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Experts Only Podcast #91: A Preview of the Virtual ACORE Finance Forum with Greg Wetstone

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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.

Jon Powers:

Welcome back to Experts Only, I’m your host Jon Powers. We have a special edition of Experts Only today. I’m talking to Greg Wetstone who has been on the podcast in the past, but today we’re going to talk about the state of the renewable energy industry and really focus on an upcoming event, which is the American Council on Renewable Energy or ACORE’s Finance Forum. It is June 15th to 16th and you can learn more about the forum at acorefinanceforum.org. Got a really great group of speakers, including Jigar Shah, folks from FERC, folks from companies like BlackRock and of course, CleanCapital. Make sure you go to acorefinanceforum.org and sign up to learn more. You’re going to find some of the most interesting folks in the industry having fascinating conversations about where we’re going. And we’re going to start off today talking to Greg about just this issue. Greg, thanks so much for coming back to Experts Only.

Greg Wetstone:

You bet, Jon. Really appreciate the opportunity and thanks for the attention to ACORE and to the Finance Forum.

Jon Powers:

Yeah, absolutely. Before diving in, I just want to step back for folks that aren’t familiar with ACORE and CleanCapital’s a member. I’ve been a huge fan of ACORE for a long time. Can you just talk for a second about the organization and the important role you play for the industry?

Greg Wetstone:

Happy to do that, Jon. Thanks again.

Jon Powers:

You’re welcome.

Greg Wetstone:

We are a membership nonprofit. Our mission is to accelerate the transition to renewable energy. Our members include those associated with virtually all the renewable technology. Wind and solar, also grid technologies, battery storage, hydro, geothermal also engaged. And we have the developers and manufacturers you’d expect, along with some of the leading electric utilities. Really almost every major financial organization that’s active in our sector is a member. And we have also the leading off takers, Amazon, Google, Facebook, Walmart, all active and engaged.

Greg Wetstone:

And it’s a special time. This is really our moment. Policies we’ve been working on for years at ACORE and more broadly, really for much of my career, policies I’ve been working to achieve are kind of front and center. And this is the moment really between now and the end of the year to get a lot done. A lot to talk about at the Finance Forum and beyond, in terms of what’s coming? How do we get there? How we be helpful? And how do we react to a very new reality in terms of the kinds of policies for we’re likely to see.

Jon Powers:

Yeah, it’s interesting. I love the way you sort of frame it. This is our moment. ACORE has been really at the root of building the foundation for our industry over the last decade. Really teeing up to what I’ve talked a lot about this in the show, but really fully believe that this next decade is going to be all about execution and growth to help solving the climate change crisis. You are in Washington these days, this is first on the front burner of every agency. We’re really actually for the first time seeing a true all of government approach to solving things like climate. You have the infrastructure bill moving through Congress and climate is in the front burner. First of all, how do you even keep track of all this stuff? Because there’s so much going. And two, what are you sort of most excited about that we should really be pushing hard on over the next few months?

Greg Wetstone:

Yeah, good staff. Fortunately, a lot of good people we’re relying on at ACORE to get things done, led by our COO Bill Parson. And we’re in a position right now where there’s a lot to be excited about. And the question is, where do we lean in? Where can we have the biggest impact? I think for really since the beginning, our sector’s kind of lived and died by tax policy. Maybe that’ll change. But I think for right now tax policy remains critically important. And I think that’s the leading edge and we’re looking at the Senate Finance Committee moving on a tax package that includes longterm credits. For the first time, really something we’ve never had in our sector where it’s not on again off again, but here’s what the tax environment is going to look like in a supportive way for a decade going forward. That’s what we’re hoping for.

Greg Wetstone:

And not just for wind and solar generation, but also for important enabling technology like energy storage and for investments in the inter-regional transformation that are going to be so important to our ability to achieve the really high penetration levels we need to address the climate problem.

Jon Powers:

Yeah, let’s dive into that for a second because I think you’re a 100% right. Tax is such an important, critical piece of this. And honestly not everyone in the industry really understands the tax component, although know that we need tax credits or investment tax credits. To my understanding, you can correct me on all the things I get wrong here, but there’s a couple of major moving pieces. There’s the continuation of the investment tax credit for solar and possibly going back to the possibly 30%, there is a push around wind.

Jon Powers:

There’s of course the energy storage tax credit, which is amazing, on the table. You got fuel cells on the table that are the extension for fuel cells, which were sort of orphaned in the last round of this process, but you also have direct pay. Which is, I think for a lot of the folks in the industry know that there’s a tremendous amount of demand for tax credit capital, but there’s not enough supply in many cases to meet the need. How are you guys or how is the conversation in Washington looking to sort of tackle all these sort of different pieces of it?

Greg Wetstone:

Yeah. It’s a really good question because there’s a lot there. First, just talking about the credits themselves, there’s kind of two approaches, I would say. The House has basically looked to provide extensions of current credits for five years or so. That’s where they are now. I think that could increase that duration, but that’s what they’ve introduced.

Jon Powers:

If you get just that done, you view that as a double?

Greg Wetstone:

Well, let me put the other piece out there because you sort of need that for the bigger perspective in a way. Without getting into the weeds, let me mention that given how closely divided the Senate is, chances are that some part of this infrastructure package is going to have to be done by what’s called a reconciliation process, basically going under special rules for the budget that cannot be filibustered. And that means you can do it with 50 votes and the vice president, which is how the COVID bill got through and a reasonable chance that that’s where we find ourselves. Tax issues are by definition budget so it’s a good fit.

Greg Wetstone:

In the Senate, when they’re looking at the tax issues, there is a 10 year window that they can cover in reconciliation. We could get up to a 10 year extension of the credits. I mention all that because the Senate bill as introduced looks like it would provide 10 years of coverage. And actually combines, kind of throws out everything old and says, “Let’s create a new tax credit that goes to generation of energy that’s carbon free, period. And provide a credit at the rate of a full value ITC or PTC investment tax credit or production tax credit and you can have your choice but full value and you keep it until we have dramatically reduced CO2 emissions from the power sector.” It’s fully based on climate, it’s technology neutral. That’s one path.

Greg Wetstone:

And so the House is really working with bill they introduced in the last Congress, which was a five year extension, that was very generous for the last Congress. They’ll probably move it more our way before they’re done so it’ll be closer to what’s in the Senate version. Both bills have direct pay provisions where you don’t have to look to a limited supply of tax equity to monetize that credits because there’s all kinds of data indicating that the availability of tax equity becomes really a ceiling on how much we can build and how well we can take advantage of those credits. The House bill as introduced, has a haircut. You get 85% of your credit, period, but you don’t have to go through.

Jon Powers:

The rigamarole.

Greg Wetstone:

Yeah, the transactional complications and pay the cost of tax equity. The Senate bill basically allows for direct pay with no haircut, so full value. We’re certainly very supportive of direct pay because the numbers we’re trying to get to and that’s our target is to get where we need to be for climate. We’ve got a healthy growing industry, that’s clear, but can we grow at the rate we need to for climate? That creates additional challenges. And to do that, we can’t be limited by the spy of tax equity. Direct pay is really helpful there.

Jon Powers:

Excellent. And then do you see that from a timing perspective on all the different moving pieces of the bills or on infrastructure, where do you sort of see that budgetary piece playing out? Sort of throughout the summer and we’ll really get color on it and August, September?

Greg Wetstone:

Yeah. It’s hard to know.

Jon Powers:

It’s hard to forecast.

Greg Wetstone:

We’re kind of in a play now where there’s an effort to achieve a bipartisan legislative effort. I don’t know if we’ll get there on that, it’s going to be tough, but there’s a lot of talk and people, there are Republicans that are very much engaged, very much in good faith it seems. But will there be 10? Which is what you would need to have 60 votes and would such an agreement be able to cover in a bipartisan way our part of the agenda? I would hope so, but we can’t assume that. Probably, if it doesn’t, so that effort plays out for a while. Then there needs to be a budget related effort on reconciliation. And that probably includes the tax stuff, includes the lion’s share of our agenda. And so that would suggest getting started in June, through the summer. When this really moves, whether it’s September or October, hard to know but certainly we’re in it and the next six months are critical.

Jon Powers:

Yeah. I’m going to come back to what folks can do other than of course attending the forum and being at the table for this, but to be an active role in helping ACORE and others move the policies we care about forward. Let’s sort of parking lot that to the end. I’m going to dive back into the sort of state of the industry a second and use the forum as a foundation to do that. Because what I love about the forum is it’s so focused on finance. We just dove into taxes, but there’s so many major trends moving right now in industry. Obviously the interest for offshore wind moving forward, the unbelievable growth in ESG investing that we’ve seen over the last few years and that’s just going to only continue to grow over the spectrum moving forward. Looking at what is happening in the space today, what are those trends sort of most excite you of sort of where the industry is going on the finance side?

Greg Wetstone:

Well, big picture, you have to say, it’s pretty impressive that despite competing against extremely low natural gas prices and being engaged at a time when we did not have presidential support over the past four years and in fact, the reverse. Had tariffs coming in and then changing and going away and then being reimposed and so all kinds of uncertainty. Bulk electricity, security concerns raised in a very vague way that suggested it was hard to develop and overall, relatively flat line in power use in the country, probably declined last year. Despite all that, our sector grew substantially through the course of the Trump administration.

Greg Wetstone:

And in 2020, despite all those challenges and the pandemic, which really set us back, particularly in Q1, it looked like things were going to be really tough. We ended up with a booming record year. Over 33 gigawatts brought on the grid. Lion’s share wind and solar in 2020 and split almost evenly between the two technologies, which is really healthy. And the old record was 23 gigawatts. You’re talking about almost a 50% increase above the old record, not quite, but a big increase.

Jon Powers:

Yeah, in a tough environment.

Greg Wetstone:

Yeah. Yeah. And it really impressed when people are struggling and you’re sheltering in place and it’s hard to get workers and all these things, despite all of that, a really strong year. And now we’ve got, December, we saw temporary extensions, a year for wind, two for solar, longer for offshore wind. And we’re set to grow. And then we have all these new policies that really do equip us to be within shouting distance of where we need to be to protect our climate. Yeah, that is tremendous level of growth, but I think we’re in the game.

Jon Powers:

Absolutely. What’s interesting to me too, is if you look back to the Obama administration, for instance, the game has changed. The game has changed. In the early days of Obama administration we were focused very much on what public dollars we could put out to help really start a nascent industry and get it moving and start getting in place the blocking and tackling needed to grow. Now, as you just said, we have an industry that is sort of running on full engines right now and the amount of private capital coming in this space is growing by the quarter, which is really exciting, but it also changes what the policy solutions you need going forward are. It’s not about how to push in public dollars all the time. It’s about how to align policies to help unleash the private dollars. What do you sort of expect to hear from some of the speakers at the forum in terms of how do we move what policies they’re expecting or solutions they’re expecting to help unleash the capital they’re looking to bring?

Greg Wetstone:

Well, there’s a variety of different perspectives and a variety of sources of capital as you’re well aware. We’ll be hearing from Rich Glick, the chairman of FERC about their efforts to deal with better transmission planning and interconnection queues. There’s a really critical issue that the numbers on how much renewable development has been stymied by interconnection queues are boggling, over 700 gigawatts, just tremendous issue.

Jon Powers:

Wow. 700 gigawatts.

Greg Wetstone:

700 gigawatts, just backed, development that could not move forward because long waits, prohibitive cost. It’s a system that isn’t working. We need to obviously, not that we’re going to realize 700 gigawatts out of that, but it’ll be a huge infusion if we can repair those problems, plan the right kind of grid. We’re going to hear from, as you mentioned at the outset, Jigar Shah. He’s taken a really new approach to the loan guarantee program. He’s going to turn it into something that’s really meaningful for the sector. I have every confidence and it’s great having him over there. They’ve got $40 billion already allocated, doesn’t need to be appropriated. Congress has given the money, it’s been sitting there. Who better to put it to good use than Jigar, right?

Jon Powers:

Yeah, absolutely.

Greg Wetstone:

That’s great. And then their infrastructure funds and private equity and sovereign wealth funds and there’s all kinds of capital coming in and there’s all kinds of different investments. And there’s a lot of focus in storage, which is just starting to get into the zone where it needs to be. For years we do our survey and we’ll be revealing the results of our latest survey at the conference in June, but year after year storage is always, what is it that the investors are most enthusiastic about investing in in the sector? And the last three years it’s been storage or storage and PV stock tied or storage. And then the investment levels don’t nearly match because we know that there are problems and realizing the real value that storage brings to the market, that the revenue doesn’t really reflect that value. A new tax credit is going to change that dynamic. And so I’m confident we’re going to hear a lot of talk about the impacts of the tax credit there and certainly we expect it to be tremendous.

Greg Wetstone:

And then there’s approaches like green hydrogen, which could really change our sector and what we can do if it can be made to work where essentially you use renewables to create green hydrogen essentially out of water and then green hydrogen can be used either to power the grid, so it’s just a way to store power, which we need more and different storage. It can be transported and it can be a liquid fuel. Covers a lot of different bases, addresses a lot of problem and potentially keeps the natural gas infrastructure, which is looking to be a stranded asset in the longterm, makes that something that’s important, plays a role in our energy security and gets kind of buy in from that part of the fossil sector to the transition we’re fighting for.

Jon Powers:

One of the things I’ve always loved about ACORE ever since I first started engaging the organization is really, you guys are one of the only industry groups in Washington that actually has also focused on finance. You had the Renewable Energy Finance Forum for a long time, or I think you called the US PREP, I can’t remember the original term of it, but it’s been at the core of what ACORE has done and focused on for the last decade. For folks that are listening, if they want to get involved, how do they get involved in ACORE? And how do they sort of bring their voice to the table?

Greg Wetstone:

Well, thanks for that. And yeah, the Partnership for Renewable Energy Finance or PREP are the sort of executive level finance players in our sector. There’s 31 companies. Most, almost all, of the major financial institutions in this sector are active in ACORE and if you’re listening and you’re a finance buyer, you’re not in ACORE, come on in. We want you. You can find out more at acore.org. And we have varying participation levels for those who are ready to step up to the executive level, but it’s a way to engage and to promote the renewable transition without choosing a winner, no particular technology. And that’s really how we were founded at ACORE was the finance players wanted a technology neutral approach to promoting renewables. And that’s what we do. And new approaches, new financial approach have made a huge difference over the course of the sector and allowed for the use of tax credits, allowed for utility scale solar to really come into its own. And we are enthusiastic about taking that to the next level.

Greg Wetstone:

We do have a campaign to achieve a trillion dollars in private sector investment and renewables starting when we launched the campaign in 2018. To get there, we are going to need to increase annual investment by about 60% based on last year’s assessment. We know we need to do better, but it’s doable. We’re in the game. And we will be releasing the new results of how far we’ve come at our Finance Forum on June 15th. But suffice to say, we can do it, but it’s going to take more. We’re going to need more private sector engagement.

Jon Powers:

Yeah. For companies like CleanCapital and others where we don’t have sophisticated policy shops that are able to do, put out the work or even the manpower to really try to influence the policies, what we’ve learned here is working with ACORE and others really is helping us, what we like to call the military force multiplier. Where you guys have the really thought leadership, the direction on where we should be going and we can bring our voice to the table to help at least convince some of the policymakers in the direction we should be going.

Greg Wetstone:

Well, thanks for that. And it’s our members that make it happen and their engagement. Your engagement makes a huge difference. That’s what people on Capitol Hill want to hear is people that are in the sector, that care about the sector, that are creating jobs and investing in our communities. And the great thing about the renewable sector it’s by definition, it’s all domestic fuel. And we’re creating a lot of jobs along the way.

Greg Wetstone:

What’s incumbent upon us is, I’ve been talking about, well, we got to have this level of development to protect our climate. We’re also living in a world where we’ve got to power economic growth sufficient to drive a national economic recovery. And we’re very focused on that as well. And we think that’s doable too.

Jon Powers:

Yeah, no, I completely agree. To go back to the beginning, this is a transformational time for our industry. We’re going from four years, being a little bit on the defensive to being at the federal level especially, to going on the offensive in an amazing new way. The next six to eight months are so critical to move these policies forward. Looking ahead for a second, at the Finance Forum in 2022, what are the themes that you want to be really highlighting and the state of the industry at that point?

Greg Wetstone:

Yeah, at that point, certainly my hope is it’s about implementation. It’s about, how do we take best advantage of these great new policies we have in the books and these new tax credits? Do we have the right guidance that we need? We got to keep going, are we creating enough jobs? Are we growing at the level we need to and fully availing ourselves of the opportunities that are created with the new policies that we’re hopeful of getting done this year?

Greg Wetstone:

It’s worth mentioning, we have never had a president as committed to growth in our sector as we do today. And we need to take advantage of the alignment we have right now and get it done.

Jon Powers:

Yeah. It’s a dizzying shift to get on the offensive. And I think you guys are doing a great job leading that and thank you so much for all the hard work you’re putting in.

Greg Wetstone:

Well, I appreciate it, Jon, and really grateful for your engagement and for the opportunity to talk today.

Jon Powers:

Well, hopefully 2022 will be in person.

Greg Wetstone:

Exactly.

Jon Powers:

But here in 2021, reminder the ACORE Finance Forum’s a virtual event. It’s going to be June 15th to 16th. You can make sure to go to acorefinanceforum.org. We’ll have a link at the website. And sign up, be a part of the event. Make sure you register. Really great dialogue is going to happen there and make sure you sign up to be a member of ACORE because it’s really going to be important for us in the finance community, in the innovation community. Those folks on the ground, doing this work every day that we can bring our voices to Washington and help push the policies we need. Thanks so much, Greg.

Greg Wetstone:

Thank you, Jon. Really appreciate it.

Jon Powers:

Absolutely. And I want to thank Alex Hobson and the team at ACORE for helping to put this together and our producers, Carly Battin and Colleen Young, as always for helping to put the episodes together. You can get more Experts Only at cleancapital.com. And as always, I look forward to continuing the conversation.

Greg Wetstone:

I want to thank all those people too. And you, you’re a great spokesman for ACORE, we got to figure out a way to do that more.

Jon Powers:

Thanks, Greg. For sure. Well, once you get the surveys out, let’s go back and walk through them.

Greg Wetstone:

All right. Happy to do that.

Jon Powers:

Awesome.

Greg Wetstone:

Stay well.

Jon Powers:

You too.

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.