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:

Thanks so much for joining at Experts Only Podcast, sponsored by CleanCapital. To learn more about CleanCapital, go to CleanCapital.com and you can also find other episodes there. Today, we are talking with Bill Bush, who is the CFO, the chief financial officer at Stem. Stem’s a leading energy storage company. At Stem, Bill manages the company’s corporate and project financing efforts and really helped guide the company from a startup to a $200 million invested leader in the industry.

Jon Powers:

One of the things we really explore today is how storage is playing in the space, how investors are looking at it, how customers are looking at it. Bill actually comes from the solar space. He had been the CFO at Borrego Solar, another solar company, and had a lot of experience as well in the public accounting side with Ernst & Young and Pricewaterhouse. So we’re really going to talk about the potential transformational impact of energy storage and how Stem is helping to drive it, but also really break down what these deals look like.

Jon Powers:

So look forward to this conversation and also wanted to put a plug in to meet with the team at CleanCapital, out at Solar Power International here in August, I’m sorry, in September in Anaheim. And let’s go forward with the interview. Bill, thanks so much for joining us on Experts Only Podcast.

Bill Bush:

You’re welcome. Pleasure to be here.

Jon Powers:

So I want to talk a little bit about your personal journey in this space and how you ended up becoming Stem’s CFO. But before getting into Stem and I know you’ve worked across the industry and the solar side, the semi-conductor side, but you’ve also worked in a lot of non-energy spaces, including in accounting in Ernst & Young and Pricewaterhouse. So was it finance first, energy second? What was your draw into the accounting space and then later on in the energy space?

Bill Bush:

Yeah, I think the accounting space is somewhat simple. After kind of in my last semester at Cal, it became pretty obvious that the end was near and my parents were going to cut me off pretty soon. So a job was important. And actually, a friend of my father’s had suggested that accounting was a good way to see the world in some sense, the French Foreign Legion, I guess. And it turned out that way, which was certainly not predictable, but I ended up six years before the mass or almost seven, three here in the US or three and a half here in the US and about three and a half over in Germany and did actually travel the world with my green eyeshades. So it was a great experience for me. It was a great introduction to business and I feel very fortunate to have gotten started that way in that you got to see a lot of different types of businesses.

Bill Bush:

And I happened to have been in Germany about a year after the unification. And so got to travel all throughout Eastern Europe. At that time, the dollar was very attractive. And so there was a lot of acquisitive activity, particularly between US and German companies, but also in Czechoslovakia, or what was then Czechoslovakia, Hungary, Poland, and many of the former Eastern bloc countries. So it was a pretty exciting time to have been over there. And as a result, it kind of I would say you only get so many adventures in life, and that was certainly a great starter one for me, and kind of set up a whole bunch of other things that transpired after that. I wouldn’t say it was necessarily planned, but it certainly worked out pretty well.

Jon Powers:

Right. Where were you living in Germany?

Bill Bush:

I lived in Munich.

Jon Powers:

Oh, beautiful. I was stationed in just north of Frankfurt for a few years when I was in the army and loved it over there. And so coming from Germany, did you go back to the Bay Area?

Bill Bush:

I did. I came back to the Bay Area in, I guess, late ’93, early ’94, when the market just wasn’t so great for jobs. At that time, it was kind of not quite the recession of 2007, 2008, but it was pretty grim. And pure serendipity, a client that we had done one of the last big transactions that I’d done, AlliedSignal had bought a large German brake manufacturer called Knorr-Bremse, and they basically had done the diligence for the review of the company in basically all of Europe and South America. And they offered me a job in Los Angeles, which actually I was from, as is my wife. And so we moved down there and got involved in really my first foray into heavy manufacturing.

Bill Bush:

It was quite an anomaly, a non-union manufacturing shop, making turbo chargers for trucks and airplanes in Los Angeles. That plant’s no longer there, but at that time, we were literally bringing metal and aluminum from the Midwest, from smelting plants in the Midwest and machining it in California and then shipping it back to the Midwest to put on large trucks for Caterpillar, Detroit Diesel, and Navistar.

Jon Powers:

Interesting.

Bill Bush:

So pretty crazy.

Jon Powers:

So as you’re raising up the finance ranks, into being a comptroller and later on CFO, what started to attract you into the energy space?

Bill Bush:

I think I always have been interested in conservation. Way back when, I was a boy scout and all that sort of stuff. And so I think that was the angle that kind of drew me into solar really, as opposed to energy. I wouldn’t really say that it was energy, it was really more the renewable aspects of solar that kind of got me interested in it. And then from there, just having had a pretty strong finance background, raising money and doing a lot of assistance with pre-public and public companies, solar was, particularly in the 2007, 2008 time period, was a high growth area that had a lot of opportunities going. And so it was kind of a natural fit for me.

Jon Powers:

So was Borrego your first role in the solar space?

Bill Bush:

No, I worked for a smaller company called Solar Semiconductor, which it was a US company, but we were focused on the Indian market and we actually built a module manufacturing plant, both cell conversion and module assembly in India, in a city called… Boy, I’m spacing on the name right now.

Jon Powers:

That’s all right.

Bill Bush:

That’s terrible. In central India. So we kind of got started right there doing that. And then that company unfortunately, ran into some trouble. It was basically an OEM shop for SunPower and for Q Cells and the market for the manufacturer panels became incredibly difficult. I was actually talking with a friend the other day and what we used to charge to assemble the panels in India, mind you, is actually more than you would pay for a full panel today.

Jon Powers:

Wow. That’s amazing.

Bill Bush:

So when you think about just kind of benchmarks in the industry, that’s pretty crazy. And we were literally, it’s almost embarrassing to say, the amount of money that we’re paying folks in India to build these things wasn’t very much. And the fact that you can actually buy a full panel for that is totally insane.

Jon Powers:

So you’ve sort of seen the whole spectrum of really the market, and the hockey stick that’s taken off sort of post 2008. In your role on the accounting side and the CFO side, the finance side, what are some of the big lessons you’ve learned as that hockey stick really hit?

Bill Bush:

Certainly, I think folks really, almost to the exclusion of really what happened on the financing side. And maybe that’s because it’s made my focus or where I spent a lot of time. But I think the cost certainly enabled the market. So it certainly expanded the Tam or however you want to think about how many systems can be installed. But a lot of the innovation that made solar the powerhouse that it’s become is really on the finance side that it became an asset. It became an asset class where certainly when I got started in, I guess it was kind of late 2006, looking at solar and helping some friends out, do some money raising and that sort of thing, solar wasn’t an asset class. Nobody was investing in solar in any kind of institutional way.

Bill Bush:

And it was really kind of in the really on the margins and that innovation that occurred, certainly a lot of it’s on the residential side, because those are the bigger companies, Sunrun, SolarCity. Those sorts of guys have kind of taken up a lot of, say the top line head space of folks. But there’s been a ton of innovation that’s occurred that has made solar an investible quantity for large institutional customers and clients to put money into. And so you think about from that standpoint and it’s been a pretty wild ride.

Jon Powers:

Yeah, it’s interesting. You talked about the panel example, the efficiency have happened across that the entire market, obviously in the financing side. This is what we do at CleanCapital, is we’ve now taken that efficiency and now taking it to a new market of investors. And I think we’ll see, we’re not, we’re a little bit further away on storage, but, but storage is newer and it’s a less mature market, but it’s really coming on, hitting that hockey stick and you guys are right in the middle of it. So going from the solar space to Stem, what was the thing that attracted you to there? And then, in that, talk a little bit about Stem and what you do.

Bill Bush:

Sure. I think what attracted me to Stem was the ability to get in on the ground floor of a newer industry. Much like when I got into to solar in 2007 was really, it was an industry. It’s still obviously growing substantially and there’s more to do there, but storage is probably more similar to what solar was in the 2008, 2009, maybe 2010 timeframe. And so that was having spent a significant part of my career in startup and startup style opportunities, the storage opportunity was just too good to pass up. And I think the Stem team, our CEO, John Carrington, has been in a space for now, I think he’s in his fifth or sixth year as CEO of Stem. You had a group of folks that had pretty deep energy and had been around the block in some larger corporations and had seen know big stories and been an integral member in the growth in those stories.

Bill Bush:

So to me, it was kind of a natural fit where I looked at the executive team that was in place then, the market itself, and some of what I thought, the financing innovations could be having ported, or the ability to port that over from solar. And so for Stem, it made a lot of sense for me. I think as a company, what we’re really focused on, much like we were in solar, is bringing energy independence to our customers with the focus on the commercial industrial space. We do it with the batteries. But really, where all the smarts are is in all the software.

Jon Powers:

Right.

Bill Bush:

We have a branded solution called Athena and that’s really where all of the intelligence is. The batteries and solar panels are, are strikingly similar in that they don’t have any intelligence in them whatsoever. Both are reacting to other things, panels reacting to the sun coming up and shining and really that’s it. There’s no intelligence associated with that stuff at all. And battery is kind of somewhat similar. So it’s the Athena solution, which I think really makes what we do at Stem particularly interesting. We’re helping customers become energy independent, flatten their loads. And at the same time, our customers really span two basic groups. You have commercial industrial customers and we work significantly with utilities. We provide a service to both of those two groups, as opposed to… One of the things that I thought about when I came from solar into storage was that it felt like, which has come to be true, is it felt like we were fighting with utilities the whole way.

Bill Bush:

Borrego has a very large presence on the Northeast and the number of arguments that we had with some of the utilities out there and here in California as well, it kind of got a little tiring, whereas on the storage side, we actually are working with the utilities and we’re helping solve some of the problems that storage actually honestly is created on the grid. And so not that those problems aren’t solvable. You’re not really in that adversarial position that we were before. And so that was definitely an attractive component of this as well.

Jon Powers:

So you going back to the earlier conversation about efficiencies being driven across the marketplace and solar and bringing down costs, and now it’s not just an industry, it’s the largest job creator right now in the country. But everyone for a while has talked about storage being the game changer. And I think now people are saying the game changer is happening. So are you starting to see those same efficiencies happen across the storage space. Do you expect acceleration of that hockey stick because people are now familiar with the way, for instance, a power purchase agreement works or distributed generation has come along so much further than, for instance, when it was in 2008 with solar.

Bill Bush:

Yeah. I think one of the things it’ll be interesting to see is how solar plus storage works. And so standalone storage itself, it’s much more similar to a Rezi style model. So the contract that we use is much like it’s about five pages long as opposed to the minimum 30, 40 page PPAs that we did where a commercial space, when I was at Borrego. So it has a lot of the attributes there and you don’t have the complexity… So both of the good and the bad of not having an ITC is you don’t have the ITC, but you also don’t have the negative associated with the transfer of equipment. So certainly, there’s a positive and a negative there. But as we look at our customers, to the extent that we’re going to have a default, and there’s defaults on the solar side and there will be defaults on the storage as well, you’re actually able to move that equipment to another customer. And obviously, with the ITC, that’s a much more challenging conversation.

Bill Bush:

So the financing component of storage is a lot simpler where you’re really just looking at cash flows, a portion of which could be a part of utility program, portion of which could be through a revenue stream that the customer generates or some third avenue. But you’re really just looking at contract, the net present value, those contracted cash flows.

Bill Bush:

And I think the other really interesting part, and this is where I think we, this is where the Athena solution comes in, is the ability to stack revenue streams on the same box, which I think has long been discussed. And we’re actually doing that today. And so if you think about how we’re generating revenue through these boxes, in certain cases, we have two and three different revenue streams rolling through the same box.

Bill Bush:

And that’s where I think the storage industry gets really interesting. If you compared it to pretty much any other source, energy source ,kind of talking like if you had a solar system, you’re just generating electrons and you’re pushing those into the grid and you’re selling them either through a PPA or maybe some other revenue source. But for this, we have the ability to use the same equipment to generate additional value for the customer, which we would share in, or additional value for utility and all of those things without, without additional capex investment. I think that’s where storage gets really interesting.

Jon Powers:

Talk a little bit about that. So add some color. So if you’ve got the Athena box and the software around it, are you guys agnostic to the actual battery itself, or are you guys using a specific-

Bill Bush:

Yeah. We’re completely technology agnostic. The technology that we have is the software. We load that software into what we call an ESS, or an energy storage system, which is a combination of batteries and inverters as well as some other electronic components. But generally, that’s what that is. And so what we’re doing, there is obviously-

Jon Powers:

By the way, is your team helping to engineer that whole system? Is it a turnkey solution that you’re bringing, it just happens to be the Athena software that’s driving it?

Bill Bush:

No. We’re looking to buy completed componentry. So we want to buy an ESS from someone and then put our software on top of it. So it’s actually in the form of what we call a power monitor or a power controller. And the software then gets downloaded from the Amazon cloud and runs that battery. So we’re completely agnostic. So today, we use a lithium ion solution. For today, it’s the most cost effective solution out there that allows us to deliver demand charge savings to our customers. That doesn’t mean that tomorrow we couldn’t use some other software that had… So this is where it gets a little bit more interesting is the software isn’t dependent upon a particular technology. So if we can get another technology to save money for a customer, then we can implement that, assuming we can get that through a financing solution.

Jon Powers:

So I’m a commercial industrial customer, and you guys are then bringing that solution to my campus or my warehouse. And you’re putting those batteries in that energy, what did you say? The energy storage solution, the ESS.

Bill Bush:

Yep.

Jon Powers:

At my facility, and then does your team then manage that? Going back to those multiple revenue streams, are you guys managing those different revenue streams? How do I contract with you, as the customer?

Bill Bush:

So what our basic solution with the customer is that we go in, we take their utility data, we analyze that and we figure out how much money we think that we can save them through demand charges. At the same time, we also are looking at other ways. And so for instance, we have a contract with Southern California Edison, where there’s two revenue streams that roll into those boxes. One is a resource adequacy payment from Southern California Edison. And the second is the demand charge savings payment from the customer. So we’re building down in Southern California, a fully distributed energy, power plant, virtual power plant. When the plant is completed, there’ll be somewhere between two and 3000 sites across a number of industries and we’ll be able to hit the boxes at various times either to have demand charge savings, or provide capacity to a utility.

Bill Bush:

And so that’s what we’re building down in LA right now, and we’re doing that in other markets as well. So that’s an example, a concrete example of a system where we’re with a particular installation, generating multiple revenue streams using the same equipment.

Bill Bush:

Now, there’s a possibility that we could third revenue stream in there. So as for instance here, like in Northern California, what we do generally is there’s SGIP revenue, right? So there’s actually three revenue streams. So you have SGIP revenue, which is obviously an incentive program. Then you have demand charge savings to a customer. And then you can also enroll that system in DRAM. And so in Northern California, say not just Northern California, but throughout California and SGIP systems, you can have three revenue streams rolling into those boxes today.

Bill Bush:

So the question becomes, can I continue to increase the amount of revenue that box can generate, while managing the battery? So you can’t crush the battery throughout, and this is where scale comes in. So if I want to be able to deliver energy and a DRAM program, I need a network so that… Because you can imagine, think across a number of customers. So I have manufacturing plant and maybe I have a school. Well schools aren’t great because batteries can’t export. Schools aren’t so great after four or five o’clock right.

Jon Powers:

Right, and on the weekends.

Bill Bush:

Yeah. Or the weekends, summer.

Jon Powers:

Right, right.

Bill Bush:

So they’re not great from that standpoint. But they are great for certain time periods. And so what you really want to have is a fully distributed base of customers across a number of industries so that as, say as a DRAM call comes, then this is really where the logic of the software comes in, is it can discharge against a school, saving power for that manufacturing plant later in the afternoon.

Jon Powers:

Interesting. Just for our listeners. So folks that don’t know, SGIP is the Self-Generation Incentive Program in California that basically provides a lot of incentive based financing to things like fuel cells or energy storage. And DRAM is a demand response program that you guys would actively call on a company like Stem to help them balance the load. So if I’m the customer, schools maybe not be the best example, but I’m a FedEx warehouse facility, or I’m a Walmart, your benefit to us is we’re saving money by not having to pay the demand charges.

Bill Bush:

That’s right.

Jon Powers:

To the utility.

Bill Bush:

Yeah, the way your utility bill works and this is probably unknown to a lot of folks is that your demand charge rate is set based on a 15 minute interval during your month. So you could be just on your best behavior throughout the month. And if you miss, in a particular 15 minute cycle, then your demand charges can go through the roof. And so that’s really what the predictive nature of the Athena software, is it’s looking at both your historical trends and what’s going on in the market and it’s setting what we call peaks so that you are below that particular peak. And by doing that, you’re managing the amount of demand charge payment that you’re going to have to make. So it doesn’t eliminate demand charges or could, but generally we don’t because the amount of power that you would have to have would be extreme. It wouldn’t make economic sense. But much like kind of on the residential solar position, you’re trying to make sure you don’t get into… You want to minimize the amount of peaking is happening and flattening that curve across your entire bill month.

Jon Powers:

First of all, this is incredibly helpful and I think folks will get a better understanding of how this works. As you start to look then to finance these sort of in your role as CFO, there’s the virtual power plant concept, which is, I think you said multiple thousands of projects, are you finding them on individual levels? So for instance, that project at a commercial, industrial plant in San Diego is an individual sort of LLC that’s financed or are you financing it across that big portfolio, or both?

Bill Bush:

So we’re doing it both ways.

Jon Powers:

Yeah.

Bill Bush:

We’re doing it both ways, which makes it kind of fun. And it’s almost based on the size. So for that situation that I mentioned with Southern California Edison, it’s what we call the LCR contract with Southern California Edison, that is one financing structure, which is effectively like a bucket that we’re filling. So we’re finding customers, we’re deploying batteries, we’re signing demand charge savings agreements with those customers. And then we’re enrolling them in this LCR program with Southern California Edison, which allows them to get this resource capacity payment. And you get an additional energy payment when Southern California Edison calls or makes a call to our virtual power point, our VPP. So right now, those systems in Southern California, in two particular load zones, they get a customer payment. So we sign a contract with a customer, which typically has a performance guarantee associated with it.

Bill Bush:

And then we have a contract with Southern California Edison, which brings a fixed monthly payment and a variable payment based on how many times Southern California Edison calls the battery. So those systems have three payments today. And then, like I mentioned, an SGIP territory, which is California, again, self-generating incentive program, those can have as many as two or three revenue streams associated with those boxes. So that stacking of revenue, and then in other markets in Hawaii, we do even more stacking there. That’s really where this industry gets pretty interesting.

Jon Powers:

Yeah. The more stacking, the less variable, right?

Bill Bush:

Exactly.

Jon Powers:

To the investors, of course, that’s great too.

Bill Bush:

Yeah, exactly. Because you think about it, I have no additional CapEx, so effectively, that additional revenue that rolls in to the extent there’s any variable expense associated with the generation of that, which largely there’s none, that just rolls right to the investors. And so it becomes very interesting from the standpoint of a financing opportunity.

Jon Powers:

And do you guys own and operate then those systems because of the software? You’ve got teams that’ll roll out to site if necessary or are you contracting that out?

Bill Bush:

Yeah, so we are owners and operators. So we’re really a full stack developer. So we do the initial site development. We do the construction, although we outsource the actual construction work. We will then enroll those systems in whatever particular program and then we will operate that across the contract time period.

Jon Powers:

Excellent.

Bill Bush:

And so obviously, we’re using an investor to help us finance these systems, but we’re involved through the entire value stream. And so your earlier question was, do we do it so we have buckets. So generally, if the systems are kind of… Think of the way we finance things are almost from a programmatic standpoint. So like that LCR program is one kind of structure that we’re doing. Then in other territories, we are, much like solar was, single asset, single LLC.

Jon Powers:

Interesting.

Bill Bush:

And so it really kind of depends on market, system size and a couple of other factors like that.

Jon Powers:

Bill, this is really helpful. I think there’s so many questions in the industry of how this works. For instance, if I’m a customer, if I have a solar site, how would I engage with a Stem or another storage company tie in? And I agree with you, it’s going to be really exciting to see where that part of the industry goes, because it’s sort of the next step forward, for most of us. And I think really on the investor side, understanding what those packages start to look like will be real exciting.

Jon Powers:

So I know Paula and your team under me ask a bunch of policy questions. I’m going to have her on another episode to talk about policy, because that’s a whole different ballgame here.

Bill Bush:

Yeah, she’s much better versed at that than me. So I would defer in all of those questions anyways.

Jon Powers:

Yeah, that’s good. Because I feel like for the energy procurers out there, they’re wrestling with 50 different energy fiefdom, when you come down to policy and how do you, storage is great in California, probably not going to be able to pull it off here in Virginia yet. Right?

Bill Bush:

Exactly. Yeah, I think that’s the common problem in the US. But I think one of the things that we’re very focused on and I think this is a big difference between say my solar past and my storage present and future is that we’re focused on markets where we can deliver the services that Athena provides on a non incentive based methodology. So no ITC and really SGIP. SGIP as a percentage of our businesses declining pretty rapidly. So we’re really focused on markets where we can deliver today a fully unincentivized solution to a customer. And we’re doing that today in a variety of markets. If I thought about what are some of the primary differences between solar and storage, and kind of going back to one of the earlier points I made is storage is kind of in the kind of ’08, ’09, 2010 environment where there was still CSI.

Jon Powers:

Right.

Bill Bush:

And either ITC or the grant, which most people have long since forgotten. Yeah, those programs have never existed for storage. And so when we look at some of the markets, like we announced recently that we’re getting involved in Canada, there’s no incentive associated with the installation of those systems whatsoever. That’s the fully market driven competitive offering against other forms of energy procurement.

Jon Powers:

So I’ve got one final question. But before getting into that, if you could give one elevator pitch to a possible investor on why they should be coming into the storage space, what would that be?

Bill Bush:

I think it is a market that provides investors cash flows, demonstrable estimable cash flows in a way that also provides success for the underlying customer. And so I think that visibility that storage provides in an unincentivized world is something that I think is pretty appealing to investors. We see that every day as we’re out talking to folks.

Jon Powers:

Well, I look forward to exploring ways to get you guys incorporated with some of our customers out there that we’re working with. And Bill, one final question I sort of ask everyone on my show, if you could go back to yourself, coming out of college, when someone told you to take accounting because it would get you a job, what piece of advice would you give yourself now?

Bill Bush:

I think it’s still pretty similar. I think what has helped me through my career is flexibility. And so I think having a platform to grow on right is super important. And I think one of the things that I learned long time ago was look for businesses which generated cash flow. And I think storage is one. So I think if I was to provide somebody some advice, that’s what I would look at is businesses that have the opportunity to grow and generate cash, which will nurture them over the longer time period.

Jon Powers:

Outstanding. It’s good advice, I think for investors too. Right?

Bill Bush:

Could be.

Jon Powers:

Yeah. That’s right. Bill, thank you so much for the time today. I really appreciate it and I know a lot of people are really excited about what Stem’s up to and will be interested to hear this conversation. So thank you so much.

Bill Bush:

You’re welcome.

Jon Powers:

Hope you enjoyed our conversation with Bill Bush, the CFO at Stem. There are so many questions and so much interest around energy storage that we’re going to have a few more episodes on this and really help sort of break down the barriers so we can help better understand how this transformational technology is really going to move the energy sector forward. You can find more episodes at cleancapital.com. And I have to put a special thanks out for our producers, Lauren Glickman, Emily Connor and our intern, Greg Phillips. And thank you to you for listening. 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.