This is your SolarWakeup for June 4th, 2021
New Spending, No Tax Increase. Biden and Senate republicans are going back and forth on the infrastructure bill which will be massively popular with voters. Biden looks to give in on tax hikes as long as republicans agree with $1trillion of new spending. Senate dems are putting up a 10-day shot clock before making their case for doing it by reconciliation. Solar advocates say that ITC extension looks solid but issues around labor and domestic content remain, though outcomes appear workable.
Climate Warning Signs. Two independent transactions with high-profile names are getting into climate event prediction and analytics. I guess knowing that your house will flood before it floods can be considered a valuable data point. This also marks TPG’s Rise Fund’s first major investment announced since former Treasury secretary Hank Paulson joined the fund as executive chairman.
AB 1139 Defeated. This was a bad bill doing bad things that are completely counter to the market and climate goals in California. Moreover, legislation that undermines existing market rules would create a new risk analysis in solar that would have impacted all parts of the ecosystem. Led by CALSSA and it’s 600+ members plus allies, advocates came out and maneuvered the opposition to victory.
Talk About Capital. I’ll ask this on a high level with a promise to talk more about it with you in the near future. Solar and wind investors look for stable returns on contracted cash flow with conservative assumptions for tail revenue post contact term. Energy storage can play a role for solar+ contracts but what capital pool will be an investor in the merchant storage assets and how will a stand alone storage ITC get a tax equity deal done? Same pool of capital but higher hurdle rates or different capital all together?
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Yann
This is your SolarWakeup for June 3rd, 2021
Behind The Scenes. In this newsletter and my interactions with reporters in my professional capacity, I try to give a real account of what I am thinking and how I view the market opportunity. Part of joining FlexGen was being part of a team with Kelcy Pegler and joining a team at FlexGen that has been leading the energy storage market with expertise for over a decade. On the other hand, I was concerned about the timing of energy storage in the overall energy transition. I knew that storage was a crucial element of the transition but joining FlexGen was a decision made before the Texas freeze event which cemented the variables that influenced my decision and confirmed that the decision was a good one. My conversation with Andy Colthorpe from Energy Storage News gives you a view of how we view the market and the opportunities for everyone reading this to start adding storage to their pipeline right now too.
Exxon Loses Another Seat. Exxon vote tallies show that Engine No.1 has another director joining the board. Andy Karsner should be well known to some of you, at one point during the Bush years, Karsner was the highest-ranked Moroccan American in the US government, interesting mostly to me since my family stems from Morocco as well. Karsner most recently spent time at Emerson Collective and comes with a technology view on solving for climate change. As a former wind developer, Karsner was early in building his renewable credentials which will hopefully enable Exxon to see the energy transition as an opportunity not a threat to their business model.
The Big Freeze Inflection. It is becoming clear that winter storm Uri that hit Texas in February of this year is going to be an inflection point for the energy market. The value of winterization, threat of losing frequency on the grid, and realistic event of having to black start generation are all entering analysis in a way that was always viewed as too nuanced before the storm.
PJM Results. The results came in and capacity pricing came in light, some pointing to the lower reserve margins as the leading cause. Coal cleared 8GW less than the last auction and some plants are threatening to shut down due to the low pricing.
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Yann
This is your SolarWakeup for June 2nd, 2021
PJM Auction Results. With the PJM capacity auction results coming this week, expect headlines countering a renewables trend. Under the MOPR developed by the Trump administration, gas and some coal plants are expected to clear the auction and gain another round of survival. This is a policy driven result that does not mean anything for the future of renewables both from a cost or regulatory perspective. As you read the headlines, make sure you counter the argument that baseload is a real thing. In reality, we are transitioning to a power market that will value all parts of energy generation, transmission and regulation at a much more granular level which provides real value to energy storage assets in a power market (PJM) where storage has yet to really gain traction. Stay tuned…
Bus and Fleet Market. BYD and Proterra are the EV buses that you all know and more are coming. There will be no shortage of manufacturers that either OEM their own or use 3rd party technology, commercial fleets and buses will electrify. The opportunity is going to be segmented in two additional follow ons besides selling and servicing the hardware. First and more interestingly is the 3rd party ownership of those fleets, especially as it comes to transit groups and schools districts. If I weren’t fully involved at FlexGen with energy storage already, I’d be looking to finance electric school bus fleets. Taking the capital cost away from cash strapped school districts and financing them like we did with solar is a great capital deployment opportunity. Second is the contract to provide the electricity that the buses need, a fuel contract that is likely driven to actually be a renewable electricity contract as districts look to reach their environmental goals.
Distributed Congestion. There is another aspect to fleet electrification. Whether it’s a fleet of buses or delivery vans, they tend to drive a predictable route during the day and sit dormant at night. This means that fleets will have to charge in a small window of time, at the same time. By creating a new local peak for energy and capacity, the cost curve of the local market could react, actually creating an inconvenient supply and demand situation. Depending on the node, a large enough peak, charging a high power rates (like buses do) could create congestion pricing that is also not currently happening. In every problem lies an opportunity especially for the financier of the fleets, to control the energy contract and add a grid damper in the form of energy storage at the fleet charging location. By being a market maker and not a price taker (my coined phrase highlighting the value of storage), the fleet location could become a dynamic source of congestion or relief depending on how the asset is utilized, potentially creating additional arbitrage revenue opportunity for the finance company/asset owner. All of this backed by the school district cash flow on the bus financing, neatly packaged in an investment grade contract.
Buying Pipelines. Oil majors versus utilities, basically corporate giants that have 50 years corporate bond capital at sub 2% cost, are coming for the generation. That generation is being acquired earlier from developers, like BP acquiring 9GW pipeline from 7X Energy and putting it through their Lightsource platform. Pipelines are the valuation of opportunities that have real estate (or options), interconnections (or application/queue positions) and revenue streams (or power market pricing). The majors, as we outlined a few weeks ago, are well positioned to, potentially better than most utilities, to maximize the revenue streams from these pipelines. They are already managing the book of contracts for many retail energy providers plus getting into retail energy themselves (like BP did a few weeks ago). And if you remember what I wrote at that time, I highlighted the need to be offering retail energy contracts to fleets that are electrifying so they don’t lose the revenue stream when those fleets go from fuel to energy. This entire day of news is connected, and interconnects serviced by energy storage are the glue that hold the thesis together.
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Yann
This is your SolarWakeup for June 1st, 2021
All Roads To West Virginia. The White House is working with Senator Manchin to drive a bipartisan option for the infrastructure bill which is currently gapped by some $700billion between the two sides. To get the reach to the other side of the aisle, Biden’s team is working with Senator Capito from WV and her group of Senators to find ways to make the bill approvable from their perspective. The two sides are talking and while there is public disagreement about where things stand, both Capito and Buttigieg seem to be indicating optimistic potential to find a road forward.
The Undertones. West Virginia needs the economic uplift that the infrastructure bill provides. In a world where coal has been driven out by capitalism, West Virginia is ready, willing and able to provide the support America needs for physical infrastructure and adopting climate change solutions. I note that the state legislature in WV recently approved solar leases and while WV is very red, it is also very unionized for labor and overlaps with the goals of the infrastructure bill. There are also billions in allocations for coal mine decommissioning and local infrastructure work that Manchin and Capito would like to bring home.
Taxes. You haven’t head a lot about the infrastructure bill adding to the deficit. Infrastructure spending is very popular on both sides of the electorate and Biden had proposed a $2.2trillion bill that was fully funded by recouping half of the tax cuts passed in the previous administration. The GOP is going to trade the tax rate increases for a smaller infrastructure bill using deficit spending instead of increasing the tax rate and nobody wants the public to really know that everyone in DC loves deficit spending when it creates revenue for every congressional district in America.
A Map Of Need. The NYT has a nice visualization of where in America we need to built more solar and wind. You’ll see that the map has pockets of resource that then rely on transmission to spread the electrons to the demand pockets which are not always overlapping with the resources.
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Yann
This is your SolarWakeup for May 28th, 2021
Have A Great Weekend. This will be the week that highlights another significant set of events in the energy transition. If you want to see how far we’ve come, read the IEA’s World Energy Outlook from 2012.
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Yann
This is your SolarWakeup for May 27th, 2021
The Climate Pendulum Swings. Big news from a shareholder vote at the Exxon shareholder meeting. It appears, at first indication, that Engine No. 1, an activist investor, has won the election of at least two board seats that are considered to be in line with the fund’s climate change-related goals. Reporting highlights the need for final vote counts as the activist attempted to win four board seats but Exxon losing the election of two of their preferred directors is near unprecedented.
Emissions Must Be Reduced. At the same time, in the Netherlands, Shell was told by a Dutch court that it was obliged to lower emissions by 45% by 2030 compared to 2019. This was related to the impact that the company was causing to people though the Court gave in to the company saying that current emissions were not unlawful. The company expects to appear the decision which is not expected to be enforceable beyond the Dutch border.
So Many Billions. Ford announced it would invest $30billion to build out its electric vehicle manufacturing.
Advocate For Storage. SEIA announced yesterday that it was launching a Storage Advocacy Network. CEO, Abby Hopper, said “There is a massive gap between our energy storage goals and where we are now, and business as usual is not a recipe for success.” I guess it’s a good time to get into energy storage?
Bill Speaks, Listen. The biggest question regarding the anti-solar legislation is how it is even possible in this era. Why would the State that has invested so much in building out the solar market turn that around with a single bill? A bill you say? Bill Walton says no dice to AB 1139 and he’s getting involved!
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Yann
This is your SolarWakeup for May 26th, 2021
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Yann
This is your SolarWakeup for May 25th, 2021
A Solar Unicorn. Aurora Solar has raised $250million in their series C, with a self proclaimed unicorn status indicating a valuation over $1bb.
Inside McCarthy’s Mind. Gina McCarthy knows the executive branch well, having led the EPA under Obama and now the domestic climate leader for Biden. Who are the allies and the foes in the fight against climate change? Axios meets with McCarthy to get a better understanding.
A Trillion Dollar Opportunity. $5.2trillion to be exact. Building out infrastructure isn’t a function of cost but an opportunity for capital to make a return. From new transmission to residential solar plus storage, it’s an integrated system that will not only save or make money but also function better than the century old version we have now.
Offshore Gold Rush. The offshore wind market requires big balance sheets, at risk capital in the billions and patience. While the projects may not be built until the second half of this decade, the rush to build that NTP pipeline is clearly happening now.
AB 1139 Heads To Floor. The dubbed utility profit grab bill has massive ramifications for solar in California and across the Country. While the NEM 3.0 process is going through the CPUC process, AB 1139 has been moving through the committee process in the assembly. For those that aren’t tracking, this has the ability to affect not only the NEM 3.0 but also existing installations in NEM 1 and 2.
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Yann
This is your SolarWakeup for May 24th, 2021
7 To 10 Days. On the Sunday shows and heading into the weekend, the infrastructure bill made headlines again. Biden lowered the price tag of his proposal by $500mm, mostly by eliminating GOP priorities in the bill, in order to get GOP back to the table and negotiate in earnest. The White House, through Cedric Richmond, said there was no big rush on the pushing the bill into reconciliation which Senator Sanders threatened. On the other hand, Missouri’s Roy Blunt said that the bill would need to find agreement in the next 7 to 10 days. Wait and see who does what and who makes the next move, though it appears that a $400bb reauthorization for surface transportation has bipartisan support in the committee as of late last night.
A Federal RPS. The climate crisis certainly needs bold policies like a federal RPS, which if it comes in a ‘well-designed policy’ is supported by EEI, the utility trade association. Show me 60 votes in the Senate that would allow a federal reach into state regulations and I’ll bite into the feasibility of this. In reality, an EPA driven carbon and methane reduction from power plants is the only way to back into the result sought in the RPS.
Governmentwide Review. Biden unveiled an executive order which pushes Deese (National Economic Council) and McCarthy (domestic climate czar) to conduct a governmentwide review on how climate risk is being accounted for in financial transactions within government. This is likely the initial step to start slowing any funding, loans or other guarantees for projects that do not advance climate policy.
Elliott, The Utility Evaluator. A headline from last week but Elliott Management is pushing for Duke Energy to be split up. Elliott is famously involved in utility and IPP activism including when NRG’s green efforts were thwarted 5 years ago. This is often a value now versus value later project but Elliott can be quite effective in its work.
The Dry West. We are about to head into the Summer and the entire western US is very dry, moisture levels are record lows. Not only does this produce fire risk but also storm and heat wave situations. Hydroelectric capacity is likely to be limited as well which has pushed natural gas prices up and could create additional pricing peaks or blackouts during demand related peaking events.
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Yann
This is your SolarWakeup for May 21st, 2021
Have A Great Weekend!
PPAs For C&I Deep Dive. On May 26th, 10am PST, Sustainable Capital Finance (SCF) will host the next webinar in its 2021 webinar series analyzing solar power purchase agreements (PPAs) for Non-Profits and Municipalities, including SCF’s 8-Step PPA process. Additionally, SCF will examine a series of project case studies illustrating common challenges specific to school, non-profit and municipal projects, and requisite solutions. This webinar is recommended for anyone looking to provide solar PPAs for schools, non-profits and municipalities, as well as solar developers & installers looking to increase their knowledge on SCF's PPA solutions. Click here to sign up for this exciting, free webinar!
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Yann