Jon Powers: Welcome to CleanCapital’s Experts Only podcast. We’re joined today by Chris Buddin, who’s a global head of the Clean Technology Renewables Group and the Internet of Things in the investment banking division with Goldman Sachs. Chris and I are going to dive into a variety of topics today but really focus on technology, talk about where clean energy’s come and where it’s going, and also explore how technology developments in things like the Internet of Things and the evolution of technology space is affecting the market. Chris, thanks so much for joining us here at CleanCapital’s Experts Only podcast. Really excited to talk to you and learn about some of the really interesting things that you’ve seen being out in the Valley at the heart of the clean energy space.

Jon Powers: But really, first, I wanted to talk to you a little bit about your personal journey, how you ended up with Goldman Sachs, how you ended up in the clean energy space. I know you’ve got a fascinating history in California as a double-athlete at Stanford, both in football and as a record-holding pole vaulter on the track team. So how did you go from that to clean energy?

Chris Buddin: Thanks, Jon. First of all, thanks for having me on this podcast. The journey. So it’s not a natural transition. You know, I came out of school here, and the goal was really to try to follow a passion. The passion actually led me into technology. So I spent a lot of time in the technology space in finance technology in investment banking. That evolved into clean energy for two reasons.

Chris Buddin: One was we started to see really interesting things going on from the tech side and what we called… Back then, you know, we were kind of confused between alternative energy, energy technology, clean energy, no one really knew what to say. But it was the solar companies coming from a semiconductor angle, or networking companies networking up utility grids, or software companies trying to figure out how to be more efficient with energy consumption. So it was really from a technology angle that I got interested into the clean energy sector, and that was one side of the passion. And the second one, obviously, is the endgame in clean energy is really a very important one. And at that point, we had one child and two, and I was thinking, at that point, I was starting to think more generationally about like what impact can I have, however small, on my children’s future, and that was sort of the marriage between passion for my kids and passion for technology.

Jon Powers: Yeah, it’s interesting. I hear from a lot of folks about the mission that clean energy brings, and I want to come back at some point and talk more about the tech side, and especially with your role and focusing on the Internet of Things, but let’s start off talking about some of the fact that you’ve been really engaged with really some of the most innovative companies in Silicon Valley. Tesla, SolarCity, Google, and so many others. What have you learned watching those companies, and more importantly, from their leadership perspective, what have you seen that’s worked both positive, and then what hasn’t worked on the negative side?

Chris Buddin: That’s a really good question. We’ve seen, I’ve been in the industry for 18 years, I think, now, investment banking that is, seen a lot of different companies build from scratch to mega businesses like Tesla and Google, for that matter, and other companies have disappeared along the way. The ones that have just had tremendous impact on me and how they built their companies were the ones that really did have, as you put it before, like the mission statement. Like they had a good business model, no question about it, but they had a mission and a plan to do something extraordinarily innovative.

Chris Buddin: Just using Tesla as an example, to think that that company became as successful as it has become. In 2008 or 2009 when the market was falling apart, and auto companies and auto suppliers were going out of business, and Elon was taking kind of a counterpoint and saying, “Electric vehicles make so much sense. If we do this, there will be a tremendous amount of demand for it. It’ll be good for consumers. It’ll be good for the environment. It’s the right thing to add more technology to the vehicles. I think it creates a better product.” But it was a total mission driven focus for that company, and I think they’ve proven it correct. The naysayers, when the market was falling apart for that business in particular, and SolarCity’s probably one of those as well, were significant. So it was the passion, the mission, and the drive, and ultimately the fundamentally a really good business model and product, that turned Tesla into, what are they, a 50, 60-plus billion dollar market cap today.

Jon Powers: Yeah, I heard J.B. Straubel speak recently, and he put up the picture of him working on the first Tesla in the garage and talked about how it came out of his experience working on solar cars in college, being part of a solar car challenge. And then realized that there was a real need in batteries and watching that story progress and the growth that company’s had and now acquiring SolarCity and really making the whole energy package together. It’s the future, and it’s super exciting.

Chris Buddin: It’s funny to look back and say… Everybody that sits in a Tesla today or an electric vehicle, and they drive it, and they say, “Wow, that is a fantastic experience. It’s amazing driving.” Ten years ago, I would say the majority of people they talked to say, “That will never, ever make sense.” Like I’m going to get stuck. I’m not going to make it. I’m going to have tremendous range anxiety. There’s no way these vehicles can be at an affordable price point. The batteries are going to die after a couple of years, because that’s what consumer electronics batteries do. None of that has proven true, and I think that there are a lot more people talking about how exciting electric vehicles are today. And it’s really about being a better product. Where companies don’t succeed, I think, where they have this great mission, is they don’t get through that initial hurdle of negativity about a new technology. And that’s pretty prevalent in the clean technology space.

Jon Powers: Yeah, so let’s talk a little bit about that. Because there’s so many interesting technologies and clean energy that have blossomed and then faded, right? It seems like of the markets… When you develop an app, an app can quickly kick in, and you’re developing Pokemon Go. All of a sudden you’ve got a 100 billion downloads in a blink of an eye, but with clean energy, you’re dealing with regulatory hurdles. You’re dealing with 50 different states and their energy regimes. Those companies that have succeeded, what are some of the traits that you think, I guess, cut across them? And then I also want to talk a little bit about the financing side. Because it’s not just about financing the companies but also about the projects themselves and understanding how those projects work.

Chris Buddin: Well, I think in clean energy, clean technology, one of the common traits, not amongst all companies, but amongst a lot of the endeavors is it takes a lot of capital. It takes a lot of capital to ramp these businesses up, and it takes a lot of capital to keep them growing. So the common trait amongst the successful companies is their ability to bring investors in, and at the same time, drive down the cost to operate or the cost to sell, so that it becomes a good investment. In some cases, getting to that point, takes more capital than is available, and those companies tend to fade away. In Tesla’s case, luckily enough, they had a founder who was really willing to bet the ranch on that business, and it turned out to be the right bet. And it’s turned into quite a successful outcome, and he has a lot of investors who are equally passionate and supportive of what that company is doing.

Chris Buddin: So that’s extremely important. Not every company has that. Not every concept has that. Not every idea that may seem like a good one to some people gets to the point where it becomes an idea that now looks good to everybody. Your other point about the heavily regulated environment in the clean sector, that’s a clear hurdle. I mean there’s some consistency to the regulatory, but there’s also some unpredictable nature of that regulatory environment, depending on what our political climate looks like.

Jon Powers: Absolutely. Okay, so following up on that. I think looking at some comments you made about a year ago at the Fortune Energy event, you really talked about the need for certainty, right? I think we’re seeing a lot of uncertainty in the market, whether it be the new administration, whether it be things like the Suniva Trade Case, but there has also been such a really fascinating last few years of growth and momentum. Not just for solar but for other technologies, for the distributed generation spaces as a whole. Where are we today in the idea of certainty? What level of certainty is out there? And then what can we do as an industry to sort of enhance that certainty?

Chris Buddin: When I mentioned at the Fortune event that there is a lot of focus on how to calculate your model returns, and if there’s a regulatory element to it, that those returns, that investment return profile is dynamic, and that’s a hard asset to invest in. That’s where that comes from. I think I might’ve said something dumb like intermittent, some kind of reference to the past, but the lack of a long-term ability to calculate return on an investment, especially if it’s in solar or wind, and it’s got a five, 10 to even longer investment horizon, if there is something that happens in that timeframe that can turn your investment upside down, that’s nerve wracking.

Chris Buddin: Now, all that said, I think solar and wind has continued to grow from a deployment standpoint. What I am certain about is that that’s going to continue. The renewable generated energy is going to continue to grow. I think we’re going to have an increase now in the deployment and use of energy storage as a key feature in that ecosystem. I do think that we are past the point of no return in electric vehicles, which their use of energy storage in a reliable, safe way will have a positive contribution to the deployment of stationary storage in the electrical grid. I think we’re past that point of return. The only negative comments we hear in the EV market, or at least I hear in the EV market nowadays is really the state subsidies or federal subsidies are about ready to go away. So will anybody spend money if they don’t get the incremental three to five to 7500 dollars in buying their car?

Chris Buddin: It’s a valid point, but I also think that the price of energy storage or the batteries and size is going to keep continuing to decline over the next five years. If you believe that, which is exactly what happened in solar module’s pricing, that’s kind of a non-event. So I think we’re past the point of return on… I think from a certainty standpoint, we’re past the point of return on continued option of EVs, continued growth in solar, and continued growth in wind. It’s the equity investments in these that has paused, and it’s paused because of lack of certainty. And it’s the equity investment we need to return to growth, because there’s plenty of debt available for these projects.

Jon Powers: Yeah, that seems to be, on the solar side at least, in many cases it’s trying to find the tax equity that’s the holdup on a lot of these opportunities, and solar is getting to the point now where, hopefully, soon it doesn’t even require it, and we can get to cost competitiveness without it, right? And it’s interesting to hear the position on batteries. I mean when we see the Gigafactory really humming here in the next few quarters, that would be such an influential change to the market as a whole and keep driving down those costs.

Jon Powers: But with that, there’s been efforts, like SolarCity, for instance, had the Solar Bonds. You had the rise of the yield co’s and then the fall of the yield co’s, but when you really do look at these deals over time, they’re relatively stable if you’ve got good offtakers, you can have pretty solid returns. With looking at, for instance, the yield co’s, even though they stumbled, do you see that model coming back, do you see changes in that model coming back?

Chris Buddin: I’ll have to say I do think that model will come back. I don’t know when, but I do think it’ll come back, because it’s a valid structure. It had a runaway moment. It had its own kind of thermal runaway moment, but it’s a valid structure. I think the issues that were in the first yield co go-around was a hunger for too much growth in those structures, which can significantly compound on themselves and require then a ton of capital.

Chris Buddin: I think the scale in the market for initial yield co’s were relative, and I’m talking about renewable ones. I mean, obviously, there’s some that had more traditional generation in them, too, which could get to a bigger scale, but for just renewables, if you don’t have the scale, and you start off with a small capital number, you need to have high growth to get to reasonable valuations. It’s better that they start at a higher baseline distributable capital number and grow at a lower rate. To me, it just makes more sense. So I do think they’ll come back, and they’ll come back when we have businesses that scale to do it again, but in the meantime, there’s nothing wrong with the market. I think that will continue to be a good source of capital for these players.

Jon Powers: Yeah, absolutely. And I think more and more institutions are getting more comfortable with those type of investments, which is great. So let’s change focus a little bit from purely clean energy. I want to talk about sort of your other hat, which is the Internet of Things. I sit here in my home office surrounded by multiple pieces of equipment, many of them created by Apple, but also my Nest thermostat, and so much else that’s connected to the internet today. When I looked at the recent Goldman Sachs video on the Internet of Things, you guys anticipated that by 2020 there will be 50 billion connected devices, which is unbelievable. So talk a little bit about what trends you’re seeing in that market, and then I also want to hear your thoughts on what opportunities there are in the clean energy space there.

Chris Buddin: Sure. The way I see the IoT market, the Internet of Things market, is not really a category unto itself. If it was a category unto itself, it could be a consumer perceived market, but the way I see it, it’s more of the next evolution of technology. So if we wanted to create big evolutions in technology, there was the fixed moment, which was kind of the 80s and 90s, there was the wireless moment, which encapsulated Cloud, which was more of the 2000s, and then there’s the, I think, the things trend, which becomes now we’re harnessing any device to be connected into that mobile network as opposed to just more enterprise class deployments.

Chris Buddin: I think it’s more of a third wave of technology, and the tieback into the clean energy and cleantech space is that the Internet of Things encompasses a whole bunch of industries to me. So it’s deploying and bringing technology, not just in the tech space but in all the industries that probably have had a less a pervasive deployment of modern-technology-cloud-based solutions into them. So industrial manufacturing of robots. Why shouldn’t they be sending their data and information back to the cloud to be processed and analyzed and optimized for that infrastructure? In automobiles, there’s already a tremendous amount of data being captured in automobiles, and certainly as we go toward a more autonomous future, there’s going to be even more. All of that is going to be value in looking at the data captured and analyzing it and providing feedback both on the manufacturing side, the services side, and for the customers themselves.

Chris Buddin: We always kind of thought about clean technology and clean energy that way, we just hadn’t folded it into that IoT concept, yet. If you think about it, IoT is just about driving efficiency in everything. And clean tech is about providing a more efficient source of energy or energy usage for the most part. So if we’re able to now harness data captured in solar fields, solar rays, wind farms, GE talks a lot about this with their Predix platform and wind farms, if we actually know the data from our wind farms, and we can better optimize that and tie it into climate data and better position for the most capacity factor we can get out of our wind farm, that makes it certainly more efficient. And then, ultimately, that, and let’s get back to the subsidy question, the rebate question, if all of that brings you back to a lower, unsubsidized, levelized cost of energy in the clean tech space, then the subsidy question goes out the table. Then you just have a better, cheaper, more efficient form of energy. And that’s how I tie it all back in.

Jon Powers: It’s exciting. I think when we look across demand management, the fact that so many folks in the industry get stuck in their verticals, whether it be solar, or wind, or if you’re an energy efficiency guy, or you’re an EV person, but the more that all of these different pieces are interconnected, the better that we can manage them, the more efficient the whole system’s going to be, which I think is getting really exciting. Obviously, it leads to some real challenges both on an infrastructure front and a cyber front, but those are challenges we can overcome and really drive the change, that I think will bring really the best thing for the consumer.

Chris Buddin: It’s a super complex solution to solve, I think, mainly because of your comment about silos, but I think we’ll see more and more success stories in this space, and that usually breeds a lot of cooperation.

Jon Powers: Absolutely. One last question before our standard final question, so with that momentum, and actually really, I think, with those challenges of the siloing, what do you sort of see as the greatest financing challenge coming for us to increase that deployment of clean energy and really to take it to the next level?

Chris Buddin: For clean energy, I think the biggest financing challenge right now that I see is that there is no common goal laid out at the governmental level. In my opinion, that’s caused a lot of pause in how people think about deploying their capital, or at least caused a lot of uncertainty. I think if you tally up the dollars that desperately want to invest in environmentally beneficial technologies, which is including clean technology, wind, solar, building efficiency software, you name it, that demand is probably extraordinarily high.

Chris Buddin: Releasing that capital becomes a bigger challenge, because there hasn’t been a lot of success stories over the past decade in the clean energy space. There’s been a handful of extremely successful outcomes, and there’s been a lot of mediocre to unsuccessful outcomes. I think we need a target or a goal in mind that people can all coalesce around to redeploy capital back into the space. The breakthrough energy coalition guys, I think, kind of have it right for a lot of this sector. It’s not a two- to five-year return investment. It’s going to take longer in a lot of these cases to mature and gestate, so having a longer investment horizon is probably really important right now.

Jon Powers: That’s super helpful. It’s going to be interesting to see, as the breakthrough really starts to come out of its shell here, and as it’s deploying money and taking that thesis and implementing it. It’s going to be, I think, exciting for the market as a whole. Hopefully, it can bring some others along with it. Finally, the standard question here, Chris, that we ask for folks, because I think we have an audience that ranges from industry experts, to folks just trying to learn about the industry, to college students, so if you could go back to yourself when you were playing football and pole vaulting at Stanford and could sit down and have a coffee and provide some advice, what advice would you give?

Chris Buddin: Back to my college self?

Jon Powers: Or high school self.

Chris Buddin: I mean in today’s day and age, I would tell myself spend more time really understanding the fundamentals of technology to be clear. I think that the next five to 10 years, a lot of the new and more interesting developments are going to be around for better or for worse. You can go either ways on this, artificial intelligence and the use of software to empower what has historically been a hardware driven business, but I would have spent more time on the technology side. I have spent a lot of time on the technology side, but I would’ve liked to have started it a lot earlier. Put it that way. To me, it was, when I left, it was about following my passion. My passion was in technology. My passion expanded into energy technology along well, so I would really say, absent being able to code, which I don’t know how to code, and I don’t think you need to know how to code, it would be just find something that you’re very passionate about and go after it.

Jon Powers: We just had the chief data scientist from ancestry.com join us as an advisor at CleanCapital, and having her insights into what’s happening in the data space and the machine learning space, and how we can sort of begin to implement it across our projects has been just really fascinating. We’re learning so much about taking all that to the next level. Well, Chris, thank you so much for your time. I think we covered a variety of topics. Thanks for your patience, and we are really excited to continue this conversation in the future, and really just thanks for being our guest.

Chris Buddin: Thanks, John.

Jon Powers: Well, I want to thank Chris Buddin for joining us, what a fascinating conversation, and ask that you go to cleancapital.com. You can find other conversations that we’ve had here at the Experts Only podcast. I want to thank our producers, Emily Connor and Lauren Glickman and ask you that you’d go to iTunes or wherever you get your podcasts and please leave us a positive review, a five-star review. We look forward to continuing this conversation as we explore the intersections of energy, innovation, and finance. Thanks.