The latest on Energetic and renewable energy trends.

Infocast’s Solar & Wind conference is brings together , investors, developers, and banks, offering collective perspective on the challenges and opportunities shaping the future of energy. Our CEO Jeff McAulaly reflects on his latest trip to the Biltmore, distilling the essence of our conversations and takeaways, highlighting the collective wisdom and potential pathways forward for our industry.

Navigating Financing Complexities in Renewable energy Projects

One of the prevalent themes of the conference was the intricate landscape of financing for renewable energy projects. The goal is ambitious yet clear: transition from traditional financing models to more flexible frameworks that can cater to the diverse needs of developers and investors alike. There is a clear opportunity to improve on the status quo approach to financing. As the energy transition expands, project sponsors will need pragmatic partners that aim to understand and mitigate risk – rather than avoid it altogether.

The Evolving Dynamics of Renewable energy Development

The conference illuminated the varied scales and ambitions of renewable energy project developers, from small-scale ventures eyeing community solar opportunities to larger, more ambitious projects seeking substantial development capital. The path from concept to completion is fraught with challenges, yet the determination to explore and execute these projects underscores the vibrant dynamism within the renewable energy sector.

Strategic Partnerships and Collaborations

A recurring insight was the critical role of strategic partnerships and collaborations in overcoming industry hurdles. Whether it's through direct sales strategies, leveraging EPC partners for better project flows, or exploring development capital options, the power of networking and shared knowledge cannot be overstated. The discussions underscored the potential for mutual growth and learning, reinforcing the idea that collaboration is key to navigating the complexities of the renewable energy landscape.

The Financial Institutions' Perspective

Financial institutions play a pivotal role in the renewable energy ecosystem. Despite the rising proportion of tax credits in the capital stack, bank debt is key (not to mention that the largest tax investors are banks anyway). Banks continue to employ de-risking strategies that reflect a broader industry trend towards stability and predictability. However, the dialogue also pointed to a need for more innovative financial products that can accommodate the unique aspects of renewable energy financing.

Looking Ahead: Equity Gaps and Fundraising Opportunities

A notable discussion centered around the 'equity gap' in the renewable energy project financing capital stack, emphasizing the need for 'step up equity' solutions to bridge this divide. This insight opens up avenues for new market entrants, aiming to develop financial products that not only address this gap but also unlock new opportunities for growth and expansion within the sector.

Conclusion

Infocast Solar & Wind was a melting pot of ideas, challenges, and strategies, reflecting the vibrant and ever-evolving nature of the industry. As we look forward, the insights garnered from these discussions will undoubtedly play a crucial role in shaping the future of renewable energy deployment. By embracing innovative financing models, fostering strategic partnerships, and exploring new development opportunities, we can collectively move towards a more sustainable and resilient energy landscape.

As you move forward with your energy projects, we stand ready to power your progress. Our specialized debt and credit insurance offerings are crafted with the innovative spirit of your projects in mind. Join us in driving the renewable energy revolution forward. Let's shape a sustainable future, together.

We launched Energetic Capital to provide a better construction to term financing solution for renewable energy projects in the commercial & industrial segment. Building on the foundation laid by Energetic Insurance, our mission continues to focus on enabling creative and cost-effective financing solutions for projects with sub-investment grade or unrated offtakers.  

Access to commercially feasible post-NTP financing has constrained deployment of onsite decarbonization projects.

Existing financing solutions are inflexible, expensive and slow, offering few options for developers that want to own and operate their projects. Energetic Capital is a response to the feedback we hear from stakeholders everyday:

1. Exploring bank markets for C&I projects can be challenging and time consuming, diverting focus from your core focus, project development.
   
2. The growth of developers sometimes exceeds the scaling capabilities of local and regional banks.  
   
3. Perception that credit is binary, limiting appetite to offtakers with public, investment grade ratings, while attributing no value to ancillary revenue streams important to C&I projects
   
4. Rigid, checklist underwriting arbitrarily applied to C&I projects reduces debt proceeds without any risk-adjusted context or flexibility.
   
5. multiple technologies in a single loan
   

Energetic Capital provides a better C&I financing solution. Our approach to construction to permanent financing is solution oriented, cutting through the noise to identify the best financing solutions for your projects. We have an appetite for mixed technology portfolios on a national scale, with flexible solutions built to scale with our developers.

To date, we have supported over 1,500 sites across the United States, facilitating approximately $500 million in total energy transition investment. We have helped structure solutions to support solar, solar+storage, community solar, microgrids, and energy efficiency contracts. Energetic Capital is positioned to adapt and thrive amidst the ever-changing landscape of renewable energy financing. Central to our ethos is a desire to serve as a reliable, insightful, and steady partner in all our engagements. Our history of working with leading sponsors and capital partners to support a wide range of renewable energy initiatives underscores our commitment to practical, effective solutions. As Energetic Capital, we remain focused on our goal: to contribute to a sustainable and decarbonized future through strategic financial solutions.

The commercial and industrial (C&I) segment of the energy transition – i.e. distributed, behind the meter energy resources - has experienced only modest market penetration over the last few years, particularly compared to other segments like utility scale and residential solar. In 2023, non-residential commercial solar accounted for ~5% of total solar installations and Wood Mackenzie forecasts ~2GW of commercial solar installations in 2024, compared to almost 25GW of utility scale solar. Historically, C&I solar has been limited to investment-grade companies, MUSH1 or community solar projects that are perceived to have a low credit-risk profile. This narrow approach limits the potential for solar expansion in the broader C&I market. Nearly all US businesses fall into the “True C&I” segment - commercial real estate, unrated or sub-investment grade corporates or small & medium enterprises. By some analyses this segment could generate 25 percent of all the electricity used in commercial buildings in the United States and about 10 percent of all electricity generated in America.

The Changing Landscape of C&I Solar Development

Utility scale projects are extremely competitive, and take years to materialize due to interconnection queues, permitting etc. Investors are competing for the same pool of projects, driving margins down. Developers that are shifting away from the historical focus on utility scale are discovering a relatively untapped market of C&I solar: one that encompasses a broader range of small & medium businesses and commercial real estate.

These projects are harder to execute – there are many more stakeholders and sites to content with, and the entities may not have the same credit profile “on paper” as investors are used to in the utility scale segment. Success requires expertise, strategy, thoughtfulness, and a pragmatic financing partner that recognizes this segment does not introduce a materially higher risk profile.  

The opportunity in the C&I segment has attracted significant interest from investors. Notable instances include:

• EQT's purchase of Madison Energy Investments.
• Denham Capital's acquisition of Solops.
• Aspen's acquisition of Safari Energy.
• Warburg Pincus backing Scale Microgrids Capital Solutions.
• Hull Street Energy announces Strategic Investment in Greenskies Clean Focus.

The run of mergers and acquisitions in C&I platforms, emphasizes the sector's potential.

The Future of a Mature C&I Solar Market

As the C&I solar market continues to evolve, the focus on investment-grade clients is diminishing, paving the way for developers to take advantage of a more inclusive and diverse range of solar projects involving non-investment-grade businesses. By addressing the challenges associated with these projects through innovative solutions, the C&I market can continue to expand and diversify, providing more opportunities for developers to expand their market share and advance the energy transition.

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.