in that, how do they become part of that conversation?

Jason:               Oh, that’s a good question. I think you just go to MeetUp.com, and you search for Data Science for Sustainability.

Jon Powers:      Data Science. Great.

Jason:               So yeah. That’s a meetup we have. Speakers come. And some of those are on YouTube. You might be able to look for it on YouTube as well.

Jon Powers:      Cool.

Jason:               But yeah. I think the challenge that we’re seeing is that historically, banks and insurance companies… Maybe insurance companies are a little bit better at using data, but aren’t, on the whole, good at it, at least in-house. So that creates opportunities for third-party companies like us to come in and say, “We have good data infrastructure. We really understand a certain risk really well. And we’re going to help you understand it better.” So we’re doing it in solar. There’s opportunities probably in any of these segments, frankly, for companies that have data, whether it’s energy efficiency data or fisheries data, to come in and help these much larger capital institutions better deploy their capital and better manage their risk.

Jon Powers:      Right. Yeah. We talk internally a lot about data and how to better structure it, even within CleanCapital. I mean, having some insight on what we can do. There’s such a need. This is a future conversation, but not recorded, of how we can work together on that. Because I feel like it’s something that we’ve been wrestling with a lot as a firm as we’re growing our assets under management. It’s a space that’s just really ripe for opportunity. And I think you guys are uniquely sitting in a place to catch that opportunity and then do something with it.

Jason:               Yeah. I think the other thing that’s been nice to see the evolution of is that, really, not all data is created equal. So there is this perception that data is valuable to me as an entity. And I think of it as there’s a spectrum of that. So we work a lot with operating data. And the question we often get, like, “How do you get that data?” And I think a lot of companies are realizing, “Look. This is often reported.” A lot of what we do is get higher-quality data. We clean it. We contextualize it. But that’s a different kind of class of data than like, “What’s your return on this project?” or like-

Jon Powers:      Exactly.

Jason:               … “What did you just sign?” And it’s been, I’d say, helpful for us as a industry to have people say, “There’s a certain kind of data that, frankly, isn’t really that helpful to me in a silo, but also isn’t really business confidential.” And a lot of what we do is try to facilitate conversations as well between people that are, I’d say, doing similar kinds of work but all in a silo, even though it’s not competitive. So CleanCap’s participated in one of our solar performance management roundtables, where it’s like, “How do we optimize the performance of these assets?” It’s not really a confidential conversation. There’s not really forums for performance managers to speak to other performance managers.

Jason:               So it’s nice to see that, as we progress as an industry, more of that conversation is happening, more of that data sharing is happening. I have to imagine it’s happening in other segments as well.

Jon Powers:      Yeah. I feel like we’re just getting in a place where people know how to own and manage that data, right, which is a big part of it. Well, first of all, Jason, thanks so much for being here and talking through this. I always ask sort of the same ending question to my guests. And I want to take you back to maybe either transitioning to UCLA or even walking out of Stanford. You can go back to Menlo Park there, and sit down, and have a beer with yourself. What piece of advice would you give yourself?

Jason:               Yeah. My first management job was actually at UCLA. And I was a terrible manager.

Jon Powers:      Yeah.

Jason:               Because I was like, “I don’t want to micromanage. I’m going to let them manage themselves.” And yeah. I’ve progressed from that. I may not be the world’s best manager, but I’ve come to appreciate that management is-

Jon Powers:      You’re COO these days, my friend.

Jason:               Yeah. It’s a contact sport, but there’s a lot that comes with coaching and comes with feedback, both giving and receiving, and managing-

Jon Powers:      Sure.

Jason:               … with empathy. And I think if I could replay some of my horrific management experiences in the past, it’s, “Don’t be so hands-on.” Some of the most rewarding parts of the job are working with the team, hiring well, helping people, whatever, flourish. So anyway. I know that there’s still a lot that I have to learn in that, but it’s something that I think, as I look back on it, I’ve learned the hard way along the way. Lead with vulnerability. Lead with honesty. And I think the team comes along with that.

Jon Powers:      I walked out of college an elementary education major and went right in the army. After spending six months in a school, learning about, basically, rocket science because we were shooting artillery pieces, the next day you show up at a unit, and you’re supposed to lead a group of 40 40 men.

Jason:               Yeah.

Jon Powers:      And you’re like, “Holy shit.”

Jason:               Good luck.

Jon Powers:      Yeah. I don’t know even what I’m talking about, and I’m supposed to lead these people? But that dynamic, for me, was so transformational, in terms of this leadership training, and how to be humble, and how to learn from others. I’ve been lucky enough to carry it out. But we don’t have enough of that training, even Stanford MBA, right, where they’re sort of walking you through. You can learn a model, but it’s completely different than managing people. Right?

Jason:               Yeah. Exactly. And-

Jon Powers:      leadership is so critical to success.

Jason:               And I would say, for young managers, everyone screws it up the first time.

Jon Powers:      Right.

Jason:               And you learn from it, as long as you can be humble and learn from your mistakes. That’s the important part.

Jon Powers:      Well, thank you so much for doing this. And thanks for being on the show.

Jason:               Thank you, Jon. It was great to be here. I enjoyed the conversation.

Jon Powers:      Absolutely. And I want to thank Sarah [Matsui] and the team at kWh Analytics for helping to put this together, and our producers, Colleen Young and Carly Battin. And as always, you can get more episodes at CleanCapital.com. And I look forward to continuing the conversation.

Jason:               Likewise. Thanks.