The latest on Energetic and renewable energy trends.

Energetic Insurance has named Nathan Maggiotto as its new Senior Vice President of Commercial Underwriting, strengthening its leadership team as the company expands its efforts to provide credit enhancement solutions for the renewable energy sector. Maggiotto brings extensive experience from his previous roles at LiquidX, Marsh, and Zurich, where he specialized in credit risk and strategy. His appointment comes as Energetic Insurance scales up to support the clean energy transition by offering innovative risk transfer and insurance products.

Learn more about this leadership update here.

What do Google, Microsoft, Amazon, AT&T, Johnson & Johnson, PepsiCo, Visa, Toyota, and The Nature Conservancy all have in common?

All are striving to achieve a 90% carbon-free electricity system in the US by 2030 as members of the Clean Energy Buyer’s Alliance (CEBA). Collectively, energy customer companies have advanced over 52GW of clean energy since 2014, with 93% of this attributable to CEBA members. In mid-May, CEBA’s nearly 300 energy customers and partners, including nearly 100 Fortune 500 companies, convened in Detroit to move the needle on clean energy procurement.

The CEBA community discussed the state of the clean energy procurement market, we note four key themes:

1.   Market dynamics and demographics are changing rapidly

Clean energy is in high demand. 2021 brought 11.06GW of voluntary clean energy procurement, of which 50% is attributed to new energy customers. Demand is persistent and growing in 2022, with 6.45GW already announced between January 1 – April 22 alone. The voluntary clean energy procurement market is expanding in breadth and depth. Small and medium enterprises (SMEs) are increasingly involved, especially as large conglomerates seek to “green” their supply chains. Credit quality remains a barrier to SME growth since many are unrated or below investment-grade.

Further, aggregated buying power is being leveraged and is unlocking purchasing power, even for smaller buyers. Four recently announced sizeable aggregation deals, each with average procurement of 25MW, included some buyers offtaking as little as 3MW.

2. Policy and regulatory markets engagement and collaboration continues to strengthen

Organized wholesale markets continue to provide promising opportunities for renewable energy. ERCOT, PJM, and MISO are the most significant wholesale markets. Despite a recent dip in project volumes, these markets represented 75% of volume in Q1 2022. Encouragingly, bilateral utility deals are on the rise in the voluntary community, including in the West and Southeastern US, notwithstanding the lack organized wholesale markets.

3. Energy customers have a deeper focus on scaling for impact

The voice of the consumer is increasingly audible and influential. Energy customers are engaging much more deeply with policymakers and regulators. Nearly three dozen companies, none for whom energy is a primary focus, have asked the Biden Administration to prioritize clean energy. 35 CEBA members have signed CEBA’s Federal Clean Energy Policy Priorities, and 24 companies filed federal regulatory dockets or submitted via the agency stakeholder processes.

4. Impact goes beyond clean energy procurement

There is a broadened and more comprehensive approach to gauging impact. Interest around quantifying and minimizing direct (scope II) and indirect (scope III) emissions continues to gain momentum, especially as net zero commitments proliferate.

We heard more dialogue around managing and mitigating the carbon footprint of renewable energy equipment production. We expect this trend to persist, especially as footprint quantification resources become more sophisticated, reliable, and accessible.

Thank you to the full CEBA team for developing such an active community committed to decarbonization and clean energy procurement.

We are already looking forward to the next CEBA Connect forum at VERGE 22 in San Jose in October.

Have questions on how Energetic Insurance can reduce barriers to cost-effective procurement and help support the greening of supply chains? Reach out!

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

What product should “pretty much every developer out there … be looking for?” Insurance.

“If you are developing a solar project, among the hardest nuts to crack is finding bankable offtakers and actually ensuring that the promised revenue in the project will … be there as predicted.”- Nico Johnson, SunCast Podcast.

Our Co-Founders, James Bowen and Jeff McAulay sat down with Nico Johnson at RE+ in Boston and discussed how Energetic Insurance helps solar projects become bankable. Listen to the SunCast Podcast episode here.

Insurance products can be hard to understand, and onerous to purchase. Layer insurance on an esoteric space like renewable and distributed energy and it can seem even more complex. Fortunately – Energetic Insurance makes insurance products that are comprehensible and desirable.

The Commercial and Industrial (C&I) clean energy market is booming. Fortune 500 companies are hungry for renewable procurement. Developers are in intense competition for the most attractive, investment-grade (IG), easily bankable projects.

Unfortunately, a huge swathe of the C&I market falls outside of this IG niche.

Approximately 90% of the C&I market either lacks formal credit ratings (unrated entities) or are deemed below investment grade (BIG). These offtakers are hard to bank.

Developers struggle to get the numbers to work. The pool of finance willing to fund these projects is small.

Jim and Jeff experienced this first-hand as developers. They were frustrated when reputable businesses that make money struggled to procure renewable energy. If these C&I offtakers don’t have Moody's, S&P, Fitch, or other ratings, they were deemed “unbankable.” This is the case for manifold businesses that reliably pay their electric bills and cannot operate without electricity, seeing it as an essential payment.

Cue the insurance community. Insurance companies can be thought of as large financial institutions. They have sizeable balance sheets and bear risk.

The critical factor is quantifying that risk. In this case, it is the risk that a C&I offtaker defaults on their electricity payments.

Jeff’s time as an engineer at an applied R&D lab was all about testing, validating, and de-risking technologies. His time at EnerNOC illuminated that once distributed energy technologies like solar and energy efficiency solutions are de-risked, a new de-risking need arises, and is all about financing. The 90% of the C&I market that is BIG and unrated must be de-risked to enable financing.

“Do we think that 90% of the C&I market shouldn't have access to solar? Of course not!” This is not just a US phenomenon. This is a global issue, for solar, storage, HVAC, and more. “This counterparty risk is so pervasive in all of the long term infrastructure as a service agreements for all of the essential distributed resources ... There is no bigger opportunity, there is no bigger need, and most of it crashing up against counterparty credit wall.” – Jeff McAulay, Energetic Insurance

Now cue Energetic.

We’ve quantified the probability of default of electricity payments.

That probability is different and inherently lower than other risks. Our actuarial pricing and underwriting software quantify this probability, allowing insurers to know how much premium to collect in order to absorb potential future claims.

This de-risking enables the use of our EneRate Credit Cover policies. In turn, this unlocks financing as financiers are willing to lend when they can see enhanced predictability of payment.

Developers can harness our policies to reach more of the market and to support reductions in customer acquisition costs (CAC).

Instead of competing for the limited 10% of the C&I market that is IG, they can now reach 50-60% of the market. And for those wondering – no, we don’t expect to ever unlock 100% of the market. Real credit risks exist which developers and banks should be wary of.

Real estate asset owners, including Real Estate Investment Trusts (REITs) are also catching on to the value of our policies.

Many real estate entities are publicly traded and highly IG. However, based on the structure of the real estate industry, properties are owned via separate, individual, LLCs, which perform poorly relative to standard bank credit evaluations. These LLCs do not carry a parental guarantee – if they default, rated public parent entities do not have to pay LLC debts. Tenancy terms can further exacerbating this issue. Banks may be reluctant to finance a 20-year power purchase agreement (PPA) if tenancy terms are shorter. As such, if property owners seek financing to go solar, or install energy efficiency equipment, they are often declined.

The first policy we issued solved exactly this problem. A developer was struggling to get a loan approved to finance a project at a large outlet mall in California, despite the mall being owned by two brand name publicly rated owners. With our policy covering payment default risk on the PPA, backed by a AA- rated insurer, a bank became more confident in the predictability of cashflows. The unbankable 900kw project became bankable.

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Insurance has shifted from a nice-to-have to a want-to-have.

Developers and banks have realized that our policies help enable the essential elements of their businesses. Our policies may be the difference between getting financed or not, of deploying capital or not, of getting a project acquired or not, of successfully developing a portfolio or not.

We welcome project of all sizes and have expanded beyond C&I as we develop a strong, diverse insurance book of business.

We seek small, medium, and large projects from different industries and geographies. We encourage very small projects (eg 25 kW) to be grouped in portfolios.

We began in C&I, viewing it as the largest untapped segment for solar. We’ve listened to customer demand and have expanded into VPPAs, energy efficiency, building electrification, solar + storage, and into international geographies. We continually collaborate with leaders in these spaces. The US Department of Energy (DOE) and the New York State Energy Research Development Authority (NYSERDA) are leaning in on energy efficiency. Collaboration across private sector, public sector, municipalities, and developers will be critical to unlocking large-scale opportunities.

There are other pioneers in the renewables-oriented insurance space.

kWh Analytics and ReSurety demonstrated the feasibility of renewable energy insurance startups. They play critical roles in covering the supply-side. PPA cashflows ultimately boil down to dollars per kilowatt hour. kWh Analytics ensures those kilowatt hours show up. We make sure the dollars show up from the offtaker. Conventional property and casualty (P&C) and liability insurance cover the rest of traditional project risks.

Interested in learning more about how to unlock financing for unrated organizations? Listen to another SunCast podcast featuring Energetic Insurance, Jordan Blanchard, and Live Oak Bank here.

Have questions on how our policies can help unlock revenue streams, protect against downside risk, credit risk, and make unrated or BIG offtakers bankable? Reach out.

Thanks to Nico Johnson for having us on the SunCast Podcast. Looking forward to future collaborations – always glad to talk tax equity and the changing landscape!

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

Distributed energy resources (DERs) have the power to fuel the world. 20% of U.S. electricity generation now comes from renewable sources[1], including 3% from solar[2]. The progress is undeniable, but the untapped potential is even greater.

Despite significant declines in solar costs, financial hurdles inhibit large swaths of the market from installing and procuring renewable energy.

Our core focus at Energetic Insurance is to unlock DER financing for those market segments. We do this by quantifying risk and uncovering promising projects via rigorous software-enabled underwriting.

We started in commercial solar, often referred to as commercial and industrial (C&I) behind the meter (BTM). C&I is a large, existing market with a major financing process paint point – counterparty credit measurement.

Other solar sectors, such as utility-scale and residential, have existing dominant frameworks for measuring counterparty credit. C&I projects rely on ratings agencies or shadow rating methodologies which do not extend to most of the market. This is true not only in solar, but across the DER landscape, in the US, and around the world. The opportunity could not be bigger.

We’re allowing a broader segment of the world to access DERs via comprehensive underwriting.

Our underwriting thesis goes far beyond traditional credit analysis. We don’t just underwrite an offtaker, we underwrite an asset value. We underwrite a commodity. We underwrite potential savings. We underwrite environmental assets.

Historically, the DER assets we’ve underwritten have been solar panels, but the underwriting engine we’ve built is capable of much, much more.

We’ve developed features and functionality within our modeling and software solutions that position us to underwrite counterparty credit in multi-asset microgrids, in energy efficiency projects, and at significantly larger scales.

We’ve gone beyond what traditional credit underwriting is built for. Our methodology, data analytics, and actuarial models have been built with the complexities and nuances of energy systems in mind. We ask questions that traditional credit underwriters often don’t – to what extent can a DER asset have value without being removed?

In close collaboration with our reinsurance partners, we have demonstrated the extensibility of our modeling and software across numerous different structures and categories of energy project finance. This includes alternative contract structures because the risk is not just in the offtaker or the asset, but also in the underlying insured agreement and legal framework.

Our technology-enabled underwriting approach allows us to assess and support a range of projects types, including but not limited to:

1. Various verticals: schools, warehouses, retail, low-income housing, entertainment, hotels
2. Contract structures: partnership flip, sale-leaseback
3. Operating portfolio refinancings as well as new construction
4. Individual projects, tranched portfolios, and warehouse structures

Even this is not enough.

There is a much larger world out there, and we're excited to show the versatility and extensibility of our modeling and software platforms.

We harness flexible cloud architecture that allows for rapid customization and deployment of new models, while maintaining remote, secure and auditable access by our underwriting team.

We prioritized flexibility as we developed our modeling approach, ensuring it could handle more than just solar. This led us to take a modular approach which allows us to assign each project one or more contracts with one or more offtakers, serving multiple revenue markets. Our technology is flexible by design, allowing us to meet the market where it is, rather than force projects into cookie cutter templates.

Today we are working on a portfolio of projects that include onsite, community solar, and residential subscribers, all under one policy.

In electricity markets, much of the market today relies on single line time series projections. In our Monte-Carlo Markov-Chain models (MCMC) we utilize in-house statistical distributions to represent the inherent uncertainty over the long duration of our policy period (out to 10 years).

In our underwriting, these distributions allow us to rapidly evaluate risks across multiple markets and provide indicative risk pricing with 24-48 hours. This is essential for the developers and banks we work with who are often deciding how to approach a customer proposal or financing negotiation.

This year we are excited to expand and apply our models to new areas:

1. Energy Efficiency: This vast category includes lighting, HVAC, controls, insulation & air sealing, and more
2. Utility-Scale Solar: Including virtual PPAs and large-scale offsite contracts
3. International Geographies: We have tested our modeling approach in new territories, beginning with European markets

Beyond extending the applicability of our models to these new areas, we have massively accelerated the speed with which our underwriting users can access and analyze results. Thanks to new data pipelines and increased sophistication of our internal analytics framework for analyzing electricity markets, we have achieved a 70% reduction in time required to expand into a new electricity market.

We are excited to see the growing impact our policies can have as we broaden the reach of our modeling.

Where would you like us to go next? Let us know in the comments below!

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[1] https://www.eia.gov/tools/faqs/faq.php?id=427&t=3

[2] https://www.energy.gov/eere/solar/solar-energy-united-states#:~:text=Today%2C%20over%203%25%20of%20U.S.,panels%20has%20dropped%20nearly%2070%25%20.

Thoughtful collaboration between a developer, financier, offtaker, and insurance provider enabled the development and procurement of 603kW of clean, renewable, solar electricity for Arizona schools.

When it comes to education, every dollar counts. School funding constraints have been a part of the national discourse for years. The Atlantic recently elaborated on how the covid-19 pandemic has further strained the American school system – noting the decades-long decline in teacher relative pay and status, educator resignations, and more. It is critical to ensure that as much of the state funding that supports schools goes towards educational needs.

Utility costs for schools are not often discussed and rarely make headlines. With the rising costs of fuel, that may soon change as schools begin to feel the added financial strain. Fortunately, there are ways to mitigate these costs via electrification, energy efficiency, and renewable energy expansion.

Last year, Arizona charter schools, including The Daisy Education Corporation, saw the opportunity to procure clean energy while reducing costs. Steamboat Solar, a renewable energy developer, wanted to help.

“We knew that we could provide these schools with even more significant cost savings if we could access competitive financing rates.” - Stuart Kronick, Co-Founder of Steamboat Solar LLC

Steamboat reached out to Energetic Insurance with hopes that our policy could help them access debt capital for these schools which did not carry a public investment grade rating.

Energetic Insurance assessed the project, offtakers, and related risks and saw a promising opportunity. The charter schools at hand were competitive, highly rated, had long operational histories, growing enrollment, and were ranked among the top schools in Arizona (as measured by standardized test scores). Charter schools in the Daisy Education Corporation’s network provide a rigorous college-preparatory education focused on science, technology, engineering, and math (STEM).

Also appealing was the location and policy environment. Thanks to the Arizona’s net metering policies, utilities would acquire any energy generated above and beyond the school’s usage, increasing the utility’s renewable energy portfolio, contributing to state renewable energy targets, and ultimately providing benefits to the project developers. This has the added benefit of mitigating the risk of non-payment of project debt. Arizona’s strong commitment to solar is demonstrated by the favorable development environment it has curated. The state has provided solar tax incentives, including tax credits, solar equipment sales tax and equipment property tax exemptions, and offers net metering. According to the U.S. Energy Information Administration “In 2020, Arizona ranked fourth in the nation in solar-powered electricity generation at utility-scale and small-scale installations. Solar energy provided the state with more power than all of Arizona's other nonhydroelectric renewable energy sources combined.”

Live Oak Bank, an experienced renewable energy lender saw the value in this project.

"We knew the Steamboat team to be diligent and sophisticated. We were glad to help finance this project, even more as we were able to support educational institutions.” - Derek Welsh, Vice President and Head of Distributed Energy Finance at Live Oak Bank

With EneRate Credit Cover, Steamboat Solar was able to access affordable financing via Live Oak Bank. The project was enabled by smaller, regional O&M contractors, supporting local jobs, and further supporting the local economy.

Ultimately, Steamboat Solar was able to present an electricity procurement option that saves the schools tens of thousands of dollars relative to the regular utility rate over the lifetime of the system. Each dollar saved enables state and taxpayer dollars to go a bit further in directly contributing to childhood education.

If you are a developer seeking competitive project financing, reach out – we’re glad to discuss and make introductions to Live Oak. If you are a school seeking solar, contact our friends at Steamboat – they are there to help.

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About Participants

Energetic Insurance is a Managing General Underwriter (MGU) with a novel, data-driven approach to develop new risk management products to unlock exponential growth in the renewable energy industry. Their EneRate Credit Cover®, unlocks renewable and energy efficiency project financing for unrated and below investment grade counter parties by covering counterparty credit risk.

Steamboat Solar LLC (“Steamboat”) is a project developer and tax equity provider who works with sponsors, developers, and offtakers to structure, develop, finance, and manage commercial solar projects. Steamboat owns and operates solar projects and provides both tax equity and financing for developers. In addition to newly developed solar projects, Steamboat provides liquidity to legacy solar installation owners through the purchase of individual sites and bundles of projects. With a focus on schools, not for profits, and municipalities, Steamboat operates facilities in California, Arizona, and New Jersey. Steamboat was founded in 2018 and is headquartered in New York, New York

Live Oak Bank (“Live Oak”), a subsidiary of Live Oak Bancshares, Inc. (Nasdaq: LOB), is a digitally focused, FDIC-insured bank serving customers across the country. Live Oak puts a groundbreaking spin on service and technology to redefine banking. Our products help customers buy, build and expand their business, and we offer high-yield savings and CD products to grow their hard-earned money. To learn more, visit www.liveoakbank.com  

Scout Solar LLC (“Scout Solar”) and SunRenu Solar (“SunRenu”) will both provide engineering, procurement, construction services, and operation and maintenance. Scout Solar has installed and consulted on over 200 commercial systems that represent approximately 70MW. SunRenu has developed 29.6MW, constructed 22.8MW, and serviced 6.7MW.    

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This article does not constitute and is not intended by Energetic Insurance to constitute financial advice nor a solicitation for any insurance business.

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Media Contact: Kathryn Meng Elmes, Energetic Insurance, (617) 655-6492  

Alarm bells are ringing. Rates are rising. But what does that mean for renewable energy development?

Rates have been de minimis since 2010

According to SEIA, cumulative solar deployment in the United States surpassed 121 gigawatts in 2021.[1] 90%+ of this deployment occurred post The Great Recession. This means that a vast majority of the solar deployment to date occurred during a near-zero interest rate environment. So how may rising rates impact solar development?

Changes in rates are a reflection of economic conditions during a time period. In recent recessionary periods, short-term base rates (treasury rates, LIBOR/SOFR rates, FED Funds rates, saving interest rates) have fallen dramatically while credit spreads (the risk premium for an applicable credit risk) rise precipitously.

Consider a BB rated counterparty with a rate of 10YR Treasury + Credit Spread. In October 2020, the 10YR Treasury was 0.841% and the ICE BofA BB High Yield Index Spread was 3.85%. This implies that a BB rated counterparty’s cost of borrowing from a lender in October 2020 would’ve been estimated around 4.69%. Fast forward to March 2022, the 10YR Treasury is at 2.48% with the ICE BofA BB High Yield Index Spread at 2.37% implying a rate of 4.85%. So, while the base rate (10YR Treasury) rose significantly due to inflationary pressure, the credit spread has compressed, implying less concern in the markets regarding credit risk. In an environment where inflation persists (rising base rates) and economic activity becomes a concern, you could expect to see base rates and credit spreads move in the same direction.

Expected default is increasing

While bankruptcies in Q1 2022 were the lowest in 13 years, the market is signaling the expected 1-year probability of default has increased for most sectors throughout the U.S. according to an April 2022 report from S&P Global Market Intelligence. With future expected default rates rising, there is a degree of likelihood that credit spreads for sub-investment grade or unrated entities may widen.

Cheap Debt (< 4%) is increasingly rare

We continue to hear from our development partners and throughout the conference circuit that between rising EPC costs and rising interest rates, deals that were getting done on paper 6-12 months ago are no longer penciling in today’s environment. While rates are rising, the abundance of capital in the market remains, and developers who have strong banking relationships will be better positioned. Developers that signed PPA agreements 8-12+ months ago are having required, but difficult conversations with offtakers; they are amending prior contract terms to make projects viable. In an economic environment where The Federal Reserve has recently pledged to consider multiple 50bps+ hikes, and supply chain pressures impact small and medium businesses, financing may begin to tighten.

So what does this mean for solar development project finance?

Rising rates have the potential to significantly impact project finance economics. In an illustrative project below, we depict the sensitivity impact on levered IRR (L-IRR) of amortization and interest rate sensitivity for a 2MW project. Based on Energetic Insurance’s view of the market, a 20-year amortization is commonplace and only a 200bps rise in debt interest rates could result in up to a ~11.4% reduction in levered IRR for the developer in this example.

Energetic Insurance is actively working with asset owners and developers who seek to utilize the EneRate Credit Cover to proactively de-risk operating and new construction assets to compete for the best financing terms in a rising rate environment.

Questions? Pose them in the comments below or reach out here to learn more.

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

[1] https://www.seia.org/solar-industry-research-data