kWh Analytics, along with Munich Re and MUFG, have just closed on a groundbreaking new structure - the Wind Proxy Hedge structured with the kWh Analytics “Indifference Structure” - for a 59 MW wind project in Maine, developed by Greenbacker Capital Management. Notably, the Wind Proxy Hedge creates a floor on revenues tied to a lack of wind resource and provides lenders with additional cash flows when considering downside debt sizing cases.
Jason Kaminsky, CEO of kWh Analytics, joins Norton Rose Fulbright and the Currents podcast to discuss this year’s Solar Risk Assessment report published by kWh. He summarizes the findings in the report, including risks to the battery energy storage industry. Additionally, for the first time, kWh Analytics has released a full audiobook version of the 2024 Solar Risk Assessment.
Our COO, Jason Kaminsky, joined Clean Capital for an episode of Expert’s Only. He discusses the next phase of solar and best practices to use data to better manage assets and ensure predictable revenue. Jason and Jon spoke about the next phase of solar and the cutting edge advancements they’re making in data management.
“Our team enjoys working closely with kWh, as they’re a market leader in solar risk management, and we’re thrilled to welcome Jason to the show.” - Jon Powers, Clean Capital
Our CEO, Richard Matsui, joins NRF Currents for an update on the Solar Lendscape. He covers what is new in tax equity, gives a breakdown of three trends he is seeing on the lender side and an update on the underperformance of solar projects that was uncovered in the Solar Generation Index, explains how underperformance might affect refinancing and more.
Full article by Brian Lynch available in PV Magazine.
Underscoring what some call the solar industry’s “systemic overestimation bias,” kWh Analytics found that the average solar asset underperformed its target weather-adjusted production by 6.3% between 2016 and 2019 (early life); one-quarter of the projects that were studied missed their production targets by more than 10% after accounting for weather.
These data points are unsettling, but are they surprising? After all, what accounts for the industry’s overly optimistic bias towards over production?
In short, self-interest. When the developer, EPC company, and long-term owner are all financially motivated to assume generous production, they generally will. The inevitability of real-world data crashing this party was bound to happen.
A recent IEA renewables report reiterates how solar has evolved beyond being an accessory in the nation’s energy mix to being the lowest-cost, highest-growth energy generation source going forward.
This inflection point represents an opportunity for the industry to shift its attention away from constant cost-out and toward putting our collective effort into building projects that reliably generate cost-effective clean energy.
The ever-increasing deployment of solar assets can’t be contained. For the health of the whole industry, we owe it to ourselves to deploy better projects.
Originally published on Greentech Media by Emma Foehringer Merchant.
In the spring of 2019, the sky in parts of West Texas opened up, in some areas dropping hailstones as big as baseballs, according to the National Weather Service. Beyond cracking car windows and damaging rooftops, the hailstorm struck a 180-megawatt solar project developed by 174 Power Global, causing an estimated $70 million to $80 million in damages as ice smashed the project’s panels, made by Hanwha Q Cells.
The event got the insurance market’s attention.
“That’s really when the market changed overnight,” said Sara Kane, a senior vice president overseeing energy risk management at insurance broker Beecher Carlson.
Solar came up at a time when insurance was relatively affordable and easy to procure. Insurance was never an insignificant cost for developers, according to a 2010 report from the National Renewable Energy Laboratory (NREL). But it’s gotten significantly more expensive in recent years as natural disasters exacerbated by climate change have proliferated. Hurricanes have soaked the South and wildfires have destroyed property in the West, compelling insurers to reckon with what experts say are years' worth of underpricing the risk of damages.
From the end of 2019 to the first part of 2020, property insurance premiums rose between 10 percent and 60 percent, according to the Insurance Information Institute. The change has been particularly acute for solar. Premiums have increased by as much as 400 percent in the last two years, according to a recent analysis by two companies that specialize in analyzing solar risk, kWh Analytics and Stance Renewable Risk Partners.
How insurance will function in a climate-change-impacted future is an open question that policymakers across the United States are now mulling. But there's a distinct paradox in the threat of rising insurance costs hampering solar growth.
“It would be ironic if one of the possible fixes for climate change can’t move forward just because it can’t get insurance,” said Keith Martin, a transactional lawyer at law firm Norton Rose Fulbright.
Simply put, the insurance industry makes money by receiving more in premium payments than it has to pay out in claims. To do so, insurers analyze the risk associated with certain properties and price premiums accordingly. (While there are different types of solar insurance, this article focuses on property insurance, which protects projects from physical damage.)
Because the probability that something will go catastrophically — and expensively — awry is relatively slim for an entire portfolio of projects, insurers can generally make a profit by charging clients premiums and paying out a lower amount of money in claims.
But in recent years, insurers haven’t seen the level of profits they’d like. So they’ve begun to charge higher premiums, a change in the industry that’s called a “hardening” market. Climate change is expected to sharpen that trend because damages will become more likely.
Within the group of insurers that underwrite solar projects, there’s also been a growing realization of the threats to such projects. Many experts cite the 2019 West Texas hail case as the impetus, but wildfires in California and natural disasters elsewhere have also raised concerns.
“The view was, for solar specifically, ‘Oh, this stuff just [sits] there. What can really happen?” said Kane, who previously worked as an underwriter for renewable energy projects.
Now, insurers have a greater understanding of physical threats to renewables projects and are correcting for what Kane called “unsophisticated underwriting in the beginning.”
“Honestly, losses have caught up with us,” she said.
A hard market doesn’t usually last forever, but climate change — at least given the current policy environment — is not a problem that’s going away. And experts like Kane and Sam Jensen, a Stance co-founder, say costs aren’t likely to get much more affordable.
“It’s safe to say, at least in our opinion, that those days are over,” said Jensen.
The current market has created numerous limitations for solar developers and financiers.
Natural-catastrophe-related sublimits (part of an insurance policy that defines coverage on certain types of losses) have shrunk, said Jordan Newman, a managing director at Wells Fargo that works on the bank’s tax equity investments for renewables. That means "the amount of coverage in dollars that you’re able to achieve has gotten lower and costs more,” he said.
With lower sublimits, banks are seeing an uptick in the number of developers asking for waivers on insurance coverage. And since projects must re-insure each year, even in-service installations are navigating these challenges.
Banks are also giving more scrutiny to the track record of the developer and the location of the project. Financiers and insurers are wary of having too much exposure in one region, especially if it has known natural disaster potential, as almost every region of the United States now does.
Taken together, the limitations could impact where developers can site projects in order to guarantee adequate insurance and funding. The situation also calls for a re-evaluation of risk for investors and insurers, experts said.
Developers or an independent testing body will have to work to help insurers understand risk mitigation in solar, in part through better data analysis. Insurers currently pay more attention to location than technology choice.
“Any new generation of technology is being insured assuming the history of that technology,” said Amy Schwab, a senior project leader at the National Renewable Energy Laboratory and the lead author on a December 2020 report on insuring PV. “It always takes a while for insurance rates to catch up.”
If building out clean energy is a political priority, the federal government may also need to act as “insurer of last resort,” as it does for some flood insurance, said Martin at Norton Rose Fulbright.
The disastrous weather in Texas that cut electricity for millions in February is the most recent example of climate change’s potential to disrupt clean electricity. Though natural gas accounted for the majority of generation that went offline during the severe cold, Kane said many of Beecher Carlson’s renewables clients have reached out regarding business-interruption insurance. The event may add fuel to insurer concerns about underwriting renewables.
“Any large-scale weather event that reeks of climate change in that it’s unusual and that it’s severe will absolutely trickle its way into underwriting consideration,” she said.
Navigating those challenges will be essential for continued solar growth, a key aspect of the Biden administration's agenda on climate action.
While climate impacts “are going to be felt across the entire economy,” said Kane, “it feels like a little bit of salt in the wound because the renewable industry is trying to help and getting dinged in the same way as industries that are not actually part of the solution.”
Originally posted on Greentech Media. In this edition #Solar100, Founder and CEO of kWh Analytics Richard Matsui speaks with founder and CEO of Elemental Excelerator Dawn Lippert.
Dawn Lippert’s gained national prominence with a growing list of top hits—in her case, a roster of successful clean energy startups. And like the famous Grammy winner, Lippert’s roots are in Hawaii. As the Founder and CEO of the Hawaii- and California-based Elemental Excelerator, Lippert has built an ecosystem and invested $43m to help scale clean energy startups.
In this Solar100, Dawn Lippert weighs in on what she’s learned from over a decade of investing in and supporting entrepreneurs, and reasons for optimism in the fight against climate change.
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STARTING IN RENEWABLES
Richard Matsui: Kicking off with the origin story—you majored in environmental studies at Yale and have worked in this space ever since. What first drew you to working in clean energy?
Dawn Lippert: I got into energy because I was studying environment, biology, and conservation, and it just became strikingly clear how everything will become much more difficult because of climate change.
Once you realize that, addressing climate change then becomes the overarching storyline to anything else you’re interested in—from biology to planetary systems to just keeping life on the planet.
I’m an optimist, and spending too much time on climate policy could be a difficult place to live with that mindset. So I started working with some professors at Yale around energy and just found so much momentum. You can be a true optimist because the trajectory of energy technology and green technology was and is so positive, and you can have a role in making that transition faster. It can be a really exciting and inspiring place to try to make a difference. And that has now circled back to climate, because we are seeing the same kind of momentum across all kinds of climate solutions.
Richard Matsui: You’re a fellow ex-management consultant, having worked with Booz Allen Hamilton’s alternative energy practice in Washington D.C. I’m curious—how does that work and training influence what you bring to the Founder and CEO role today?
Dawn Lippert: Management consulting is about facilitating change and thinking about all the levers to make that happen.
In particular, as a consultant to the US Department of Energy for the Hawaii Clean Energy Initiative, it was special to play a true, supportive role to the holistic energy transformation we’re trying to achieve here. My job was to help make the state’s goal of 100% clean energy happen, and to learn how to flip an economy from fossil fuel to clean energy. My day-to-day included asking questions like, “Who are the people we need in the room? Who is not in the room who will be impacted? What are the stories or numbers or analyses we need? What is right around the corner that will impact how this can or will unfold?”
Richard Matsui: Classic stakeholder management—a lot of people with different objectives.
Dawn Lippert: Exactly. It’s very similar to implementing technology solutions within a community. I was looking for the right platform to bring different parties together to find a win for the entrepreneur, a win for the investor, a win for the community, and a win for the policy maker.
That role is probably where I came into the idea for what is now Elemental Excelerator.
Richard Matsui: Speaking of Elemental, it can be especially tough in the early days of any organization. What was the biggest problem you had to solve at the start of Elemental?
Dawn Lippert: For us, it’s been a constant learning process. We initially started funding projects very similarly to how the Department of Energy does for early-stage companies with new technology. And it became clear early on in that process that you could fund a lot of one-off projects, but the most difficult part was figuring out how to make the projects scale. As a result, we now think about how every project we fund can scale at least 10x within two to three years. Using that framework impacts the companies we select, what we do with project design, and who we invite to the conversation.
But in those early years, we just weren’t seeing that. This was around the time that Y Combinator and other software and tech-focused accelerator programs were starting to gain traction in Silicon Valley.
So, when we started funding these projects and seeing if they were working, I flew around the country for a couple of months to learn what we could do differently. I talked to literally anyone who would talk to me that had any role in the investing, commercialization, and entrepreneurial ecosystem. The vast majority of them told me that Elemental was not a good idea, because the idea behind these tech accelerators was to be three months, software-based, super quick turnaround, week over week results. And that’s just very different from the world of climate technology.
But even with these differences in timelines, I learned a lot from those conversations and how to apply what traditional tech and Silicon Valley were doing right and how we can model our work at Elemental. For example, this idea of working in a community of entrepreneurs, focusing on business models, scaling a company, and being able to focus very early on what a customer wants. There are a lot of things that Silicon Valley’s doing right that we really need in climate around the rest of the country—and the world.
SOLAR STARTUPS: IMPROVING SYSTEMS THAT IMPACT THE PLANET AND PEOPLE’S LIVES
Richard Matsui: To date, Elemental Excelerator has awarded over $43 million to 117 portfolio companies. After over a decade working with and supporting startups, what are some of your key takeaways about challenges startups face and what makes a startup successful?
Dawn Lippert: We've found that huge problems are inherently motivating for entrepreneurs— which is why we invest in them to help solve climate change. They're wired to scale solutions. Entrepreneurs are already scaling up solutions to climate change. The most successful entrepreneurs have unbelievable amounts of ambition, and you can sense that the first time you meet them. They know they can have a huge impact, and they barely even have to convince you.
As to the challenges startups face, they navigate a lot of interconnected pieces to come to market. Technology innovation, market entry, connecting with corporates and deployment partners, policy barriers. Our entrepreneurs are creative, nimble generalists, and learning machines.
Richard Matsui: When you said, “Entrepreneurs are already scaling up solutions to climate change,” it reminded me of our first Solar100 interview with inveterate solar advocate Danny Kennedy in which he said, “Small businesses can be agents of change, and entrepreneurs are the classic ‘won’t take no for an answer’ activists, really. They just use business tools rather than community organizing.” What are ways you’ve seen entrepreneurs scaling up solutions to climate change?
Dawn Lippert: You can point to any company in our portfolio and they’ll be able to tell you how they are driving down emissions or democratizing clean energy or building the transportation systems of tomorrow. A few recent examples: Ampaire recently flew the world’s first hybrid electric plane on a commercial route with Mokulele Airlines, proving zero emission air travel is coming sooner than you think. In fact, it’s already here. Proterra is set to go public through a SPAC and has delivered hundreds of electric buses. In partnership with us and Conservation International, SOURCE Global installed 40 hydropanels in Binta’t Karis, one of the most remote villages in the Philippines, providing clean drinking water to 100+ families.
LOOKING FORWARD
Richard Matsui: What are you thinking about, moving forward?
Dawn Lippert: I’ve been thinking about the moment we’re in. We’re seeing a confluence of huge clean energy know-how, rapid velocity driven by favorable economics, unprecedented commitment from large companies who know they can’t afford to miss out on this transformation, and a surge of promising startups who see an enormous market opportunity. There’s broad consensus around the need to address the climate crisis.
This change is actually driving economic growth and progress on the ground level. For example, in Hawaii we’re seeing massive investment in solar and energy storage. In Hawaiian Electric’s (the utility supplying power to 95% of Hawaii’s population) latest tender to date, we will bring online 460MW of PV and 3GWh of storage capacity. These projects are pulling billions of dollars into Hawaii, which will largely go to support local landowners, suppliers, and workers. This is instead of shipping out millions of dollars for oil and getting a barge of oil in return.
So what is really exciting about this moment is the potential to solve many problems at once. We can address climate change and energy independence while also being thoughtful about how we support new waves of talent coming into the clean energy workforce. That’s what I would love to see. We can all meet this moment together.
Richard Matsui: That’s a powerful visual, that we’re collectively shipping a barge full of cash out and then getting a barge full of oil back. So it sounds like Biden’s plan of a modern, sustainable infrastructure and an equitable clean energy future is right on track with your thinking then?
Dawn Lippert: In a way. There’s definitely a need for national leadership, and the Biden Administration is demonstrating how the government can pull levers in international policy, environmental justice, federal procurement, and everything in between. At the same time, a lot of the important progress must be made at the state and local level. State and city government, universities, community colleges, and local coalitions can be really powerful and make the difference. While national support is always important, I’m a big believer in state and local action and for things that can happen on the ground in our communities.
Richard 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, I’m happy to have you weigh in if you’re game.
Dawn Lippert: Certainly. At Elemental Excelerator we believe climate change and social inequality are directly tied, and that providing cleaner and more sustainable options for a small few will never allow us to solve for climate change or reach the regenerative economy we’re striving for.
Elemental uses a framework of “Equity In/Equity Out.” Equity In includes hiring practices, inclusion, professional development, representative leadership, and supply chains. Equity Out is about how a technology impacts communities, including unintended consequences and how to create mutual benefit particularly with frontline communities. In the solar industry, this is essentially jobs and opportunities on one side and deployment on rooftops and in communities on the other. From an innovation perspective, we’re interested in companies that are democratizing solar, deploying community solar, and otherwise increasing access to solar in multi-family buildings and low-income households.
Currently, 88% of solar executives are white men and only 8% of the solar workforce is Black. When you start looking at who’s benefited from the solar boom, it becomes clear that we haven’t yet tapped into the talent who should be part of this movement. So as part of our “Equity In” work, we are supporting entrepreneurs in building a more inclusive and effective workforce and supply chain.
When teams are more reflective of the communities and customers they serve, they are much more likely to achieve the equitable outcomes that are critical to solving climate change.
Richard Matsui: Are there people or groups in solar that you think are modeling the kind of actions that we as an industry need to take?
Dawn Lippert: Yes! We believe that in order for technology to truly succeed, it has to be rooted in the community. We fund $5-8 million dollars of climate tech projects with a dozen startups each year. For many of these projects, we employ a square partnerships model, where we will work with startups, a customer or deployment partner, and a community partner to deploy technology. Through square partnerships, we start to weave community values into innovation projects, bringing together grassroots perspectives and technology startups. These are two groups that don’t often work closely together, but we see enormous potential in close partnership and bringing community values into technology design and implementation.
As for other models, there’s EDICT, which stands for Empowering Diversity In Clean Tech, that was started by Devin Hampton of UtilityAPI and Jason Michaels of Leap, two of our Elemental portfolio company leaders. It’s a growing community of companies dedicated to making measurable progress in diversity and inclusion. We’re also huge fans of Earth in Color, which was started by a former Elemental intern, Darel Scott. And our Director of Innovation in Energy, Nneka Uzoh, recently launched Greentech Noir, a professional community for Black people working in climate tech. These and many more make me optimistic for the future!
Originally published on Reuters by Ed Pearcey. Edited by Robin Sayles.
More frequent extreme weather and surging insurance demand is creating a financial challenge for solar operators and putting pressure on durability and damage prevention.
US solar developers are bearing the brunt of climate change as more frequent extreme weather events hike insurance costs.
Hail storms, tornadoes and wildfires have pushed up insurance premiums for solar projects, impacted the scope of policies and reduced availability.
Property and casualty insurance premiums for solar plants have increased by as much as 400% over the last two years, kWh Analytics and Stance Renewable Risk Partners said in December.
“With so much of the solar construction taking place in natural catastrophe-exposed regions – Texas for example – the impact for the solar sector is particularly impactful,” Michael Kolodner, US Renewable Energy Practice Leader at Marsh insurance brokers, said.
The above-market corrections for solar are partly due to a "historical underpricing of the risk," Kolodner said. Projects in at-risk regions can face higher insurance costs and lower availability as underwriters limit their exposure, he said.
At the same time, the demand for solar insurance is soaring on a wave of construction that is set to last several years. Utility-scale PV installations are forecast to rise by almost 30% this year to 15.4 GW, the US Energy Information Administration (EIA) said, and similar build rates are expected in 2022 and 2023.
Texas is the fastest-growing solar market and will host 28% of new capacity this year, testing insurance carriers as they adapt to the new climate reality.
Texas trigger
A Texas hailstorm in 2019 highlighted the growing risks for solar operators and prompted insurance carriers to take action.
“We saw a $80 million hail loss in Texas in 2019, damaging 13,000 solar panels at a 160 MW solar farm, which really had a lot of underwriters and carriers taking notice,” Michael Cosgrave, a risk manager with Renewable Guard, a renewable energy insurance firm, said.
Insurance carriers started altering policies and now seldom offer more than $15 million of hail coverage, Cosgrave said.
"Up until that point they were providing full limit coverage," he said.
Carriers are also placing larger deductibles in solar policies and project owners may be required to set up reserves in an escrow account to fulfil investors' risk requirements, Cosgrave said.
“Historically, you would have seen a minimum $100,000 deductible, or 5% of the physical damage limit,” he said. “Over a few years, that grew to $250,000 and 5%, and I’ve seen $1,000,000 and 15% in Texas, which as far as I know is unprecedented.” A 100 MW solar project might have a physical damage limit of $95 million, he said.
Solar project costs are continuing to fall, increasing the importance of rising insurance costs. Back in 2010, insurance premiums made up around 25% of PV operating expenses (opex), according to the National Renewable Energy Laboratory (NREL). Recent data from the Lawrence Berkeley Lab indicates total opex has perhaps halved since then, partly due to longer operational lifespans. Proven performance of solar technology will have affected premiums but suppliers also continue to release new, higher efficiency products such as bifacial panels.
Industry action
Last year, Renewable Guard launched a "parametric" hail insurance policy that is triggered when an event exceeds agreed thresholds, such as hailstones larger than two inches in diameter.
Hail size is measured by an independent weather data provider using advanced 3D radar, an onsite hail station, and a series of algorithms.
The policy includes the supply of real-time weather monitoring to warn operators and allow them to stow the panels in a more protected vertical position, Cosgrave said.
However, hail can be difficult to predict and operators can face a trade-off between wind and hail damage when repositioning the modules.
Some manufactures have developed a passive wind-load mitigation system that automatically rotates modules to the safest position, locking the vulnerable modules in the full-tilt angle, Cosgrave said. Other design improvements include more robust tracking fasteners and framed modules to better distribute load during wind windy spells.
Many larger solar operators are already using advanced weather forecasting systems to mitigate solar intermittency. Cloud cameras and analytics are helping operators optimise downtime and reduce their exposure to swings in wholesale power prices.
Fire risk
Wildfires are also an "increasing” concern and insurers are tightening their policies accordingly, Cosgrave said.
Three solar plants in Rosamund and Bakersfield in California experienced significant wildfire claims during the 2020 wildfire season, Jason Kaminsky, Chief Operating Officer at kWh Analytics, said.
Insurers are adding wildfire deductibles to policies while also working with operators to reduce the physical risks, Cosgrave said.
“They’re looking into things such as clearing a project perimeter, the height of the brush and vegetation in and around a facility," he said.
Before an event, PV operators maintain vegetation to reduce the fuel available to the fire and detect and correct faults which could cause a fire, Andy Walker, Senior Research Fellow, Energy Systems at NREL, said.
Ahead of a storm, actions include securing loose items that could become windborne and ensuring stormwater channels are clear from debris, Walker said.
"Such preventative measures may be required of insurance policies or affect insurance premiums," he said.
Small print
Insurance carriers have also introduced restrictions or exclusions related to "microcracking" that may not be visible to the human eye, Kaminsky said.
Many underwriters now implement these regardless of geographic location and typically require owners to pay for microcrack inspections and testing, he said.
Testing techniques include electroluminescence, which can detect defects untraceable by other methods such as infrared imaging and thermal cameras.
Together, the tighter insurance terms create challenges for operators and developers, Kolodner warned.
Existing projects may find it more challenging to comply with historic investor commitments, while the tougher policies are also "complicating the solar energy industry’s ability to efficiently finance future projects," he said.
Originally posted by SolarPlaza in the Solar Asset Management in 2021 whitepaper.
From the minute a solar plant starts exporting energy to the grid, a key concern for asset managers is to ensure it meets its performance targets. The U.S. industry as a whole suffers from an average 6% underperformance, according to research from kWh Analytics, a solar risk mitigation firm. The level of energy loss is around 1% to 1.5% across 50 GW of utility-scale plants surveyed by aerial inspection specialist Heliolytics.
Underperformance thus appears to be mostly a problem for small systems, with figures from the U.S. Department of Energy suggesting a performance shortfall of up to 8%. In any case, the numbers show a clear trend towards asset owners and managers overestimating the likely performance of their plants, with potentially significant impacts on profitability.
Some of the losses seen by asset managers are recoverable, for example, when due to dust or vegetation shading. This category, which Heliolytics CEO Rob Andrews refers to as ‘scope 1,’ includes issues that can be fixed and can be split again into limiting or binary losses. An example of a limiting loss might be an incorrect tracker alignment, which still allows for some production, while a binary one could be something like an inverter failure, which stops operation altogether.
Because of their all-or-nothing impact on production, binary failures are given priority in remediation efforts. And plant performance strategies generally should first seek to deal with scope 1 items, which can account for 1% to 1.5% energy loss within a project, Andrews says. However, a growing concern as plants get older is non-recoverable performance or ‘scope 2’ losses, such as long-term module degradation or erosion of components.
“These are difficult to address because they are not necessarily going to be things that are going to impact on any one stakeholder’s KPIs in any given year,” Andrews says. “However, these things can have a big impact on the long-term performance of a project.”
Originally posted on Greentech Media. In this #Solar100, Founder and CEO of kWh Analytics Richard Matsui speaks with the Cofounder of Clean Capital Jon Powers.
You know him as Cofounder of CleanCapital. You might not know that he’s also an army veteran, former Federal Chief Sustainability Officer under the Obama Administration, and a multi-hyphenate who’s dedicated his career to public service, renewable energy, and sustainability.
In this Solar100, Jon Powers weighs in on his unique career trajectory, lessons from successful asset management, and the implications of upcoming President-elect Joe Biden’s administration on the future of the solar industry.
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STARTING IN RENEWABLE ENERGY
RICHARD MATSUI: People in the solar industry of course know you as the Cofounder of CleanCapital, and before that, as the Federal Chief Sustainability Officer under the Obama administration. But before that, you studied elementary education and history in college and then served as a Captain in the U.S. army. Can you walk me through how and when you first decided to work in renewables?
JON POWERS: I joined the Army before 9/11, and for many of us in the military, 9/11 was a life-changing experience. I deployed to Iraq with my unit in 2003 and spent fifteen months on the ground. It was over in Iraq that I first began to understand energy and energy security. Like many veterans, I came home with the realization that we need a better path forward in terms of energy.
At the time, I didn’t really think of energy security in the context of climate change and clean energy, so before diving into renewables as a career, I actually stayed in national security. I joined a non-profit working with kids in Baghdad and spent a few years trying to prevent 16 to 25-year-olds from being recruited into extremist groups. It was challenging work—the whole reason we have ISIS today is because of that extremist targeting of children.
Following that experience, I ran for Congress in 2008 up here in Buffalo, New York. I lost that election, but losing was flat out the best thing that has ever happened to me. I ran on a platform of turning the Rust Belt into the ‘Green Belt’, and that got me more interested in clean energy. I went back to school at Johns Hopkins to focus my career on energy security and climate security. It was that work that led me, of course, to the Pentagon, and then to the White House and the Obama Administration.
RICHARD MATSUI: That’s incredible. How do you think your previous work informs what you bring to your Cofounder and President role today?
JON POWERS: I was drawn to the work here at CleanCapital from both a mission standpoint as well as an interest in finance as a tool for social change. That sense of mission that drew me to the military is also what led me to clean energy. I became interested in finance in my work in the government—we were doing over $6 billion in third party renewable finance contracts across federal agencies. Bringing those two things together, we founded CleanCapital with a mission to accelerate the flow of institutional capital into clean energy.
Some of the best lessons I learned in government were not about policy, but about how to lead teams. I learned how to play what I like to call ‘nine-dimensional chess’, which was what you had to do if you wanted the Pentagon to move climate policy forward. Many of those skills are transferrable across environments, such as strategy and team building. Other skills I picked up, like successfully navigating through bureaucracy, are not as necessary in my current work. It’s funny; flipping to working at a startup, sometimes I would look for a process of bureaucracy that didn’t exist. And then the challenge would be instead to find ways to make new processes on the fly.
LESSONS FROM SUCCESSFUL ASSET MANAGEMENT
RICHARD MATSUI: When I think of CleanCapital, I think of a successfully executed rollout of operating C&I portfolios. Is that the right way to think about the business?
JON POWERS: Thomas Byrne, Marc Garrett, and I started CleanCapital with a thesis that there were technology solutions in other verticals like real estate and student loans that we could find and bring into clean energy and clean energy finance. Technology has been at the heart of what we do, in terms of our ability to successfully roll up assets, and our mission was to bring a more efficient cost of capital into the market. Each year we elevated our game in terms of who we partnered with for capital. Capital is so critical for solving the climate crisis—we can and need to get pension funds and other endowments to see clean energy as a desirable, necessary investment opportunity. They talk about it today, but we need to start putting money to work there.
RICHARD MATSUI: It’s an interesting situation where you can very quickly become a victim of your own success. The market has gotten a lot more comfortable with C&I portfolios since you started the business.
JON POWERS: That’s 100% right. But you’ve just got to keep one step ahead, and that’s everything in solar.
RICHARD MATSUI: Absolutely. As a large C&I asset owner, what challenges does your team face with financing or asset management compared to the utility-focused players?
JON POWERS: From an asset management perspective, we pride ourselves on building relationships with our off-takers. A lot of financing firms will keep an arm’s length and pay a third party to intermediate the energy manager for the state university, hospital system, school system, or even Amazon or FedEx. We intentionally build that relationship.
The value that strong relationship brings to us is twofold: one, a strong relationship makes problem solving more efficient. If a problem arises, the off-takers know who we are and can collaborate. Two, we gain more opportunities because off-takers view us as partners. For example, when the off-taker likes the solar asset and wants to add storage or another system, it’s just a conversation in an ongoing relationship.
At our scale, the challenge is keeping up with those relationships when you have hundreds of assets. It will only get more challenging as more and more states begin to accelerate the C&I space.
RICHARD MATSUI: On that note, you’re uniquely experienced in dealing with operating portfolios. Of course, not all of them will perform perfectly. How do you handle that?
JON POWERS: We really focus on front-end diligence to understand any problems. This approach also allows us to highlight some of the B.S. we’re seeing, whether it’s from developers or just simple things like inverters. A system that was built 6 or 7 years ago may have a completely different inverter infrastructure, and you can’t just rip it out and replace it with what’s new to the systems today. Those types of problems are definitely challenging.
We also try to keep it as local as possible. Sometimes that’s an advantage, sometimes it’s a disadvantage. It is an advantage from a cost perspective, but it can also mean a decrease in the leverage you get from only working with large partners. We have some large partners, but we really try to keep it as localized as we can, which can be hard to manage.
RICHARD MATSUI: I can see that. What processes or tools helped you to identify the ‘problem children’ and implement those O&M improvements?
JON POWERS: That’s a good question. Part of what allows us to identify problems is the way we structured our reporting, not just for our investors but internally as well. This enables us to track any problems and push for timely resolutions. But understanding where the asset management team should focus its O&M time is not always obvious. As an industry we still struggle to understand the drivers of underperformance, including weather and modeling assumptions. At CleanCapital, we approach this by leveraging industry data, including kWh Analytics’ STAR Comps product, which helps us identify addressable performance issues and validate our modeling assumptions. Insights from data products like STAR that utilize market data will inevitably be part of the maturation of the sector.
And to be completely candid, another advantage is that we have an outstanding team. Zoe Berkery, who now leads our asset management, was our first employee. When she started at CleanCapital, she didn’t have solar finance experience—her background was working with me at the White House. Asset management is not easy work, and sometimes it requires that we hold the providers’ ‘feet to the fire’. But Zoe’s a real rock star and has built a team under her that does this solutions implementation work in an incredibly efficient way.
PRESIDENT BIDEN AND IMPLICATIONS FOR THE SOLAR INDUSTRY
RICHARD MATSUI: What’s your forecast for what renewable-related policies we’re going to see under the Biden administration? I feel like you have a better sense than most because a number of your former White House colleagues are getting pulled into implementing policy now.
JON POWERS: I’m excited that this is no longer going to be about proving whether technologies like solar or storage work—we know they do. It’s going to be a question of how to accelerate the market.
This next generation of leaders is coming in with an understanding of the fundamentals and history of renewables so that they can take this opportunity to seriously invest in infrastructure and accelerate the energy transition. That background knowledge lends itself to complex problems. For example, they might say, “Hey, the tax credit is good, but the tax equity markets are tight right now. So, is that the right solution or should we approach this with a cash grant?”
The President-elect is putting a very strong team together. You have climate people joining across all the agencies, including the Treasury, the Department of Interior, the Department of Energy, the Environmental Protection Agency, and the White House. So we’re not going to have just one or two offices, but an all-government approach to solve these problems.
And in terms of collaboration, for those of us who are working in the industry, we’re going to need to be champions for our policies. We can’t just hope that things will work out—we need to put in the work, too, and make sure that what we know and care about is incorporated into policy.
RICHARD MATSUI: Certainly. What’s the highest impact way of putting in the work for solar policy?
JON POWERS: I have a policy background, so we try to leverage policy partnerships. We’re members of SEIA, we work with the Clean Energy Council, and we’re in 12 different states and try to find local partners. In many cases, it’s a couple hundred bucks here, a couple hundred bucks there to join these memberships, but you get localized intelligence, you can bring your voice to the table, and you can find ways to partner to have an impact. For example, we partnered with different groups, including Tesla, to push back on net metering.
There is a new sophistication across our industry that really hasn’t existed before. Let’s join forces and put some real money to work. Most teams, especially in solar, don’t have money for their own policy shop, but we can contribute to these industry partnerships.
FUTURE OF THE INDUSTRY
RICHARD MATSUI: Moving forward into 2021, we’re 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; it’s also important because there are a lot of people who work in this industry or want to work in this industry. As a respected solar veteran, happy to have you weigh in.
JON POWERS: I’m glad you’re raising this question. It’s something I’ve been in conversation about as well—both what we can do as an industry, and what CleanCapital can do.
One thing we’ve done to tackle this issue as a company is to create an internal volunteer working group of employees to guide these changes. The turnout for this group has been phenomenal, and they brought forward recommendations on what we as a company can do to increase diversity within our hiring, how to support organizations doing important work in equity and inclusion, and how we can ensure that we’re spending money with companies that share our values.
Management has been impressed with their work, and the fact that this has truly been driven by the broader team. It hasn’t been a top-down initiative.
The group is passionate about diversity, and their recommendations have been well-researched and actionable. For example, we’re going to historically black colleges (HBCUs) to do outreach for our internships, something I would not have thought to do proactively.
Additionally, because many people in the working group have tech backgrounds, they’re trying to apply lessons from that industry as well. Tech of course has also struggled with creating a diverse and equitable workforce, and it’s an opportunity to learn both the positives and the negatives from that space, and bring those lessons into solar.
RICHARD MATSUI: That’s fantastic. Are there people or groups within our industry that you think are modeling the kind of actions we as an industry need to take?
JON POWERS: Individually, Devin Hampton from UtilityAPI has some really awesome leadership on this and has put out a challenge along with the Clean Energy Leadership Institute (CELI) that people should check out. It’s called the Edict Pledge, and CleanCapital and kWh Analytics are, as you know, both member companies. For those who haven’t yet heard of it, it’s a straightforward commitment of what you can do as a company.
From a systemic perspective, when it comes to broader questions of equity, I think climate and environmental justice is a significant theme that we’re going to see more of under this incoming administration. We need to have critical conversations on how we ensure that people with low to moderate income can have access to community solar. This is not a nice to have, but a need to have.
Full article available on pv tech.
“Staying in the US, a study conducted by analytics firm kWh Analytics found what it deemed to be a “troubling reality” in October, revealing that swathes of completed solar farms in the country were underperforming against original projections. From a sample of projects assessed, kWh projected that more than 30% of solar farms had missed their productions targets by more than 10%, even accounting for weather fluctuations. The company had suggested that developers may have been too optimistic when taking into account technology evolution.”
Full report available at the Cleantech 100.
“Out of thousands of innovators from across the globe, kWh Analytics, the market leader in solar risk management, was named a 2021 Global Cleantech 100 Company by Cleantech Group. Delivering solutions that will take us from climate chaos to transformation, the 100 companies on the list represent the private, independent and for-profit companies best positioned to contribute to a moredigitized, de-carbonized and resource-efficient future. This is the 12 th edition of the widely respected annual guide.”
Full article available on Financial Times.
kWh Analytics was referenced in this article:
"Premiums for some US solar plant owners have soared as much as 400 per cent in the past two years, kWh Analytics and Stance Renewable Risk Partners of California wrote last week."
Full Climate Fintech Report available at New Energy Nexus.
“The Solar Revenue Put is a credit enhancement that guarantees the performance of solar assets. It was invented by kWh Analytics, a firm that conducts risk analysis and due diligence on solar project development. Over a 12-year period, kWh aggregated the performance of hundreds of solar projects around the country, resulting in enough data to create an actuarial model and price the risk of consistent solar revenues. With this vast amount of data in hand, they worked with Swiss Re, one of the largest reinsurance firms in the world, to create a product which would guarantee solar revenues regardless of the volatility of energy prices and varying production due to weather fluctuations. “These things take a long time, and the finance community hates new things. But if you can show that risk is mispriced, and offer a product that pencils for the end customer, there is tremendous potential to change how long these projects take,” explains Richard Matsui, CEO of kWh. “The Product improves lender terms by de-risking the asset with an insurance-backed production guarantee for up to 95% ofexpected energy output. This is the tip of the iceberg; there is still untapped opportunity for firms to look at insuring the floor of electricity prices as they drop, or wind resources hedging such as a proxy revenue swap. This space is ripe for additional product creation and innovation.” Investors have long sought assurance that solar power plants will perform as promised. With kWh Analytics and Swiss Re now protecting their investments, stakeholders are better able to deploy the hundreds of billions of dollars that the solar industry requires the coming years.”
Originally posted in Norton Rose Fulbright’s Project Finance NewsWire.
By Jason Kaminsky with kWh Analytics in San Francisco, and Sam Jensen with Stance Renewable Risk Partners in San Anselmo, California
Property and casualty insurance premiums have increased as much as 400% over the last two years in the solar market, and some types of coverage may not be available at any price.
The market for property and casualty insurance for solar projects has been hardening over the past 18 months, which is causing concern for both asset owners and financiers of solar projects.
The insurance market goes through cycles of "soft markets," which typically entail easier underwriting, increased capacity, and more preferential terms, followed by "hard markets" with stricter underwriting, reduced capacity and generally worse terms. The current hardening of the insurance market, coupled with other industry changes, has caused disruption in the project finance markets.
The global insurance markets are hardening across the board, with most types of insurance lines experiencing rate increases as insurers absorb and react to losses that have been increasing in both frequency and severity.
As it relates to renewables, this trend has been especially pronounced given both the rapid growth of the renewable energy sector and the increasing frequency of extreme weather events leading to outsized losses.
The solar property and casualty market was disrupted after a $70 to $80 million hail claim on a Texas-based solar project in late 2019. Additionally, two plants in Rosamond, California and a project in Bakersfield, California had significant wildfire claims during the 2020 wildfire season.
Against this backdrop, renewable energy projects are seeing even steeper cost increases, with underwriters and reinsurers struggling to secure adequate coverage for renewables projects. Some types of coverage may not be available at any price.
As a result of this accumulation of losses, solar asset owners are experiencing a number of challenges from the market.
First, buyers are seeing increased premiums for coverage, with asset owners reporting increases of up to 400% over the past two years.
Second, policies have higher deductibles. During soft market conditions, deductibles under all-risk insurance policies were as low as $10,000 or capped at 2% to 5% of the total claim value for catastrophic perils. Deductibles have now shifted to much higher dollar amounts, and deductibles are now typically 5% of the total asset value for catastrophic perils.
Third, insurers introduced natural catastrophe sublimits for certain losses, namely from severe convective storms, such as hail, tornados and straight-line wind.
Large solar projects and portfolios are having difficulty securing capacity above $20 million for key risks amidst increased solar development in areas such as ERCOT, which face severe convective storm exposure.
Fourth, insurers have introduced more nuanced policy restrictions, such as microcracking exclusions. The vast majority of underwriters insuring solar now implement microcracking restrictions regardless of geographic location. These typically appear as policy amendments that place costs associated with testing for microcracks in solar panels with the insured, as opposed to the insurer. The insured must also demonstrate that more than a certain percentage or amount of individual solar modules have suffered microcracks before the policy will respond.
Fifth, the market is seeing inconsistency among insurers regarding policy terms, including terms associated with microcracking, sublimits, contingent coverages, and deductibles.
These changes in the market are introducing risk into the structuring of solar projects, particularly for projects exposed to hail.
The authors participated in a series of roundtables on this subject with lenders and tax equity investors, and a few consistent themes emerged.
Most tax equity investors and lenders have been asked to waive insurance requirements embedded within their financing documents due to the lack of market availability, as many financing agreements were negotiated during soft market conditions. Investors are beginning to focus on insurance availability as a key underwriting risk prior to the issuance of term sheets. In some instances, lenders require asset owners to provide a guarantee for uninsurable losses. The market is adapting to these changes in real time.
The market conditions have led to a focus on solar risk management, with emerging technologies and certifications that can help mitigate losses from these natural events. Larger developers with more sophisticated risk management programs are more easily able to secure insurance coverage.
Insurers have signaled to asset owners and financiers that insurance may no longer be the main basis for transferring risk, and that traditional risk management, site selection and technology selection must be considered by developers, purchasers and financiers amidst increasingly severe weather patterns.
In 2020, the demand for insurance for asset owners and financiers has exceeded the insurance market supply. In 2021, with a large pipeline of solar assets being developed in natural catastrophic prone areas, it will remain to be seen if balance can be achieved.
Property and casualty insurance, and solar risk management, will be an increased area of focus leading into 2021, especially against the backdrop of a tightening in the tax equity market and a flight toward lower-risk transactions.
Originally posted on Greentech Media. In this #Solar100 interview, Richard Matsui, Founder and CEO of kWh Analytics, speaks with William Demas, Managing Director at Stonepeak Infrastructure Partners.
William Demas didn’t choose to work in renewables—at least, not at first. But, as it’s said: “With great power comes great responsibility.” As one of the earliest analysts in the renewable energy sector, Demas has since taken on the responsibility of helping to push our industry forward, through the 2008 recession and now in the uncertain times of COVID-19 and broader social unrest.
In this interview, Demas discusses his unlikely entry into renewable finance, investment strategies, and a call to action to make our sector more racially equitable.
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FROM A “HAPPENSTANCE” START TO “TURNING IT UP” IN RENEWABLE FINANCE
RICHARD MATSUI: You’ve had a longstanding career in renewable finance. Can you walk me through how you first decided to work in renewables?
WILLIAM DEMAS: To be honest, it was happenstance. I graduated from Harvard in 2005, which was around the time of Facebook and all the big internet IPOs. I had some relevant work experience and decent access to Silicon Valley folks, so I pitched myself as a tech banker—a lowly analyst who was going to bring the Facebook IPO to Lazard. Little did I know that one, an analyst doesn’t get a vote on what to work on, and two, that TMT wasn’t just internet IPOs but also included traditional tech like semiconductors.
The first project I got staffed on at Lazard was led by one of the senior guys that ran the semiconductor business and the telecom business. He had a vision to start the cleantech group at Lazard and said, “Will, I want you to be my analyst and help me put it all together.” At the time I said, “Why? I want to do Facebook IPOs.” But as an analyst I didn’t have a choice, right? I got staffed on that team.
One week later, I became enamored with it and realized it was a huge opportunity. From then on, I’ve been 100% focused on the renewable energy sector. It was a very fortunate happenstance.
Then I got a message from a recruiter about a private equity fund focusing on clean energy and thought, “How many other people out there are looking for a clean energy associate? And how many other people in the world are actually doing this other than me? This is mine.” I also wanted to move back to New York, and almost the day I moved back, I received an offer from Good Energies. At the time, it was the only focused cleantech shop, so it was a pretty incredible opportunity.
I was there for just about two years, through a period of transition. When I joined, it was all good days. Then the recession happened, and Good Energies quickly changed its business plan. Good Energies was backed by a European family that had historically been involved in much less volatile businesses such as retail and real estate, and when they saw the market contract and the valuations go south, they quickly unwound that platform. I was part of a number of people who were unexpectedly asked to leave—I got laid off.
I remember my colleague who delivered the decision to me saying, “We didn’t even know if you cared about renewable energy in particular, Will.” I said to myself, “You have no idea.” I remember that so distinctly. At that moment, I was determined that I’m not leaving this industry. I thought to myself, “I’m going to turn it up.” And that’s what I did.
ENERGY STORAGE: WHO CAPTURES VALUE?
RICHARD MATSUI: Where do you see relative value in the market?
WILLIAM DEMAS: First and foremost, the holy grail in renewables has been contracted returns, and we are very much focused on identifying those opportunities within the sector. However, it is increasingly difficult in North America to find such opportunities. It is harder to find in the current market, but the right network and relationships to secure projects on a bilateral basis is one way we find value.
Additionally, as with any other industry, you have to continue to evolve and look for the next opportunity. I believe we can take the learnings of the successful decarbonization of the power industry to other verticals within infrastructure, and that opportunity is a big reason as to why I am excited to join a platform like Stonepeak which covers all aspects of the sector, and not just renewable power. The entire grid is going to have to be reshaped, industrial processes will need to become sustainable and the way we move around will need to change, and these are opportunities.
RICHARD MATSUI: That’s the perfect segue. In retrospect, the early solar investors look very smart right now. In his Solar100 interview, Jigar talked about riding the wave of cost of capital down for clean infrastructure. Should we expect the exact same trend to occur with storage? Where are the exceptions or nuances?
WILLIAM DEMAS: You can’t think of storage as just a PPA or a traditional revenue contract; you have to think about a structure where you can deliver this really incredibly useful swiss army knife of technology to the utilities for their benefit and have them pay you for it. As the commercial framework for battery storage becomes clearer, utilities will say, “Alright, I’m willing to pay a lot of money for this contract because it’s incredibly valuable because in ten years my grid is going to be awfully difficult to manage.”
Neither traditional solar or wind investors nor the utilities have adjusted to that framework shift. Commercially, people have to get comfortable with the fact that storage is, for the offtaker, the utility, and for the developer, not just a simple PPA. We haven’t yet figured out a product that fully values all the moving parts of electricity generated, the ancillary services, capacity, and deficit, but once we do, or if we manage to get our heads around the multiple value stacks associated with storage and that they may not be able to be monetized simultaneously, these assets will be incredibly valuable. It’s going to take some time, but I think it’s slowly happening.
RICHARD MATSUI: You alluded to a framework and I want to try to play it back to you: When I think about wind and solar, it’s really an exercise in discounted cash flow modeling. When you’re describing how storage is a different mental framework, does it parallel real estate in that each asset should be viewed as a call option? What is the right mental framework here?
WILLIAM DEMAS: You can enter into what is basically a toll agreement with the utility. Like a co-op, they have the right to use the facility when they want to use it and they will pay you a fixed rent every month to have that available. But, when that utility is not calling on that battery, it still has a ton of value for other reasons. You can do energy arbitrage, ancillary services, and monetize that. You can build a battery in Washington and monetize in California. The issue is that those cash flows are not really contracted, maybe it will be in the future, when people understand the value, but right now these are just markets that are traded real-time, real-time ancillary services.
As an infrastructure investor, the struggle is that I’m used to telling my LPs that I’m the best in 20-year contracted cash flows. But number one, if I do that for ancillary services, I’m going to get paid nothing. But it’s valuable, so I need to be able to understand that, even though it’s kind of hard to put that commercial product into a fixed contract because it’s usually unpredictable and very hard to quantify the value at that specific time for the utility. I don’t have the answer, unfortunately, but I think these assets will feel merchant compared to solar. I think people see merchant as such a “four letter word”, that they don’t really take the time to understand the economic value proposition.
Fundamentally, you can either give up all your value to your utility—who will undervalue the asset tremendously--or you can take on an active management strategy and optimize as you go. I’ve seen this play out at Advanced Microgrid Solutions and see this is the foreseeable future of energy storage, versus contracted revenues.
FUTURE OF THE INDUSTRY
RICHARD MATSUI: From now into 2021, we’re going to be asking all the leaders 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 solar veteran, I’d be happy to have you kick us off if you’re game.
WILLIAM DEMAS: Definitely.
RICHARD MATSUI: We’re in a moment of broader public protest and change. One, how does that impact (or not impact) the solar industry? And two, what role should the solar industry be taking in this time?
WILLIAM DEMAS: Those are very relevant questions. I think for me, one of the biggest questions of this current social time is: Why aren’t there more people of color in this industry?
I take some responsibility for being somewhat complicit; I’ve been around the sector for a while and have not spoken about this more. It is a shame that the solar and broader renewable energy sector look largely homogenous when it comes to race.
Part of the problem is that because of circumstances in life, a lot of people of color can’t take much risk. So they end up going into law or into medicine—professions where you can work hard and get a pretty stable job, everyone recognizes what you’re doing, and it’s clear you’re going to be able to be financially independent. There is so much new opportunity in the renewable energy sector, but there’s also been more risk. As a result, it doesn’t attract that disenfranchised talent that other fields like law and medicine attract.
Moving forward, I’m committing myself to establishing a senior network of people of color in the renewable energy sector. First and foremost, I want this to be a resource for one another, but I think it’s also important to show that there are people of color doing this work, and that people who look like you can and are flourishing in this sector. This is not just a ‘flash in the pan’ opportunity, but rather, a stable, very sizable industry in which people of color can build a good career. I think more awareness of that will go a long way.
RICHARD MATSUI: That’s an incisive observation. When you and I started in solar 15 years ago, solar was fundamentally an uncompetitive energy technology. Because the industry became so price competitive so quickly, I have forgotten that the industry was tremendously risky. So of course, what does that industry attract? It attracts people who could take that risk.
Are there people or groups in solar that you think are modeling the kind of actions that the broader industry should be considering?
WILLIAM DEMAS: Over the last few months I have been encouraged by the genuine focus that many people in this industry have had on the issue. However, we have a lot of work to do still. I have been speaking almost daily with people in the industry, including other people of color such as Brandon Martin and Richard Ashby, and we have some concrete initiatives and platforms under planning that we are looking forward to sharing with the broader community soon.
Originally posted on Renewable Energy World.
Our understanding of solar asset performance is changing. kWh Analytics recently published the 2020 Solar Generation Index (“SGI”), an industry-wide validation study, that found operating assets are underperforming by an average of 6.3% as compared to their P50s, on a weather-adjusted basis. Jason Kaminsky, the Chief Operating Officer at kWh Analytics, had the opportunity to discuss these findings and how the industry is adapting with leaders at Arevon, Clean Capital, VDE Americas, and Solargis during this year’s Solar Asset Management North America (SAMNA) virtual conference. Here are three key takeaways from asset managers, owner’s engineers, and weather satellite companies:
1. The “Swinging Pendulum” of Performance Estimates
While the 6.3% underperformance results from the SGI were startling, no one on the panel was surprised. The panelists described maturation of solar coinciding with a gradual shift toward aggressive production assumptions. It was agreed that if you looked at projects five to ten years ago, it was common for them to outperform their production estimates. In contrast, Anand Narayanan, Vice President of Asset Management at Arevon, noted that in today’s competitive landscape with pressure on margins and new modeling complexities, assets are challenged to perform above their P50. He advocates that additional scrutiny of production assumptions is necessary to truly understand performance limitations and the probability of meeting P50 estimates.
When asked to diagnose the reason for this, Brian Grenko, Vice President at VDE Americas, attributed this swing as a gradual change in the assumptions used in technical and financial modeling that results in “death by a thousand cuts.” Grenko summarized it best when he said that today’s P50s represent expectations only “when everything goes as planned.”
2. It’s All About the Data
Data is key to managing solar P50 estimates. In addition to the macro trends identified in reports like the SGI, panelists also discussed the value of site and portfolio-specific data to improve underwriting and diagnose underperformance issues. This starts from understanding the input data to P50 modeling.
Narayanan emphasized the value of leveraging Arevon’s existing operating fleet to support diligence: “As the largest owner of solar assets in California, Arevon has access to generation and weather data to compare performance numbers and underlying assumptions.” This information ensures asset management is comfortable with the underwriting before they manage the asset. Kaminsky added that the kWh Analytics Solar Technology Asset Risk (STAR) Comps reports provide generation and weather data for projects across the country, and these reports are used primarily for asset due diligence and asset management.
Once acquired and operating, the focus shifts to monitoring plant performance and having the right tools to diagnose drivers of underperformance. An all too familiar goose chase in asset management is verifying the impact of weather.
Zoe Berkery, Head of Asset Management at CleanCapital, shared that she’s seen inconsistencies when comparing on-site pyranometer results to a weather file used by the IE at the inception of the project. “On-site pyranometers can be very expensive to upkeep and are sensitive to soiling,” she added, “Which has led the team to explore satellite-based weather options. The updated approach has led to more consistent results across projects and reduces variability.” Giridaran Srinivasan, Business Consultant at Solargis, concurred that ground-based readings suffer from several data quality challenges including “data logging issues, calibration errors, and lack of sensor cleaning.” Kaminsky added that one way to address these challenges is by using satellite data run at scale through production modeling software.
3. The Evolving Role of Asset Management Teams
With growing scrutiny of underwriting accuracy, it is unsurprising that asset management teams are playing a larger role in the project development lifecycle. Narayanan and Berkery both confirmed that their asset management teams are pulled in earlier and earlier to evaluate production assumptions. Narayanan explained that this is driven by his team’s access and understanding of plant data: “We are looking at plants on a daily basis and can identify the factors that have not been modelled properly and make sure those are taken into account in diligence.”
Solar is a maturing asset class with another trillion dollars to put to work over the next six years. As an industry, we have the tools to course correct the systemic miscalculation of solar generation and guide the evolution of solar. A combination of objective market data, analysis with industry benchmarks, and coordinated effort will be paramount to accurately diligence and manage the industry’s growing solar fleet.
Full article available on Solar Builder.
“In large-scale solar, every penny counts, so it helps to stay up to date with every way to achieve better construction efficiencies, cost savings or improved LCOE. Here are some innovations and ideas that caught our eye this month.
STAR Comps to avoid Overcomps
Solar risk management firm kWh Analytics collaborated with 10 of the top 15 solar asset owners on a huge industry-wide energy validation study, the 2020 Solar Generation Index, analyzing over 30 percent of non-residential PV systems in the U.S. On average, systems underperformed their initial estimates by 6.3% on a weather-adjusted basis. Not great! The report concluded that performance estimates are systemically over-estimated. In parallel, kWh Analytics launched Solar Technology Asset Risk (STAR) Comps reports with leading sponsors and asset owners, including New Energy Solar and Captona. These will use industry data to validate solar production estimates on more than 1 GW of solar assets. Equipped with objective data and comparables through STAR, the solar industry can course correct and improve accuracy and certainty of its investment returns.”
Full article available on Reuters.
“Underperformance of solar assets is occurring far more often than expected and cost pressures and widening technology options will increase the challenge, industry experts said.
A recent report by a group of data and measurement specialists has highlighted the impact of solar asset underperformance on returns.
Report leader kWh analytics found P90 production levels are occurring in more than one out of three years, rather than the expected one-in-10 years. P90 production levels reduce equity cash yields by 50%, it said. The study covered 20% of the US operational fleet.
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Originally posted on Solar Builder.
Every mature asset class requires market data to improve the accuracy and certainty of investment returns, and solar is getting there, but still needs work. To address this need, solar risk management firm kWh Analytics announced two new initiatives. First, it collaborated with 10 of the top 15 solar asset owners on the “2020 Solar Generation Index” (SGI), the largest industry-wide energy validation study. The report analyzed over 30% of the market’s non-residential systems in the U.S. and found that on average, systems underperformed their initial estimates by 6.3% on a weather-adjusted basis. The report concluded that performance estimates are systemically over-estimated and that assets are often not yielding the expected returns.
“Although underperformance impacts multiple stakeholders, the long-term equity investors are the most exposed to inaccurate energy forecasts. Change won’t happen on its own. It is up to us as an industry to collectively allow hard data to overcome opinions, however well-intended,” said kWh Analytics CEO and Founder Richard Matsui. “We look forward to the shared work of improving our solar industry and accelerating the clean energy transition.”
In parallel, it issued the industry’s first Solar Technology Asset Risk (STAR) Comps reports with leading sponsors and asset owners, including New Energy Solar and Captona, to use industry data to validate solar production estimates on more than 1 GW of solar assets.
The STAR Comps reports are meant to provide an objective standard to assess solar performance for solar asset investors. STAR Comps leverages the industry’s largest database of solar performance to validate or invalidate performance estimates and loss assumptions for similarly designed systems. The STAR Comps report supports deal teams by improving efficiency and accuracy of asset diligence for projects under construction or under consideration for M&A. It also provides asset managers with context on asset performance to identify addressable versus exogenous performance issues.
“The STAR products are an innovative set of tools that combine analytics and industry data to offer unique insight into our systems’ performance. Our asset management team can now validate and contextualize what we see in the field with industry metrics and more accurate weather analytics to inform our O&M strategies,” said Paul Whitacre, Director of Asset Management at New Energy Solar Manager.
Equipped with objective data and comparables through STAR, the solar industry can course correct and improve accuracy and certainty of its investment returns.
“kWh Analytics has data on production results that were previously ‘best guess’ estimates. It was only a matter of time that we began using market data to validate those numbers,” said Captona Founder and Partner Izzet Bensusan. “The STAR Comps product helps bridge the gap between the Independent Engineer reports and actual performance of projects and provides insight into what we can expect as the future owner and operator of a project.”
Originally posted on BusinessWire. Additional coverage in North American Clean Energy and InsurTech News.
SAN FRANCISCO – kWh Analytics, the market leader in solar risk management, today announced that it structured a Solar Revenue Put for a portfolio of 4,000 projects totaling approximately 33 MW DC of capacity located in the Northeast, Florida and California. The IGS Solar portfolio is being funded by a private equity Power and Infrastructure group headquartered in Los Angeles, CA . Back-leverage is being provided by ING Capital LLC (“ING”), a US- based financial services company. Swiss Re Corporate Solutions, a leading global corporate insurer, is providing capacity for the Solar Revenue Put.
The Solar Revenue Put supported a financing with IGS Solar (a division of IGS Energy), ING and others in November 2018 for a 30 MW portfolio of 4,000 projects located in the Northeast U.S., and again for another financing with IGS Solar, ING, and others in April 2020 for a 30 MW portfolio of 4,000 projects.
The Solar Revenue Put is structured as an insurance policy on solar production and PPA revenues, which serves as a credit enhancement for financial investors. Using its proprietary actuarial model and risk management software (“HelioStats”), kWh Analytics developed the Solar Revenue Put to drive down investment risk and encourage development of clean, low-cost solar energy.
“We have again found efficient and reliable execution with our partners, ING, and kWh Analytics,” says Mike Gatt, Chief Operating Officer of Distributed Generation at IGS Energy. “kWh Analytics has proven out a reliable and timely claims process for the Solar Revenue Put, enabling cashflow certainty. We value the equity yield protection offered by the Solar Revenue Put.”
“IGS Energy is committed to building a sustainable energy future for a healthier planet, and this partnership continues to support our goal of being a completely carbon-neutral energy company by 2040.
“We are pleased to have the Solar Revenue Put as credit support for this third financing for IGS Solar,” says Scott Hancock, Director in the Power & Renewables team at ING in New York. “The framework was established with the initial financing with the intention that it could be easily replicated for future financings with IGS Solar.”
Across the industry, portfolios supported by the Solar Revenue Put are securing debt sizing increases of 10% on average. The Solar Revenue Put has been structured on over $1 billion of solar assets, and a survey of the solar industry’s most active lenders indicates that more than 50% of active lenders value the Solar Revenue Put as a credit enhancement. The Solar Revenue Put has been incorporated into both new build financing and refinancing of all types of solar projects, including utility scale, residential, community solar, and commercial and industrial.
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Learn More about us: kwhanalytics.com & kwhanalytics.com/SolarRevenuePut
kWh Media Contact:
Sarah Matsui
IGS Energy Media Contact:
David Gilligan
614.659.5422 (o) | 614.787.6094 (m)
About the Solar Revenue Put
The Solar Revenue Put is a credit enhancement that guarantees up to 95% of a solar project’s expected energy output. kWh Analytics’ wholly-owned brokerage subsidiary places the policy with risk capacity rated investment-grade by Standard and Poor’s. As an ‘all-risk’ policy, the Solar Revenue Put protects against shortfalls in irradiance, panel failure, inverter failure, snow, and other system design flaws. The Solar Revenue Put provides comprehensive coverage that banks rely upon, enabling financial institutions to more easily finance solar projects on terms more favorable to the sponsor.
About kWh Analytics
kWh Analytics is the market leader in solar risk management. By leveraging the most comprehensive performance database of solar projects in the United States (20% of the U.S. market) and the strength of the global insurance markets, kWh Analytics’ customers are able to minimize risk and increase equity returns of their projects or portfolios. kWh Analytics also provides HelioStats risk management software to leading project finance investors in the solar market. kWh Analytics is backed by private venture capital and the US Department of Energy.
About IGS Solar
IGS Solar, a turn-key commercial and residential solar developer with significant solar assets deployed and under management, provides businesses, homes, and communities with an opportunity to participate in creating a sustainable energy future. As an division of IGS Energy, IGS Solar is dedicated to delivering innovative solar energy solutions. For more information, visit IGS.com or connect with IGS Solar at linkedin.com/company/igs-solar.
About IGS Energy
IGS Energy is a private energy company that believes it’s both capable and obligated to fight climate change and to promote sustainability and energy independence. The company serves more than 1 million homes and businesses nationwide, offering sustainable technologies and services, including 100% renewable electricity, carbon-neutral natural gas, solar energy systems, and other energy-efficiency products.
IGS Energy empowers consumers to source and manage their energy and protect their homes’ appliances and utility lines.
The company is committed to a sustainable energy future for a healthier planet. The belief in Conscious Capitalism and a purpose beyond profit prioritizes the needs of IGS Energy’s customers, employees and the planet. For more information visit www.igs.com.
About ING Capital LLC
ING Capital LLC is a financial services firm offering a full array of wholesale financial lending products and advisory services to its corporate and institutional clients. ING Capital LLC is an indirect U.S. subsidiary of ING Bank NV, part of ING Groep NV (NYSE: ING), a global financial institution with a strong European base. The purpose of ING is empowering people to stay a step ahead in life and in business. ING’s more than 53,000 employees offer retail and wholesale banking services to customers in over 40 countries. Please note that neither ING Groep NV nor ING Bank NV have a banking license in the U.S. and are therefore not permitted to conduct banking activities in the U.S.
About Swiss Re Corporate Solutions
Swiss Re Corporate Solutions provides risk transfer solutions to large and mid-sized corporationsaround the world. Its innovative, highly customised products and standard insurance covers helpto make businesses more resilient, while its industry-leading claims service provides additionalpeace of mind. Swiss Re Corporate Solutions serves clients from offices worldwide and isbacked by the financial strength of the Swiss Re Group. Visit corporatesolutions.swissre.com orfollow us on linkedin.com/company/swiss-re-corporate-solutions and Twitter @SwissRe_CS.
Originally posted in Norton Rose Fulbright’s Project Finance Newswire.
The solar industry has anecdotally begun raising concerns about whether solar power plants are underperforming compared to their P50 output forecasts.
What began as hushed conversations at industry conferences is now widely discussed and analyzed. Individual engineering firms and asset owners are beginning to review their portfolios to assess whether or not their original P50 forecasts were accurate.
DNV GL published a piece in the annual “Solar Risk Assessment” report identifying a 3% to 5% overestimation bias in P50 forecasts, even after adjusting for weather. NextEra published a technical discovery around biases in hourly-resolution energy predictions that overestimate solar resource availability. Behind closed doors, asset owners will also acknowledge struggles to hit P50 figures as consistently as the definition attributes.
Under a P50 forecast, a project is supposed to have a 50% chance of performing at least as forecast. This figure is the base case for the project and is generally the most optimistic projection used in financings. Financiers also run sensitivities by looking at other forecasts — for example, P99 and P90 — as well. A project should have a 99% chance of performing at least at the P99 forecast, if not better.
Generating a production estimate integrates weather forecasting and equipment performance expectations into complex physics models. As with any technical model, results vary based on the assumptions used.
kWh Analytics collaborated with 10 of the top 15 asset owners in the United States to conduct the industry’s largest cross-sectional energy validation study, quantifying the accuracy — or inaccuracy — of solar projects’ P50 estimate. We looked at data from 30% of the operating utility-scale and distributed solar capacity. The results are reported in an inaugural “2020 Solar Generation Index” report.
Projects on average underperformed by 6.3%, even after adjusting for weather.
This means that actual performance of the US solar fleet is closer to P90 expectations than the P50 definition used by project stakeholders.
It is important to note that while 6.3% underperformance is the average, there is a wide distribution that highlights significant variability among projects. In the bottom quartile, projects are falling more than 10% below forecast while the top quartile performers are meeting their P50 expectations. As a result, we can see that each project is indeed unique, even if the general trend points towards a 6.3% bias.
The issue of energy estimation is not unique to solar. The wind industry similarly struggled to align lenders, owners and operators on expectations around energy output and is still developing tools to address accuracy and biases.
If unaddressed for solar, systemic asset underperformance can have serious implications for the equity holder cash flows, investor returns and the long-term financeability and credibility of solar as an asset class.
The impacts are discernible from day 1 of operation.
For an equity investor or sponsor who sits last in line behind the tax equity and debt, P90 performance realities mean equity cash yields are cut in half for the life of the asset. For lenders, given the prevalence of P90 scenarios, underproduction poses a risk to debt coverage.
As a risk management company that enables insurers to provide all-risk production coverage to solar assets, kWh Analytics is also observing this trend firsthand through claims against a “solar revenue put” product that actual output will be at least at a guaranteed level. (For more information about solar revenue puts, see “New product: solar revenue puts” in the October 2016 NewsWire.)
To date, insurers have continued to pay all claims in full within 30 days and remain committed to providing sponsors with credit-enhancing insurance products.
However, if unaddressed, inaccurate production estimates and return uncertainty will have long-term consequences for the solar industry.
Every major asset class leverages market data to improve the accuracy and certainty of investment returns. If we look at other mature asset classes like consumer credit or mortgages, companies like Experian and CoreLogic exist to provide market data to validate asset performance and modeling assumptions for investors. Solar is at an inflection point now where we have more than a decade of asset performance data that can be leveraged to inform diligence and improve operating assumptions.
kWh Analytics is using its industry database to offer objective market comparables to evaluate expected yield and performance estimates for pre-construction and operating plants. This new offering, the Solar Technology Asset Risk (STAR) Comparables Report, equips deal teams with historic performance of similar plants to help evaluate performance and financial risk of their projects. In addition, it has helped asset management teams contextualize their portfolio’s performance against projects in the field to improve O&M and asset management strategies.
The solar industry has generated the data required to improve the forecasts. The next step is to leverage that data in investment decisions.