This is your SolarWakeup for January 29th, 2019
Inside The Board Room. When a $50billion corporation goes down to $5billion and that corporation has captured customers through a monopoly, there are billionaires that chomp at the bit to get involved. Read the tick tock on the funds that are trying to get in and get out without catching the falling knife (and get stuck in a regulatory change of heart). This comes while one hedge fund is arguing hard against the bankruptcy filing even as the CPUC approved the $6billion DIP finance plan late yesterday and a PG&E spokesperson confirmed to ABC that the company still intends to file for chapter 11 on or about today, the 29th.
Exhibit A. Just in case you were wondering who is missing in the above conversation, it is the consumer. This shows the need for Governor Newsom to protect Californians from letting the financial interests be the sole driver of the process. Like it or not, this remains a political problem for Newsom and every other Governor that has an IOU in their State.
Auto OEMs Need New Blood. I understand that the Cadillac Chief Marketing Officer needs to say that they are committed to both EV and ICE cars in the future. But they know, I hope, that the future is all EV except for non-standard use cases. The CMO should be secure enough to tell the story of the vision and excite consumers about the electric Cadillac Escalade.
EIA Needs To Wake Up. EIA is out with a report about electric cars that says internal combustion will be the dominant vehicle mid-century. I am sure that EIA serves an important function but the estimating of future uses of electric vehicles is way off base for them. More importantly, how can they accurately forecast energy consumption if they view the future where transportation is still dominated by oil powered vehicles, not self driving electric drones?
Good Points. On the topic of environmental justice and why we need more Patagonias. Both worth a read this morning.
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Yann
This is your SolarWakeup for January 28th, 2019
PG&E Monday Update. Late last week, PG&E was cleared from last year’s Tubb Fire by Cal Fire’s investigation. This should clear much of the potential financial liability and is the reason behind the bump in the stock price. Note that much of the buying of the stock is by short term investors looking for the volatility, not the usual institutional investors seeking stable returns typical in utilities. Almost two weeks ago, PG&E notified the State that it would file for chapter 11 on the 29th of January. Whether this still happens is up in the air. Here’s a sidenote, this is a symptom of the monopoly utility model problem. IOUs were given monopolies by the States to access low cost private capital. If the IOU relies on their credit rating to provide a service to consumers, an IOU with junk credit isn’t deserving of the monopoly. For another option to utility business model, listen to my conversation with the CEO of Connexus Energy, a cooperative utility where the shareholder is the customer.
The Joint Jurisdiction. Prior to the chapter 11 filing, NextEra asked FERC to get involved in case that PG&E were to try and cancel contracts with power producers, solar included. FERC responded by saying that those contracts are under the joint jurisdiction with the bankruptcy court. This bankruptcy isn’t a standard financial and legal because of the regulatory oversight at every level, keep that in mind when you read the headlines.
Newsom’s Next Move? Newsom should look towards FERC as the precedent for increasing his seat at the table. I realize that this is a political problem that was not planned for (or warranted some might say) and may be an issue that his administration would rather leave in the bankruptcy courts and at the CPUC. However, with the future of decarbonization in play, a worried set of labor unions and lives at stake, Newsom can still appoint a special cabinet position to ensure that the State of California and the consumers have a say in the process. Who will brief the governor and the legislature about the internal process? Who will ensure that consumers don’t get the short end of the stick? This week I will outline how I see this playing out, not just for PG&E but every integrated IOU in the Country.
If You Know Robo. You know that the following statement, said during the NextEra earnings call, would have gotten you banned from the executive building if said out loud just ten years ago. But this is a direct quote from NEE CEO Jim Robo, “We continue to believe that this [solar plus storage} will be massively disruptive to the nations generation fleet and create significant opportunities for renewable growth well into the next decade.”
Thank You Solar and Senator Reid. The US is exporting oil, which is solely due to the removal of the oil export embargo. And for that, you have to thank Senator Reid and solar because that was the trade for the ITC extension.
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Yann
This is your SolarWakeup for January 25th, 2019
Back For More Solar News Monday. Have a great weekend!
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Yann
This is your SolarWakeup for January 24th, 2019
Sunedison! Sunedison is back on the New York Times pages with a story about fees paid to McKinsey in relation to the restructuring at the end of the corporation’s life. Reading between the lines it looks like a bit of PR battling by the solar restructuring firms and I wouldn’t be surprised if shareholders and debt holders were taken for a bit of a ride.
Finance Woes? The US is going to build around 10GW this year and there will continue to be more capital than solar projects. A balance between finding the deals and paying the right price goes agains the need to deploy capital and at times that means making deals work just to get money out the door. Moreover, the PG&E situation and lack of some long term contracts will increase the cost of debt and equity in the solar space as developers look for capital to take bigger risks. The solar market will remain hot and projects will get done but at this very moment the cost of capital will bend the wrong direction, momentarily.
Pipeline Wins Again. Cubico is a renewable IPP that is part bankers and backed by tremendous pension fund capital. The mandate was to deploy hundreds of millions per year and get good return in stable investments and Cubico looks to have found that in the Cypress Creek pipeline.
Save Us. A new poll is out with interesting data on Americans support for a carbon tax. 44% of the respondents said they support the tax/dividend. While the group of economists that are supporting the initiative are looking for the tax to be returned to taxpayers as a refund, most Americans prefer the money to be used to fund initiatives that invest in nature and eco-restoration. Second in line comes renewable energy R&D at 59%.
Water Plays. Is there a point when water consumption comes in play for power players and gas drilling? If so, when and where is it most likely to create a regulatory barrier for market participants?
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Yann
This is your SolarWakeup for January 23rd, 2019
Powerhouse Ventures. A great day for solar startups. Powerhouse, the incubator we all know and love, is out with a venture fund. CEO, Emily Kirsch, teased the venture at the Powerhouse fundraising event months ago but now the news is official. The startup fund will invest in 30+ startups over the next 5 years and has some notable names as investors. It has already invested in several startups to get itself started on the right path. Congrats to all involved.
Making Bank On Climate Change. At first look, the headline would appeal to those of us in the solar space. With further investigation it seems that corporations are finding ways to make money from the impact of climate change, not to alleviate the ongoing climate crisis. One company (Merck) even said, “As the climate changes, there will be expanded markets for products for tropical and weather related diseases including waterborne illness.” For solar it continues to mean the need for capital at all stages and the appetite to own long term operational assets with long term contracts and those operating on trading platforms.
Safe Solar. Congrats to Conti Solar and many of the other solar installers that had a wonderful and safe 2018. I am continuously amazed at the work this industry can create while also providing a safe and enjoyable work experience (muddy/rainy days aside). I have rarely been at a solar farm or on a home when installers weren’t enjoying the work they were doing which makes me feel great about the industry that we are in.
New Mexico Community Solar. New Mexico is trying to jump on the community solar bandwagon. With a new bill filed, HB210, NM could create the opportunity for solar to be a reality for those that either rent or live in a home that isn’t an ideal candidate for solar. “It’s time for all New Mexicans to have access to the benefits of our solar,” said Art Terrazas, Interior West Director at Vote Solar. “Community solar means that all New Mexico families and tribes, regardless of income or any other factors, can save money from our state’s plentiful sunshine.” Let’s see that Facebook comes aboard the policy push and help get it passed.
Boston Wakeup. You can now get your tickets to SolarWakeup Live! Boston which is our first repeat city in the series. If you’ve been to a recent event, please come again. With SMART in full effect, we will have the top investors in the room with term sheets in hand. The deals and money will be flowing and so will the news. As always, you will get the most relevant update to the market regulations. If you want to sponsor or have a great idea for a speaker, reach out by hitting reply to this email.
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Yann
This is your SolarWakeup for January 22nd, 2019
Utility Model, Your Questions. Some of you have posed the question why PG&E should be liable for the wildfires given that they are natural disasters. Shouldn’t PG&E be held harmless for something that is out of their control? This is a reasonable question and one that I’ve been looking for an answer to. One answer is proposed on the Vox ‘Today Explained’ podcast that aired last week. If PG&E is allowed to rate base the cost of the infrastructure and has the responsibility to keep those wires free of debris and in top order, receiving additional rate base for that maintenance, should PG&E therefore be held to the standard of having performed the work that they claimed to be doing? If PG&E had felt that wires were unsafe and required additional work such as tree clearing, modernization or even under grounding, why didn’t the company with the expertise request the capital in order to alleviate the concern? You can credit Voltaire or Uncle Ben but the truth is that “with great power comes great responsibility.” It is now up to the regulators to decide what type of responsibility that is.
Ford Follows SolarWakeup Advice. This may be the most important headline for the next decade because an electric F150, that performs as you would want an electric F150 to perform, will create a mass consumer shift from fossil based transportation to EVs. Ford sold 910,000 F-series trucks in 2018 and I would absolutely trade my EV in for an electric F-150 so I can only hope for the execution to happen fast and properly. More importantly, Ford needs to make sure that the look and comfort of the truck stays the same while creating an electric incubator within their dealerships. No salesperson of the traditional ICE vehicles should overlap with the electric drive sales process, it should be a competition that allows the market to decide without sales incentives getting in the way. For solar and utilities, this means understanding that the next decade is about electrifying everything and I know from speaking with utility execs that they very much welcome the news from Detroit.
Catching Up With Kelcy Pegler. Ever wonder what it’s like to build a business to 500 employees, selling it and growing it to 2,500? Or what it’s like to make Bill Walton the greatest solar spokesperson in the history of the world? If those two questions were keeping you up at night, you should definitely listen to my conversation with Kelcy Pegler Jr. the former CEO of NRG Home Solar.
Good Old Fashioned Global Warming…
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Yann
This is your SolarWakeup for January 17th, 2019
109GW. 2018 is going to surpass the 100GW mark and boost its size to 109GW according to BNEF. While the headline shows reduced investments, the headline’s negative connotation actually is a positive. More solar and lower costs means a better deal for more consumers. There is still a lot of extraneous cost in the system that can be reduced by eliminating senseless tariffs and faster installs through instant permitting initiatives.
$60Billion. A new report is estimating the growth of the Li-On market to reach $60billion in 2024. A combination of drastic cost reductions, BNEF already sees costs under $200/kWh, and increased demand by renewable generators and EVs should make this estimate reality. Look for pricing of energy storage to follow a cost curve in line with the market growth but in the opposite direction.
Cuomo Trying Catchup. Governor Cuomo in New York is trying his best to make renewable energy and climate change mitigation a reality in the State he leads. While the headlines are there, the execution is still lacking and implementation has been slow. This may be due to the diverse energy markets in New York, ranging from Watertown to Manhattan, or the incumbent regulatory/utility environment that halts changes to the status quo.
Carbon Dividends. All living former Federal Reserve Chairs, 30 Noble winning economists and others in this class of DC economy circles have come out in support of a carbon dividend policy as a policy to replace other, less effective, carbon regulations. Trent Lott is lobbying on the effort.
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Yann
This is your SolarWakeup for January 16th, 2019
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Yann
This is your SolarWakeup for January 15th, 2019
PG&E Will File For Bankruptcy. PG&E announced yesterday, behind a wall of barricades, that it would file for chapter 11 protection by the end of the month. In terms of process, the advance notice was required per the legislation that passed last year during the bailout. You can expect PG&E to seek DIP (debtor in possession) financing over the next few weeks and the stock price and corporate bonds to crater. Just yesterday the stock price was down 50%, leaving the company’s valuation under $5billion. PG&E needs a new leader that is more of a restructuring officer than a traditional CEO, but more importantly the customers need a representative at the table on a daily basis as well. While PG&E is a private utility, and this fact is true for most IOUs around the Country, they serve the public as a monopoly under regulator oversight. In bankruptcy and matters that impact the health of the public, like this one, Governor Newsom should appoint a consumer advocate to oversee the restructuring and make recommendations to the Governor, legislature and the CPUC. I don’t know if there is a legal precedent for this but the consumers need to know that the next steps are not simply for the benefit of the DIP lenders or shareholders but the greater good as well.
Does Anything Change, Yet? The short answer is no, not yet. I do expect to see the impact stop some financings in the short term while investment committees try to understand the credit scenarios going forward. My hope is that the CCAs come to Sacramento with a legislative support proposal to back the CCA counterparty risk while also fixing the community solar rules in California. Community solar allows the off taker to be changed in a default scenario, which by definition will always be a partial default of the solar asset since many off takers are sitting side by side. Now is the time for industry to put forth strong proposals and show that clean energy including solar is ready to lead California forward.
My Proposal. I mentioned yesterday that I was asked by a legislator what I would do if I were in a situation to write one rule for solar. My answer was to lock in uncapped net metering away at retail rates without time of use restrictions. If the future of includes one or more EVs in every driveway and monopolies serving as wire companies, then distributed energy needs a simple and efficient way to do its part, which will be a necessary component of 100% renewable energy. Other States have this rule written and should be preserved. Those that do not need to take the leverage provided by monopolies looking for a handout to get back to where we came from.
Crossing the EV Chasm. EVs need mass market SUVs and pickup trucks to really make a dent in american transportation numbers. Like I said last week, An electric Ford Explorer or Chevy pickup would change the game and that can’t happen fast enough.
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Yann
This is your SolarWakeup for January 14th, 2019
PG&E CEO Leaves, Notices Coming? Geisha Williams, CEO of PG&E, has stepped down after running the company for less than 2 years. This comes amid speculation that PG&E will be providing notice of potential bankruptcy filing to the employees as required by the legislative bailout that passed the State legislature last year. The company is looking for a new CEO but from my perspective this is all about dumping the problem on Sacramento. Yes, the company doesn’t have $30billion in capital to pay for potential liabilities but I don’t see why today or next week the problem needs to be solved. PG&E as a monopoly is looking for the CPUC, State Legislature and Governor Newsom to make their move and show their hands.
What Happens Next? Wall Street is selling the news, see the chart below that shows the 60% declines in a few months, erasing billions of market value. PG&E will get out of this but the question is what opportunity is presented to consumers, including myself, about the type of company that PG&E can become. PG&E is private but it’s a monopoly. Newsom has the ability to fast-track his climate vision including transportation, solar and more, right now. I know who the next CEO should be, a CEO that believes that the future of PG&E is entirely clean and provides a service, not a hindrance, to all clean energy assets both distributed and centralized. I’ll be watching, eagerly, to see what happens next.
Solar Impacts. In the short term, expect solar to push hard for bailouts on the solar PPAs that lock in the solar capex from 5-10 years ago. PPA rates in the double digits but those projects are already paid for and bondholders bought into that pro forma. There are gigawatts of solar projects with PG&E as the off taker and solar can’t afford to show this downside scenario which would result in a capital markets tax for all other solar projects.
King For A Day. A legislator asked me last week what is the one thing that I would change if I were the Governor of a State and could pass a rule unilaterally. It was an obvious but interesting question, a question that we should probably all have answers for. What is your answer? You’ll get mine tomorrow.
Social Equality In Solar Lacking. Tufts is out with a study on the access and adoption of solar by socio-economic standings including race and ethnicity. There is a lot of data there and I hope you will find a time to read it. This is in line with the speakers’ messages at the Vote Solar Equinox event in DC.
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Yann