As a renewables finance veteran and now the head of Invenergy’s finance and capital markets team, Meghan Schultz has overseen the execution of more than $15 billion in financings. In addition to her impressive resume in solar finance, she’s also known for her work advocating for gender equity both within her company and in the broader industry.
Between her commitment to being the best in her field and her contributions to diversity and inclusion, Schultz shares more than a specialty in uneven bars with her childhood hero and 1984 gold medal winner Mary Lou Retton.
In this #Solar100 interview, Schultz discusses actionable steps to make solar more inclusive, the context surrounding the recent mergers and acquisitions, and how to build an enduring business in a competitive market.
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STARTING IN ENERGY
Richard Matsui: Your educational background is in business, with your BA in marketing and your MBA specializing in finance. How did you first begin working in power?
Meghan Schultz: I was first exposed to the power and energy business through a rotational program in banking. I found that I really liked the power and utility group at ABN AMRO, both because of the people that worked in that group and the amount of opportunity that I recognized in the space. At the time, ABN AMRO was a leader in the space, and it was there that I saw my first tax equity deal. AES was actually a big customer of ours, and ABN was one of the first banks doing tax equity deals.
Richard Matsui: Was this for solar or wind?
Meghan Schultz: It was wind, probably around 2006.
Richard Matsui: Wow, that's early days.
Meghan Schultz: Yes, I did my MBA in the evening while I was at the bank. When I was thinking about what I wanted to do next, it seemed like a natural transition to move over to the sponsor side in renewables after I already had a good deal of exposure to the power sector in the US. That was the next opportunity for growth in this space.
I loved originating, structuring and negotiating deals. I made a close connection while I was at Kellogg who worked at Invenergy, and it was a good opportunity to move to the other side of the table.
WOMEN IN ENERGY
Richard Matsui: You've been a longtime advocate for equal opportunity. I saw in the 2018 Invenergy Impact Sustainability Report that 42% of the new hires at your Chicago headquarters in 2018 were women, which is awesome, especially for energy. What drives your advocacy?
Meghan Schultz: My advocacy comes naturally to me. Starting my career in the banking sector covering power and utilities, I’ve always worked in a very male-dominated space. It has been important to me to have strong role models, sponsors, people who really helped me in my career. I've also needed to be my own advocate in a lot of ways. There are challenges and opportunities of being the only woman in the room. There are many times when I have been the only woman at the table in an important meeting or negotiating a deal. It can present a challenge to have my voice heard and people always used to assume I was more junior than I was. I have always felt like, I must prove myself more than a man in my position. However, it can also create an opportunity because people remember me more easily because I am different. Sometimes it’s about turning what may be a disadvantage into an advantage. I have been lucky to have bosses who encourage me to be strong in my views and not be afraid to be myself.
As I have advanced in my career, I've gained a platform as someone who is a female leader in the industry, and I use that platform to promote the importance of sponsorship for women that are coming up in their careers. Overall, in order for organizations to make progress, people within them have to draw attention to the issues and make a concerted effort to address them.
When I came to Invenergy eleven years ago, we had about 320 employees. Now we have 1000 employees across the entire company. Because of this growth, there has been a real opportunity to focus not just on building the next project but building an organization. We can ask ourselves what kind of culture we want to have, and make sure that we’re focusing on diversity and inclusion while we’re recruiting and retaining the best people. That’s also where the opportunity lies in the wider industry—there’s opportunity to cultivate real change when you’re in a growth industry.
Richard Matsui: My wife works in healthcare as a venture capitalist. The VC space is notorious for being 90% men, 10% women, but VC is not a growth industry like renewables is. You're not going to see 10x headcount growth within VC firms in the next ten years. To your point, because solar is a growth industry, there’s added opportunity to organically build in change with that growth.
Meghan Schultz: Right. For such a young, growing, innovative industry, solar is still shockingly male. When you go to a solar finance conference or a project site, you probably see 10 men for every 1 one woman, especially in finance. There's more diversity in some individual companies, but we as an industry haven't made as much progress as we sometimes think, especially at the leadership level. There is still room to do much more.
Richard Matsui: Personally, this was one of the reasons I was excited about this interview. Besides building out project finance for one of the biggest renewable shops in the country, you've also done important work around gender equality in the renewable energy space.
On that note, can you speak to some of the steps Invenergy has taken to get to that 42%? What would you like to see other companies do that has worked for you?
Meghan Schultz: Gender equity initiatives at Invenergy have been a combination of grassroots efforts and commitment from the top. Some of things we've done:
1. Recruiting efforts: Companies need to make intentional efforts to have a diverse candidate pool and not just rely on referrals or other processes that may introduce unconscious bias. For us, the first step was being deliberate in shifting our talent pipeline to pull in different types of candidates. Second, we looked at how we are talking to prospective employees. We added inclusive language to our job descriptions. We’ve also become more conscious of representation on interview panels and more structured in how we conduct interviews.
2. Inclusive work environment: We’ve held inclusion training workshops in order to bring attention to unconscious bias and other factors that may inhibit the development of inclusive organizations.
3. Affinity groups: We fully support our workplace affinity groups like the Invenergy Women’s Network. Through the Invenergy Women’s Network, we have established an internal mentorship program, open to both women and men, which has been crucial to creating a strong learning culture and promoting personal and professional development. .
4. Development and retention: We want to make sure that we provide equal opportunity for advancements. We do that intentionally. The loudest person in the room or the person that's most visible is not necessarily the one that gets opportunities. We strive to have a transparent and consistent way of evaluating talent. We’ve also recently put a greater focus on providing flexibility for our employees and enhanced our pregnancy and parental leave policies to better retain the people we’ve invested in.
One important thing to emphasize is that we're doing this not just because it's the right thing, but also because it makes sense from a business perspective. Inclusion is crucial to innovation. We want the best people. We want to retain them, and we want to advance them, and to do that we need to have a workplace that works for everyone. That makes us better as a company, and it's something that's important to our customers. When we started working with corporate offtakers, we learned that they care about this. We’re seeing a lot of utilities and companies who really care about who their partners are and what they're doing on sustainability and Diversity & Inclusion.
THE EVOLVING STATUS QUO OF A HYPER-COMPETITIVE MARKET
Richard Matsui: In Lendscape, we’ve seen an increase in the number of strategic tie-ups between developers and long-term owners, like Sol Systems and Capital Dynamics. What is driving this evolution?
Meghan Schultz: There are a couple of different factors. The first is that the market has matured, and people understand the risk better, which makes investors more comfortable with solar. The long-term contracted nature of many of these solar projects really fits with the long-term ownership perspective of pension funds or insurance companies. In a lot of cases, it makes sense for those companies to be interested in long-term equity ownership. Insurance companies, pension funds, and these types of investors want to write bigger checks. They're not just looking at investing in one 20-megawatt solar project; they're looking at investing in either a large pipeline of projects or a bigger portfolio of operating projects. The industry now has a larger pipeline—there is a bigger portfolio of operating projects that's really attractive to this type of longstanding capital. Their objective is to put big dollars to work for long term.
Richard Matsui: I agree that long-term investors are a natural fit with long-lived assets. Given that the PPAs have become much shorter, does that dynamic start to break down? If I ran a pension fund, I wouldn't be particularly comfortable owning assets with, say, a 10-year hedge deal in Texas.
Meghan Schultz: I think that that evolution is starting to happen. Historically, certain investors would only come into an operating project with a long-term utility PPA. Now, as those investors have gained more understanding of the industry through those types of investments, they've gotten more comfortable moving up in the life cycle and taking development risks. These assets still fundamentally have a very long life, even if the initial contract is shorter. At some point I do think we’ll hit an inflection point where solar projects in certain markets with shorter contracts are not the best fit for long-term capital, and it becomes a fit for more intermediate types of capital, such as infrastructure funds. Current market prices can make it challenging to generate a return on a project that has a short-term hedge, for example.
Richard Matsui: I share that sense, although it’s not a perspective that I hear talked about publicly. When the market was first forming, all the players were developers. As the market has grown, it’s added infrastructure funds, private equity, and pension funds, and so far they’ve all coexisted. However, it seems like we're starting to go into a new phase, where long-term capital and developers have officially merged via M&A, or unofficially via strategic partnerships. Does the market keep evolving in this direction, where all long-term capital has a development partner and vice versa?
Meghan Schultz: It's interesting because in a lot of ways solar is following wind in these trends, and over the last couple years we’ve seen significant consolidation with developers in wind. Solar is a little bit different because there are lower barriers to entry in solar, given that it's generally easier to develop a solar project than a wind project.
If I'm comparing the two, I think there is always room for the smaller developers who are going to be developing and flipping projects. Where you start to see more of this wind-like consolidation is when we look at how it's going to play out for the phasing-out of the tax benefits and the need to qualify projects via safe harbor. Most of the safe harbor strategies are fairly capital-intensive, in terms of needing to start physical work at the site, procuring modules, handling other types of equipment. That’s where the smallest developers struggle—you need capital to do that.
Richard Matsui: So the big developers who have the balance sheet to lock in the safe harbor gain a new edge over the competition. I hadn’t appreciated that.
Meghan Schultz: That’s one new point of competitive differentiation in the market, the safe harbor. In this constantly changing world of tariffs, there are differing views on locking in long-term panel supply, and it’s had varying outcomes. However, generally part of finding success in solar is having an accurate long-term view of where panel prices are going. An essential part of building an edge here is having master contracts, having the economies of scale to get your margins as tight as possible on equipment procurement. That would also differentiate sponsors with capital from those that are purely early stage developers. There is a role for both, but a lot of consolidation comes from the need for more capital to compete.
REFINANCING: THE OPPORTUNITY TO MONETIZE PRE-EXISTING VALUE
Richard Matsui: Speaking of competitive edges, we are honored to have supported Invenergy on a recent refinancing. Fellow #Solar100 leader and equity analyst Julien Dumoulin-Smith recently identified refinancing as the “trend to watch” in his latest report, though it’s also true that many of these refinancings are being done quietly. Can you speak to how you all thought about that decision?
Meghan Schultz: That asset has been online for over six years, and it has a 20-year offtake agreement. Given the current low interest rate environment, it made sense for us to reconsider if we had the most economic long-term financing. Part of that, was learning about the credit enhancement that you all provide. It was a great opportunity for us to monetize some of the value that already exists in the assets that we hold.
Ultimately, our goal is to recycle capital so that we can build more projects. The Solar Revenue Put is just one of the ways that we do that.
BUILDING AN ENDURING BUSINESS IN A TURBULENT MARKET
Richard Matsui: Given that you saw the company go from over 300 people to 1,000 people, you've seen competitors implode along the way. Clearly, Invenergy has been able to avoid a similar fate. What have you learned from those competitors?
Meghan Schultz: The nature of development requires an organization to be dynamic, and when you have changing regulatory policy, tax law, and tariffs, it's important to have the flexibility to both take advantage of the opportunities that come from that volatility and be able to weather the storms.
Part of what that looks like for us is being a private company, because it’s difficult for public markets to understand the complexities of development.
Richard Matsui: Back when First Solar and Sunpower were developing the then-massive solar farms under the DOE loan guarantee program, I remember how much Wall Street hated it when they would miss quarterly earnings because a permitting issue pushed out a single project to next quarter. They would punish the stock.
Meghan Schultz: Yes. Access to capital is key to controlling your own destiny, so you can make decisions on projects without duress. Public company shareholders are earnings-driven, and you need flexibility to make the decisions and play the longer-term game of development. Project timelines will always change, whether it’s a brief permitting challenge, or a decision to bring the project online several years later. Playing the long-term game as a developer is just as important as being able to react quickly and take advantage of current market dynamics.
Having a diversity of markets is also important. For example, right now so many people are focused on California or Texas, and if you have encounter issues in that particular jurisdiction it doesn't leave you with a lot of opportunities.
NON-CONSENSUS BET
Richard Matsui: What’s your biggest non-consensus bet for next year?
Meghan Schultz: I think there will be a shakeout of projects in ERCOT that are able to be financed and those that will not move forward. There is a significant amount of early stage M&A for several thousand MW of projects that do not have offtake agreements all with the expectation that they will secure a financial hedge. I don’t think that the hedge market or the capital markets are there to support that. I see that only projects that have strong offtakes in terms of tenor, credit quality and risk mitigation, will be able to attract capital from tax equity, lenders and investors.