Episode 22: Varun Sivaram [av_image src=’https://cleancapital.com/wp-content/uploads/2019/03/podcast-image-pageheader2.jpg’ attachment=’4329′ attachment_size=’full’ align=’center’ styling=” hover=” link=’page,249′ target=” caption=” font_size=” appearance=” overlay_opacity=’0.4′ overlay_color=’#000000′ overlay_text_color=’#ffffff’ copyright=” animation=’no-animation’ av_uid=’av-jwwgyb48′ custom_class=” admin_preview_bg=”][/av_image] [av_hr class=’invisible’ height=’20’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwwgxszg’ custom_class=” admin_preview_bg=”] Episode 22: Varun Sivaram [/av_textblock] [av_hr class=’invisible’ height=’10’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwl4lsb2′ custom_class=” admin_preview_bg=”] On this podcast, Thomas Byrne, CEO of CleanCapital, sits down with Varun Sivaram, a thought leader in the clean energy space. This podcast discusses the bestseller’s new book “Taming the Sun”, which outlines the current clean energy landscape, and the advances needed to unleash it. Besides being a writer, Varun Sivaram is a physicist and Chief Technology Officer at ReNew Power Ventures, a multibillion-dollar renewable energy firm. He is also a senior research scholar at Columbia University, a board member for the Stanford University Energy and Environment Institutes, and an editorial board member for the journal “Global Transitions”. Previously, Varun was a professor at Georgetown University and is a Rhodes and a Truman Scholar. Dr. Sivaram holds a degree from Stanford University and a Ph.D. from St. John’s College, Oxford University. [/av_textblock] [av_hr class=’invisible’ height=’20’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwwh5253′ custom_class=” admin_preview_bg=”] Listen now [/av_textblock] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwl43nfd’ custom_class=” admin_preview_bg=”] [/av_textblock] [av_hr class=’invisible’ height=’20’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=” custom_class=” admin_preview_bg=”] [av_textblock textblock_styling_align=” textblock_styling=” textblock_styling_gap=” textblock_styling_mobile=” size=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” font_color=” color=” id=” custom_class=” template_class=” av_uid=’av-l6aubqyb’ sc_version=’1.0′ admin_preview_bg=”] Transcript [/av_textblock] [av_textblock textblock_styling_align=” textblock_styling=” textblock_styling_gap=” textblock_styling_mobile=” size=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” font_color=” color=” id=” custom_class=” template_class=” av_uid=’av-l6auk9s7′ sc_version=’1.0′ admin_preview_bg=”] Jon Powers: Welcome to Experts Only podcasts. 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. Thomas Byrne: Welcome to this week’s episode of the Experts Only podcast. I am Thomas Byrne, co-founder of CleanCapital, guest hosting this week’s podcast. I’m thrilled to welcome of Varun Sivaram, a thought leader in the clean energy space. We discuss his exceptional new book, Taming the Sun, which outlines the current clean energy landscape and the advances that we need to make to unleash it. It’s a thought provoking book, and we encourage all listeners to grab copy. We hope you enjoy the conversation. Varun, great to have you on Experts Only podcast. Thanks very much for joining us. Varun Sivaram: Thanks for having me, Tom. Thomas Byrne: So, you wrote a great book, Taming the Sun, which really gets into the challenges that we face as a solar industry. Interested to first start with where you grew up, how did you get end up getting into solar? Varun Sivaram: Absolutely. I grew up in Silicon Valley. And I was surrounded by innovation. My dad was in the semiconductor industry. He was at Intel. He had the office next to Gordon Moore. So, that’s of Moore’s Law fame. So, I grew up thinking we did invent our way out of anything. My first job was to work at Nanosolar. Nanosolar was this innovative Silicon Valley startup. It raised more money than any startup except for Facebook. Thomas Byrne: Wow. Varun Sivaram: And I later would study new solar technologies in a laboratory at Oxford University as a graduate student. But I also had various other experiences that were outside of science and innovation. I worked in city government in the City of Los Angeles to install more solar than any other city in the country. I worked at McKinsey with large utilities that were wondering, what does this wave of solar mean for us? And now, I work as an analyst at a public policy think tank, The Council on Foreign Relations. And I think about US policy as well as other countries’ policy. Varun Sivaram: And so, I found that there are a lot of different perspectives being thrown around when it comes to solar. And the innovation-only perspective probably is incomplete. So, I wrote the book to tread this even-handed path among many different perspectives. Those that say that we have revolutionary new technologies around the world, and those that say that, “Hey, we have great bankable technologies right now.” Thomas Byrne: Right. Varun Sivaram: Those that say that we need a lot more subsidies, and those that say that solar is a boondoggle and deserves no subsidies. I think there’s a middle path. And that’s what the book is trying to do. Thomas Byrne: So, looking back at that experience with Nanosolar, what was going on then? What went wrong? And what happened to get us to where we are today, especially when you think of solar panel manufacturers? Varun Sivaram: Yeah. That time, 2006, was this season of hope for solar. First Solar had just gone public to a resounding IPO, stock price soared. Everybody said, “You know what? Let’s pile into solar.” Silicon Valley investors invested in a raft of solar startups. And many of these startups actually did have remarkable technologies. Nanosolar was a great company. Thomas Byrne: Yep. Varun Sivaram: Great engineers. Thomas Byrne: Yep. Varun Sivaram: Solyndra, which also is quite notorious, also had a great team, and great engineers, and a great technology. Nanosolar’s technology as well as Solyndra’s was a material called CIGs copper indium gallium selenium. That’s not important. The important thing is it’s a different material from the dominant one, silicon, which has dominated the solar industry for several decades. CIGs was going to be thinner. It was going to be cheaper. It was going to be flexible. Literally, you could curl up this roll of aluminum foil with CIGs on top of it. Varun Sivaram: And you could roll it up. And you could ship it easily. You could plaster it all over the place. This is a remarkable product. And unfortunately, all of these, or many of these innovative companies from Germany to the United States all went bankrupt when China flooded the market with super cheap silicon solar panels, largely thanks to the help of the state. State aid enabled them to dump low cost, often below cost, solar panels on global markets. Thomas Byrne: And was that a bad thing? Varun Sivaram: In the short run, it may not have been. Thanks to China, we now have extremely cheap solar panels. Manufacturers in China, and now in Asia, have scaled up. They no longer need government subsidies. But they needed them right at the beginning to get started. Thomas Byrne: Yeah. Varun Sivaram: And now, we have really cheap solar panels that are made by low cost producers. That’s fantastic, right. But the bad part is when you look at the long-term consequences. In the long run, because silicon becomes so dominant in the short run, it may be the case that silicon’s locking out new possibly superior technologies. But there are really cool technologies out there. Varun Sivaram: I’ve seen many of them. They could not only be more efficient and cheaper than silicon, they could enable a whole range of new applications in versatility. The problem is we may never get to them because silicon is so dominant now that any other technology faces a steep uphill climb to enter this market that’s currently dominated by an incumbent. Thomas Byrne: And then I want to get into some of those technologies later and how we can catapult them as an industry. I think that’s a perpetual challenge, how we deploy technologies. Let’s dive into the book. And you start the book off with two futures. A bleak one where climate change overtakes us, and we do not efficiently deploy clean energy. And one in which we smartly implement clean energy, and climate change while not solved is mitigated. So, let’s start with the first future. Maybe you could describe that for our listeners. Varun Sivaram: Absolutely. In the first future, I envision a world where mega cities from Mexico City, Lagos, New Delhi, are choked by smog where inequality is still rampant. Over a billion people lack access to electricity. And where the world is pretty dangerous because climate change is serving up floods, droughts, and heat waves. That world remarkably, in my opinion, is a result of the solar power revolution sputtering out. Varun Sivaram: More than almost any other cause, solar in particular, has this transformative ability to either put us in that world if solar stalls, or take us out of that world. In that world, because solar was supposed to anchor a clean energy revolution and didn’t, it started rising and then stopped sometime in the 2030s. It halted. As a result, you see that fossil fuels continued to exert a stranglehold on the economy. Varun Sivaram: They account for most of the electric power production. Oil, fuels almost every single car, ship, truck, and plane on the planet. Industry is almost entirely fueled by fossil fuels. All of this has resulted in just absolutely miserable living conditions. That’s a future that I actually don’t think is the straw man. It’s the future we’re on track for by mid century, if solar stalls. And I think that’s a very real risk. Thomas Byrne: Already in California, you’re seeing some of the challenges of having a substantial amount of solar and renewable intermittent renewable energy as part of the overall portfolio. Look at California. And look at the duck curve. What’s that reality? What is the duck curve? Varun Sivaram: The duck curve is a fantastic marketing tool invented by the California independent system operator. And they have had more success explaining why intermittent renewable energy causes problems to the grid than anybody else because of this cute duck curve. Thomas Byrne: All right. Varun Sivaram: So, here’s what the duck curve is. Initially, when you put the first solar panel on a grid, that solar panel is actually really useful because, especially in California, in the middle of the day on a hot day, for example, there’s a lot of air conditioning demand that that solar panel helps you meet. So, that’s fantastic. The first few solar panels help to decrease your midday demand peak. Varun Sivaram: The problem is not when you have the first couple solar panels, but when you have a lot of solar panels on the grid. After you’ve met the peak, and so you’ve basically smoothed out the demand profile, the profile of how much electricity consumers are using over the course of a day, the additional solar panels now cause that profile to become unsmooth. They cause the demand in the middle of the day to fall after you’ve met their demand from your increasing amount of solar panels. It falls so much that it’s called the belly of the duck. Thomas Byrne: Yeah. Varun Sivaram: And so, at the belly of the duck in the middle of the day when you have a lot of solar panels, your customers no longer need other power plants to meet very much of their electricity. This sounds great, right. The problem is when the sunsets. So, when you get to evening time, starting 5:00 PM, you see the spike in the need for electricity from other generators as solar power plants all go offline across the board. And that’s known as the neck, or I don’t know, the beak of the duck. Varun Sivaram: And so, because of this duck curve, you have a belly where you don’t need power plants to do very much. And then you have a neck or a beak where you absolutely need power plants to rapidly ramp up and make up for disappearing solar output. The grid is suddenly under enormous strain. And the addition of another solar power plant does not help that. It only hurts that process. It deepens the belly and it makes the neck even taller. Thomas Byrne: What was the tipping point effectively? Varun Sivaram: Oh, we’ve been there for years. Thomas Byrne: Yeah. Varun Sivaram: It’s been very clear. I mean, even last year in 2017, on a day in March, for example, the price of power went negative in the middle of the day. That means that there’s so much solar power, that the grid is paying everybody else to turn off. Thomas Byrne: Is any other energy going into the grid at that point, or in California? Is California during midday on a sunny day all wind and solar? Varun Sivaram: No. It’s not true. About 50% of California’s demand on a spring day, a March date, could be met by solar. Thomas Byrne: Okay. Varun Sivaram: But there are other sources. It’s not all wind and solar. For example, you’ll have plenty of natural gas power. But that doesn’t mean that the price is going to be positive. At that point, you’re actually paying power plants to shut down. Thomas Byrne: Right. Varun Sivaram: You’ve got to pay them because in many cases, the power plant will prefer not to shut down. It will prefer to keep spinning because it’s costly to shut down. In California, we’ve already recognized that solar has caused serious problems because it’s causing negative pricing. And that negative pricing is a signal of what I call value deflation. The phenomenon that as more solar comes on the grid, it cannibalizes its own value. Varun Sivaram: It becomes less valuable. And so, the next solar panel is close to worthless. And around the world, value deflation could cause the rise of solar to stall. Because even though solar is cost competitive today, when there’s no solar on the grid, when it’s quite a useful thing to add to the grid, well, if you add a lot of it around the world, and I’m telling you have to get to 33% electricity by 2050 globally, you’re going to run into this value deflation wall everywhere. We’re already seeing it in California. And I expect we will see it in many, many other jurisdictions. Thomas Byrne: One of the things you point out in your book is that you start to run into curtailment as a result of some of the effects of the duck curve of having too much solar in the grid. Curtailment is obviously a substantial issue potentially for anyone building a power plant and relying on those revenues. Is that playing out yet in California? And what do you foresee in other jurisdictions as the risk with curtailment? Varun Sivaram: Yeah, absolutely. Just to get everyone on the same page. Curtailment is when a wind or solar plant is asked not to supply its power to the grid. That power is thrown away. It’s excess. In California, we are seeing curtailment. Last year, it was a particularly wet winter. And so, your hydro reservoirs ended up being entirely full. Thomas Byrne: Yeah. Varun Sivaram: And so, they had to run. They were in what’s called spill mode. They weren’t very flexible, which they normally are, they had to run. And so, you had this glut of excess- Thomas Byrne: Just to literally empty the reservoir? Varun Sivaram: Exactly. Thomas Byrne: Yeah. Varun Sivaram: You had this glut of excess power on the markets. And so, curtailment hit all time highs of wind and solar. What does that mean? Well, in many cases, a solar plant will, in its contract with a utility, for example, it’ll have a clause that says that the utility must pay it up to a certain number of hours of production. So, for the first few hours of curtailment, that solar plant will probably get paid. But depending on the contractual terms, the next several hours of curtailment, it may not get paid. Everybody feels the cost here. Varun Sivaram: The grid feels a cost because sometimes they have to pay for power they don’t use. The solar plant sometimes feels a cost because after a certain number of contracted hours, they also will suffer the consequences. And going forward as curtailment rises, I expect contract terms to become even harsher for solar power plants. Now, you asked about other jurisdictions around the world. Thomas Byrne: Yeah. Varun Sivaram: I actually do see some improving trends. It’s not all bleak. In China, for example, in 2016, they had a law passed that makes it harder to curtail solar and wind. As you know, in China, they really have a curtailment problem, especially out in the far, far flung provinces in the west where there’s a ton of renewable energy, and often not enough transmission capacity to evacuate it. Varun Sivaram: But they do have these priority dispatch laws now in China that hopefully will start to reduce the amount of curtailment and require payment to renewable energy generators, even if there is curtailment. In Europe, very recently, February, regulators, lawmakers in Europe, decided that they weren’t going to scrap priority dispatch for renewables as we feared might happen. So, this is great. What this means is renewable energy will be the last to be curtailed. So, it can still get curtailed. But it’s harder to curtail it than if it’s first on the chopping block. Thomas Byrne: Sure. Varun Sivaram: So to speak. Thomas Byrne: So, we’ve talked about the bleak future. Let’s talk about your second future that you get into in your book. What does that look like? Varun Sivaram: So, the second future is not the shining utopia. It’s not a carbon inverse of the first future. And I want to say, the first future as I wrote it, sounded like science fiction. And what really scared me was I based it on pretty solid research. There’s peer-reviewed research for most of the claims I make in that first future. So, it’s not science fiction. The second future I also tried- Thomas Byrne: So, current trends, current forecasts, are showing a future in which sold the value of solar diminishes to a substantial amount outweighing the cost of solar effectively, right? Varun Sivaram: Exactly. And if we don’t have a clean energy transition because solar is one of the front runner technologies and it drops off, well, you have a host of bad implications. Now- Thomas Byrne: As I was reading your book, I was thinking there is the bleak future of that’s consistent with solar being a small part of total energy deployment. And perhaps we’ve gotten to a point as we’re starting to think of a more positive future, that you’re going to communicate, where we’re in this weird adjustment phase, where we need to be making decisions for how we’re going to adjust to a clean energy future. And now is sort of the time that we have to really make important decisions, whether it’s on the grid, and the different sources of power, and how we’re going to smooth out some of these concerns that you have. I feel like right now is this adjustment period. Varun Sivaram: I agree 100%. Right now is when we make decisions that determine if in 2050 we’re seeing the second future. Let me tell you what that second future looks like. Second future is you still have climate change. You still have unsavory decisions like how do we suck carbon out of the atmosphere? Because it’s not good enough to just transition largely to clean energy in the power sector. But at least we’ve bought ourselves the time to do that. Varun Sivaram: And the way we’ve done that is solar power kept rising. Solar now accounts in 2050 for 32% of global electricity. And even more importantly, solar is being used in other sectors. Solar fuels are starting to take off. Solar is generating hydrogen or even liquid carbon containing fuels. And it’s starting to challenge oils dominance. And that transition is going to happen in the second half of the century. Varun Sivaram: So, we’ve laid the groundwork through decades of long-term investments. In that brighter future, I believe that in addition to keeping climate change at bay, we’ve lifted hundreds of millions of people out of poverty because there’s ubiquitous low cost solar that enables electricity access, even in places where the grid does not reach. Varun Sivaram: And I believe that we’ve largely started to solve discourage of air pollution because finally, fossil fuel use is on the wane. So, there are a lot of positive things in this future. I don’t think the problems of the world go away. But at the very least, the world is in control of its destiny. Thomas Byrne: So what part does solar, as we know it, or even wind as we know it today, play in the 2050 future that you’re envisioning? Varun Sivaram: Hard to tell. One way of looking at this is in the future of 2050 there’s this whole panoply of different solar products. There’s not just one single solar panel that shows up in every different setting, whether it’s a rooftop solar panel, or a Walmart roof, or a ground-mounted installation out in the Mojave Desert. You actually have the stunning range of diverse products. Varun Sivaram: You have solar coatings for windows. You have a different type of solar coating for weak roofs in slums in the developing world. You have a different kind of solar product for the Mojave Desert. You have a different kind of solar product, whether you’re in urban or rural settings, et cetera, et cetera. I think that range of technological diversity exists in laboratories today. It doesn’t exist in the commercial markets. Thomas Byrne: And why is that technology important to solving this challenge? Why is the new technology that you speak of an important component of solving that challenge versus what we have today? Varun Sivaram: When we talk about value deflation, we say that solar’s value could fall below its cost. Well, if we want to fix that, if we want solar to stay economical, which means it’s delivering value above its cost, we’ve got two options. I think we should pursue both of them. The first is reduce solar’s cost faster. And the second is slow the fall of solar’s value. So, the first, reduce solar’s cost faster, in my mind, is let’s go invest in revolutionary technologies that get even cheaper, even faster. Thomas Byrne: Yeah. Varun Sivaram: And the second, let’s slow the decline of solar’s value, that to me, is let’s go and build these remarkable systems that are really good at using solar energy no matter when it’s produced or how much it fluctuates. That’s systemic innovation. Thomas Byrne: So, you talk about a lot of these technologies. And I was going to get it to it later. But let’s start hitting on some of these technologies that you’re thinking about already. There’s one that you discussed in your book that I’m going to butcher, Perovskite. Varun Sivaram: Oh, you nailed it. Thomas Byrne: Nailed it. Okay. Good. First time for everything. This is a really cool technology. You were actually at the ground floor of this when this was discovered, or more specifically, when the utility of it was discovered. So, what is this? Varun Sivaram: Yeah. I had the very good fortune of becoming a graduate student for Dr. Henry Snaith in the Oxford Physics Department two months before this discovery got made in that lab of the invention of the Perovskite solar cell, modern Perovskite solar cell. This is a solar cell made out of a material that’s different than silicon. It’s quite a dirt-cheap material. Perovskite, by the way, refers to not the material, but the crystal structure. Varun Sivaram: So, many different materials with this crystal structure exist. The most common is actually the most common element of the Earth’s crust. Anyway. Perovskite is this remarkable material when used in solar cells that allows us to make dirt-cheap, highly-efficient, flexible, colorful, and semi-transparent solar coatings. So, you can imagine a coating that makes your window look like stained glass. You can imagine- Thomas Byrne: That’s also producing? Varun Sivaram: That’s also producing electricity. Thomas Byrne: Electricity. Varun Sivaram: It’s blocking unwanted sunlight. It’s reducing the carbon footprint of your building space. And it’s aesthetic. It’s pretty. Thomas Byrne: You can imagine churches with their glass windows, right? Varun Sivaram: Exactly. Thomas Byrne: Just producing energy the entire time. Varun Sivaram: Exactly. And you can imagine printing this out of an industrial size ink jet printer. And that is a far less capital intensive proposition than the enormous factories needed to make silicon solar panels today. Thomas Byrne: And what’s the cost of that today? And where does it need to be in 20 years so this is commercially deployable? Varun Sivaram: This could be pennies per watt of solar. Thomas Byrne: Yeah. Varun Sivaram: Just to give you a sense. Solar in the United States today is about a dollar a watt, fully installed systems are about a dollar a watt or less. So, if we got to pennies per watt, that’s an order of magnitude improvement. And folks in Silicon valley will tell you, “If you have a startup and you want to go up against an incumbent, you better have an order of magnitude improvement. Otherwise, you don’t have a value proposition.” Varun Sivaram: It doesn’t help you to shave 10% or 20% of the cost. So, down the road I really see remarkable revolutionary value propositions from new technologies. Not just that they’re more efficient or cheaper on a materials’ perspective, but they change the entire system architecture, right. We’re comparing apples and oranges, if we’re comparing the cost of a solar window to the cost of a ground-mounted solar panel. Thomas Byrne: So, let’s talk about hydrogen. You talk about hydrogen cars quite a bit. And hydrogen cars, I’m friends with a gentleman named, Terry Tamminen, from California, who has been not just a huge proponent of the environment, but in the early 2000s was a huge proponent of hydrogen cars. But they stalled in favor of electric vehicles. What role do hydrogen cars play? How are you imagining that? Varun Sivaram: We don’t know how this is going to play out. You may say, “Oh, the great battle between hydrogen and electric has led to the victory of electric vehicles.” But really, hydrogen and electric right now are playing around at the very margins of an internal combustion engine dominated vehicle scene, right? Thomas Byrne: Sure. Varun Sivaram: So, there’s a long time to go before we figure out which of the alternative fuels- Thomas Byrne: Because there’s a lot of signals, right? Volvo. Varun Sivaram: Plenty of- Thomas Byrne: Tesla, is obviously still selling a lot of cars. Varun Sivaram: Plenty of great signals that electric vehicles are the front runner among alternative vehicles. The advantage of the hydrogen fueled vehicle is refueling time. An electric vehicle takes a long time to charge. But if you’re used to filling up at a gas station really fast, you can do basically the same thing at a hydrogen fuel station, if of course, there are enough hydrogen fuel stations. Thomas Byrne: Right. Varun Sivaram: So, I think that hydrogen vehicles are only one of a range of compelling applications of hydrogen the energy carrier. I think hydrogen the energy carrier is this remarkable way of storing solar energy, right. This is batteries are often considered the intuitive way to source solar energy. But hydrogen is actually a very compelling proposition. If we could harness sunshine, which is intermittent, and then convert it into hydrogen, which is a store of energy, it’s portable. Thomas Byrne: Yeah. Varun Sivaram: Well, you could power not only cars, but hydrogen can be used to power a range of industries. You can use hydrogen, for example, combine it with waste carbon dioxide from an industrial smoke stack, a coal power plant, and you can use that to produce a range of products that currently petroleum meets, whether it’s plastics, to other kinds of petrochemicals. I think that using hydrogen as a store of energy, that is then a feedstock for many different sources of economic value, whether it’s used as a transport fuel, or as an industrial fuel, I think it’s a compelling way to store solar energy. Thomas Byrne: The next technology outer space solar stations. Varun Sivaram: Really, really cool. It doesn’t get enough air time. Look, out in outer space, you get 10 times as much solar radiation as you do here on the Earth’s surface when you account for no atmospheric losses, no day and night, et cetera. So, because of that, it makes a ton of sense. If you can make a really lightweight solar coating to send up a whole fleet of these up in space, maybe self-assemble them using robots, create this enormous array out in outer space of solar panels. And then beam the energy back to Earth in the form of microwaves. On Earth, you’ll have to have a rectifier receiving station that converts the microwaves back into electricity. And then you’ve got this source of 24/7 non-intermittent solar electricity coming from space. Thomas Byrne: Now, it sounds very futuristic. But there are some folks working on this right now? Varun Sivaram: Exactly. Japan is working on it. They actually want to build a prototype. NASA has a study ongoing. I think I am a reviewer for the study. So, serious people, serious scientists, serious governments around the world are putting money behind this. It is a cool proposition. And it is far more realistic than say fusion. Thomas Byrne: And so, all of these different technologies have to be deployed in order for us to meet that second future that you are envisioning, right, where the status quo right now runs us the risk of the first future in which we do not adequately because of the value of solar achieve substantial climate mitigation. Whereas, in order for us to meet that second future, it’s going to require us to elevate our thinking a little bit and innovate even more so than we had envisioned. Varun Sivaram: Hey, I couldn’t have said it better. All I’ll say is that second future may or may not require us to deploy all of these cool new technologies. But it at least requires us to make substantial investments in all of them. Thomas Byrne: And what kind of investments are being made now? Varun Sivaram: Well, around the world, countries invest on the order of 15 billion dollars in research and development in energy technologies. And the goal under Mission Innovation, which is a pact made at the Paris Climate Change Accords, the goal was for countries to double that to 30 billion dollars by 2021. Now, initially when President Trump took office, it didn’t look like the United States was going to meet its own target. And the US is the biggest funder of energy R&D around the world. Varun Sivaram: But remarkably, just last week, Congress passed the ominbus spending bill, which actually increases US funding for energy innovation. So, we’re probably a couple years behind our commitment. But we are actually increasing our energy R&D. And around the world, other countries that signed up to Mission Innovation appear to be on track. So, we could actually see substantial investments in energy innovation. Maybe we won’t hit the 30 billion number. We’re probably going to break 20 billion. Thomas Byrne: How do you get the capital, or maybe not the capital markets, but the private investors? Is this mostly the realm of governments to fund some of the more cutting edge innovation? Or, you communicated the story of Nanosolar attracting millions of dollars back in the day, which has probably now made Silicon Valley skittish on making these types of investments. Is this just for the governments to fund? Varun Sivaram: You’re absolutely right. The private investors are definitely skittish about funding breakthrough energy technologies, whether it’s solar, or other fields, be it advanced nuclear. But that’s not to say that that makes this entirely the realm of the government. Because if the government’s the only funder here, you’re not going to have breakthrough energy technologies. Varun Sivaram: The government’s got to do a great job of intelligently mobilizing its own resources to encourage private capital to flow. And so, that means yes, ramping up government research development and demonstration. But it also means doing much more than just basic research, right. If you want to embolden private investors, it’s helpful if the government helps fund the first-of-a-kind field demonstration project of a new technology. Thomas Byrne: Sure. Varun Sivaram: It’s helpful if the government provides shared resources that help to de-risk particular investments. So, Cyclotron Road out in Lawrence Berkeley National Laboratory, your old stomping grounds. Thomas Byrne: Yes. Varun Sivaram: Cyclotron Road offers entrepreneurs these shared facilities. They can use LBNL’s lab resources. And a VC might not have to go and fund all of their independent lab space. So, there are many ways that you can basically make clean energy investing a more attractive proposition to investors. And by the way, we probably want a wider range than just VCs. Thomas Byrne: Yeah. Varun Sivaram: VC model might not work for- Thomas Byrne: I mean, corporates seem to be, some of the more manufacturing or industry based corporate, seem to be a logical partner for a lot of this technology. Varun Sivaram: Absolutely. Corporates, as well as folks who have a longer time horizon, folks who can write bigger checks. Bill Gates is trying to solve this problem with his breakthrough energy fund, which aims to be a long-term patient capital investor. Thomas Byrne: Do you know if they’ve made investments out of that yet? Varun Sivaram: We’ll see. Thomas Byrne: Yeah. Varun Sivaram: They’re still setting up their team. I think we’ll need many more investors of that build. Thomas Byrne: Speaking of investors, you go into some of the financing structures. So, I want to talk about a few of those. For us, at CleanCapital, this is where we focus a lot of our attention on how we unlock institutional capital. The statistic we often cite is only 0.4% of institutional capital is currently in anything resembling clean energy. That’s a World Economic Forum study. So, there’s a lot on the sidelines right now that needs to come in. You start by talking about yieldcos. Let’s talk about quickly what a yieldco is, and then get into why it makes sense? Varun Sivaram: Or, why it didn’t make sense originally. Thomas Byrne: Yeah. Let’s start with why it didn’t make sense for it to start. Varun Sivaram: Yeah. So, the yieldco at its core is actually quite a good idea. And I remain committed to that proposition that the yieldco correctly structured, in my opinion, is simply a holding vehicle that allows you to bundle together a lot of different renewable energy assets, creates a diversified portfolio, and it’s easily tradable. It’s a vehicle listed on a public stock market, for example. Varun Sivaram: And so, investors can buy and sell shares of it. This solves two important problems for large institutional investors, who you mentioned only 0.4% of their capital is invested in anything resembling this stuff. But a whole lot more should be because the return profile of a renewable energy project, it’s just ideal from their perspective. It’s a long-term, low risk, high-yield investment. That’s wonderful. A solar power plant just sits there and produces electricity- Thomas Byrne: For someone like a pension fund or an insurance company who basically has to just pay almost fixed liabilities year, after year, after year. The cash flows from the solar facilities produce that, match that liability. Varun Sivaram: Exactly. So, the yieldco solves two problems, two barriers for institutional investors to invest in this stuff. First, institutional investors just don’t have the manpower to diligence each project, right. A yieldco offers them a diversified portfolio. And second, institutional investors far more comfortable buying and trading publicly-traded securities than buying and trading projects which have serious liquidity risks. So, by solving those two problems, this basically connects an investor who would want to be invested in this asset class with an opportunity to do so. Now, the first incarnation of yieldcos crashed and burned. Thomas Byrne: Sure. We all remember it. Varun Sivaram: We all remember it. The model was- Thomas Byrne: Here in the United States. Varun Sivaram: Here in the United States. Exactly. The model was for a parent company, a developer. The most infamous was SunEdison to have a trial yieldco. And parent developer would develop projects, and then drop those down or sell them into the yieldco. This creates a lot of different conflicts of interest, for example. There were some governance issues. Allegedly SunEdison had some meddling in the internal affairs of what’s supposed to be an independent, publicly-traded company. Thomas Byrne: Yeah. Varun Sivaram: The yieldco. They were majority shareholders, they could do that. And the yieldco was structured in a way that it was greedy. It needed growth in order to keep its shareholders happy. And I don’t think that fundamentally we should think of these vehicles as growth vehicles. Look, this vehicle is supposed to be exactly what we want it to be, which is boring. Thomas Byrne: Yeah. Varun Sivaram: It’s meant to be boring for boring investors, right? Thomas Byrne: Yes. Varun Sivaram: Who want predictability. We want the yieldco to be divorced from market risk. The market goes up and down, but the yieldco just has a bunch of stable, underlying cash flows. Let’s not make it dependent on the market. So, I think that was a mistake that was made with that first incarnation. Thomas Byrne: Yep. Varun Sivaram: So, there was a confluence of events sometime in the summer of 2015, and a bull market turned bear, and suddenly these yieldcos just were sold off, and spiraled downwards, and lost folks a lot of money. Going forward, I don’t think that has to be the case. I think you correctly pointed out the US yieldcos were the ones to burn out. Well, the European yieldcos are doing just fine. The European yieldcos are structured in that much more safe, boring way. Varun Sivaram: I think going forward, once investors get over the scars of the yieldco crash, the next generation, whatever it’s called, it may not be a yieldco, the next generation that bundles together solar assets into a diversified pool that can be bought and sold as securities, that’s going to offer institutional investors a way to invest more of their capital in this attractive asset class. Thomas Byrne: I’ve looked at the historical stock price of the Renewable Energy Infrastructure Group, which is listed on the London Stock Exchange. The European yieldco. From 2013 to today in preparation with the podcast. And with the exception of Brexit in July of 2016, the stock price moved basically 5%. Varun Sivaram: Yeah. Thomas Byrne: One way, or mostly trickled up. Compare that to what TERP, SunEdison’s yieldco go did from 2014 through 2015 when it crashed, right. It was a much more volatile, much more big swing. So, it’s supposed to be boring like an MLP, or like REIT in real estate, right? Varun Sivaram: Exactly. Exactly. Those were the original inspirations. Look, if the solar industry is going to have the kind of success as other parts of the industry, and SunEdison inspired to be the next energy super major, right? Thomas Byrne: Sure. Varun Sivaram: Well, they’re going to have to use some of the financial tricks that other folks use. Oil and gas industry can fund its pipelines, thanks to MLPs. Thomas Byrne: Yep. Varun Sivaram: You mentioned Real Estate Investment Trust in the real estate sector. And the one thing you and I haven’t mentioned yet is how the auto or mortgage industries fund auto loans and mortgages. Thomas Byrne: So, talk about that a little bit. Varun Sivaram: So, that’s securitization. Thomas Byrne: Yeah. Varun Sivaram: It’s asset-backed securities that enable those industries to source enormous amounts of capital. And institutional investors are very comfortable with asset-backed securities. And I think securitization is starting to take off here in the United States. I think in 2017, we saw over a billion dollars of securitizations done. So, securitization works beautifully for these distributed assets. You’ve got a lot of rooftop solar panels, for example. Varun Sivaram: You may not want to invest in any one of them because you have credit risk or production risk. But if you aggregate a whole lot of them into a portfolio, you can smooth out some of those risks. And you have a pretty attractive portfolio, attractive recurring cash flows. Well, if you pull that into a portfolio, you can bundle, and slice, and dice it into securities. And sell them on market just the same way as you would for auto loans, for example. Thomas Byrne: Sure. Varun Sivaram: So, this is a way for us to speed the deployment of distributed solar assets because you’ll have a much more, a much deeper pool of capital available. Thomas Byrne: What we love about it at CleanCapital is that it ultimately unlocks, some of these developers are holding onto these assets. What they really want to do, the best use of capital, is to sell it down to a long-term pension fund, whether it’s the equity of a yieldco, or the debt, or securitization. So, they then have that money back in their pockets to recycle into new development, right. So, you just get that cycle like you have with MLPs and REITs. Varun Sivaram: Exactly. And I think you guys play an extremely important role in the ecosystem because as we get this market started, we’re going to need those intermediaries. And I think you guys exemplify this. CleanCapital is going to connect an institutional investor, a pension fund, that’s unfamiliar with the space with this portfolio of distributed assets. And in doing that, the first time, or the second time, or the third time, you then unlock capital that can then be recycled to do even more developments. And you get the ball rolling. Thomas Byrne: Yeah. Varun Sivaram: And once the ball’s rolling, this becomes a self-sustaining ecosystem, right, where institutional investors consistently give capital. That capital then enables the developer to recycle his warehouse loans, and go into even more distributed solar deployment. I think your role right now as an intermediary, a conduit, is super important. Thomas Byrne: We think you’re right. We think you’re right. All right. So, as we start to wrap up, we’ve hit a lot of different points here. Maybe you could crystallize where we need to get to over the next five years? I think there’s a lot of steps to be taken. And what you think is what’s the urgency? Is it urgent? Or, is this a long path to 2050? And what do we have to do near-term to adjust our mindsets? Varun Sivaram: Before I answer that, let me just say the stuff we were talking about just now, the financial innovation, you might say, “Why am I talking about financial innovation for existing technologies?” And then I’m talking about new technologies. Thomas Byrne: Sure. Varun Sivaram: Well, I actually think of this as happening in parallel. I think that in the near-term, we have a great technology. And we’d like to deploy as much of it as possible. And that’s where financial innovation can help us. And down the road, new technologies will take over. And they’ll benefit from the financial innovations that we’ve been developing. And so, down the road, they’re going to emerge into a very sophisticated marketplace if we invest in parallel in these brand new technologies. So, I think all of this happens in parallel. Thomas Byrne: I think that’s right. And I don’t think it’s mutually exclusive that a pension fund can invest in a 20-year asset right now, and simultaneously we can be advancing innovation on many other fronts. Varun Sivaram: I think that’s exactly right now. Now, your question was, “Hey, what’s the urgency here?” And it doesn’t really look like there’s much urgency, right. Look, we’ve got something that works. Solar is the fastest growing energy source on the planet. It attracted 160 billion dollars in investment last year. These are all great signs. Thomas Byrne: Yeah. Varun Sivaram: The auction prices are coming in around the world at 2 cents per kilowatt hour. This is unbelievable. But by the way, those are for projects that will be built in a couple years. We don’t actually know what subsidies are bundled. But still, remarkable. What on earth is the urgency? What I argue in the book, why I wrote it, is this is a slow moving train wreck. It’s urgent because if we don’t make the investments now, we’ll rue the day we didn’t make the investments, call it 10 years down the line. Thomas Byrne: Yeah. Varun Sivaram: Yeah. And if we hit that wall, it’ll then be too late for us to say, “Ought oh, we didn’t invest in innovation. Time to do it now.” Because some of these types of innovations have long lead times. So, in parallel, I think we urgently got to invest in all three kinds of innovation. The financial stuff is doing very well. And we’re thankful for CleanCapital’s role in the ecosystem. The technological stuff, that’s where governments have to be strongly supporting new technologies. And then on systems, look, we’re already seeing in some frontier markets, whether it’s California or Germany, we are seeing markets where solar has achieved a large penetration. Varun Sivaram: And it’s now time to make your grids flexible enough to handle that. In California, we’ve realized that because of value deflation, as soon as the mandate is no longer protecting solar’s growth, in California we have a grace period now because we’re pretty close to our 2020 mandate. We’ll easily hit it. Solar’s growth is stalled. The economic reality has emerged from that veil of mandates. And it’s clear now that solar has no economic path forward without further mandates and subsidies. Well, we better make our system far more flexible. And I think California is actually doing good work. Thomas Byrne: California will lead the way again on this? Varun Sivaram: I really think it’s got to. It’s got to be the jurisdictions that have achieved high penetrations, have to show the rest of the world how you integrate a lot of solar. And there’s so much to do. California 100% should be joining a larger Western energy market. It started to do this with the energy imbalance market. But it’s entire wholesale power market ought to be integrated with Western states. Varun Sivaram: You need to build a lot more transmission links both here in the Western United States and across the US to make it easier to aggregate renewable energy. And I think California and states like New York are leading the way on making their utilities service platforms for a smarter grid that enables demand response and flexibility. Storage is another key component. So, there’s so much that happens now to prove to the world, “Hey, we’ve got a ton of solar. Here’s how we integrate.” Thomas Byrne: And we didn’t even get into the revamping of the grid. So, there’s a lot more. But I encourage everyone who listens to this podcast to go out and buy, Taming the Sun. It is sort of an anthropology of where we’ve been and a mandate for, or a recommendation for, where we have to get to. It’s a great contribution to the space. Varun, thanks very much for joining Experts Only podcast. Varun Sivaram: Tom, thanks so much for having me. Thomas Byrne: Thank you too, Varun, for joining us this week. I hope you all enjoyed the conversation, and get a copy of his book. Of course, thank you to our producers, Lauren Glickman and Emily Connor. Please visit cleancapital.com for more information about CleanCapital and to listen to prior podcasts. 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. [/av_textblock] [av_hr class=’invisible’ height=’20’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_social_share title=’Share this entry’ style=” buttons=” share_facebook=” share_twitter=” share_pinterest=” share_gplus=” share_reddit=” share_linkedin=” share_tumblr=” share_vk=” share_mail=” av-desktop-hide=” av-medium-hide=” av-small-hide=” av-mini-hide=” av_uid=’av-354olk’] [av_hr class=’invisible’ height=’40’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_button label=’More Podcasts’ link=’page,5266′ link_target=” size=’small’ position=’center’ label_display=” icon_select=’no’ icon=’ue800′ font=’entypo-fontello’ color=’theme-color’ custom_bg=’#444444′ custom_font=’#ffffff’ av_uid=’av-jx1x7jx3′ custom_class=” admin_preview_bg=”] [av_hr class=’invisible’ height=’40’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”]
Episode 21: Live from the PACENation Summit [av_image src=’https://cleancapital.com/wp-content/uploads/2019/03/podcast-image-pageheader2.jpg’ attachment=’4329′ attachment_size=’full’ align=’center’ styling=” hover=” link=’page,249′ target=” caption=” font_size=” appearance=” overlay_opacity=’0.4′ overlay_color=’#000000′ overlay_text_color=’#ffffff’ copyright=” animation=’no-animation’ av_uid=’av-jwwgyb48′ custom_class=” admin_preview_bg=”][/av_image] [av_hr class=’invisible’ height=’20’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwwgxszg’ custom_class=” admin_preview_bg=”] Episode 21: Live from the PACENation Summit [/av_textblock] [av_hr class=’invisible’ height=’10’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwl4lsb2′ custom_class=” admin_preview_bg=”] This week is the first ever life taping of Experts Only Podcast at the PACENation Summit 2018 in Denver, Colorado. This episode has a bipartisan panel that discusses the different perspectives on PACE, how it relates to policy goals and the wavering support from the federal government. The Panel is a lively discussion of PACE administrators who are well versed in federal policy, as well as leaders in both Residential and Commercial PACE, and affinity groups. The panelists on this podcast include Genevive Sherman, Head of New Markets and Partnerships of Greenworks Lending, Keith den Hollander, National Field Director of The Christian Coalition, Michele Combs, Chairman and Founding Partner of Young Conservatives for Energy Reform, and Cisco Devries, Founder, and CEO of Renew Financial. [/av_textblock] [av_hr class=’invisible’ height=’20’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwwh5253′ custom_class=” admin_preview_bg=”] Listen now [/av_textblock] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwl43nfd’ custom_class=” admin_preview_bg=”] [/av_textblock] [av_hr class=’invisible’ height=’20’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=” custom_class=” admin_preview_bg=”] [av_textblock textblock_styling_align=” textblock_styling=” textblock_styling_gap=” textblock_styling_mobile=” size=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” font_color=” color=” id=” custom_class=” template_class=” av_uid=’av-l6atzj5v’ sc_version=’1.0′ admin_preview_bg=”] Transcript [/av_textblock] [av_textblock textblock_styling_align=” textblock_styling=” textblock_styling_gap=” textblock_styling_mobile=” size=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” font_color=” color=” id=” custom_class=” template_class=” av_uid=’av-l6au218c’ sc_version=’1.0′ admin_preview_bg=”] 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 and listening to CleanCapital’s Experts Only Podcast. Jon Powers: For folks in the room that aren’t unfamiliar with the podcast, what we do is explore the intersection of energy, innovation and finance and talk across the industry about what’s moving, what’s happening, what the future of the markets look like. It’s a great dialogue. For us at CleanCapital, a great way is to stay educated about where the industry’s moving. So I’ll be honest, this is our first live recording of a podcast. We’ll see how this turns out, but we’re pretty excited about it. Jon Powers: For folks listening, we are live at PACENation Summit 2018, here in Denver, Colorado. You can expect a really fascinating conversation on the perspectives of PACE from this really incredible panel. For those who are listening to the podcast and are unfamiliar with PACE, hopefully you in the room are pretty familiar with PACE, but we did an earlier episode. Jon Powers: So I challenged you to go to that first where I interviewed David and did a PACE 101 to help folks understand what’s happening in the market. It’s a great primer for this conversation. Just to level set, Property Assessed Clean Energy, PACE is a financing mechanism that enables low costs, long term funding for energy efficiency, renewable energy and water conservation projects. Jon Powers: PACE financing is repaid through the assessment of the Property Tax Bill. And depending on the local legislation, it can be used for commercial nonprofit for residential. Most of you in the room probably understand, that’s more for the folks online. Our panel today is going to talk about different perspectives, not so much on the policy side, but the way we approach it on PACE and how it relates to our goals. Also about how to engage with policy makers so that we can get PACE into more jurisdictions and hopefully continue to grow to market. Jon Powers: And then just a warning for our podcast listeners. This episode is significant longer than our normal episode. So make sure you budget your time appropriately. You can find more episodes at cleancapital.com or wherever you get your podcasts. Jon Powers: I want to start off with a special thanks to the organizers who put incredible work in to make this happen. We’re really excited about the conversation. Let’s get started. I’m going to ask each of the speakers to introduce themselves through a question as we’re talking on this versus just reading bios. Jon Powers: But I think for the folks in the room, our first speaker, Cisco, really needs no introduction. But he’s the CEO of Renew Financial. After growing up in the mountains near Yosemite National Park, where he raised pigs, goats and chickens, Cisco’s also a licensed pilot and I learned last night, the chairman of a little league baseball league, which is fantastic. Jon Powers: For those in the room, you know him as a key leader in the industry. So Cisco, you’ve seen the progression of PACE from being an idea on the back of a napkin to an industry that is growing quarter after quarter and thriving in a new way. For the folks in the audience, can you talk a little bit about that history, some perspective on the history and then why today? Why are things really starting to click now? Cisco: Well, thanks. First, it’s great to be here. It’s great to be on stage with these folks. It’s kind of a dream come true after a lot of years. I’m really honored to be here. There are parts of the PACE story that I only tell over beer. It’s a morning session here. Some of us probably had too much beer last night, so I will stick to some of the other parts. Cisco: But I was reminded yesterday, a California energy commissioner recently said PACE is the single most successful energy retrofit program in the history of the state of California. Well, it sounds great and I’m super proud to have been part of that, but it does make you go back and think about when that wasn’t the case. This really all started for me and for all of us with a hole in the ground. Cisco: Back when I was at the city of Berkeley, California, we were trying to help a neighborhood who was putting all their poles and wires underground, underground utility district. It’s about the most boring thing you can do in government is to dig a hole and put wires in it. That process of a neighbor choosing to do this voluntarily, of choosing how to pay for it, of the city making this an option to them, and then these homeowners taking assessments on it to pay for this project that they wanted to get done really got me thinking about how we could use that tool potentially to solve some other challenges. We have notably the climate and energy issue. Cisco: For me, a lot of this started around climate. That very, very beginning, I think kind of starts off the story of PACE and how we built on something. It’s really important then as we go through the years and I won’t go through the years, but to say, what- Jon Powers: Give us a few years. Cisco: What made PACE different from the beginning that made it possible to be here, that made it true, that all of us would be here from our different backgrounds and that an energy commissioner would say something serves big and bold like that. I think a couple of things. First, local government exists to solve problems. And as much as politics has become difficult, there’s a place where a lot of stuff still gets done. Day in and day out, people fill potholes and turn on lights and do these things. Cisco: I think local government’s are core to that, and it’s really not been the partisan place that a lot of other government. You’re allowed to kind of try new things. The second about this, that made PACE really important over the years the real difference, I think gets down to Palm Desert California. Cisco: My work in Berkeley started with the folks in Palm Desert, California to get going on at their own PACE program. In fact, Berkeley’s in Palm Desert started at about the same time. Palm Desert is as Conservative as Berkeley is liberal. It’s as hot as Berkeley as temperate. They’re literally accepted, they’re in the same state, they are nearly opposite places. But PACE solved a problem for them too, which was very high energy cost, particularly in the hot summers in the desert. Cisco: They used PACE… It was even more popular there than it was in Berkeley, where I don’t think anybody in Palm desert was thinking, “I’m trying to solve a climate problem there.” No, they were trying to solve a, “How’s my home going to be comfortable and not super expensive,” problem. And that notion that we’re just trying to solve a problem with PACE and that problem doesn’t have to be ideological, it’s really simpler than that is kind of… It seems simple. That’s a breakthrough, right? Cisco: The energy policy to sort of put aside the rest of the motivations and just focus on how we’re helping people solve a problem. That I think has been core to PACE all along. Giving people individual choice, not putting taxpayer dollars to work, helping them solve problems. In the end, behind the scenes, I feel like we’re making a real difference in climate. But that’s not what motivated a lot of folks to start programs or to do projects and I really feel like the history of PACE is about figuring out how to do that. Jon Powers: When this was starting, you were a champion in Berkeley making this happen? Was there a champion in Palm Desert that was driving this and were you guys communicating? Cisco: There was. It’s funny. I’m reminded a couple years later and this is one of those stories that probably shouldn’t be told out loud, but I went to Texas… They had an event and they wanted me to speak about PACE in Texas. This is probably 2009. It reminds me about Palm Desert because Palm Desert, amazing folks, great folks. I got to be friends with them. They cannot say out loud that Berkeley had anything to do with the beginning of this program. Cisco: When I went to Texas to give this talk, right before, there was like hundreds of people. And they’re like, “Okay, so what are you going to talk about?” I’m like, “Well, let’s talk about the Berkeley story.” And they’re like, “Shh! Yeah. Not so much on the Berkeley.” I’m like, “Well, it’s fine. California, there’s a lot of great stories.” And they’re like, “Maybe not so much on the California.” Cisco: I’m like, “This is going to be kind of a short conversation I guess, but all right.” My point on that is they’re great, they did amazing work, they figured out a bunch of stuff that I didn’t figure out. They didn’t want to talk about Berkeley. That’s fine. I think when Rick Perry signed PACE legislation in Texas, he didn’t want to talk about Berkeley either. That’s fine too. Because it was solving a problem and it really shouldn’t matter where it came from. It’s rare that we actually get past where things came from and actually just work on solving problems. I do think us, all taking a back seat to fame and glory and just letting people go out there and be a… There’s been fathers to a 1,000 PACE programs has been a huge help. Jon Powers: Yeah. Part of the reason I asked this and we’ll talk more about this in the conversation later is with PACE and local programs, many times I’ll have a local champion, but need advocates to come in and help build that support. And you need to build it in a way that messages to that community because Palm Desert’s messaging will be completely different than Berkeley’s messaging. Jon Powers: For Genevieve Sherman, she’s the head of New Markets and Partnership at Greenworks Lending. Genevieve decided to get into public private partnerships for financing sustainable infrastructure. After working at the planning department in South Africa’s Western region, I have a 1,000 questions about that, but we’re not going to go there and where she witnessed firsthand the tough investment decisions that governments face when building for climate change. Jon Powers: Going from South Africa, you ended up going to Connecticut, similar places. You started working at the Green Bank on the Commercial PACE program and it grew to be the fastest in the nation. Can you describe a little bit about commercial PACE, but also in your perspective from the Green Bank, how did you begin to implement this policy, overcome these challenges and then overcome the obstacles so that commercial customers begun to trust this new program and the C group. Genevieve Sherman: Yeah, absolutely. Well, since I’m sitting right next to Cisco, you all know that the Green Bank did not invent PACE or Commercial PACE by any stretch of imagination. We were one of the actually much later states to start a commercial PACE program. We always liked to say we had the 28th state advantage because there were a lot of early attempts and ideas that we had the opportunity to observe and say, “How can we improve on this?” Genevieve Sherman: But when we launched our program in 2012, there were several commercial PACE programs around the country. Most of them were focusing on trying to fund a first project. Commercial PACE was very much a sort of boutique, sort of esoteric, structured finance opportunity or option for a building owner. There were a lot of challenges on the credit underwriting and the capital markets side for, well, what is commercial PACE as a financial asset class and who really is going to use it and who really is going to buy it. Genevieve Sherman: The Connecticut green bank had a very interesting mission as a governmental agency, speaking of things that local government can do. We were tasked with trying to find new ways to bring private capital into infrastructure and buildings and to move away from subsidies and rebates. That was our goal and we needed to find ways to raise private capital and put it to work. When we looked at PACE on paper, we said, “Wow, this is a really great idea and this is a really great way to not spend taxpayer dollars and to not use our bonding capacity.” We really should be able to raise private capital into this structure. Genevieve Sherman: That was always our vision. We made some decisions to innovate on commercial PACE in a way that we thought could really start to scale of the market. There are a lot of different things we did, but I think there were three pretty important ones. Genevieve Sherman: The first is that we took PACE from a local program, from municipal to state. Which at the time was quite innovative. Connecticut is of course a small state. It’s probably the size of the bay area in California, but it is a state and it’s comprised of almost 200 individual tax collectors. We knew that we needed to simplify the public side of the public private partnership. We took a lot of the administrative burden, if you will, of operationalizing PACE, we took it away from the cities and we moved it to the level of the state and that made it much easier for municipalities to just kind of opt in but allow the economic development tool to sort of be made available without them having to staff it and put time and resources in. Jon Powers: That’s great. Genevieve Sherman: A second thing we did was we brought the mortgage banking industry to the table. This was really important for us. We wanted commercial banks in Connecticut, in particular, to actually get involved in the Connecticut green bank. We wanted them to put their capital to work in solar loans and solar leases and so on and so forth. We needed them to be supportive of commercial pay. And we found a way to do that through things like mandatory consent of mortgage lenders, non-acceleration of PACE loans, but non-extinguishment of PACE loans. Genevieve Sherman: We did some working out of what that product needed to look like and it made both the mortgage banks and the PACE investment community safer and more secure. And the last thing that we did was we started pooling commercial PACE loans. This was a big innovation, which is to say every commercial building has kind of its own special snowflake. Genevieve Sherman: Unlike homes where there are many standard metrics for credit underwriting for homes, there are databases, there are decades and decades of analysis on what is a safe bet in terms of investing in a home. That does not exist for the vast majority of commercial building types. We’re talking everything from churches, YMCAs, big shopping centers, little strip centers, office buildings, hotels. We needed to start bringing all of these commercial properties together in a portfolio approach. That was really the beginning of, I think the capital markets and investment community, having an opportunity to kind of look under the hood of what a portfolio Commercial PACE asset looks like. I think the industry really took off from that point. Jon Powers: Is that what led that work? Your partners at Greenworks lending and you guys spun out of the Green Bank. Talk a little bit about that process and what motivated you to do that? Genevieve Sherman: Yeah, absolutely. We spun out a company. It’s called Greenworks Lending in 2015. It really sort of got going in 2016, but we had seen the Connecticut PACE program really rapidly kind of start to grow. I know some of the Green Bank folks are the audience, so I hope I get these numbers right still. But I think we did about $30 million in just our first year of operations. Genevieve Sherman: That quickly grew to about a hundred million dollars after the second year of operations. When we looked at what our strengths were, but what the limits to growth were, we sort of added up those columns. There was more in the limits to growth than there was in our advantages being in a small public interest bank. We knew that in order to really scale up and scale out, we had to spin out this company. Genevieve Sherman: But we very much we’re able to incubate this idea within a public agency and that is quite unique. But we’ve replicated many of the strategies I’ve just mentioned on the capital market side within Greenworks and we’ve been fortunate but also we’re very happy to see many of the states that have now either sort of rejiggered their PACE programs are started new ones, they have replicated in their own way, in their own local way a lot of the features of the Connecticut program. So not every state has a Green Bank, but many states have made an effort to have a statewide program or it to be standardized for there to be a single low cost administrator and to basically open up a commercial PACE sort of marketplace in the way that Connecticut was able to do. Genevieve Sherman: That has helped Greenworks with its mission of scaling up and scaling out the lending side of commercial PACE. Jon Powers: Yeah. It definitely brings efficiency through the whole process, right? Our next two speakers, I met for the first time in Washington D.C. I was invited to speak to a group of young Conservatives who have come to Washington to talk about clean energy and climate change. And I wanted to speak about my background was in the military and what we were doing in the military for clean energy. Jon Powers: I was absolutely blown away by the sorry for the pun, but the energy in the room of these group of Conservatives, who for me I had never envisioned were coming in to be champions and I was completely wrong because of the leadership of the next two speakers. Jon Powers: I’m going to start off with Michele Combs, who’s the founder and president of Young Conservatives for Energy Reform. Who would’ve thought that a very Conservative Republican girl from South Carolina who worked for the late Senator Strom Thurman, Lee Atwater and former president George W. Bush, would be heading up a group of young Conservatives advocating for clean energy. And especially at the time of such partisan divide here in our country, we’re now beginning to see, see something like clean energy or PACE, help bridge the divide. So Michele, can you talk a little bit about what makes you a believer and why you found this organization and what you are all doing for the community? Michele Combs: Sure. Thank you so much for inviting me here today. I’m thrilled to be here and learn more about PACE. The more I learn about it, the more I like the system. I have a personal story, growing up in South Carolina, very involved with Republican party, former state chairman of the young Republicans there and clean energy never really… Michele Combs: I think it was because it was so partisan and the messengers at the time. When I was pregnant, like the women in the rooms that have children, you cannot eat fish when you’re pregnant. I went to my doctor and I said, “Well, why can’t I eat fish?” And they said, “Because of the mercury.” I said, “Well, where did some mercury come from?” And I found out that it comes from coal fired plants that are all over the country. And I’m like, “I cannot believe as a Conservative family valued person that we’re not more involved with clean energy.” Michele Combs: I started talking to some of my concerted friends and they said, “That’s a liberal issue.” And I said, “No, it’s not. It’s a family issue.” So I decided to talk to a hero of mine who is also my Senator, Senator Lindsay Graham. We went to see Senator Graham and we talked to him about clean energy and he loved it. He said, “Yes, this is something we need to work on. And I am behind you 100% and I will work with you.” My mother, who is the National President of the Christian Coalition also got involved with this issue. So we started partnering with other groups around the country and started working on clean energy. Michele Combs: As I went around the country, I realized that the young Conservatives of this country really get it. They grew up with the renewables. They grew up recycling. They grew up with not the stigmas that the older Conservatives. I know from being grassroots all my life, the way you get things done is you have to organize. I organize grassroots, organize the Young Conservatives for Energy Reform. We have state chairman all around the country and we work with state legislatures, we work with the federal level and we’re really turning not just legislation, but we’re turning the minds of people in the Republican Party and the Conservatives. So I’m so excited to be here and to be a part of this and just see this is part of we’re… I feel like we’re all on the journey together. Jon Powers: Michele, for the audience who come from a lot of those 50 different states, how do they engage with those organizers in those states and maybe help educate them on what they’re doing in their estate about PACE. Michele Combs: How does my group… Jon Powers: How can some of the audience engage your group? Michele Combs: We’re organized in each state. We have about actually about 35 states organized now. We have state chairmen. And what we do is we work with the local min municipalities. We work on the State House level. Last year, we worked with solar legislation in Nevada, we’re working with solar legislation today, as a matter of fact, right now in South Carolina. We work with different clean energy legislation all over. Michele Combs: If you want to get… We have a very active website and we can get you involved with those people so you can work on a state level, because the young people, like John said, they’re excited, they’re motivated. We took a poll last year. We pulled a thousand young Conservatives from around the country and they actually see this as a value issue, which is very exciting to me because I grew up with the family issues and the marriage issue. But they see this as the new value issue of the young Conservatives. Jon Powers: What’s the website? Michele Combs: It’s yc4er.org. Jon Powers: Yc4er.org. Michele Combs: .org. Jon Powers: Gotcha. Michele Combs: Yes. Jon Powers: That’s great to hear by the way. I got into this issue as an Iraq veteran and there got interested in the ideas of energy security and climate change through that national security lens. There are now thousands of veterans across the country who engage in these issues. The same thing, they see it as a value, they see it as a mission for them to continue. Jon Powers: I feel because we can begin to communicate more with those stories and locally we can drive these critical policies forward to get hopefully the growth we need in the renewable space. Next I want to talk to Keith and Keith, I make sure I get your last name right. But it’s Keith den Hollander, right? Keith den Hollander: Right. Jon Powers: All right. Who is with the Christian Coalition. Keith grew up working on his grandparents’ farm outside of New Jersey in the border of New Jersey and Pennsylvania. His mom was one of eight. His dad was one of 12. I imagine the holidays were pretty crazy. Keith den Hollander: Just a little bit. Jon Powers: So talk for a little bit about your experience growing up that got you interested in this space. The Christian Coalition is not a group that many in the audience would traditionally tie to being clean energy advocates. Can you talk about the progression of the organization and this thinking and how we get to a place where today they’re really helping to lead the fight? Keith den Hollander: Absolutely. Again, thank you for having me here. It’s great to be here, as Michele said, learning more about PACE and learning more of the details. I did grow up in a big family. Energy efficiency came natural to us because I was one of seven children. So we had a household of nine. My parents decided to carry on the tradition of their parents and have a big family. I grew up in New Jersey and if you’re from that area, you know the cost of living there. Raising a family of nine. My dad wanted to send us all to private school. We had two choices, energy efficiency or summer vacation. Keith den Hollander: If we weren’t efficient with our energy, we weren’t going on vacation that summer because it just wasn’t going to be affordable. I had half the equation down already. I didn’t have the clean energy aspect of it, but the efficiency side, my dad would follow us around the house and turn off lights and close windows that we left open and things that we weren’t doing that we should have been doing. Keith den Hollander: I also watched as people like my grandparents tried to make a go of farming in a time when it was harder and harder to be a farmer. I saw projects like wind farms come in and provide lease options to people to be able to lease their land. And so clean energy was creating opportunities as well for people to be involved in their farming business for a longer time than they would otherwise be able to do. Fast forward to when I moved to Michigan, after I got out of high school and I spent eight years owning an insurance agency. Keith den Hollander: So I was in the risk mitigation field. We did all of it, property, casualty, health, life. I was used to people trying to limit their risk. And about five years ago, I decided to get out of the insurance business because I wanted to move. And insurance is very local. If you move your customers, aren’t going to follow you hours away. And so I decided to leave the insurance business and I responded to an ad from the Christian Coalition that they were looking for a state director for the state of Michigan. And I met Michele’s mother, Roberta, who’s just a wonderful woman and a wonderful mentor and a real visionary. I interviewed and long story short, I got the job as a state director and Roberta said to me, “I want you to work on clean energy policy.” Keith den Hollander: I was completely confused. “What do you mean? That’s what you’re looking for a state director, to work on clean energy?” And she said, “Yeah, let me tell you about why.” And she started talking about national security and she started talking about health implications and she started talking to me about the economics of what clean energy could mean for our country, hedging against fluctuating fossil fuel costs and the more she talked to me about it, the more it made perfect sense. I really was able to catch her vision and say, “Yeah, this makes sense.” Keith den Hollander: We started out working on state policy, trying to increase Michigan’s portfolio standard from 10% to 15%, increasing our energy efficiency standards and doing it in a state that had a Republican governor, a Republican legislature completely controlled by Republican rule. This was something that, to my knowledge had never been done before. Keith den Hollander: John was talking about, about the military aspect of this. I met with an admiral named Lee Gunn and he came in to speak about clean energy. He said something to me that really resonated with me. He said, “I want you to think about the Kuwait war. We went over there. They cut off 4 million barrels of oil a day. The price of gasoline in the United States doubled. Gasoline’s a globally traded commodity. And we can’t control the price here. Even though we have plenty of it, we can’t control the price because when there’s disruption in the rest of the world, it affects our prices here.” He said, “Imagine what would happen if Iran closes the Strait of Hormuz and cut off 16 million barrels a day and suddenly the price of gasoline went not double, but four times. Our entire United States economy would collapse within 30 days, according to the Military Advisory Board’s risk assessment.” Keith den Hollander: He said, “The only way we get out from under that is to make ourselves less dependent on globally traded resources like that. As we have more electric vehicles, as things like that, we’re not going to be so dependent on this.” And he took it a step further and he explained to me how that was going to impact our energy markets going forward on the electricity side. Coal plants are closing all across the country. No utility will tell you they’re looking to open new coal plants today. Keith den Hollander: It’s just not feasible. We’re replacing almost all of them with natural gas plants, nuclear plants are struggling in a lot of places. There are organizations that have permits to build new nuclear and are not doing it because it’s not cost effective. We’re left with two options. We have natural gas plants and we have renewables. Keith den Hollander: Well, natural gas is not globally priced today, but I believe it was the last year of the Obama administration we opened that up and said it was allowed to be exported, but our ports still aren’t ready to export. We’re retrofitting our ports to be able to export and I’m sorry if many of you know this or not and I didn’t know this at the time. And it really touched me as I listened to it. Keith den Hollander: Once these ports are retrofitted and we can start exporting our natural gas, that’s going to be a commodity that’s going to become globally priced as well. I started looking at the prices here in United States compared to the prices around the world. If you look on FERC’s website, the landed price for natural gas in January was somewhere around 2.78, I think. When I looked at what it was in Belgium, it was $10 and 80-something cents. Keith den Hollander: There’s a huge disparity between what we pay and what everyone else in the rest of the world was paying. Canada was the closest and they were seven and something. And so I thought, well, once we start trading, this what’s going to happen? We’re not probably going to go to 10. But what happens if we go from $2 and 70 some cents to $5 or $6? That’s a doubling of the price of natural gas. If we’ve closed our coal plants and we’re left dependent on natural gas, everyone’s electric bill doubles too. Who can afford that? There’s enough people struggling to pay their utilities as it is today. Keith den Hollander: It’s important that we address this now, we don’t wait until down the road when that happens, because it’s going to take time to increase our use of renewables. We’ve got to build wind farms. We’ve got to build utility scale solar. We’ve got to put in residential solar, we’ve got all these projects to do, we’ve got to increase efficiency so we use less. So our demand is less. All these things to protect the American people from this burden that’s going to come on them if the price of natural gas were to increase that way. And so I realized it was a hedge. It fit right in with that hedging our risk that came from the insurance world. Keith den Hollander: This is a way for us to hedge against those rising costs by using domestically controlled energy. And then when you look deeper into it, I saw the jobs that came with it. Local communities when they put up a wind farm and all the people who were taking the leases that they were signing, taking that money and going and spending it in their local community. Keith den Hollander: I saw the solar projects doing the same thing, leasing land. I saw people becoming energy independent and that’s a very Conservative principle. Conservatives by nature tend to want greater independence. It fit very well with our Christian coalition member base to want to be energy independent. In order to make that a reality, we needed a fair system. Net metering suddenly came into play and then I learned about PACE and how PACE was putting these tools into the hands of everybody. Keith den Hollander: I thought, “This is really cool.” It’s been a journey for me. I spent two years in the state of Michigan. We did get the RPS increased from 10% to 15% through a Republican legislature and a Republican governor. We increased our energy efficiency requirements as well, so we have a combined goal of 35% now for the state by, I believe it’s 2021. Keith den Hollander: After two years as a State Director, I became the regional director for the Midwest. And then this year I became the National Field Director. So now we’re taking this program all over the country. We have programs in many states, we’re working on similar issues as well. Jon Powers: That’s amazing. Quick round of applause. That’s awesome. Now, that you’re a national field director, you can do it in all 50 states. Just get it done, right. For folks that don’t know, Keith mentioned the MAV, the Military Advisory Board, the Military Advisory Board is a group of retired four-star admirals in general is that now for well over a decade have been putting out some really fascinating thought leadership on climate change and energy security. It actually built into the Pentagon, the momentum for them to do significant programs to put in place. For instance, the Army, Navy and Air Force all have one gigawatt, renewable energy goals each. Not total, each. That many are on track to achieve through third party, long term financing. Jon Powers: But many in the federal space or more importantly, this current administration, the federal policy around clean energy is not as friendly or I would even argue right now is not really totally defined. It’s changing sort of regularly with the president, but also you’ve got Dr. Perry who in Texas signed PACE legislation, could be a champion on this, but at the same time is bringing coal empowering policies to try to get for it to change. Jon Powers: So it’s a really interesting time at the federal space, but it’s also a really interesting time for the industry as a whole, because we’ve matured, financing is coming in whole different buckets now that 10 years ago would not exist because people didn’t know if solar panels even worked or what energy efficiency was. Jon Powers: Cisco, can you talk a little bit about the role in energy financing to help accelerate the country’s position to increase renewables, increasing energy efficiency, but also maybe in specifically on the federal level, what the uncertainty of the policy footprint does for that and what’s the role of the financing community to maybe even change that? Cisco: Great. Yeah. A lot’s there. One of the things that’s great about this, when I first started off on it, I convinced the mayor we should work on this is, but we don’t have any money. Whatever you do, you’ve got to find other money. Immediately, there was this notion that we needed private capital, but then I needed some money to even figure out how to do it. So I wrote a grant proposal to the then George W. Bush EPA. They were, I believe the first, if not maybe the second, there were only two grants that came to get that first program working, going. Cisco: So from the very beginning, we had some national sponsorship and assistance from a Republican administration to try and figure out how this tool could work. That, I think, set on a really nice precedent. Hopefully we’ll continue that in the Trump administration, as they sort of settle into things. Cisco: But regardless there was this notion, there is not enough government money. Whether you’re at a city or a state or federal government, the change. Yesterday, there was a lot of discussion about the fact that the retrofit of our housing stock, which is a crumbling infrastructure, if there ever was one, in order to be more energy efficient, to create energy independence, it’s going to take trillions of dollars. There isn’t any possible scenario in which the government provides that money. Cisco: The only way that works is if the private sector and private finance come in, in a public private partnership fully privately to help people make these changes. A lot of what we’re trying to do with PACE now is to say that for 100 years, billions of dollars of low cost capital went to build utility infrastructure. Cisco: We now need to take some of those trillions of dollars and move it towards individual homes, individual businesses, individuals making choices to do infrastructure there. Because a lot of the infrastructure needs right now are back at the end of the grid and we’re going to need the same large scale capital, low cost capital sources that built the grid to now build out the edge of it so that it is energy independent. Cisco: I think when you look then at where… There’s only one place where that capital comes from and you can like it or dislike it or we can talk about the financial crisis of the past, but ultimately it’s in Wall street. That is where that capital exists. A lot of what I did when I left the city to start Renew Financial was to figure out how do we connect that large scale, low cost capital into this market where it is so desperately needed and has never before. Cisco: I think again, the big part of the last 10 years has been the success we’ve had in getting that done. And in general, how the industry has now really made that connection. I’m very excited about what private capital can do. I’m also certain that without it, we can’t be successful. And then at the very end of that train, there’s homeowners making individual choices about what to do. I think that’s that individual choice, empowered by their local government, but funded by private sector capital is the best thing that we have going. Jon Powers: When I was at the White House, we launched a public private partnership program with the ESCOs and did over 6 billion in energy performance contract. Same idea. We did no upfront capital, we used private capital to do it. Jon Powers: We actually received a letter from 163 members of Congress, mostly Republicans. Your friend Lindsay Graham was on there. It was the most successful thing from the Obama administration that we had done from a bipartisan perspective, because we were going at an achieving goals, partnering with the public sector, actively bringing down our energy use in the public sector. Cisco: Exactly. I think we need to get back to that. What this panel says, if nothing else, is that these solutions do not have to have a partisan thing to them. And so as we look now at a very partisan, we say, “What can we as PACE do?” And the first is we’ve got to support PACE in Washington through Congress. There’ve been a lot of great bipartisan support in the house and the Senate side for this effort and I think that’s been very successful, as we’ve had some difficulties with mortgage bankers and others. Cisco: But the other part of that then is it kind of… PACE provides an immunity from federal policy. Not totally, but it really says look, regardless of what is happening there today, we can still empower local folks, communities to make choices that are going to make their home safer to make their energy more energy independent, to save energy, do something for the climate, do something for the environment. Cisco: Those things… PACE is one of those ones that can run, even if we’re not having for what I would consider a very helpful federal policy frame on these issues today. It can continue. And I think that’s one of the great things about us all being here is that it didn’t change. PACE continued to grow even as the things in Washington changed. I think we’re also providing an example that hopefully they can get behind and we can move past some of the partisan gridlock. Jon Powers: It, it’s not like it’s smooth sailing. There is an anti-PACE effort being led by folks that as an industry, we have to fight to overcome both at the federal level. But as you mentioned most of the clean energy fights today are moving to the state level because whether it be on RPSs, on PACE, on the Green Banks, on net metering, all these different policies are becoming state level fights. Jon Powers: I think which is exciting for the industry, but it makes the role of many of you in the audience that much more important. So you can engage folks at the state level and tell your stories. Genevieve, you were at that state level in Connecticut and now you’re working across a variety of them right now. Jon Powers: Can you talk a little bit about how to engage those states? Sort of the roles in the states? And then we’re also going to talk with Genevieve and Keith about how to go in and specifically start to message towards those more Conservative states and how do we bring those conversations forward? Genevieve Sherman: Yeah, sure. Well, certainly on the political side, Keith has a great deal of experience with these state battles, but I think that the major challenges at the state level always are trying to make sure that we have all of the tools that all of the different stakeholders need all at the same time. Genevieve Sherman: When changes are made like increasing in RPS or if there is a PACE law that has passed, I know we have some folks on the real estate side here, there are mandatory benchmarking and disclosure laws that are becoming more popular now from the city level that’s moving up to the state. Everyone is impacted by these changes at the state level. That could be the utility sector, real estate, labor and so on and so forth. Genevieve Sherman: What is so critical is to remember why. Why we are creating these new laws, why we’re increasing RPSs and so on and so forth. Cisco and Keith spoke so eloquently about those reasons. What can be a challenge on the political front is when you get one thing to move, but then you don’t get the other pieces of the puzzle you need to make sure that everyone is empowered to still sort of have economic prosperity out of these changes. Genevieve Sherman: As we transition our infrastructure, our energy infrastructure, also our buildings to be more energy efficient, to be more water efficient, to have renewable energy, we want to make sure that everyone is a winner and that there are not winners and losers. It’s really important to try to bring everyone along together. What I’ve seen with PACE, I’ve been involved in supporting lobbying efforts. We support legislators, we support stakeholder groups when they’re getting PACE legislation pulled together is PACE is one of the very few state level policies that really does create winners across all sectors of the economy. Genevieve Sherman: Because it’s going to open up the opportunity for financial institutions to lend money and to a great extent that is Wall Street, but increasingly that is local banking institutions and main street banks when they’re getting involved in PACE, it opens up opportunity for workers. They now just have more financial resources to sell the products and services that they’re out there doing already. Genevieve Sherman: It just makes it easier for them to renovate our buildings. It creates more options for commercial property owners and managers and it creates a new tool for economic development for local governments. It really is this kind of like win, win, win, win, win and it is very complimentary to other state initiatives or policies that might be happening more at the sort of utility energy sector. Jon Powers: What more can the industry now that it’s maturing and growing do to drive those, I think critical conversations and fights and education at that level. Genevieve Sherman: Each state is a little different. These fights are happening in different places, but I think actually a lot of it gets to the utility sector. It actually is not so much at the local level. We have to figure out how to really transform our entire electricity infrastructure and transit infrastructure to new technologies. That is very much a question of a new business model for everyone involved, for utility companies, for energy generation companies, both natural gas plants, solar farms, wind farms and for the companies that own the wires and deliver us all the energy and the buildings. The people, to Cisco’s point, that are at the end of the circuit who are part of that infrastructure. Genevieve Sherman: What is really going to drive this change in my opinion, is if everyone can kind of look at the end result. I think there are certain states that are much further along in that, for example, California, New York state in saying, “Well, if we could all look 50 years into the future, what would that actually look like?” It involves our existing grid, but it would be renovated. We would have more real time data and analytics and security infrastructure on our existing grid. Genevieve Sherman: Our grid would be plugged into new sources of energy, not just large solar farms, but also solar on homes. We would have real time information and new businesses entrepreneurs sort of growing up and jumping onto this grid and saying, well, we can provide services and we can add choice for consumers. I think there are a couple of states that have looked at that future and then they’ve tried to back out of it and say, “Well, what is the investment? What is the capital investment required to get us there? What information about our grid do we need? What do we need consumers to know so that they can make informed choices about what energy they’re purchasing and so on and so forth?” Genevieve Sherman: The laws that are getting us there are cobbled together. It’s a combination of renewable portfolio standards requiring utilities to actually map our grid infrastructure. So we all know what’s actually there so we can all plug in and do what is most economically efficient to bring us to that future. Those are the types of laws we’re going to have to see passed, but most states are kind of inching their way toward it because of the political realities of sort of who’s winning and who’s losing. So you’ve got to kind of get an inch here and there until you build it up. Jon Powers: A lot of folks today, much smarter than I have compared to what’s happening and to the power delivery system to what’s happened to the telecommunications in the 1990s, when we went from to distributed cell towers, to the smartphones we have in our pockets today. That was driven a lot by federal legislation. Jon Powers: There was a Telecommunications Act that broke up the and started that. We were not going to see that come out of Congress no matter what party is in charge for a long time, I think because of the stakeholders, which makes those state level fights that much more important. Jon Powers: Keith you’re really helping to engage at those state level fights. One of the things you’ve done, the Christian Coalition did was help to lead a fight against an anti-PACE initiative by ALEC. And for folks that don’t know ALEC, ALEC is the American Legislative Exchange Council, it’s mostly a Conservative group of policy makers around the country. They come together pretty regularly. ALEC has been known for really putting together framework, legislation that you’ll see pop up state after state, after state, because they get their policy makers and local legislators involved, educated and then literally take those documents and go and file them at the state level. The fact that the Christian Coalition led a fight to stop an anti-PACE initiative was significant there. Can you talk a little bit about how you did that? Keith den Hollander: I think like with any fight, ultimately the fight comes down to relationships, right? It’s got to be relationships. And the work that we’ve done across the states, working on clean energy policy, educating lawmakers really was the fertile ground that we sowed to be able to defeat that effort at ALEC. Keith den Hollander: We’re actually not members of ALEC. We were able to get in as a guest under someone else’s membership. It’s fairly expensive to become a member of ALEC. Nonprofits have a little bit better rate, but if you go to every meeting, you attend everything, you’re going to spend $30,000-$40,000 a year being a member of ALEC going to these meetings. Jon Powers: What does the membership gain to folks that are- Keith den Hollander: Voting privileges. Once you become a member… So membership allows you to attend the meeting. But if you actually want to sit on a committee, you have to also pay to join the committee. I want to say to become a nonprofit member, it’s maybe 3,500 a year and then for each committee, you want to sit on, it’s an additional $5,000 to have someone sit on that committee. So you can spend significant amount of money joining committees to be able to have a vote. Keith den Hollander: The committees are made up of a combination of lawmakers and public sector companies and individuals. If you want to have a vote on that committee, you have to join. And the resolutions come up before the committee, the committee either adopts them or doesn’t adopt them. And then it gets sent out to their committee as a whole. So we learned that this resolution was kind of circulating through three different committees, tax committee, energy committee, and one other, I don’t remember the other committee that was involved and that it was an attempt to basically condemn PACE and suggest that states back out of their approval of PACE and go in the opposite direction. Jon Powers: Do you have a sense of, if you could say, who was behind that, driving that from a stakeholder perspective? Keith den Hollander: My understanding from folks that were there was that the Edison Institute was quite involved and some other similar organizations were kind of leading that battle. We decided to actually go to this ALEC meeting, found a way to get invited and attend as someone’s guest. We started working the relationships we had built with the lawmakers there. We didn’t need all of them. We just needed enough to stop the measure. The way a measure works in committee is it has to pass both the legislator vote and the public sector vote. Keith den Hollander: There’s two votes taken. One of the private companies, one of the legislators and it has to pass both. We had a decent showing among the companies that were there. There was a decent number that had committed that they were opposed to this, but we were concerned about the legislators. Keith den Hollander: We started circulating amongst the legislators on the committee, speaking with them saying, “Hey, remember we talked to you about clean energy. Remember why clean energy’s such a good idea. Remember, this is no longer a right versus left issue. It’s a right versus wrong issue.” This is something that you need to support because this is creating greater access for people in your state to those clean energy resources they need. And if you fight this, you’re going to be moving in the wrong direction. You’re moving backwards from what your constituents want. Our polling within the Christian Coalition shows consistently 70 to 80% for more clean energy amongst our members. Keith den Hollander: The Young Conservatives, it’s the same thing. Michele was speaking about the results there, how supportive they are. You’re going to get on the wrong side of your constituents if you go down this road. It wasn’t that we were there giving them technical details to say, “Let us tell you all about how the intricate workings of PACE work and why you should continue to embrace it.” Keith den Hollander: It was the relationships that had been built and the understanding that there’s trust. I think that’s the important lesson learned is that you can have all the knowledge, you can have facts on your side, you can have fact sheets. When you get down to a vote, you already have to have the relationship built. You can’t wait until there’s somebody trying to attack what you’re doing to build the relationship and trying and say, “Okay, I’m coming in now. I’ve got all these facts for you. I’m going to hand you this fact sheet. You should look at this and this should convince you that you need to change your mind.” Keith den Hollander: You need to have built those relationships over the years and you need to have built them personally, so that when you go as an individual and you ask that legislator, “Don’t vote for this.” They go, “Okay. I know you, I trust you. I’ve met you before. Your information you’ve given me in the past has been good.” And so it was really all relationships and having the right messenger there. There were clean energy companies, there were several wind developers who were fighting. There were several companies that are represented here that were there fighting the battle. But you have to have the right messenger. That was I think the key takeaway in that battle was when the right messenger’s there to deliver the message, you can achieve the desired outcome. Jon Powers: Yeah. That’s interesting. Michele, I want to come back to you for a second for a question. I’m going to open it up to the audience, I think after this question. So if you’ve got one, please think about it. I know there’s going to be mics circulating the room, but before my question to Michele and Michele, I’m deviating a little from the script here, so I’m just warning you. Raise your hand if you’ve been to a meeting with your local legislator. Jon Powers: So for the folks who are listening to podcasts, about 40% of the room maybe. If there’s anything to take away from this panel today, it’s the need for us as the industry to go have these conversations and to engage through groups like PACENation to help those dialogues. Because as Keith just said, it’s those relationships when things get hot that make the difference and help drive. Jon Powers: Michele, with that in mind you guys are working, as you said in states all over the country. Can you talk a little bit about how folks that are engaging with perhaps a Conservative lawmaker that may not be as familiar with issues, how would they go in and have that conversation? What’s sort of the messaging that you have found that works in those dialogues? Michele Combs: Well, I agree with Keith. I think it’s the building the relationships, but it’s also the messenger. I think it’s a lack of knowledge to these legislators. What we do is we go in and we talk about clean energy and we talk about how important it is. It’s amazing though, especially when we’re on Capitol Hill, that when we go in and see the Republican legislators, they’re so excited that we’re there. They’re so excited that they’re talking about clean energy. Michele Combs: I think that they really like our group because we give them the cover. Like these maybe hard right Conservatives can’t really criticize them because they’re partnering with us. So when we go on the state level, we normally have a certain bill and we talk about the certain bill. For example, we went in last year to Nevada and talked about net metering. Michele Combs: Net metering is such a win-win, especially for the state of Nevada, but because of the utility companies and what the argument that they were giving, they were a little confused. So once we went in and talked about how it’s saving consumers, all this money, which are your constituents, which will help you. I think we go in from the savings part. Michele Combs: And we also use, I think the national security issue a lot. We bring in generals and admirals when we go into different states and start talking about what Keith was talking about, about what’s happening in the Middle East and sort of ease into this country. And our generals always says that the military wants to be faster, more efficient, safer. Michele Combs: I think that’s sort of a way to… Even the hardened, the real far right Conservatives. There was a story I have to tell you all we were at a Christian coalition meeting and there was a climatologist there, a Republican climatologist who was talking about climate change. Afterwards, he came up to this climatologist and he said I always thought this was a democratic conspiracy until I heard it from you. There really is a messenger problem in this country and I think that’s what we are trying to ease the part on the Republican side and on the Conservatives, that this is not a left right issue. This is not a Conservative liberal issue. This is an American issue. That’s what we’re really trying to do. And this is a family issue. Jon Powers: That’s awesome. You may not be comfortable talking about a specific bill. You may not know what the Senate bill, whatever is, but I think when you work with advocacy groups, they’ll go in and be the experts. It’s your stories that make the biggest difference, especially if you live locally within that district. It’s really how you connect with the lawmakers. Jon Powers: I just want to open it up quickly before… I’ve got other questions, but I would want to get the audience a chance to ask and please use the mic, because we are recording this as part of the podcast. Please introduce yourself. Any questions out there. Can we get a mic over here. Thank you. Paul Schwab: This question is to Michele and Keith. Thank you so much. I really appreciated your perspective. My name’s Paul Schwab. I work here at the National Renewable Energy, Colorado from the Republican side. I was curious how… I’ve a lot of perhaps the Tea Party side of the Republican party is very interested in some clean energy policies and that it’s freedom of choosing provider. How does your experiences within the Republican party fit, like Tea Party constituents. Is it primarily Tea Party constituents that are interested in clean energy or is it broader than just that sort of side of the Republican party? What are your experiences with that? Michele Combs: For me… I’ve heard… You’re talking about the Tea Party is what you’re- Paul Schwab: Yeah, Florida in particular. Michele Combs: Yeah, there was a group, I think a green Tea Party or something, but we work with all the groups. We work with just Republicans all around the country and different legislators, but that’s great, what they’re doing, the energy freedom. But we have done similar things all around the country. We welcome any group that wants to work with the Conservatives. Jon Powers: And I think what you’re asking, was it limited to the Tea Party? I think Michele you’re saying it’s sort of across the whole spectrum. Michele Combs: Yes, yes they are. I know that they’re in Florida or Georgia, but there are groups like that all over the country now that are partnering with us and with the Christian Coalition in different groups. Jon Powers: I think Michele maybe undersold us earlier when she talked about the net metering bill in Nevada. Her group was incredibly critical to overturning what was a terrible policy in Nevada and could have handcuffed solar growth there for decades. So the leadership that you all showed in those conversations, I think helped continue the growth that we’re seeing in that state. Michele Combs: Thank you. Jon Powers: Other audience questions before up front here? Stephanie Mah: Good morning, Stephanie Mah from Morningstar Credit Ratings. Thank you for a great podcast this morning. My question is, I’m curious to hear what the panelists think of Senate bill 2155 that was passed by the House, the Senate last week, which is proposing to include a provision to have PACE fall under the Truth and Lending Act. Jon Powers: Can anyone explain that? Cisco: I’ll take a crack at it. Last year, there was a bill introduced by Senator Cotton of Arkansas that would’ve probably pretty much killed all PACE programs. It may not have been the intent, but that was certainly what it would’ve done. That bill didn’t go anywhere. But as the Senate banking reform bill started to move, there’s been a discussion about whether there should be a component in there to bring some level of federal oversight to PACE. It’s sort of interesting because what you found then is this debate where there’s some more Conservatives who are asking for the CFPB to be regulating a state financing program and Democrats who are like, “Whoa, too much!” Cisco: That’s a overlook of federal overreach there guys. There was a little bit of irony which everybody enjoyed, but there was a lot of good discussion among senators and Senate staff on both sides of the aisle. At the end of it, what came out of it was legislation, which we can support. I can’t speak to the broader bill. I can only, this one little piece. Cisco: Which says one of the issues with PACE that people want to see some consistent standards is just making sure that we are consistently measuring people’s ability to repay a PACE obligation. That has been passed as part of the California legislation. The notion in the bill is that the CFPB should come up with some rules, ultimately that would create kind of an ability to pay rule for the country. Cisco: There’s a lot of complications, PACE, different laws in different states work very differently for PACE. It’s not a place where a large federal presence would actually probably work, but there are certain really key places where there could be some productive level setting. Cisco: This bill is moving forward. It does have language that the industry is supportive of, comfortable with and we’ll see whether it gets going. But I think it was one of those great examples of a bunch of debate, kind of, unfortunately, the last minute, where in the end, Senator Bennett was a great advocate of getting this done, came together, came up with Senator Warner with some good language. Everybody said, “Okay, let’s go forward together.” I was proud that we could have been a participant in that discussion and that we got to at least, a reasonably good outcome. Jon Powers: What were the forces behind Cotton’s initiative? Cisco: It is always easy to sort of ascribe motives to people. I don’t know. PACE is not particularly active in Arkansas. There’s no residential PACE at all in Arkansas. So this wasn’t coming from somebody who had a problem in Arkansas. The mortgage bankers have certainly claimed credit for it. I would go ahead and give them the credit for getting that more introduced. Cisco: I think in the end, the focus that the mortgage brought to it is pretty one sided there. There’s a disruption happening in industry in general and they’re not sure which way that’s going and that makes them concerned. But because you’ve got folks in political office who understand PACE, who are fighting for it and who are persuasive, in the end, we’ve got somewhere that we can all agree on. Jon Powers: I think we’ve got time for one more question, but before I open it up, if there aren’t any more questions, just a warning to the speakers. I’m going to start with Keith and work down for any final comments. Any questions out there? All right. With that in mind, Keith, any lessons you want to share or thoughts, final thoughts? Keith den Hollander: I think as you consider building relationships, sometimes you can be the messenger, but it can be valuable to have a validator with you. That’s a role that we’ve played across the country for a lot of different organizations where they’ve said we have a relationship, but at the end of the day, clean energy for years has been relatively partisan. Not necessarily clean energy as an industry, but clean energy as a movement, the environmental side of it, the organizations that have supported clean energy. Keith den Hollander: If you look back at groups like The League of Conservation Voters, the Sierra Club, some of these groups that have typically fought for clean energy policies, they’ve also been out there attacking legislators on the right for years for not being supportive. Just because they can come and speak knowledgeably about the issue, it doesn’t mean that the legislator’s opinion of everything they’ve ever said about them over the years is going to change. Keith den Hollander: Sometimes those of you who work in the industry get painted with the brush of those in the activist space who have created some of those negative opinions. Sometimes it’s valuable as an industry person to say, “I’m going to take a validator with me.” Who’s going to say… I’ve done this with a solar company. I won’t mention their name because I didn’t ask them if we could, but we’ve worked with them and they wanted to have some meetings with legislators and asked us if we could come in and sit down with them with the legislators. We just were there not to provide technical knowledge. We were there to provide a validator role. Keith den Hollander: We were there to say, “We’ve worked with these guys. They’re great. We’ve seen what they’re doing in the community. We’ve seen the projects they’re working on. They’re good actors, they’re doing a great job and they’re really bringing value.” And just the fact that we were there with them provided the validation that the legislator needed to feel comfortable saying, “Okay, I can support.” Keith den Hollander: This because their natural mindset, otherwise would’ve been to validate them with one of the groups that used to attack them or was still attacking them. When you think about advocating for your own interests in this field, think about who has advocated for those interests in the past and the kind of taste they may have left in people’s mouth and how that might reflect on you and think about what you can do to change that by bringing in a new voice or a new validator who doesn’t have that same stigma attached when working with a legislator on the Conservative side of the aisle or working even with grassroots to help educate them. Jon Powers: Thank you, Michele. Michele Combs: I second everything Kieth said. I look forward to working with you guys around the country. I look forward to, if you guys want to work with our state chairman. I like the idea of PACE because it is non-discriminatory, it’s not a left, it’s not a right, it’s not a Republican or a Democrat it’s available to everyone and I think that’s great. And I think that’s very appealing to people across the country. I look forward to working with you guys. Cisco: One it’s been, it’s great having this conversation. I can’t tell you much I enjoy the fact that we’re all here together working on this. You step back and PACE has been successful because we’ve given people individual choices that help solve a problem that they have, whether it’s a business owner or a residential property owner, we’re not trying to push an ideology. I’m not trying to convince somebody of something they do or do not believe in, regardless of where I come from on that issue. Cisco: We’re trying to solve a problem in a way that makes our country better, our environment better and helps those folks live safer, better, cheaper, cleaner lives. A lot of what we’ve done over the last 10 years has been to figure out how best to do that, how to use this tool, to empower individuals and communities to make choices that make sense. That part of it is not ideological. Cisco: It has been very successful. As I hope, as we go forward in keeping that focus down on how you help an individual make a better choice for them and their family and for… We’re going to be successful. Ultimately the politics will fall away from that because the power of that choice is too much to deny. Genevieve Sherman: I don’t know that I have that much to add other than I also have really enjoyed this conversation. Particularly with perspectives of folks that I’ve recently met, because Cisco has been doing this for forever and I’ve been doing it almost forever. But if I could add anything, it’s that you asked Cisco, what is the role of financing in all of this. When you get very into the weeds on kind of what is PACE and what does it do? At the end of the day, it’s capital it’s money that is coming into a set of activities and priorities that a lot of other folks are interested in. There are many conversations I have with building owners candidly, when energy savings never even are discussed. Genevieve Sherman: They may just have a need, a problem. As Cisco said, they have something that’s breaking and they have a tenant who is uncomfortable and they need to solve that problem. I have always seen PACE as something that’s additive to the priorities of a lot of stakeholders in the energy efficiency space and renewable energy in jobs, in construction, in addition to having a validator and having folks help us to get this done at the state level. Genevieve Sherman: This is still happening in many states right now, in Pennsylvania and other places where there are bipartisan PACE bills that are moving their way through. What we all have to remember is that PACE will thrive even more in states where there are other policies that support clean energy and energy efficiency and so on and so forth. Getting the financial incentives fine tuned for everyone to buy into energy efficiency and clean energy technologies is as important as having PACE there to then put the money behind all of those folks that they want to kind of implement all of those technologies and services. That’s what we have to work together to accomplish. Jon Powers: First of all, thank you, fantastic panel. But I want to put a challenge to each of you in the audience, both sitting in the room today and those listening through the podcast. I think you’ve heard it loud and clear from this conversation that your voices are incredibly powerful here. Jon Powers: And so you’ve got to figure out how do you get involved? How can you bring your voice to the table? You don’t need to be a policy expert on whatever bill is moving through your local municipality or through Congress. You just need to bring your voice. I challenge you to make sure you pay attention to what’s happening at PACENation. There’s lobbying days, you need to take a part of, if you have a chance to meet with a local legislature. The simplest thing is that meeting, building that relationship. Jon Powers: To take it to the next step you own or manage or finance projects, great initiative for your summer interns is literally going through by zip code and figuring out who represents those projects. Why does that matter? Because if you need to influence that member, you can go in and have a conversation about a project in their community that used PACE or used whatever you’re advocating for in this space. Simple things you can do to make a big difference. I think if we continue this fight and continue this momentum, we’re going to be back next year continuing to talk about the growth in this space. Jon Powers: For those listening online, thank you for joining the podcast. For folks who are in the room. You can go to Experts Only, which is at cleancapital.com to learn more and listen to other episodes. I’d like to thank the staff for helping to organize this. It’s been a great conversation. We look forward to continuing this conversation well into the future. Thank you. 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. 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CleanCapital and CarVal: Partners in Renewable Finance Growth and Innovation This was originally published by Matt Eastwick on LinkedIn. When I started at CleanCapital last year, I joined a team that was already making a mark in transforming the clean energy finance market. By bringing efficiency to deal process, we continue to make great strides in simplifying investments with the goal of introducing more institutional investors to the renewable markets. We achieved another significant milestone last week by signing a $250 million equity partnership with CarVal Investors, a well-established investment firm, that enables us to acquire $1 billion in clean energy assets. The purpose of the deal is to provide the capital and other resources to support our rapidly growing pipeline of solar acquisitions. It also puts the pieces in place for us to achieve a number of financial market objectives. Building a Flexible Capital Base There are a broad range of acquisition opportunities emanating out of CleanCapital’s origination program, and this deal gives us the ability to apply the right capital and structure to each one. Solar projects are underpinned by a robust base of high-quality contracted cash flows, and having a degree of flexibility allows us to optimize each investment opportunity. Adoption of Technology Platform Our use of data and technology is one of CleanCapital’s many differentiating characteristics in the market. By having an institutional partner that completely onboards and digests deal information through our proprietary technology platform, we believe that we are making advancements in streamlining the institutional investment process. Efficient Acquisitions To date, we’ve acquired nearly $100 million in operating solar, leveraging our proprietary platform to streamline and expedite due diligence, closing complex deals across ten states. We cut out the middle man, which means better prices. Our proprietary platform systematically processes due diligence and analysis, allowing deals with a wide range of complexity to all close in less than 60 days. Examples of our portfolios include assets such as a 100kW system in California (power sold to a hospital), a 1.2MW system in Colorado (power sold to a university) and a 2.4MW system in New Jersey (power sold to a Fortune 100 company). C&I Solar Securitization CarVal is a seasoned practitioner in the structured products market and shares our view that the most efficient debt can often be found there. Together, we will be working towards the first “pure” small scale solar C&I securitization transaction. Being able to pool these assets and to tranche (or divide) them according to risk, the core tenets of securitization, will open up additional financing markets going forward. In addition to CarVal’s equity commitment, we will access up to $750 million of debt capital that, in total, will provide for up to $1 billion in the coming months and years. The first tranche of this capital is being deployed immediately, and this stockpile even further accelerates our speed and ability to execute deals. The rationale of the transaction can be summed up by the words of CleanCapital CEO Thomas Byrne, “We leverage data and technology to attract more investors to clean energy and accelerate clean energy adoption.” We believe that CarVal, with its 30-year track record focused on credit-intensive investments and market inefficiencies, is the type of nimble, innovative capital partner that fits perfectly into CleanCapital’s capital markets strategy. Combined with our best-in-class underwriting and straight-forward approach to asset management, this deal brings us one step closer to our overarching objective of bringing great investment opportunities to a broader investor base. Clean energy projects provide solid, high-performing cash flows and should be a staple of every institutional investor’s asset allocation. Learn more about this exciting new partnership.
Episode 20: Grahm Smith [av_image src=’https://cleancapital.com/wp-content/uploads/2019/03/podcast-image-pageheader2.jpg’ attachment=’4329′ attachment_size=’full’ align=’center’ styling=” hover=” link=’page,249′ target=” caption=” font_size=” appearance=” overlay_opacity=’0.4′ overlay_color=’#000000′ overlay_text_color=’#ffffff’ copyright=” animation=’no-animation’ av_uid=’av-jwwgyb48′ custom_class=” admin_preview_bg=”][/av_image] [av_hr class=’invisible’ height=’20’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwwgxszg’ custom_class=” admin_preview_bg=”] Episode 20: Grahm Smith [/av_textblock] [av_hr class=’invisible’ height=’10’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwl4lsb2′ custom_class=” admin_preview_bg=”] On this podcast, Thomas Byrne, CEO of CleanCapital sits down with Grahm Smith, CEO, and Founder of Open Energy Group. They discuss the challenges of financing small scale solar as well as the opportunities presented by technology to simplify the process. Grahm has experienced first hand the evolution of the global clean energy landscape and offers a unique perspective on where the industry is headed. Since 2013, Grahm Smith began building out a renewable energy finance exchange at Open Energy that is delivering the financing capital that the U.S. commercial solar needs to scale and deliver on its potential. Open Energy is currently through $500mm of projects underwritten and fast approaching $1bn. Open Energy is excited to explore new renewable energy areas, such as energy efficiency and battery storage. [/av_textblock] [av_hr class=’invisible’ height=’20’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwwh5253′ custom_class=” admin_preview_bg=”] Listen now [/av_textblock] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwl43nfd’ custom_class=” admin_preview_bg=”] [/av_textblock] [av_hr class=’invisible’ height=’20’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=” custom_class=” admin_preview_bg=”] [av_textblock textblock_styling_align=” textblock_styling=” textblock_styling_gap=” textblock_styling_mobile=” size=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” font_color=” color=” id=” custom_class=” template_class=” av_uid=’av-l66nz0ga’ sc_version=’1.0′ admin_preview_bg=”] Transcript [/av_textblock] [av_textblock textblock_styling_align=” textblock_styling=” textblock_styling_gap=” textblock_styling_mobile=” size=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” font_color=” color=” id=” custom_class=” template_class=” av_uid=’av-l66o0hvv’ sc_version=’1.0′ admin_preview_bg=”] Jon Powers: Welcome to Experts Only podcast, sponsored by CleanCapital. 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. Tom Byrne: Welcome to this week’s episode of CleanCapital’s Experts Only podcast. I’m Tom Byrne, co-founder of CleanCapital, guest hosting this week. In this week’s episode we talk to Graham Smith, CEO and founder of Open Energy Group. We talk about the challenges of financing small scale solar, as well as the opportunities presented by technology to simplify the process. Graham Smith, welcome to the podcast. Graham Smith: Hi, Tom. Thank you very much for including me in the Experts Only. I’m delighted to play a part in it. Tom Byrne: Graham, one of the interesting facts that we learned about you was that you were an Olympic rower. Starting out with participating in the ’96 Olympics, how did you navigate your way into the renewable energy space? Graham Smith: I think the straight answer is that it was not a clear path. I think I could cite some important and pivotal moments for me. I think the first one was from an early age… I can’t describe exactly why I think personality-wise I was interested in the green movement. I remember a few years ago the importance of the Kyoto agreement in the early 90s and how I was… Simpler things as reading books about recycling on… At the time, it was a book that was printed on terribly bad recycled paper so it was… You really had to be into it to believe, and I think I had that. So that was a gut, for a very strong feeling of mine. And then to be honest, it took a long time to germinate into it professionally. So there was the hope of how to get involved and then professionally, and it was not until the late 2000s that the solar movement in the UK really began to take off and professionally I was in a place… Graham Smith: And often the way it’s a personality or friend of someone at the company I was then with who proposed an idea. So it was a conceptual idea and I really… So it was renewable energy, financing renewable energy, and there wasn’t that much more detail to it, but I knew that it was enough to… I think that was the moment for me when I knew this was financing renewable energy for me, this is how I was going to move forward. Tom Byrne: And you started your career certainly in finance, right? You’re a finance guy. You’ve done trading, brokerage finance. So looking back at that, the late 2000s, ’09, 2010, when you were first going to dive into it, what did the landscape look like at that time? And where did you see an opportunity for your business at that point? Graham Smith: The landscape was post-crisis. I think that’s the first thing to be said. In fact for renewables, it wasn’t actually very good. It was challenging because renewables were still perceived or had taken a big hit. So I wasn’t part of the renewables business cycle pre the crisis. And they had been undoubted success for instance, in Spain, and installing a lot of solar. But post-crisis, there was much less, if you like, tolerance was much less of a bubble, if you like, it was very clinical and sterile and sober. Tom Byrne: Was that mostly from the lender’s perspective or the investor’s perspective? Were people post-crisis anxious about this new asset class? Graham Smith: I don’t think they were anxious. I think they were scared, because the people that could converse about renewables had invariably been burnt. So if you were an investor, so if you invest as a VC, you might have invested in a startup that probably would’ve gone bankrupt through the crisis. If you were an investor in the assets, you might have fared okay, but the value of your asset might have been written down for regulatory reasons. A country like Spain had enacted tariffs that actually changed the value of your asset. Tom Byrne: Can you remind our listeners what that situation in Spain was? That was a pretty monumental moment in renewables on the tariffs. Graham Smith: Yeah, it was monumentally bad. What’s done is done. But essentially much of Europe funded the renewables’ growth using feed in tariffs, which were, it simply put, was set by the government. So it was per unit of energy kilowatt. Our generated the government would pay a certain price. So it was extremely attractive because it was basically guaranteed by the government. And then Spain decided to not only change the future tariffs that renewable projects would get, they made the catastrophic and systematically damaging decision to retrospectively change tariffs. So if you owned… There was an operating solar asset that was due nine cents a kilowatt hour, for example, they might have changed it for example to six cents. So that completely might have bankrupted projects or certainly changed the equity return and devalued these investments. And then lastly it hit lenders doubly bad because obviously they had the loan on it and if it couldn’t support the loan, then the loan was bad. And so it was just a terrible sort of cycle of damage that was inflicted like that. Tom Byrne: So within that rosy story, you decided to start your career in renewables. Graham Smith: Yeah, that’s right. What a perfect moment. I think that maybe the lesson to take is that if you believe, and you’re passionate about it then… And I remember actually reading Friedman’s books, the American journalist Friedman. Tom Byrne: Hot, Flat, and Crowded. Graham Smith: Exactly. And to be honest, I read it and it sort of sparked, it really just was such a catalyst for me. And then someone at work, at my then company Phoenix had this idea to finance in this case European projects because I was based in London. So there was a growing interest and Europe, I guess certainly historically has been inclined that way with Germany. So starting the solar movement arguably and having led it for so many years. So despite the sort of overall financial market, having a bearish view about renewables, there was still a sort of a regulatory and legal and executive commitment to build renewable. And there had been a renewable growth significantly through the early 2000s. Tom Byrne: It’s an interesting juxtaposition because I had been starting my career in renewables around the same time as a lawyer. And you had government policies out of the recession that really catalyzed renewable energy. You had the cash grant from the treasury, which was just a direct injection of cash into clean energy project. And you had even the DOE loan guarantee, that Department of Energy was guaranteeing loans on some of these projects. So it was actually out of the recession. The United States actually experienced almost the opposite impact, which was a very positive one for clean energy. Graham Smith: Yeah and I actually back that up and you’ve tweaked my memory because even less substantively when we were making the business case for what we do and clearly you can see our logic was or vaguely flawed. We saw the… When the Obama administration came in, there was mention of a carbon credit trading scheme. And in Europe it’s very or it was and has been quite robust. And so the idea, we were a securities trading house. So we saw the idea of carbon credit potentially starting up in the US as an opportunity to get into renewables. But that’s one of those, the ironies that it didn’t really take hold, but certainly got me going on my renewables career. Tom Byrne: So what exactly is a carbon credit? Graham Smith: Good question. A carbon credit is a per… If you attribute the carbon emitted from a fossil fuel generating power plant, carbon credit is essentially a ton of carbon dioxide emitted. And depending on the regime there is, essentially once you start to identify that and how much is produced by certain power plants and jurisdictions, countries, you can then… And then what happens is, connected to that is legislation around… Pretty complex, but very simply is the amount of, once a cap is set or a target for them, and then allowing how much is allowed to be produced, then you can start to create a pricing mechanism. And from there you can start to get to a market, so carbon credit. Tom Byrne: And I think there’s a lot of people who have navigated into this space similar to you through the lens of a trader and with carbon credits in the United States, it ultimately led to… Those folks sometimes then started working on SRX, which is a tradable commodity here in the United States. So it sort of was a logical flow from being a traditional trader in finance to ultimately looking at these assets and not the power necessarily, but these government created assets, carbon credits, SRX, things like that. Graham Smith: Yeah, absolutely. On the Genesis for our idea in 2009, it was to knowing that we would like to trade the credits. It was the underlying. So it was the idea that if we could bring finance in and own, or in some way, be involved with the origination of the credits you would control and have pricing power over the credits in due course. And then we thought, okay, well, how are we going to get into the finance of these assets? And then that started the process of well, which market? Wind, solar, biomass, et cetera, et cetera, that started that process off elimination. We were targeting the most attractive markets. Tom Byrne: And foreshadows conversation about the role of policy and renewable energy, I think this is a unique time in the United States where there’s a lot of different movements on the policy front. So here we’re trying to talk about finance, but inevitably in clean energy, you start talking about policy as a result. There’s a lot going on right now in the United States, from tax reform, that’s on the docket to the Suniva trade case. And I want to get your views on how you view those two material events, perhaps starting with the Suniva trade case. And it would be helpful, I think to give our listeners a little background on what that’s all about. Graham Smith: Yes, of course. And what I will try to do is be objective, but the reality is for both you, Tom and myself, these are huge, but have been huge for us. So this Suniva trade case came about because an otherwise unknown financing group provided a loan to Suniva as part of its day to day business is called SQN Capital Management. And Suniva being a panel maker, it took a loan from this company. Unfortunately, then what happened was that subsequent of that loan being made, Suniva went bankrupt or put in a bankruptcy filing in April of this year. Graham Smith: And thereafter it was… What happened was a series of steps that took an otherwise innocuous process to potentially having huge ramifications for our market. So during what SQN decided to do was to fund Suniva during bankruptcy, and then to take the next step of filing a complaint under US trade law, essentially saying that the lack of protection for US solar panel makers against panel makers coming into the country was unfair competitively. And what happened was they submitted a trade case to the ITC, the internal trade commission. And where we are now, so through 2017, there was a petition, there were hearings and the ITC, the international trade commission, excuse me, not internal, decided in favor of the complaint filed by Suniva. Tom Byrne: So very practically this means potentially developers were developing projects thinking that solar panels would cost X and now they potentially cost X plus Y. Graham Smith: Exactly and that in a market where… Exactly, that’s a great context. So if the pricing solar project is made up of many components, but principally inverters and panels, and there’s the cost of building it, and then the cost of financing and the development. And like anything, if there is an assumption around fixed costs, following a trend line, or even… A trend line against the cost of panels and that changes radically. And we’re talking about hard assets, these things take a long time to plan. There’s a long process of preparing, investing, and drawing up finance for these assets. So if your metrics are thrown out, because of the long time it takes to prepare these assets, then essentially there’s a few outcomes. It can either mean that because they’re more expensive, the financing is no longer capable of financing. And then the ramifications of that, you are likely to see potentially a lot of projects that colloquial don’t pencil, so they don’t get built. And that has a negative impact on the growth of solar. Tom Byrne: So just this seemingly or arguably simple concept of adding to the cost of solar panels runs the risk if too punitive of derailing substantial solar development here in the United States. Graham Smith: Absolutely. It absolutely runs the risk of derailing or challenging the rate of growth. I don’t want to be melodramatic, but it’s absolutely the case that we’ve seen during the second half of the year that the material effects, I can describe it, seeing a project getting built, but the owner of a project cannot get access to the panels because the panel suppliers are in high demand because there is an increasingly limited supply because the perceived costs has gone up. And as a result, they’re in danger of not competing their project. And that’s just one instance. So it’s a very real. We’ve seen the effects already. Tom Byrne: And fast forward from Suniva. We quickly started diving into tax reform, which also has an impact on the renewable energy space. As of the recording of this podcast, there’s a House bill and a Senate bill. It has not gone to conference yet, so we don’t know what the outcomes are, but at a high level Graham, why does tax matter? And why does the tax reform potentially matter? Graham Smith: So as you know and the listeners know there’s two things that are certain in life, death and taxes. I am not an expert in trying to decipher. There are certain… I’ll make a plug here for Keith Martin from Norton Rose, because he’s written some great stuff on this and I don’t see us doing a good job of explaining. But given the type of financing that solar requires under the current or up until now, the tax rules, it’s already complex and it’s about to be made more complex and that’s tough. The more complex it is, the more expensive it is, the less people understand it and the harder it becomes to roll out. I think there’s uncertainty with the way you described it reflects the uncertainty. And with uncertainty that makes things harder to price and ultimately less valuable. Tom Byrne: And these solar and wind projects and other renewables, they are in part finance by tax equity investors. Graham Smith: Exactly. Tom Byrne: These are investors who have tax liabilities that can be offset by tax credits to oversimplify things. But in order for them to know the value of their investment, they need to know what their tax rate is. And right now, going through, trying to navigate uncertainty about what that tax rate is and therefore what the cost of their investment is, is that accurate? Graham Smith: I think that’s actually very, very clearly articulated. I think one of the things the way has been described to me and I’ve picked up and I must say being a Brit, I’ve so struggled to understand the US tax system, even some of the basic elements. But some of the things that have cropped up in this current go round of the alternative minimum tax, it’s the idea that corporations did use the tax credits available from renewable energy products to reduce their tax. But there seems to be in between the House and the Senate bill, the fact that the case erosion tax is going to reduce the… Potentially I should say, potentially reduce the ability of companies to use the tax credits available on projects to reduce their tax bill, that then reduces the appetite for companies to invest in renewables, which could affect renewables. Tom Byrne: I’m going to put you on the spot a little bit. Do you think investment tax credit and tax credits are good for renewables? Graham Smith: I absolutely do. Yeah, I think the car business, the fossil fuel energy business have all been built. Substantial industries have been built, but they started often with sizable subsidies and support from the state to allow them to grow, to gain the economies of scale, to become ultimately enshrined and effective. And there can be no doubt that the solar sector has benefited, has created jobs and welfare following certain subsidies, tax benefit, tax credits or otherwise. So yes is the answer to your question. Tom Byrne: So I’m going to now turn to what you’re doing now, and particularly at Open Energy, want to hear a little bit about Open Energy and with the last four or five minutes here, really dive into what you guys are doing there and some of the particular nuances and complexities of the space that you guys are operating in. So maybe we can start very simply, what you guys are focused on at Open Energy? Graham Smith: We address the commercial solar markets in particular, so the non-residential are not to the utility scale. So there’s three areas, that’s residential, commercial and then at the very large scales utility. And we look at the commercial scale. And what we do is we are a platform lending, providing loans to finance projects in the commercial sector. Tom Byrne: And you guys embrace technology at various points in the transaction process. Can you give us a sense of why you think that’s an important piece of your processes to lend to this space? Graham Smith: Yeah, absolutely. So when we first looked at it, we looked at the type of financing that was going on and utility scale is a good example. It uses project finances and loans or financing comes in and it finances individual solar projects, but like mini gas fired power stations. And that’s an attractive form of financing. It works, but it can be quite expensive. It can be quite slow based on historically conventional approaches, partly because large scale financing could support, say of a gas fired power station could support with a lot of documentation, could support the costs that come with that, put very simply. Graham Smith: But if you’re looking to serve to finance, say a solar plant, that’s one megawatt and a 500th of a gas fired power station. Some of the documentation, some of the legal processing, some of the engineering, the ways to make a project finance will make it…. It’s just too expensive. So technology comes in because if we can look at that process, we can mimic and we can automate a lot of the commoditized areas of that process. So understanding the process and then using technology to standardize, make more transparent and ultimately reduce the cost, which then makes it possible to finance. Tom Byrne: And just taking a quick step back. What is… Maybe you could explain for the listeners who aren’t necessarily in banking and lending the financing process or how these assets are financed and what lenders and investors look to. Graham Smith: Yeah, that’s a great question. I’m clearly way too in the weeds. So what investors look at, whether that’s an equity investor’s going to own a solar asset or a lender, is they look at the cash flows coming off one of these assets and they say, well, how risky are these? Because if I’m going to lend or I’m going to buy something, then these are quite expensive. So there’s a high upfront investment, not dissimilar to say, building a house or a building. And it’s going to be the residual payments that come off this asset and how risky or not that will affect paying back my investment. So there’s an upfront payment whether owning or lending and over time that will get paid back. Graham Smith: So a lender investor says, okay, well, it’s a solar asset. How reliable are those? How does the equipment work? And you can… Quickly we can look at that and say, well, actually solar equipment is pretty reliable these days. So you look at the reliability and then we say, say, well, what likelihoods are there that the payments that are going to occur over time won’t occur and therefore affect our investment? So essentially it’s looking at what is generating the power and the risks against it, generating power and money over time to pay back and invest. Tom Byrne: Got it. And what’s so challenging about the small scale market? Graham Smith: It’s challenging because a one megawatt if I’m giving an example, which is quite small, it’s not very big and it’s not usually small, but the way a one megawatt or 500 kilo project for that matter works, is not wholly dissimilar to a very large solar project, such as a 100 megawatts plant. And so the ways to assess the asset, which I described, how do we know this project is going to perform? Number one, it’s the same process, but a bigger financing can support the engineer going to see it, the test being run on the panels, the projections of power. So essentially those actual fixed costs are not the same, but because you’re talking about a much smaller investment, the percentage of that investment and therefore the cost of the financing becomes higher. And then likewise, how you assess the risks to the cash flow are the very same. So what I’m trying to say is that we’ve used technology to make those tasks less, still to the same standard, but less expensive. And that’s the challenge for that small projects within the sector. Tom Byrne: Yeah and I think that’s one of the more exciting ways to tackle the space is by figuring out technology solutions that really streamline processes, so that’s super exciting. What do you see…. How do we get more capital markets participation in this segment of the market? Graham Smith: That’s a super question. I think our outlook is on bringing debt capital into the market. So that the idea of essentially with, again, the analogy with property, how do we get more mortgages available? On our view is quite nuanced, but it’s saying that institutional money, I think we start with, I would we say that money’s from pension funds, from banks is the key way to grow the sector. That’s where vast pools of capital are available to invest. And what these type of institutions or this institutional money needs is certain standards. They need to know that the way a loan is underwritten conforms to a particular standard. And so once you do that, once you create standards so that people can compare loans, can compare the way loans are or the way the asset is underwritten and therefore how a loan is made against a solar asset, then large pools of capital can be made. Graham Smith: For instance, insurance companies can’t invest in less, the particular investment is rated or has a public rating. So just a move towards securitization so that segment of the market can access the capital markets, some lower cost capital. Tom Byrne: That’s really exciting. And that’s really important work that you guys are doing to try to accelerate the capital markets’ participation in this space. So we’re winding down right now. And there’s a question that my co-founder Jon Powers always asks at the end of these podcasts that I’m going to ask to you as someone who’s had a great career in this space. If you could sit down with yourself, your younger self from high school or college, what advice would you give? Graham Smith: That’s a super question. I think for my own self, the advice would be to focus and maybe this is a reflection of the current dynamic in which we live, but it would be focus on some of the basics in life. So I’m taking for granted working hard or some of the things that we constantly have trotted out as advice and say kind of courtesy and some of the more fundamentals in the way of going about business, having respect for people, tolerance and persistence, because we live in a time when often those things are not forthcoming or the belief in the importance of those as being challenged. So while a bit generic, I think it would be to try and instill and to say, keep strong to some very important basic qualities, not just in business, but in life. Tom Byrne: Those are awesome words to end with Graham Smith, CEO of Open Energy. Thanks very much for joining us on the Experts Only podcast. Graham Smith: Thank you very much. It was a pleasure. Tom Byrne: Thank you to Graham Smith of Open Energy for joining us this week. I also want to thank our producers, Lauren Glickman and Emily Connor. Please visit cleancapital.com for more information on CleanCapital. And don’t forget to go to iTunes and give the Experts Only podcast, a five star review. Jon Powers: Thanks for listening in today’s conversation. Find more episodes on cleancapital.com, iTunes or wherever you get your podcast. 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. [/av_textblock] [av_hr class=’invisible’ height=’20’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_social_share title=’Share this entry’ style=” buttons=” share_facebook=” share_twitter=” share_pinterest=” share_gplus=” share_reddit=” share_linkedin=” share_tumblr=” share_vk=” share_mail=” av-desktop-hide=” av-medium-hide=” av-small-hide=” av-mini-hide=” av_uid=’av-354olk’] [av_hr class=’invisible’ height=’40’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_button label=’More Podcasts’ link=’page,5266′ link_target=” size=’small’ position=’center’ label_display=” icon_select=’no’ icon=’ue800′ font=’entypo-fontello’ color=’theme-color’ custom_bg=’#444444′ custom_font=’#ffffff’ av_uid=’av-jx1x7jx3′ custom_class=” admin_preview_bg=”] [av_hr class=’invisible’ height=’40’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”]
Episode 19: David Gabrielson [av_image src=’https://cleancapital.com/wp-content/uploads/2019/03/podcast-image-pageheader2.jpg’ attachment=’4329′ attachment_size=’full’ align=’center’ styling=” hover=” link=’page,249′ target=” caption=” font_size=” appearance=” overlay_opacity=’0.4′ overlay_color=’#000000′ overlay_text_color=’#ffffff’ copyright=” animation=’no-animation’ av_uid=’av-jwwgyb48′ custom_class=” admin_preview_bg=”][/av_image] [av_hr class=’invisible’ height=’20’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwwgxszg’ custom_class=” admin_preview_bg=”] Episode 19: David Gabrielson [/av_textblock] [av_hr class=’invisible’ height=’10’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwl4lsb2′ custom_class=” admin_preview_bg=”] This weeks episode is around the industry interest in PACE financing, with guest David Gabrielson. David serves as the executive director and founder of PACEnation in 2010. PACE can be used for commercial, nonprofit, and residential properties. This episode is an introduction to this innovative and complex PACE financing for clean energy. PACE is property assessed clean energy, a financing mechanism that enables low cost, long term funding for energy efficiency, renewable energy, and water conservation projects for both residential and commercial and PACENation is an advocate for PACE. Before PACENation, David served as a Councilman for the Town of Bedford, NY and before his time in energy and politics, he spent over 20 years as an investment banker to governments. David holds an A.B. from the University of California, Berkeley and an MBA from the Yale School of Management. [/av_textblock] [av_hr class=’invisible’ height=’20’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-jwwgzkyu’ custom_class=” admin_preview_bg=”] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwwh5253′ custom_class=” admin_preview_bg=”] Listen now [/av_textblock] [av_textblock size=” font_color=” color=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” av_uid=’av-jwl43nfd’ custom_class=” admin_preview_bg=”] [/av_textblock] [av_hr class=’invisible’ height=’20’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’50px’ custom_border_color=” custom_margin_top=’30px’ custom_margin_bottom=’30px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=” custom_class=” admin_preview_bg=”] [av_textblock textblock_styling_align=” textblock_styling=” textblock_styling_gap=” textblock_styling_mobile=” size=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” font_color=” color=” id=” custom_class=” template_class=” av_uid=’av-l66npkhw’ sc_version=’1.0′ admin_preview_bg=”] Transcript [/av_textblock] [av_textblock textblock_styling_align=” textblock_styling=” textblock_styling_gap=” textblock_styling_mobile=” size=” av-medium-font-size=” av-small-font-size=” av-mini-font-size=” font_color=” color=” id=” custom_class=” template_class=” av_uid=’av-l66nr72c’ sc_version=’1.0′ admin_preview_bg=”] 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 and thank you so much for joining us today. This isn’t our traditional episode structure. We’re going to actually dive deep into an issue here that many folks in the industry are interested in: PACE financing. You hear a lot about it. Not everyone fully understands how it works. And today, we’re joined by PACENation’s David Gabrielson. David serves as the executive director and founded PACENation in 2010 when it was little more than an idea on a napkin. Jon Powers: So what is PACE? PACE is property assessed clean energy. It’s a financing mechanism that enables long-term, low-cost funding for energy efficiency, renewable energy, water conservation, and other projects. PACE financing is repaid as an assessment on the property’s regular tax bill and is processed the same way as other local public benefits like sidewalks or sewers that have been repaid over decades. Depending on local legislation, PACE can be used for commercial, nonprofit, and even residential properties. You’re going to learn a lot more about PACE at PACENation’s summit in Denver from March 19th to the 21st. We’re actually going to be doing a live podcast at that summit, talking with policymakers and others about what’s happening in the industry today. Jon Powers: David, thank you so much for joining us here at Experts Only podcast. We’re going to be exploring PACE 101 and help our listeners really understand the power of PACE and what it’s doing around the country. But I wanted to first start off with your PACE story. What got you interested in PACE and to launching PACENation? David Gabrielson: Sure. And thanks, Jon. Thanks so much for asking me to do this. My introduction to PACE was really serendipitous. I was after working or even while I was still working in municipal finance as a public finance banker based in New York. I was persuaded to run for political office in my town at Bedford, New York, and had never, ever thought of doing anything like that. And instead of saying no, I said yes, and then I won and got elected to the town board. Bedford is a very sustainability-minded community. We’re one of the few towns in New York that has a climate action plan that’s part of our formal town master plan. And our energy advisory panel came to us one day and said, “Let’s start a PACE program.” And I got the finance side of it pretty quickly because it’s based on a tool that local governments have used for a long time to finance things. David Gabrielson: And I got the government side of it because my clients had all been government folks, public finance, and I was working in government. And I’ve always been, I think, an armchair environmentalist. And so those three things clicked. And I didn’t really know. I became the board member that really dug into it as we sought grant money and tried to begin developing a program. And then I just got absolutely… I think this is true of a lot of people. I actually would say I used to do something else, and now I do PACE. And so it was really an idea that captivated and galvanized me. Jon Powers: And that drove you to launching PACENation, which has been very influential in helping to galvanize, I think others around the country to help move PACE forward at a policy level. Can you talk for a second about PACENation and what you do for your members? David Gabrielson: Yeah. Well, PACENation was utterly coincidentally was founded by a guy who lives in the same town, at Bedford, New York. And he had, I think, gone to a conference and heard one of the fathers of PACE, the guy who really came up with the idea, a guy named Cisco DeVries out in California, and Jeff Tannenbaum, who was at the conference or heard Cisco talking about it, sought him out. And actually, Jeff coined the acronym PACE. I guess there was some earlier acronym that wasn’t so good. So property assessed clean energy of course is what the acronym is. And Jeff began evangelizing around PACE and talking to people about it and set up a website that everyone went to. Originally, it was called PACE Now. We’re just going to refer to it as PACENation, but we used to call ourselves PACE Now. David Gabrielson: And the website was where everybody went to get a copy of the California enabling legislation or some study that had been written about PACE or something PACE-related. It was really a link site. In late 2010 after I’d been trying to get PACE going in Bedford, we came up with some grant funding, and PACE Now hired me. I became the first full-time staffer at PACE Now, PACENation. Let me say who we are. We’re really advocates for PACE. And we have a pretty simple vision, and that is that PACE financing would be available to every building owner in America. And we envision a day where every building owner in America would know what PACE was and understand it and be able to make a decision about whether it was the right tool to use to make the building more energy-efficient or to do renewable energy. David Gabrielson: And so as advocates for that, we provide through our website a newsletter, webinars, information and resources, further that vision, further that goal. We do a lot of one-on-one talking with people. We’ve always been networkers. We’re like the hub in a wheel with spokes that go out to lots of different stakeholders that include state and local governments and other nonprofits that are similarly mission-oriented, at least in terms of environmental goals and economic development goals. And then a growing number of private sector stakeholders that have seen an opportunity to provide services or finance to make PACE really work. And then we’ve been conveners. We pull people together. And the best example of that now is planning for our third national PACENation summit, which will be in Denver, March 19th to 21st. It’s been, I think, a bigger success than we imagined when we first started planning, my little team who knew nothing about how to put on a conference. But it’s been a big success. Jon Powers: Yeah. And for our listeners, we’re going to be at PACENation Summit. You can find it at pacenationsummit.us/summit18. And we’re actually going to do a podcast interview there talking with some leaders in the industry about what’s going on in the space. And we’ll be rolling that out here in a few episodes. So please listen. Jon Powers: So David, that’s really helpful. I think PACE is not really a new concept, but it’s really caught fire in the last few years. And for folks, just to give a little simple 101, as David said, property assessed clean energy is a financing mechanism that enables low-cost, long-term funding for energy efficiency, renewable energy, water conservation. But it’s repaid through the assessment of the property’s regular tax bill. So one, where did that idea come from? And then two, more importantly, why has it just really begun to catch fire and we’re seeing it pop up all over the country now? David Gabrielson: Yeah. And first of all, let me say, Jon, we’re really excited that you’re going to be at the summit and doing that podcast. We’ve not done anything like that before. And I think that the hopefully 500 or so people that come are really going to enjoy that. The state and local governments for decades, if not centuries, have used property tax assessments, an additional line item added to the property tax bill, to pay for improvements that benefit property owners, obviously, and meet a public purpose. And for most people, they’re familiar with sometimes a water or sewer assessment or a park district assessment or lighting district assessment, sidewalk assessment. The leap to PACE came… I think I mentioned Cisco DeVries earlier, who was working for the mayor of Berkeley, California and had a background in energy, and saw, I guess, a neighborhood… this is the story as I heard it… a neighbor in Berkeley that came together and said, “Look. We’d really like to put these utility lines that are above ground underground for a couple of reasons, for safety and just to get unsightly power lines out of sight.” David Gabrielson: And so they voluntarily went city of Berkeley and said, “Could we pay for this with an assessment on our tax bill?” And at the same time, Berkeley had a policy of encouraging people to put solar on their roofs. And so Cisco’s leap was to say, “Well, how about if we came up with the money and people could put solar on the roofs and then pay back that investment over time with the property tax assessment?” In a perfect world, that has all sorts of advantages. One is that it’s not a direct impact on an individual person’s credit. It’s based on the value of the property and the equity in the property, though we want to make sure that every building owner has the means to pay this back. It is voluntary, so assume they do. But the second thing is that property taxes and assessments don’t get paid off when you sell your property. The improvement that you put in place transfers to the buyer of the property, and in this instance with PACE, so are the obligations. David Gabrielson: So people don’t know how long they’re going to own a building. Sometimes, what keeps them from doing something they might like to do is because they’re thinking, “Boy, I’m just going to benefit from this for two or three years, then I’m going to have to pay it off.” So the transferability is big. And property taxes and assessments that have been unpaid, that are in arrears, are at the top of the stack for repayment. And that makes it a very strong credit to those who might want to invest in these projects. They can be pretty sure that they’re going to get paid back. Now, that’s also been a problem because quite frankly, the mortgage lenders don’t like that. So it’s one of the things we had to work on in the world of PACE. There are a couple of other reasons why the PACE mechanism is really an attractive one, but those are the primary ones. Jon Powers: Yeah. That’s really interesting and I think really good feedback on especially the transferability. I want to get into the legislative piece and the financing in one second, but there’s R-PACE, residential PACE, and C-PACE, commercial PACE. Just quickly, what is the major difference? And are you seeing one grow more rapidly than the other? David Gabrielson: Yeah. Well, it’s exactly the same mechanism. The difference is two completely different markets. And the commercial PACE marketplace is relatively uncontroversial, totally uncontroversial. All this starts with state enabling legislation. To date, 34 states have adopted legislation that would allow building owners, in some instances, just commercial building owners, in some, resi and commercial, to… 34 states have allowed their local governments to offer PACE. And we see commercial PACE programs now operating successfully completing projects in, I’m going to say 19 states in the District of Columbia. You can check all of this whenever you want on our website, www.pacenation.org. David Gabrielson: One of the reasons that commercial PACE has been uncontroversial is that building owners almost always receive the permission or the consent… we call it lender consent… of their existing mortgage lender if they have a mortgage lender. And so those mortgage lenders and consent has been granted by over 150 different lending institutions, close to 1,000 projects, because the lenders understand that the projects improve the value of their collateral. There’s a commercial arena. Business people don’t generally do things frivolously. They weigh the pros and cons, the payoffs, the financial impact to their business or their operation or their property. And so that’s an important part of it. David Gabrielson: And commercial projects too, if you think about it, a house is a house, and houses are big or small. But generally, the things that you would do to a house to make it more energy-efficient involve in some of its envelope and upgrading the heating or cooling system, improving its insulation. Commercial buildings, vastly greater universe of architecture and size and use and building material. So commercial projects tend to be vastly bigger. We’ve seen commercial PACE projects up to $20 million, $25 million, and they’re much more engineering-driven systems, related pumps and motors. They have a long sales cycle, long time to get to yes. So that’s the commercial landscape. David Gabrielson: And we’ve seen consistent entry. Our team is always working with groups in at least one or more states that would like to get PACE legislation passed. Just last year, made a couple of trips to Alaska to work with people from the state and Anchorage and Fairbanks and Juno who got commercial PACE legislation passed and now are using our resources and others to try to get a program started. So we see constant entry on the commercial side. Resi PACE, because it has been a bone of contention for the mortgage industry and for Fannie Mae and Freddie Mac, the two mortgage giants, and for their regulator, the Federal Housing Finance Agency, it’s been much harder to get Resi PACE dispersed throughout the United States. It got a toehold in California- Jon Powers: Because of that consent. David Gabrielson: Yeah. Back in 2010, Fannie Mae and Freddie Mac basically said that they would not buy a mortgage with a PACE assessment on it. So if your local bank added a PACE project to your home and your local mortgage lender tried to then sell that mortgage to Fannie and Freddie, Fannie and Freddie say they won’t buy it. They won’t consent to a PACE assessment on a property that’s in their portfolio. And there’s been a lot of concern about what impact that could have on homeowners. That’s made a lot of states and local governments reluctant to move down the path of offering resi PACE. David Gabrielson: In California, where it started and where it got a toehold that never got dislodged, PACE is now available to probably, I’m going to guess and say 80% of the population, all of the major metropolitan centers and populated counties in the state. There are a number of PACE programs operating, some operated by local governments, Placer County, for example, Sonoma County. They operate their own program, provide their own program administration, come up with their own funding for projects in most jurisdictions, and outside private third-party program administrator is authorized to offer funding to homeowners. And to date in California, I’m going to say 180, 190, close to 200,000 homes and bumping up on $5 billion of financing over the last two or three years. Jon Powers: Let’s talk about those program administrators because I think for folks, we talked about the 34 states that have the legislation. Really what happens is each locality develops their own program and there are some differences across the programs. Can you talk about the role of that third-party or maybe the municipality role in administering the program? David Gabrielson: Yeah. So let me start with the municipality role. I mean, Sonoma County, California was a real pioneer. Berkeley did a pilot, but then discontinued it for a while, and Sonoma County developed their own program. So they used county treasury funds to finance projects. They devoted staff. So what does a program administrator do? Well, program administrator sets up all the paperwork and all of the procedures and make sure that I’s are dotted and T’s are crossed to complete the project. And that involves making sure that the homeowner qualifies and that the amount of financing is appropriate, and that’s often defined in state law, and that the project qualifies. So the program administrator basically completes the project. And in the case of Sonoma County, they come up with the funding for it. David Gabrielson: At the other end of the spectrum, you could have a local government this is what we want to offer this to our residents, but we don’t really have the bandwidth to do all of that stuff that I described that Sonoma County does. So we will authorize a third party to provide all of that program administration and the funding, and we’ll put the assessment on our tax bill when everything’s done correctly. And when we collect that money from the homeowner, we’ll forward it to the appropriate party that’s receiving the money for the private party. David Gabrielson: So the way things have evolved in California, at least, most of the financing is provided by private sector third-party program administrators authorized by local governments to provide this service in their jurisdiction. Jon Powers: Yeah. Let’s talk about that a little bit. So I think what’s really interesting about this space is it grows in the finance side. PACE financing terms can extend out to 30 years. It’s possible to really undertake deep, comprehensive retrofits, real energy savings, and even renewable energy for customers affecting their bottom lines. It can cover 100% of project hard and soft costs. And you’ve got now companies like Greenworks taking these PACE financing programs and then bundling them them. And actually, if I’m correct, Greenworks did about a $300 million securitization this year on some PACE loans, which is very, very forward-leaning for the market. Talk about in that space, who are some of the folks that you see really leading, and where do you see that third-party financing piece go? David Gabrielson: Okay. So on the resi PACE side in California and Florida and trying to get a toehold in Missouri, there are a number of third-party program administrators. Renovate America been operating the longest and has done most, has the largest share of all of the projects that everyone done because they’ve been operating the longest. They’re the ones that probably recently did a $300 million securitization. They’ve done, as they have built a portfolio themselves of, I don’t know exactly what it is, but it’s well over $1 billion, is they’ve built up that portfolio of completed homes. They’ve gone the way of all assets that build to a substantial amount, and they get bundled together just as mortgages do or any other kind of receivable, and they get securitized. So the investment world, institutional investors, insurance companies and whatnot, which have long-term obligations and therefore long-term assets, good match for their portfolio. So- Jon Powers: Importance for that just for our listeners that don’t understand, what that really means is it’s bringing long-term, but often cheaper capital. So cheaper capital to go into these projects, cheaper capital to help bring down the cost for both the transactions and the actual deal. So it says a lot about the industry that it’s getting to securitization. David Gabrielson: Right. That’s right. They’re providing liquidity, just like your local bank. I have a mortgage from my local bank here in Massachusetts, the Florence Bank. And they’re a small bank and they lent me money. They don’t have to hold my mortgage forever. They can take my mortgage and sell it to Fannie Mae or Freddie Mac, who will then bundle it up in a big package and sell it off to investors all over the world. And that provides liquidity. It brings money into the local market. Your local government wouldn’t have the resources or the ability to do that, by and large. So it’s another thing that private sector program administrators are bringing. And these securities are now being rated strong, AA, I think, and by Kroll rating service and by DBRS. And so we’re beginning to build a market now. $4 billion, $5 billion sounds like a lot of money, and it is, but in the scheme of things on the financial markets, it’s still very small. David Gabrielson: Jon, you alluded to this. We’ve seen interest rates begin to come down because the market is getting bigger and more liquid. And what does liquid mean? That means that if you buy one of these, you’re an insurance company, you buy one of these PACE assets, you want to be able to go out and sell it tomorrow just as you go out, buy a share of Apple stock today and sell it tomorrow at exactly what the market will bear. An investment that you might make that you can’t necessarily get rid of tomorrow because the market is so small but won’t attract as high a price. So that’s what I mean by the market is more liquid and transparent. And so as the market grows, we’ll continue to see interest rates decline. Yeah. Jon Powers: No. That’s great. And I think first off, David, we’re limited on time. I appreciate the full view of this. So I think it shows the growth of the industry, the way it’s matured, that it can get to securitization. Just briefly, I think one, you’ll hear a lot about this at PACENation Summit in Denver, the 19th to 21st. So please make sure to sign up and attend if you can. Just last, where do you see the landscape look like in the next five years? David Gabrielson: Yeah. Well, let me do this because I didn’t want to full stop at renovators. There’s several other parties that I want to give some shout-outs to. Cisco DeVries, the father of PACE, if you will, leads a company called Renew Financial, and Ygrene Energy Fund is another, and PACE funding and Dividend. And so there are a number of companies and if you’re out in California and you Google PACE, you can come to our website and look them all up if you’re interested. You also mentioned Greenworks. They’re on the commercial side. I want to give them a little shout-out for a couple of reasons. The co-founder of that company was once my program grant provider at the Rockefeller Brothers Fund. And I went down and pitched her on funding PACENation. We are still very largely foundation-funded. And she liked what she heard. David Gabrielson: And a year later, she called me up and said, “David, you’re not going to believe this, but I am going to run the Connecticut PACE program with the Connecticut Green Bank.” And then a couple of years after building what was the most successful, I think one of the most successful commercial PACE programs in the country, she went out and became an entrepreneur. They just completed their own securitization. It wasn’t 300 million. I think it was 75 million. And it was rated. And so another first in the commercial marketplace. And there are a bunch of companies like hers, CleanFund at California and PACE Equity and Petros Capital. And I’m sure I’m going to leave someone out and they’re going to call me up and yell at me. But they are in many different states working with local program administrators or setting up program administration. They are developing projects and funding them. And it’s very exciting to see. Jon Powers: Well, David, really appreciate it. We look forward to seeing you in Denver here in a few short weeks, and we appreciate you taking the time. And for folks who want to continue to learn more, you can always go to pacenation.org, and just thank you for your time. David Gabrielson: Jon, I really enjoyed it. Thank you so much. Jon Powers: Thank you David, for joining us. As we talked about, you can learn more about pace at pacenation.us and learn about how you can take part in the summit with over 450 attendees in Denver, Colorado, March 19th to the 21st. We’re actually going to be doing a live podcast there and talking to policymakers about the state of the art and what’s happening today across PACE. Please go to our website, cleancapital.com. Leave us your thoughts and ideas and what we should be talking about here at Experts Only. I’d like to put a special thank out to our producers, Warren Glickman and Emily Connor for their hard work. Till next time. 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. 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Experts Only Episode 18: My Conversation with David Gabrielson of PACENation This week we speak with David Gabrielson of PACE Nation and take a deep dive into understanding the growth of PACE (Property Assessed Clean Energy), a finance tool that is a private-public partnership allowing for the cost of energy saving improvements to be spread out over a length of time. David introduces us to PACE and the industry that is emerging alongside it. A Background on Daniel Gabrielson and the emergence of PACE Jon Powers (JP): Today we’re gonna have not our traditional episode. I know there are a lot of folks in the industry who are interested in PACE Financing, but really don’t understand how it truly works. We are joined today by PACE Nation’s David Gabrielson. David serves as the Executive Director and founded PACE Nation in 2010 when the idea of PACE was little more than an idea on a napkin. David and I will talk about PACE, which is Property Assessed Clean Energy, which is a financing mechanism that enables low cost, long term funding for energy efficiency, renewable energy, and water conservation projects, for both residential and commercial. The PACE financing is repaid as an assessment on a property’s regular tax bill and is processed the same way that other local public benefit assessments are, like sidewalks and sewers. Those programs have been in place for decades. But a lot depends on local legislation. PACE can be used for commercial, non-profit, and residential properties as we’ve mentioned. You can learn a lot more about PACE at PACE Nation’s Summit 2018, which will be out in Denver in March. We’re gonna actually be doing a live Podcast there at the site. Talking with some real PACE advocates. You can go to pacenation.org to learn more. David really provides us good insight on the history of PACE and where it’s going. Let’s get started. From Local Government to PACENation JP: David, thank you so much for joining us here at Experts Only Podcast. We’re gonna be exploring PACE 101 and help our listeners really understand the power of PACE and what it’s doing around the country. I wanted to first start off with your PACE story. What got you interested in PACE and launching PACENation? DG: Sure Jon, and thanks so much for asking me to do this. My introduction to PACE was really kind of serendipitous. After working, or even while I was still working, in Municipal Finance as a Public Finance Banker based in New York, I was persuaded to run for a political office in my town, Bedford, New York. I had never ever thought of doing anything like that. Instead of saying no, I said yes. Then I won and got elected to the town Board. Bedford is a very sustainability minded community. We’re one of the few towns in New York that has a climate action plan, that’s part of our formal town master plan. Our energy advisory panel came to us one day, and said, “Let’s start a PACE program.” I understood the finance side of it pretty quickly, because it’s based on a tool that local governments have used for a long time to finance things. I got the government side of it, because my clients had all been government folks, public finance, and I was working in government. I’ve always been an armchair environmentalist. So, those three three things kind of clicked. I don’t really know how I sort of became the board member that really dug into it, as we sought at grant money and tried to began developing a program but I think this is true of a lot of people. I used to do something else, and now I do PACE. It was really an idea that captivated and galvanized me. JP: That drove you to launching PACE Nation, which has been very influential in helping to galvanize others around the country, to help move PACE forward at a policy level. Can you talk for a second about PACE Nation and what you do for your members? DG: Yeah. Well, PACE Nation was utterly coincidentally founded by a guy who lives in the same town of Bedford New York. He had gone to a conference and heard one of the fathers of PACE, the guy who really came up with the idea, a guy named Cisco DeVries out in California. Jeff Tenenbaum heard Cisco talking about it, sought him out, and actually Jeff coined the acronym PACE. I guess there was some earlier acronym that wasn’t so good. Property Assessed Clean Energy, of course, is what the acronym is. Jeff began evangelizing around PACE and talking to people about it, and set up a website that everyone went to. Originally it was called PACENow. We’re just going to refer to it as PACENation. We used to call ourself PACENow. The website was where everybody went to get a copy of the California Enabling Legislation, or some study that had been written about PACE or something PACE related. It was really a link site. In late 2010, after I’d been trying to get PACE going in Bedford, we came up with some grant funding, and then PACENow hired me. I became the full time staffer at PACENow, PACENation. Let me say what we are, we’re really advocates for PACE. We have a pretty simple vision and that is that PACE financing is available to every building owner in America. We envision a day where every building owner in America would know what PACE was and understand it, and be able to make a decision about whether it was the right tool to use, to make the building more energy efficient. As advocates for that, we provide through our website and newsletter and webinars, information and resources that further that vision, further that goal. We do a lot of one on one,talking with people. We’ve always been networkers. We’re kind of like the hub in a wheel with spokes that go out to lots of different stakeholders, that include state and local governments and other non-profits that are similarly mission oriented, at least in terms of environmental goals and economic development goals. And now a growing number private sector stakeholders that have seen an opportunity to provide services or finance to make PACE really work. Then we’ve been conveners. We pull people together. The best example of that now is planning for our third national PACENation summit, which will be in Denver March 19th to 21st. It’s been a bigger success than we imagined when we first started planning it, my little team who knew nothing about how to put on a conference. It’s been a big success. The story of PACE: Emerging from Berkeley JP: Yeah, and for our listeners, we’re going to be at PACENation summit. You can find it at pacenationsummit.us/summit18. We’re actually going to do a podcast interview there, talking with some leaders in the industry about what’s going on in the space. We’ll be rolling that out here in a few episodes, so please listen. David, that’s really helpful. I think PACE is not really a new concept, but it’s really caught fire in the last few years. For folks, just to give a little simple 101, as David said, property assessed clean energy is a financing mechanism that enables low cost, long term funding for energy efficiency, renewable energy, and water conservation, but it’s repaid through the assessment of the properties, regular tax bill. So first off, where did that idea come from? Then two, more importantly, why has it just really begun to catch fire and we’re seeing it pop up all over the country now? DG: Yeah, and first, let me say, Jon, we’re really excited that you’re going to be at the summit and doing that podcast. We’ve not done anything like that before. I think that the hopefully 500 or so people that come are really going to enjoy that. The state and local governments, for decades if not centuries, have used property tax assessments, an additional line item added to the property tax bill, to pay for improvements that benefit property owners, obviously, and meet a public purpose. For most people, they’re familiar with sometimes a water or sewer assessment or a park district assessment or lighting district assessment, sidewalk assessment. The leap to PACE came, I think I mentioned Cisco DeVries earlier, who was working for the mayor of Berkeley, California and had a background in energy, and saw a neighborhood—this is the story as I heard it—a neighborhood in Berkeley, that came together and said, “Look, we’d really like to put these utility lines that are above ground, underground for a couple of reasons. For safety and for just to get unsightly power lines out of site.” They voluntarily went to the city of Berkeley and said, “Could we pay for this with an assessment on our tax bill?” At the same time, Berkeley had a policy of encouraging people to put solar on their roofs. Cisco’s leap was to say, “Well how about if we came up with the money and people could put solar on their roofs and then pay back that investment over time with the property tax assessment?” In a perfect world, that has all sorts of advantages. One is that it’s not a direct impact on an individual person’s credit, it’s based on the value of the property and the equity in the property. Though, we want to make sure that every building owner has the means to pay this back. It is voluntary, so we assume they do. The second thing is that property taxes and assessments, don’t get paid off when you sell your property. The improvement that you put in place transfers to the buyer of the property, and in this instance with PACE, so are the obligations. People don’t know how long they’re going to own a building. Sometimes what keeps them from doing something they’d might like to do is thinking, “Boy, I’m just going to benefit from this for two or three years, then I’m going to have to pay it off.” The transferability is big. Property taxes and assessments that have been unpaid, that are in arrears are at the top of this stack for repayment. That makes it a very strong credit to those who might want to invest in these projects. They can be pretty sure that they’re going to get paid back. It’s also been a problem because quite frankly, the mortgage lenders don’t like that. It’s one of the things we’ve had to work on in the world of PACE. There are a couple of other reasons why the PACE mechanism is really an attractive one, but those are the primary ones. JP: That’s really interesting. I think really good feedback on, especially the transferability. I want to get into the legislative piece and the financing in one second, but there’s R-PACE, right? Residential PACE and C-PACE, commercial PACE. DG: That’s right. The Success of Commercial Pace and Struggles with Residential JP: Just quickly, what is the major difference and are you seeing one grow more rapidly than the other? DG: Well it’s exactly the same mechanism. The difference is two completely different markets. The commercial PACE marketplace is relatively uncontroversial, totally uncontroversial. All this starts with state enabling legislation, to date, 34 states have adopted legislation that would allow building owners, in some instances, just commercial building owners, and some residential and commercial. Three or four states have allowed their local governments to offer PACE. We see commercial PACE programs now operating successfully, completing projects in, I’m going to say, 19 states and the District of Columbia. You can check all of this, whenever you want, on our website, www.pacenation.org. One of the reasons that commercial PACE has been uncontroversial, is that building owners almost always receive the permission or the consent, we call it lender consent, of their existing mortgage lender if they have a mortgage lender. Those mortgage lenders, and consent has been granted by over 150 different lending institutions on close to 1,000 projects, because the lenders understand that the projects improve the value of their collateral. There’s a commercial arena, business people don’t generally do things frivolously. They weigh the pros and cons, the payoffs, the financial impact to their business or their operation or their property. That’s an important part of it. Commercial projects too. If you think about it,a house is a house, and houses are big or small, but generally, the things that you would do to a house to make it more energy efficient involve, some of it’s envelope and upgrading a heating or cooling system, and proving it’s insulation. Commercial buildings vastly greater universe of architecture, and size, and use, and building materials. Commercial projects tend to be bigger, vastly bigger. We’ve seen commercial PACE projects up to $20-25 million. They’re much more engineering driven, systems related pumps and motors. They have a long sales cycle. Long time to get to yes. That’s the commercial landscape. We have consistent entry. Our team is always working with groups in at least one or more states that would like to get PACE legislation passed. Just last year, made a couple of trips to Alaska to work with people from the state and Anchorage, and Fairbanks, and Juneau, who got commercial PACE legislation passed and now are using our resources and others to try to get a program started. We see constant entry on the commercial side. Resi PACE, because it has been a bone of contention for the mortgage industry, and for Fannie Mae and Freddie Mac, the two mortgage giants, and for their regulator, the federal housing finance agency. It’s been much harder to get resi PACE dispersed throughout the United States. It got a toe hold in California. JP: Because of that consent? DG: Yeah, back in 2010, Fannie Mae and Freddie Mac basically said that they would not buy a mortgage with a PACE assessment on it. If your local bank, if you added a PACE project to your home, and your local mortgage lender tried to then sell that mortgage to Fannie or Freddie, Fannie and Freddie said they won’t buy it. They won’t consent to a pay assessment on a property that’s in their portfolio. There’s been a lot of concern about what impact that could have on homeowners. It’s made a lot of states and local governments reluctant to move down the path of offering resi PACE. In California where it started, and where it got a toe hold that never got dislodged, PACE is now available to probably, I’m going to guess and say 80% of the population. All of the major metropolitan centers and populated counties in the state, there are a number of PACE programs operating, some operated by local governments, Placer county for example, Sonoma County. They operate their own program, provide their own program administration, come up with their own funding for projects in most jurisdictions and an outside private, third party program administrator is authorized to offer funding to homeowners. To date, in California, I’m going to say 180,000-200,000 homes and bumping up on five billion dollars of financing over the last two or three years. JP: Let’s talk about those program administrators. I think, for folks, we talked about the 34 states that have the legislation. Really what happens is each locality develops their own program and there are some differences across the programs. Can you talk about the role of that third party, or maybe the municipalities role in administering the program? DG: Yeah. Let me start with the municipality role. Sonoma County, California was a real pioneer. Berkeley did a pilot, but then discontinued it for a while. Sonoma county developed their own program. They used county treasury funds to finance projects. They devoted staff. What does a program administrator do? A program administrator sets up all the paperwork and all of the procedures and make sure all the i’s are dotted and t’s are crossed to complete the project. That involves making sure that the homeowner qualifies and that the financing is appropriate. That’s often defined in state law and that the project qualifies. The program administration basically completes the project. In the case of Sonoma county, they come up with the funding for it. At the other end of the spectrum, you could have a local government that says, “This is what we want, to offer this to our residents, but we don’t really have the bandwidth to do all of that stuff,” that I described that Sonoma county does. So, we will with authorize a third party to provide all of that program administration and the funding We’ll put the assessment on our tax bill, when everything’s done correctly. When we collect that money from the homeowner, we will forward it to the appropriate party that’s receiving the money for the private party. The way things have evolved in California, most of the financing is provided by private sector, third party program administrators, raised by local governments to provide this service in their jurisdiction. Making the Major Leagues: Securitization and Liquidity in Financial Markets JP: Yeah, let’s talk about that a little bit. I think what’s really interesting about this space, is the growth on the finance side, PACE financing terms, can extend out to 30 years. It’s possible to really undertake deep, comprehensive retrofits, really energy savings and even renewable energy for customers affecting their bottom lines. It can cover 100% of project hard and soft costs, and you’ve got now companies like Greenworks taking these PACE financing programs. Actually, if I’m correct, Greenworks did about a $300 million securitization this year on some PACE loans, which is very, very forward leaning for the market. Talk about in that space, who are some of the folks that you see really leading and where do you see that 3rd party financing piece go? DG: Okay, so on the resi PACE side, in California and Florida and trying to get a toe hold in Missouri, there are a number of third party program administrators: Renovate America has been operating the longest and has the largest share of all of the projects that have ever been done, because they’ve been operating the longest. They’re the ones that recently did a $300 million securitization. As they have built a portfolio themselves of, I don’t know exactly what it is, but it’s well over a billion dollars. They’ve built up that portfolio of completed homes. They’ve gone the way of all assets that build to a substantial amount, and they get bundled together, just as mortgages do or any other kind of receivable. They get securitized. The investment world, institutional investors, insurance companies and whatnot, which have long term obligations and therefore like long terms assets, good match for their portfolio. JP: Important for that, just for our listeners that don’t understand. What that really means is, it’s bringing long term, but often cheaper capital. Cheaper capital to go into these projects, cheaper capital to help bring down the cost for both the transactions and the actual deal. It says a lot about the industry, that it’s getting to securitization. DG: Right. That’s right. They’re providing liquidity, just like your local bank. I have a mortgage from my local bank here in Massachusetts, the Florence bank. They’re a small bank. They lent me money and don’t have to hold my mortgage forever. The bank can take my mortgage and sell it to Fannie Mae and Freddie Mac, who will then bundle it up in a big package and sell it off to investors all over the world. That provides liquidity. It brings money into the local market. Your local government wouldn’t have the resources or the ability to do that, by and large. It’s another thing that a private sector program administrators are bringing. These securities are now being rated a strong AA, I think by Kroll Bond Rating Service (KBRS) and by DBRS. We’re beginning to build a market. Now four or five billion dollars sounds like a lot of money, and it is, but in the scheme of thing on the financial markets, it’s still very small. Jon, you alluded to this, we’ve seen interest rates begin to come down because the market is getting bigger and more liquid. What does liquid mean? That means that if you’re an insurance company, you buy one of these PACE assets, you want to be able to go out and sell it tomorrow, just as you go out, buy a share of Apple stock today and sell it tomorrow at exactly what the market will bear. An investment you might make that you can’t necessarily get rid of tomorrow, because the market is so small won’t attract as high a price. That’s what I mean by the market is more liquid and transparent. As the market grows, we’ll continue to see interest rates decline. JP: No, that’s great. First of all David, we’re limited on time. I appreciate the full view of this. It shows the growth of the industry, the way it’s matured, that it can get to securitization. Just briefly, I think one you’ll hear a lot about this at PACE Nation’s summit in Denver, the 19th to 21st, please make sure to sign up and attend if you can. Where do you see the landscape look like in the next five years? DG: Let me do this, because I didn’t want to full stop at Renovate. There are several other parties that I want to give some shout outs too. Cisco DeVries, the father of PACE if you will, leads a company called Renew Financial and YGrene Energy Fund, is another and PACE funding and Dividend. There are a number of companies. If you’re out in California and you google PACE, you can come to our website and look them all up if you’re interested. You also mentioned Greenworks. They’re on the commercial side, I want to give them a little shout out for a couple reasons. The founder, co founder of that company, was once my program grant provider at the Rockefeller Brothers fund. I went down and pitched to her on funding PACE Nation. We are still very largely foundation funded. She liked what she heard. A year later, she called me up and said, “David, you’re not going to believe this, but I am going to run the Connecticut PACE program with the Connecticut Green bank.” Then a couple of years after building what was the most successful, I think, one of the most successful commercial PACE programs in the country, she went out and became an entrepreneur. They just completed their own securitization. It wasn’t $300 million, I think it was $75 million. It was rated, another first in the commercial marketplace. There are a bunch of companies like hers, Clean Fund, out in California, PACE equity, Petros Capital. I’m sure I’m going to leave someone out and they’re going to call me up and yell at me, but they are in many different states, working with local program administrators or setting up program administration. They are developing projects and funding them. It’s very exciting to see. JP: Well David, I really appreciate it. We look forward to see you in Denver here in a few short weeks. We appreciate you taking the time. For folks who wanted to continue to learn more, you can always go to pacenation.org. Just thank you for your time. DG: Jon I really enjoyed it. Thank you so much. JP: Well thanks to David for taking the time today and really taking a deep dive into PACE. It’s fine, we’re going to do a few more episodes like this at Experts Only, where we take an issue and try to dive deep into it for our listeners to help them better understand what’s happening. You can go to cleancapital.com, find all of our episodes for Experts Only podcasts. I’d like to thank Emily Connor and Lauren Glickman our producers, and I look forward to continuing the conversation. Catch us later this month for a live taping of the Experts Only Podcast at the PACENation Summit! Did you enjoy this episode? Find the rest of our Experts Only episodes on our website or wherever you listen to your podcast. Subscribe and never miss a conversation.