The latest on Energetic and renewable energy trends.

“We have stringent risk monitoring protocols in place. The protocols require us to track site performance and evaluate risks, ensure compliance with customer communications and claims reporting, and report to reinsurers on our bordereau. We must have a robust, trackable system of record. That system has to be flexible enough to add these puzzle pieces. In addition to that, we allow our workforce to be remote and would never contemplate a system that requires people to be on-site to use it. We’ve been happy that our Novidea deployment is cloud-based from day one, and we couldn’t imagine it any other way.”

Energetic Insurance partner, Novidea, featured our work in a case study this month. An excerpt is below and you can download the full case study below to learn more.

"A trailblazer in trade credit risk for solar, Energetic brings to the industry decades of experience in the energy sector, in conjunction with robust data analytics, modeling, and software. Energetic offers a new form of trade credit insurance customized for the renewable energy industry. It’s a 10-year, non-cancellable policy. However, taking on this risk across an entire energy project adds layers of complexity to insurance policy administration.

“Unlike other MGUs with one-year policies and renewals, when we book a policy with a developer or a bank, it’s often a 10-year tenor. That makes it challenging to monitor and track insurance policies. On top of that, the nature of our risk product means we must deal with dynamic limit of liability schedules that change over time. To operate, Energetic had to find a flexible system of record that can change as a function of those schedules,” McAulay says.

Energetic sought to minimize time spent on policy administration as they scaled their business. Energetic required a future-forward agency management platform that could serve as a system of record for all insurance policy-related information. This system included quotes, rating actions, issuances, renewals, compliant customer communications, bordereau reports for reinsurers, and more. Most importantly, the technology had to be able to grow with the company. When McAulay and his team started investigating traditional insurance policy management systems, they quickly learned that an energy insurance industry- specific system of record didn’t exist. Energetic had two choices: they could build something from scratch or find a flexible vendor partner with the ability to customize a solution for their needs.

“We looked at many different systems,” McAulay recalls. “Most insurance agency management vendors only offered policy administration systems for existing insurance products. They didn’t have a solution that fit our policy terms and limit schedules. In terms of functionality, they offered many things that we didn’t need and not enough of what we required.” That’s when Energetic discovered Novidea.

Energetic Insurance has partnered with Novidea to streamline its policy administration. By adopting Novidea’s cloud-based agency management system (AMS), Energetic has built a scalable, compliant system of record for managing its credit insurance policies, including the flagship EneRate Credit Cover.

This partnership allows Energetic to automate processes like policy monitoring, renewals, and reporting, enabling the company to focus on growth. Since deploying Novidea’s solution, Energetic has expanded its product line and raised $7 million in a Series A round.

Read more about this collaboration here.

Energetic Insurance has been recognized as one of the top 5 risk management solutions for energy companies in a recent report by StartUs Insights. Their innovative approach to solar project financing, through the EneRate Credit Cover, helps mitigate credit risks for unrated and below-investment-grade counterparties, streamlining financing for renewable energy projects.

Alongside Energetic Insurance, the report highlights solutions in energy trading, portfolio management, and remote asset maintenance, showcasing how technology is transforming risk management in the energy sector.

Read the full report and discover more about the leading energy startups here.

Energetic Insurance was recently highlighted as a critical component in supporting renewable energy strategies, particularly by addressing credit risk in long-term agreements such as power purchase agreements (PPAs) and community solar projects. As discussed during a recent panel featuring industry leaders, creditworthiness remains a major barrier to securing financing for renewable energy developments. Energetic Insurance provides essential credit support, enabling companies with below-investment-grade ratings to access affordable financing, reduce costs, and facilitate the adoption of clean energy solutions. This innovative insurance solution is poised to accelerate the transition to renewable energy by removing financial hurdles for both corporate and community-driven projects.

For more insights, read the full article here.

The Securities and Exchange Commission (SEC) recently proposed a new rule that could require companies to provide more detailed reporting of their climate impacts and emissions, should it be adopted.

Regardless of the outcome of the proposed rule, climate-related events are already impacting businesses and portfolios. Businesses and financiers should be planning and preparing to minimize their climate-related risk exposure, and to preserve their asset values.

SEC and Disclosure Rules

The information companies are required to disclose to the SEC pertains to matters that materially affect a business and its financial health. The SEC is now joining the chorus of asset managers who have pushed for public companies to disclose climate-associated risks as they understand that the material impacts of climate change affect corporate financial health and must be accounted for.

The proposed rule focuses on Scope 3 emissions; emissions which stem from assets not owned or controlled by the reporting organization, but that are indirectly impacted by company activities. Until now, only Scope 1 and 2 emissions (coming from direct operations and electricity consumption) were taken into account by the SEC.

The newly proposed SEC rule would require companies to engage in disclosures on three fronts: material risks, greenhouse gas (GHG) emissions, and transition plans.

Material Risks

If enacted, the SEC rule will require companies to disclose any risk stemming from climate-related hazards. A given company would have to describe in detail its governance of climate-related risks and relevant risk management processes.

It would also have to focus on the identified and potential impacts of climate-related risks on its business model, strategy, and outlook – as well as on its financial statements. Filers should not only disclose impacts, but also their processes to manage the risks.

GHG Disclosures

The proposed SEC rule goes beyond the bounds of the guidelines for Scope 1 and 2 emissions, and now includes Scope 3 emissions. As such, a registrant with a set GHG emissions target, or whose disclosures are material, would now be required to disclose GHG emissions from upstream and downstream activities in its value chain.

Until now, Scope 3 emissions were not taken into account – this would significantly change the way financiers and companies think about the intersection of investments, climate impacts, corporate risks, and enterprise value. Beyond this, Scope 1 and Scope 2 emissions would have to be separately disclosed on a disaggregated and aggregated basis. All disclosures would be required on a gross basis and relative to emissions’ intensity.

Transition Plans

Under this framework, companies would have to disclose any existing targets around low-carbon strategies. The SEC would then require specific information on how the company’s plan will achieve the set targets.

Application    

Should the rule be adopted by December 2022, major companies would have to disclose most of this information as of fiscal year 2023, and smaller companies as of fiscal year 2024. If not done so already, companies should establish clear, temporally bound plans for emissions reductions, and must prioritize high fidelity data collection. Policies and procedures should be in place to gather data required for reporting, and to fulfill assurances related to emissions reporting.

The SEC would provide time for planning and reporting of Scope 3 emissions by allowing an additional year beyond the aforementioned deadlines. As such, investors and firms can initially focus on mitigating and reporting Scope 1 and 2 emissions, which should provide a more secure foundation on which to develop detailed understandings of scope 3 emissions from within and beyond their supply chains.

Scope 3 emissions reporting and reduction still represent a challenge for most companies. While the SEC protocol provides specific guidance on how to measure them, accessing the information required for accurate reporting represents a significant challenge. Quantifying Scope 3 emissions is particularly difficult and requires comprehensive consideration of all sourcing, product usage, and end-of-life disposal activities. Quantification hinges on robust data collection and accounting, which is ideally done in a collaborative manner, enabling data sharing across supply chains to enhance accuracy and to avoid double-counting.

Public Reception

As the conversation around climate change heats up within the public debate, investors, and more generally big financial firms, have been supportive of measures to reduce climate risk and stranded assets. This SEC rule will serve as a guidebook for investors seeking to quantify and assess financial risks posed by climate change, and direct their funds to the most resilient enterprises.

The proposed rule has been met with some criticism, with certain groups fighting back, arguing that the commission lacks the authority to issue this type of guidance, and threatening to remove their investments from banks supporting the rule. Despite this push back, most investors seem to favor the new rule – it is both the right thing to do for the environment and society, and it would provide another tool for financiers and corporates as they strive to make sound investment decisions.

How to Prepare

Although the final SEC decision won't be revealed until November – during midterm elections – asset managers and corporate executives should assume some new requirements will unfold, and pre-emptively prepare for the impacts the requirements might have on disclosure plans.

Whether or not the rule is enacted, requirements like these are inevitable, as are new regulations and changing consumer preferences. It is only a matter of time before climate risks are incorporated into 10-Ks and/or other corporate filings. As a result, investors, board members, and shareholders are changing the way they think about corporate financial health. Sound corporate governance and risk management is key.

Emissions reduction targets must be coupled with tangible and achievable roadmaps, and plans must be implemented. Decision-makers should prioritize investments in energy efficiency, renewable energy procurement, and other similarly de-risked climate-friendly solutions. Doing so can have the added benefit of minimizing operating costs – consider the value of locking in long-term competitive electricity prices and decreasing consumption needs – while contributing to the activity's requisite for Scope 1, 2, and 3 emissions reporting and reduction. As emissions reduction activities ensue, companies should ensure ongoing data collection, analysis, and address risks as they arise.

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References:

• https://www.wsj.com/articles/the-sec-climate-rule-wont-hold-up-in-court-west-virginia-epa-agency-congress-11657659630
• https://cleantechnica.com/2022/07/14/republican-attorneys-general-fight-sec-over-corporate-climate-disclosures/
• https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/understanding-the-secs-proposed-climate-risk-disclosure-rule
• https://www2.deloitte.com/us/en/pages/audit/articles/sec-climate-disclosure-guidance.html
• https://www.sec.gov/news/press-release/2022-46

“This is coming up in everyday conversation.... Why didn’t anyone else do this?... It feels like this should have been addressed, especially on a global market with so many customers... it feels like a totally missed blue ocean.”

Insider’s Guide to Energy Podcast hosts, Chris Sass and Johan Oberg, are talking about insurance, and the critical role it will play in the global energy transition and decarbonization. Energetic Insurance COO & Co-Founder, Jeff McAulay; sat down for episode 76 to discuss the role of insurance in appropriately allocating risk and return in green transition project finance – and how Energetic Insurance has become the leading provider of demand-side renewable energy and efficiency insurance. The episode is available here.  

Launched with the goal of accelerating and expanding the market for renewable energy, Energetic Insurance offers data-driven risk-management solutions via novel credit insurance.  

“We're doing that by … more efficiently shift[ing] risk from a sponsor or a debt balance sheet to an insurance balance sheet” says McAulay.  

Often when folks think about insurance in energy, they think about production risk – whether the sun is going to shine. They may also think about property damage and technology risk – panel longevity and warranties. These risks are well covered today. What holds back the market significantly is demand-side credit risk – concerns about whether or not offtakers will reliably pay their electricity bills, and if new offtakers will be readily accessible if needed in the future. This is the problem Energetic Insurance solves for.

Energetic Insurance is an insurtech startup that simultaneously provides a financing solution. Their business model is that of a Managing General Agent/Underwriter (MGA/MGU). The company developed a novel insurance product and rigorous underwriting guidelines, backed by sophisticated proprietary data sets and technology tools – including underwriting software, actuarial models, and electricity price models. They assess, underwrite, and price risks, and have partnered with a large global reinsurer with a correspondingly large balance sheet.  

When it comes to credit, Energetic Insurance sees electricity “a fundamentally different type of obligation than other traditional forms of credit. It is the last bill that gets paid, so we have a different thesis on the probability of default as evidenced by many businesses [that] keep paying for electricity through bankruptcy [or] restructuring.”

Further, they view electricity as a fungible, tradable commodity that is valuable to practically all business, regardless of purpose. Coupling this understanding of the nuances of electricity as a commodity with electricity market models and offtaker diligence, Energetic is able to lower the credit curve and reach more of the market.

So far, the company has unlocked opportunities for developers willing to invest in the renewable energy sector but facing credit risk issues. There is huge demand outside the Fortune 500 for clean energy and efficiency solutions. Unfortunately, the demand from this market is not being met. 90% of commercial and industrial (C&I) entities do not have investment-grade (IG) ratings or have no credit rating at all, despite having strong offtaker profiles.

“We hear from our customers that credit increasingly is a binary issue. You can either get the deal done or you can’t - you can either get the debt or you can’t, and it’s less of sliding scale... we turn a ‘no’ into a ‘yes’.”  

Developers and financiers spend significant time seeking creative credit enhancement solutions like parental guarantees, loan loss reserves, and letters of credit. They spend time pulling levers – adjusting DSCR, loan-to-value, and interest. Energetic Insurance provides a simpler, cleaner, and faster solution. They help developers get projects financed and access the best levered IRR. They help financiers get past credit committee and deploy more capital. It’s truly a novel off-balance sheet financial product, taking the form of insurance.

Energetic is also helping deliver much-desired standardization to the clean energy and efficiency industries. While already-existing APIs exist within the renewable energy ecosystem, the industry lacks the standardized platforms and tools needed to enable push-button diligence, capital provision, and project execution. Energetic helps accelerate this process, providing a playbook for how to get deals penciled, fast.

Success stories range from small-scale 50kW projects to utility-scale and multi-site portfolios. Projects across the US are at sites you may frequent – like a retail shopping center north of Los Angeles which was able to install solar panels on a parking canopy, helping to shade cars and facilitate EV charging on a major thoroughfare.  

“Not only are we taking a good risk – we are making that site more creditworthy because the solar is enhancing value for that site in multiple ways.”

Energetic’s founders applied their energy backgrounds to the insurance world. Developing an insurance product came with some challenges, but their outsider’s approach has yielded an innovative product, unmatched in the sector. The company was able to quickly build the tools they needed to get to market, notably thanks to support from the DOE’s Sunshot program and forward-looking investors.  

Getting the product to market required building a team with expertise in data science, software engineering, credit analysis, and underwriting. They are now growing and expanding the applicability and geographic reach of their product – keep your eye on energy efficiency, Spain and the European market, and more.  

Ultimately, though capital tends to be very competitive – McAulay takes a hopeful approach to the future of investments in renewable energy, and is excited about the value insurance adds, especially as economic turbulence manifests.  

Thank you to the hosts of IGTE for featuring Energetic Insurance. We strongly recommend a full listen to learn more about traditional insurance and trade credit, energy policy and incentives, the impact of rising interest rates and widening spreads on renewable energy investments, and the versatility of Energetic Insurance’s policies – they are multi-asset (solar, storage, energy, micro grids, VPPAs, energy efficiency, EV charging stations, and more) and multi-structure (from single-site to utility-scale retail energy, portfolios and wraps, refinancings).

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Have questions on how Energetic Insurance can help you get more projects done with competitive economics? Click "connect" in our main menu.

This article does not constitute and is not intended by Energetic Insurance to constitute financial advice or a solicitation for any insurance business.