The latest on Energetic and renewable energy trends.

SPI’s RE+ conference was once again massively attended and showcased the remarkable growth of the renewable energy industry. Reports of attendee (and non-attendee) counts ranged from 32,000 to 45,000. Despite the event's sheer size, it was great to see so many industry friends together in one place. We gained some insight into the current market as we engaged in discussions with financiers and sponsors on the sector's Commercial and Industrial (C&I) side.

The core undeniable fact throughout RE+ 2023 was the considerable expansion of the renewable energy industry. Attendee counts underline how the industry has capitalized on governmental incentives, private funding, and consumer demand. Notably, this growth speaks to the Inflation Reduction Fund's benefits. We will have more people join the sector to meet the needs of consumers and strive to take advantage of government incentives, including tax credits and available grant funding. Public and private funds have succeeded in helping organizations scale their product, add additional resources, and deploy more renewable assets, especially within the C&I domain.  

The Implications of Basel III on the Tax Equity Market

The impact of Basel III regulations is beginning to cast its shadow on the renewable energy sector. Financiers are closely monitoring the proposed capital requirements outlined in Basel III, which is already influencing their tax equity strategies. Specifically, these rules, set to be implemented by 2025, would quadruple the capital requirements for banks holding tax equity investments due to a new 400% risk weighting applied to non-publicly traded equity, up from the existing 100%. This significant shift in the regulatory landscape prompts financiers to reevaluate their investment decisions, potentially making such financings costlier and hindering national climate change objectives.  

Need for Innovative Deal Structures

The middle market banking shake-up earlier in the year has left C&I sponsors feeling constrained on the financing side of the capital stack. The changing dynamics in the industry have made it imperative for private funding to provide creative solutions for C&I transaction stakeholders. To navigate these challenges successfully, C&I sponsors are seeking a diverse set of financial partners, exploring alternative financing structures, and considering solutions previously discarded (e.g., private credit funds that may be more flexible, but often have higher costs of capital).  

A persistent challenge for financiers is the decline in commercial real estate tenants. Based on organizations either not renewing leases or breaking them, building owners and financiers are hungry for viable solutions to bridge the gap between interests. Fortunately, innovative structuring solutions are emerging to alleviate these constraints. Collaborative efforts between C&I developers, financiers, and other real estate stakeholders are essential in providing solutions to maintain the health of buildings and meet the demands of consumers.

Maui Fires and Uncertainty on the Liabilities Surrounding HECO  

The Hawaiian Electric Company (HECO) has been under the spotlight due to pending lawsuits and concerns about potential liabilities from the Maui fire. While the outcome of these legal proceedings remains uncertain, HECO remains a larger offtaker on existing and planned PPAs so the renewable energy industry is closely monitoring these developments. The repercussions of any verdict will have a ripple effect on the industry, particularly as climate-related disasters continue to impact communities.  

Revival of Community Choice Aggregators (CCAs)  

Community Choice Aggregators (CCAs) are once again gaining prominence in the renewable energy landscape. Numerous sponsors have reported the launch or impending release of Request for Proposals (RFPs) for more renewable infrastructure. Predictably, these organizations lack credit ratings to secure adequate institutional funding. Energetic Capital has provided credit insurance to offset unrated/sub-investment counterparty credit risk since 2019. If this is you, reach out to us.

There's never been a more dynamic time in the renewable energy industry. As C&I developers and sponsors continue to pursue innovative financing solutions, Energetic Capital provides multiple transaction structures available to any stakeholder with an insurable interest.

Energetic Insurance has been recognized as one of the Top 100 Clean Energy Startups to Watch worldwide, according to Dealroom.co. Focused on renewable energy solutions, Energetic streamlines solar project financing with innovative risk management products, such as EneRate Credit Cover, enabling broader access to clean energy investments.

This data-driven ranking highlights startups advancing technologies in clean energy, energy efficiency, and sustainable infrastructure. With the clean energy sector valued at $1.2 trillion in 2021, and $6.2 billion raised last year alone, Energetic Insurance continues to play a key role in driving the energy transition.

Learn more about the top clean energy startups here.

Greenhouse gases (GHGs) are widely recognized as a primary cause of climate change, with carbon emissions being the largest contributor, accounting for 79% of total greenhouse emissions. Other significant greenhouse gases include methane (11.5%), nitrous oxide (6.2%), and fluorinated gases (3.0%).

To address and measure GHG emissions from private and public operations, the Greenhouse Gas Protocol (GHG Protocol) serves as the governing body, establishing standards for classification and measurement. The GHG Protocol has defined three scopes of emissions: Scope 1, 2, and 3. These guidelines help identify which parts of a value chain are responsible for emissions during a project or process's life cycle.

Scope 1 emissions refer to direct emissions from sources owned or controlled by an organization. Examples include emissions from the combustion of fossil fuels in boilers or vehicles. Scope 2 emissions are indirect emissions from the generation of purchased energy, such as electricity consumed by an organization. Scope 3 emissions encompass indirect emissions from sources not owned or controlled by the organization, such as emissions from suppliers, customers, or transportation of products.

Measuring and mitigating Scope 1, 2, and 3 emissions are crucial for combating climate change and reducing the environmental impact of human activities. As sustainability gains increasing priority among consumers, investors, and regulators, organizations that proactively reduce their emissions gain a competitive advantage in the long run. Reporting emissions to consumers and investors can also enhance a firm's reputation and ensure regulatory compliance. By investing in renewable energy, improving energy efficiency, and optimizing supply chains, firms can reduce emissions while accessing capital and driving technological innovation.

The GHG Protocol's standards are widely recognized and used, with over 90% of Fortune 500 firms relying on them for clarity on corporate accounting and reporting. While Scope 1 and 2 reporting are required for security issuers, Scope 3 reporting is currently voluntary but provides a significant opportunity for firms to differentiate themselves from others.

Scope 1 emissions encompass direct emissions produced by an organization. This includes emissions from stationary combustion sources like coal power plants, as well as mobile combustion sources such as transportation owned or leased by the organization. Scope 2 emissions comprise indirect emissions resulting from third-party electricity production and the organization's consumption. This scope also covers emissions from purchased electricity and direct fugitive emissions like refrigeration, air conditioning, fire suppression, and industrial gases. Scope 3 emissions include all other indirect emissions associated with a firm's activities that do not fall within Scope 1 or 2. This includes emissions from the production, transportation, or disposal of raw materials or goods used by the organization.

Understanding the three scopes of emissions is critical for identifying effective strategies to reduce GHG emissions. It allows organizations to track and measure emissions, facilitating the transition to cleaner energy sources. Measuring emissions in all three scopes helps organizations comply with international standards and laws, manage risks associated with climate change impacts, and take advantage of opportunities in the clean energy industry.

Reducing emissions in Scope 1 can be achieved by transitioning to clean energy solutions at the property level, adopting electric vehicles, or using renewable fuels for transportation fleets. Energy-efficient practices like LED lighting and efficient HVAC systems also contribute to emission reduction. Scope 2 emissions can be addressed through onsite improvements like rooftop solar or microgrids, as well as purchasing renewable energy certificates, carbon offsets, or entering into virtual power agreements. Collaborating with suppliers and stakeholders is crucial for tackling Scope 3 emissions, as these emissions are harder to track due to resource limitations, lack of incentives, and coordination challenges within the value chain.

Taking a comprehensive approach that considers emissions across all three scopes is essential for companies aiming to reduce their carbon footprint and build sustainable business practices. In doing so, companies can play a vital role in mitigating climate change and fostering a more sustainable future.

By actively measuring emissions and implementing strategies to reduce them, companies can achieve cost savings, enhance their reputation, and ensure regulatory compliance. Organizations that are willing to collaborate within their value chain and estimate Scope 3 emissions gain a competitive advantage. Access to credit insurance and other financial tools can help facilitate financing for energy-efficient projects. Taking these steps not only accelerates climate solutions but also positions organizations to benefit from cost savings and opportunities in the renewable energy market.

Driving sustainability and gaining a competitive edge requires a comprehensive approach to reducing Scope 1, 2, and 3 emissions. By measuring and mitigating emissions across all three scopes, firms can address climate change, improve their environmental impact, and position themselves as leaders in the transition to a more sustainable future.

Read Energetic’s full whitepaper, Driving Sustainability and Gaining a Competitive Edge: A Comprehensive Approach to Scope 1, 2, and 3 Emissions Reduction, researched and written by Elizabeth Barnes and Nathan Maggiotto, to learn more about how firms can benefit from using the Scope 1, 2, 3 framework to track emissions.

Have questions on how Energetic Insurance can help you implement a programmatic partnership to deploy energy efficiency and/or renewables across commercial real estate sites? Contact us here.   

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

While there is an urgent need to decarbonize our economy for climate change-related reasons, decarbonization also provides health benefits, community resiliency, financial savings, and economic growth. The benefits of clean energy are too often concentrated in already wealthy populations or the largest corporations.  

The Inflation Reduction Act appropriated $27B, which is now managed via the EPAs Greenhouse Gas Reduction Fund (GGRF), to ensure that distributed energy resources are fairly and equitably distributed.

Impact Insurance, as described here, is the most efficient use of taxpayer dollars to achieve climate justice and decarbonization objectives.

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Energetic Insurance was founded with the recognition that credit is often a barrier in clean energy finance. In fact, a “bankable offtaker” is often the most sought-after element of project finance whether that is solar, energy efficiency, battery power, or a combination within a microgrid. These are mature technologies that have been de-risked through field performance, but not deployed because financing entities perceive that the buyer is too risky. Our insurance programs have enabled $500M of project value across solar, energy efficiency, and microgrid projects across 1400 commercial sites in nearly every state in the country.  

Energetic actually lowers the overall cost of capital to projects by allowing for advantaged terms from banks.  

Our efforts provide a model for how insurance can expand deployment using scalable commercial contracts. Our experience informs our proposal that a portion of the funding from the EPA GGRF is used to capitalize a non-profit insurance company. There are 3 principles, described below, that further explain the advantages of this structure.  

(1) Funding exists by creating the right risk profile

The funding required to reach these communities, in many cases, already exists within CDFIs, Credit Unions, regional banks, etc. but is held back by certain risks. We can help these lenders put funds to work. There is no shortage of capital if we can create the right risk profile. Insurance is used in every industry and is often required by lenders for risks that they choose not to take on. Note that when it comes to clean energy, there are new and esoteric risks that may require new types of insurance.

(2) Using scalable commercial contracts

There have been many pioneering efforts by green banks, catalytic capital, and philanthropic sources. These efforts have been essential to get early projects built. However, there are challenges in the timeline, complexity, and replicability of these structures. Loan loss reserves (LLR), subordinated debt, or concessional lending are great but may add complexity and make it difficult for the secondary market to participate. Insurance contracts are much more standardized and recognized in global capital markets as trusted mechanisms for risk transfer.

(3) Crowding in Private Sector Capital

Our proposal will go well beyond just the insurance funds. We will hold the grant funds in reserve and fund ecosystem development work out of the earned interest. Our programming will include the following:

1. Community engagement for top-of-funnel project development: Many individuals, businesses, and communities never get the proposal in the first place. We have built technology tools to help pre-screen sites that have been left behind.
2. Local Developer Training: Local project developers are best positioned, and we want to help them learn the ins and outs of project finance.
3. Local Underwriter Training: Within the banks and CDFIs to help them underwrite projects and how to utilize insurance (if needed, it's even better if they don't!)
4. Workforce developments: We have even contemplated bonding services for local electricians to help them get the insurance coverage they need to work on solar or energy efficiency projects.

Why Impact Insurance Works: Impact insurance is explicitly designed to address the needs of low-income individuals, vulnerable populations, and emerging markets. It provides financial protection and support to those most at risk and lack access to traditional insurance options. The primary goal of impact insurance is to promote social and economic resilience by reducing the financial vulnerability of disadvantaged communities.  

We have been writing about impact insurance since 2020 as a method to bridge financial technology and lead the clean energy transition. As a nonprofit vehicle, impact credit insurance, as an entity, is an untapped resource for low-income and disadvantaged communities to acquire funding for those who have traditionally not been able to receive it.

Impact insurance considers the unique challenges underserved populations face and tailors insurance products to meet their specific requirements. These insurance solutions typically offer affordable premiums, flexible payment options, simplified processes, and coverage for various risks relevant to the target audience. Among its accessibility, affordability, and capacity to enhance financial literacy impact, insurance mitigates risks specific to communities.  

Impact insurance addresses risks relevant to vulnerable communities, such as health emergencies, crop failure, natural disasters, disability, or death. Providing financial protection against these risks helps individuals and communities recover and rebuild after adverse events.

An impact credit insurance vehicle, armed with funding from the federal government, can unlock private capital otherwise withheld from the market due to perceived risk. Private capital is often withheld due to the perceived riskiness of the project. Impact insurance can bring that private to market, bridging the gap between private capital incentives and federal programming to communities in need.

Energetic is currently backed by some of the largest insurance companies in the world, with funding from leading VCs and grant awards from DOE, MassCEC, and NYSERDA. From an initial balance sheet of $1B under the GGRF grant, we can further amplify by crowding private sector insurers behind us, as we have in our traditional business.

Upon recipe of the federal grant, funds will be used as reserves against risks holding back clean infrastructure deployment as we will continue seeking methods to aid in the clean energy transition. We are looking for partners (developers, lenders, and community leaders) who focus on low-income and disadvantaged communities to join our initiative. Partnerships with community leaders and talent that can help build out programming focusing on DEI are especially encouraged to reach out.

The United States federal government often establishes committees to monitor the flow of capital, protect consumers, and provide avenues to boost private capital to achieve public policy goals. On October 5th, 2018, the United States signed the International Development Finance Corporation Act, which modernized the Overseas Private Investment Corporation (OPIC). The OPIC started operations in 1971 and focused on mobilizing private investment in developing countries. The Act expanded the capabilities of the OPIC, transforming it into the Development Finance Corporation (DFC), with enhanced authorities and a higher investment cap. The DFC officially began operations on January 2nd, 2020, with a broader mandate to support economic development and address global challenges.

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Currently, the DFC provides financing, investment, and advisory services to promote sustainable development, job creation, and poverty reduction in low and middle-income countries. Using public and private resources, the DFC can catalyze economic growth and address global challenges while advancing U.S. foreign policy and national security interests. The DFC offers a range of financial tools, including loans, guarantees, equity investments, and technical assistance, to mobilize private sector investment in infrastructure, energy, agriculture, healthcare, and technology. Since its inception, the DFC has approved billions of dollars in financing and investments in these sectors. For every dollar the DFC invests, the organization attracts at least three dollars from other sources. Doing so helps maximize its impact by providing resources and expanding the reach of its investments.

Recently, alongside infrastructure initiatives, the DFC has prioritized investments in renewable energy, energy efficiency, and climate resilience projects. These initiatives reduce greenhouse gas emissions, promote sustainable development, and support the transition to a low-carbon economy. These programs demonstrate the DFC's commitment to driving positive change through targeted investments that have the potential to generate broad socioeconomic benefits in the countries it operates in.  The DFC offers a breadth of tools through a single entity, which is a customer-centric approach that can address needs across an entire project's life cycle. DFC provides a variety of financial instruments that cover all stages of project development, including:

1. Feasibility Studies
2. Technical Assistance
3. Loans & Loan Guarantees
4. Equity Investments
5. Investment Funds

Partnerships are critical to the DFC's success. The organization collaborates with various private sector partners, including financial institutions, development finance institutions, and impact investors. These partnerships enhance the DFC's ability to identify investment opportunities, share risk, and use expertise to optimize the outcomes of its initiatives.

Private sector partners can provide valuable market insights, networks, and access to local stakeholders. These resources facilitate a better understanding of the investment landscape, regulatory environment, and potential challenges. Accessing the partner's market intelligence can help the DFC navigate market dynamics, competition, and political or economic risks. The DFC collaborates with financial and development finance institutions to structure risk-sharing instruments. These instruments, such as guarantees and insurance, help mitigate risks and protect investors from potential losses. By transferring a portion of the risk to these partners, the DFC reduces its exposure and encourages private-sector participation.  Based on its success, the DFC provides a useful roadmap for the way a public institution can create opportunities for private capital while solving a policy goal.  It is set up address problems at all levels:

1. Loans to pay for feasibility studies or other instruments that de-risk against adverse outcomes when a site is infeasible.
2. Direct equity investment in local or regional organizations, training programs, etc that build capacity and expertise.
3. Credit Insurance or loan guarantees that de-risk debt capital is contributed by the private sector; this could also be in the form of equity investments or mezzanine debt.
4. Investment Funds to crowd in private venture capital to target high-impact technology and innovation

What might a similar entity focused on energy transition look like?  DFC provides the framework for how a single entity with a shared vision can address a large scope. This roadmap allows financial organizations to collaborate with stakeholders, including local clean energy developers and government organizations, to reach public policy goals. As the DFC works in low-income and disadvantaged communities in tandem with local enterprises, while incentivizing global investment outcomes, this formula can inspire government entities to continue collaborating with private companies in risk mitigation efforts.

While having incentives to switch to clean energy solutions, most renters can conflict with landlords who are slow to finance retrofits. Bringing affordable, clean energy investment to low-income and disadvantaged communities is critical to aid in the clean energy transition and improve quality of life.

Credit insurance is critical in supporting global trade. According to the International Credit Insurance and Surety Association, Trade Credit Insurance supported 12.07 billion Euros in total trade volume in 2020. Overall, 15-20% of global trade relies on credit insurance to stimulate economies and create a liberal, stable market for goods, services, labor, and capital. As economies and nation-states invest in clean energy markets, credit insurance can continue providing a stable marketplace by mitigating risks for stakeholders.

How did we get here?

The first records of credit insurance date back to the 1860s, when Johns Hopkins endorsed promissory notes from individuals and firms that he judged to be worthy of credit risks. Hopkins promised to fulfill the obligations under the note in the event of default, and made it easier for the note bearer "to sell it to another firm or to a bank." Hopkins's method of endorsing promissory notes, as cited in Arthur Farquhar and Samuel Crowther's book The First Million the Hardest: an Autobiography, also includes historical anecdotes considered to be the entomology of financial derivatives.

Over 100 years after Johns Hopkins began the tradition of factoring, European nation-state borders began solidifying after WWII, and merchants selling goods throughout the continent needed methods to protect themselves against risks. The risks at the time included nationalizing assets (this promoted economic recovery after the war but restricted the scalability of private enterprise) and sovereign and foreign corporate defaults. Merchants were worried about sending goods across newly constructed state borders to buyers with unknown financial histories.

Legal methods to enforce payment "may be either unavailable or too expensive to pursue." To solve this, the Marshall Plan included the creation of the U.S. Export-Import Bank (Eximbank), where the U.S. government worked with corporations to help foreign buyers receive direct financing and have their own streams of revenue insured. After WWII, private-sector groups, like the American International Group (AIG), Zurich Insurance Group (Zurich), and Ace Limited (now Chubb), emerged to provide assurance to offset risks - sellers could pay a premium to transfer payment and recovery risks to other entities.  

Despite advancements in factoring, there is a considerable gap between what lenders are prepared to provide and what borrowers need. The total gap in funding is estimated to be between $2 trillion and $30 trillion USD. This gap in financial resources represents a loss of untapped opportunity for the global economy as these funds are illiquid.  

Resources to support small and medium-sized enterprises (SMEs) exist but are withheld due to traditional lenders' perceived risk. Specifically, compared to large enterprises, only 10% of SMEs have access to financial resources, while 90% of small and medium firms are disproportionately denied access to funding. SMEs face challenges from traditional lenders because there is a perceived high risk in lending to these firms. Traditional lenders rely on conventional risk assessment methods, which consider factors including historical financial records. Just as in previous iterations of global trade, credit insurance provides an avenue toward unlocking and adding funds into the market that otherwise would not have been available.  

The Role of Credit Insurance

Credit insurance has been critical for expanding global trade, particularly for SMEs with low credit scores, simply because they are relatively new to the market.  A similar challenge is emerging for SMEs as the United States transitions to clean energy. SME are viewed as inherently risky.  

Low credit scores and other risk factors are barriers to acquiring clean energy. Specifically, SMEs struggle to secure capital from traditional financial lenders to update or install infrastructure. Riskiness here refers to factors such as location and financial history. Just as in the case of global trade, credit insurance can help with the clean energy transition as it provides factoring services to traditional lenders for borrowers new to the market. Credit insurance assumes the risk and guarantees that the lender will be fully compensated.  

The global economy misses out when capital is withheld from the market based on risk. As the United States and countries worldwide transition to clean energy, providing that financial backstop is critical for unlocking otherwise illiquid capital. When SMEs are denied funding, entire markets lose out on immediate cash flows that can be dedicated to innovative technology and scalable solutions for countries, states, and communities. Where traditional lenders gatekeep resources, credit insurance unlocks the value SMEs can immediately put towards installing or retrofitting renewable technology for everybody. When working alongside government incentives, such as tax breaks and grants, and private capital from traditional financiers, credit insurance is critical to transitioning the world to a more sustainable future.