Originally posted in Forbes.

In this edition #Solar100, Founder and CEO of kWh Analytics Richard Matsui speaks with Alain Halimi, Executive Director of Natural Resources and Energy at Commonwealth Bank of Australia.

Alain Halimi is known for his significant experience in clean energy financing. He has spent over 15 years supporting the development of renewable energy in the US and internationally and has provided his insights at numerous conferences over the years. Like John Madden, he’s coached and supported his teams on numerous successful clean energy deals and he’s a known color commentator in the industry.

In this Solar100, Alain Halimi weighs in on his experience financing renewable energy assets, how the renewable energy market has evolved over time, predictions for energy storage, and his thoughts on how the industry can continue to advance diversity and inclusion.

STARTING OFF IN RENEWABLE ENERGY FINANCING

Richard Matsui: You’re a Frenchman, working for an Australian bank, living in New York City, financing renewable energy. Can you talk me through how you ended up here?

Alain Halimi: I think that’s the way the world works now. Everything and everyone is becoming more and more integrated. It’s also a good reflection of what’s happening with the clean energy movement — it’s happening all over the world.

In terms of my career, I studied banking in college in France and found a job at a French-Belgian bank called Dexia. We actually started working on our first wind deals there in 2004-05. They were very active in clean energy at the time and were already closing 10 to 15 wind farm deals a year. Then, Dexia gave me the opportunity to move to the United States and I wanted the opportunity to learn about other international markets, so I came here in 2006.

Once I arrived in the US, I worked on my first wind deals. At the time the renewable energy market started to be fairly active with large wind projects due to the establishment of Renewable Portfolio Standard (RPS) targets and the Production Tax Credit (PTC). Then around 2010, I wanted to explore new industries, so I moved to BNP Paribas. There, my focus was more around natural resources. I had a great experience working there across Investment Banking and Debt Capital Markets, but in 2014, Commonwealth Bank of Australia (CBA) had an open position in its Natural Resources and Energy group. Given my experience at Dexia in clean energy and at BNP Paribas in Natural Resources, the role was a perfect fit.

Seven years later, the CBA platform has materially grown where we are now leading large wind, solar, and standalone battery storage projects across the US. CBA was an early mover in the space and at the forefront of this major energy transition. Over the years, we have been able to provide financing solutions assisting our clients to fund their renewable energy projects in the US.

RENEWABLE ENERGY FINANCING MARKET EVOLUTION

Matsui: How has the market evolved since ‘04?

Halimi: The market has evolved a lot in terms of competitiveness, understanding the technology, financial structure and risk appetite. Everyone from banks to equity investors have been getting up to speed, so financial institutions have increased their risk appetite over the years, especially given the historically strong track record the sector has experienced.

In the beginning, I remember we had to rely on only one year of data for some of the first wind farm deals we completed, and some of the assets we financed didn’t necessarily perform as planned; but, the market has certainly learned a lot from those early deals. Similarly, on the solar side, I remember working on my first solar project in 2008. It was an 11MW solar project and was probably considered one of the largest projects in the US at the time. However, over the past few years, solar projects have now become a key asset class within the renewables space with an average deal size of 150+MW. Additionally, the cost of solar modules has fallen by 94% over the past decade and is now undeniably one of the cost effective sources of power generation in the US.

Standalone battery storage is poised to follow a similar arc to solar, based on where the solar market was a decade ago. For example, the cost of lithium-ion batteries, has fallen by 86% and efficiency has grown dramatically over the same period. I think the industry will continue to grow quickly with larger scale battery projects, since storage is one of the key technologies and solutions available to green our power grid.

Matsui: There have been a lot of macro changes in the past year: we are in a global pandemic and now, we have the Biden administration pushing to deploy more renewables. How have the last 12 months impacted renewable energy financing and the market as a whole?

Halimi: Generally, the market has continued to grow. All industries are somewhat in competition with each other to attract capital, but in the past 12 months, even with everything that has happened, there has still been significant support for clean energy. That is just a reflection of a few factors. First, the renewable energy sector has historically been a solid asset class given its contracted nature and resilience to macro shocks. This asset class has been far less volatile than other asset classes, historically speaking. Those features have naturally attracted more capital. Second, there has been a growing awareness of the energy transition. COVID has certainly accelerated the trend to do more in the space and key players from governments to investors to boards have made a renewed commitment to taking the conversation to the next level. We are certainly at the beginning of a global energy transition and in the US, the industry will continue to grow an increasing share of the market within the power grid.

RENEWABLE ENERGY FINANCING TRENDS: PREDICTIONS FOR 2021 REFINANCINGS

Matsui: We recently surveyed lenders for our annual Lendscape update and interestingly, almost all the lenders said that they focused on financing new-build projects in 2020, rather than refinancing operating projects. Commonwealth Bank of Australia is an obvious exception, since we were fortunate to be able to work with you on a sizable refinancing last year. What role do you think refinancing will play for the rest of 2021?

Halimi: I think refinancing will likely play a bigger role in the market this year and next, since a lot of projects were built five to seven years ago and will be reaching the end of their loan terms. We track this closely.

On our side, we completed one sizable refinancing last year, but that happened because the sponsor simply wanted to optimize the terms and also ensure the credit aligned with the asset’s strong performance. We are working on another refinancing and we are looking at a few financing solutions to further optimize the structure for the developer, given the good performance of the underlying solar project. The Solar Revenue Put can certainly help to sharpen those returns for the sponsor and mitigate production risk for the lenders. For instance, on the refinancing we led, the Put allowed the sponsor to hedge themselves against energy production risk while optimizing underlying leverage. That was an effective solution and the process was fairly straightforward to execute on. The kWh team made that process simple for everyone, including the sponsor and the banks that were new to it.

THE NEXT FRONTIER IN FINANCING: ENERGY STORAGE

Matsui: For the most part, everyone agrees that storage is the next frontier, but there haven’t been many deals completed to-date. So, can you give me a snapshot of your perspective on storage today? What’s financeable and what’s not?

Halimi: Project financing for battery storage really varies based on the project.

One type of project is where you have co-located solar and storage and the solar assets feed the battery. For those deals, it’s generally straightforward to finance as it’s considered a fully integrated solution, so you can apply similar principles to wind or solar financing.

The second type of project is where the battery serves as a peaker plant. For instance, we recently closed a financing as a bilateral credit facility where the project is partially contracted with Southern California Edison (SCE) to install a standalone battery to act as a peaker to replace gas units. In this case, the challenge on the financing side is securing a revenue stream. You usually have a capacity contract with the utility, but that does not generate much revenue. The real revenue will come from arbitrage, but the challenge becomes figuring out how to buy and sell electricity from the battery at the right time.

So, that’s where we’re focusing on now – understanding the location of the asset, the market it will be operating in, how the developer is managing energy deployment and the software it plans to use for that process...etc.

LOOKING AHEAD

Matsui: Lastly, moving forward into 2021, we’re going to be asking everyone in the Solar100 series about racial equity in the solar industry. The thought is that the solar industry is of course important because of climate change, but it’s also important because of jobs—there are a lot of people who work in this industry or want to work in this industry. As a respected renewables leader, what are your thoughts on how the industry can continue to improve in this important area?

Halimi: I agree that is an important topic to discuss. In clean energy, there’s a huge value chain – from manufacturing to operations to finance – which requires a lot of different types of expertise and all together, can bring social justice with economic advantages to local communities.

Our economy has been reliant on fossil fuel and that has had significant impacts on the health and pollution of communities, particularly those that have already suffered from other negative socioeconomic factors. The renewable energy sector can be a key tool, not only by contributing to the energy transition, but also in providing opportunities and support for those that the fossil fuel industry has impacted by offering access to affordable and safe power.

So far, the industry has been a key job creator and has provided opportunities for training throughout the entire value chain. The industry has also enabled entrepreneurship opportunities, although we could do additional work to ensure these opportunities are equitable and fair to everyone. There have been some positive initiatives in the US to support diversity and inclusion, including dedicated funding and tax credits for Opportunity Zones and initiatives from industry groups such as the Solar Energy Industries Association (SEIA) and American Council on Renewable Energy (ACORE). Also, some developers have made direct commitments and specific targets to build a diverse and inclusive workforce. 

However, a lot more still needs to be done. Although the level of awareness has increased, this needs to be translated into action. Trying to use examples from other industries, one idea that may improve equity is to offer asset ownership to local communities to build equity and align interests. Companies and governments should also work together to invest in developing a more diverse, equitable and inclusive workforce by creating a culture of inclusivity and accountability.