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This is the second installment of soundbites from Infocast's inaugural Solar + Wind Finance and Investment Summit that was held in Scottsdale, AZ from March 6 to 9. View the first installment.
Below are soundbites from various panel discussions. They are organized by topic, rather than chronologically. They are edited for clarity.
Here are the topics:
- Power Purchase Agreement Market
- Crypto Miners as Buyers of Renewable Energy
- Green Hydrogen Powered by Renewable Energy
- Capacity Markets
- Transmission Policy and Challenges
- M&A Market: Projects
- M&A Market: Platforms
- Cost of Wind Power
- Build Back Better
Power Purchase Agreement Market
"In the fourth quarter, corporate power purchase agreement (PPA) prices were up five percent. Rising PPA prices help the project company with the intermittency of production" from wind and solar.
REIT, Finance Executive
"The offtaker does not select the site, the equipment or the operations," so it does not take the risk that production is less than expected.
Multi National Energy Company, Executive
"Five years ago it was difficult to get Amazon PPAs underwritten by tax equity but the market changes."
Utility Scale Renewable Energy Developer, Finance Executive
Crypto Miners as Buyers of Renewable Energy
Crypto miners are paid in crypto currency for running banks of computer that consume large amounts of electricity. The miners receive crypto currency are either for using their computers to process crypto currency transactions or, in the case of Bitcoin and certain other crypto currencies, as rewards for solving math problems that require progressively more computing power.
China and Russia have banned crypto mining, so many miners have moved to the United States. Their business model depends on cheap electricity, and the cheapest electricity is electricity that would otherwise be curtailed. Accordingly, crypto miners are interested in locating their computer centers near renewable energy projects that are being subjected to curtailment by the grid operator due to an over-supply of wind or solar power during certain hours of the day.
"ERCOT has been Mecca for crypto mining. I don't know how long it is going to be so."
Asian Solar Panel Manufacturer, Executive
"For crypto, how to structure a revenue contract can be challenging."
Utility Scale Developer and Operator, Finance Executive
"We were used to 20 to 25 year PPA with utilities then 12 to 15 with corporates and now five to seven with crypto miners."
Asian Solar Panel Manufacturer, Executive
"Institutional investors will be open to crypto mining as the off-take; banks will not like the credit risk."
Commercial Bank, Managing Director
"Crypto mining is a large energy user. It needs a credit solution, like prepayment of the PPA, for entities that do not have the credit worthiness."
Corporate Conglomerate, Tax Equity Executive
"I am not sure how you make a five year PPA with a crypto miner work for tax equity."
Money Center Bank, Managing Director
"We are working through credit solutions for crypto miners; one of those solutions is prepaying the PPA."
Wind Developer, Executive
Green Hydrogen Powered by Renewable Energy
Another use for renewable energy is to use it to power the process of making hydrogen. Hydrogen has manufacturing and industrial uses or it can be injected into natural gas pipelines such that the pipeline transports a mixture that is partially hydrogen and majority natural gas. When the mixture is combusted, the portion attributable to the hydrogen generates no emissions.
"To make hydrogen, you need water supply and electricity supply and an electrolyzer. You want to run the electrolyzer around the clock, but the price of electricity to power it may vary by the time of day."
Consulting Firm, Energy Advisor
"Sixty to 80 percent utilization for an electrolyzer is what you will want to see."
Integrated Renewable Energy Company, Vice President
"The cheapest power in the world is power that would otherwise be curtailed."
Engineering Firm, Director
"Even a small movement in cement, aluminum or ammonia can make a big market for hydrogen. The uses right now are mostly for oil and ammonia."
Integrated Renewable Energy Company, Vice President
"For hydrogen to be financeable, you need a minimum 10-year off-take contract. But why would an off-taker sign a 10-year contract if the cost of hydrogen is projected to decline? Your can address in part by adding a price adjustment if there is a PTC enacted for hydrogen."
Integrated Renewable Energy Company, Vice President
"The most important thing that the federal government can do for the financeability of green hydrogen is to make it PTC eligible."
Engineering Firm, Director
"The combination of PTCs and federal support for hydrogen hubs is what we need. Sen. Joe Manchin is quite interested in the hydrogen PTC as a benefit for his state of West Virginia."
Integrated Renewable Energy Company, Vice President
[The hubs were in the infrastructure bill that was enacted. The PTC is part of Build Back Better, which is discussed below.]
Capacity Markets
"The purpose of capacity markets is to ensure there is adequate supply during peak load or emergency periods, not to the incentivize renewables."
Energy Consultant
"Capacity markets are designed so that the lights only go out for one day in ten years. The benefits of renewable generation need to come through from other incentives, like state renewable portfolio standards (RPS), not the capacity market. The exception is that batteries make renewable projects more valuable to the capacity markets."
Multi National Energy Company, Executive
Transmission Policy and Challenges
"There is still a fair amount of risk that has not been taken out of the interconnection process for storage. We filed a storage interconnection request with the Southwest Power Pool five years ago and just received the study."
Utility Scale Solar & Storage Developer, Executive
"Interconnection applications may make you select whether the storage projects is stand-alone or combined with a generation source, and at that point you may not be ready to commit to one or the other."
Utility Scale Solar Developer, Executive
"The levelized cost of energy (LCOE) from wind has come down substantially, but the ratepayers of utilities are not seeing that benefit because wind is not being provided the access to transmissions that it needs to be efficient."
Wind Turbine Manufacturer, Finance Executive
"Each state is going at transmission independently and wants local jobs and control. By definition, that is going to be sub-optimal. We have to accept the fact that it is not going to be efficient but over time we should see improvements."
European Wind Turbine Manufacturer, Executive
"How can the cost of grid upgrades [to accommodate renewables] be socialized. The whole cost of grid upgrades for renewables generally cannot be passed on to individual projects. That does not mean projects get a free pass, but it has to be reasonable."
Wind Turbine Manufacturer, Finance Executive
"We are moving the right direction, but it is not going to be fast because the permitting process is so slow. This is a long-term problem we are trying to solve."
European Wind Turbine Manufacturer, Executive
"If you want to have harmonious transmission you have to either slow down generation or accelerate transmission. Either one has an economic cost or a cost to the planet. Storage can help with this problem."
US Development Arm of a European Utility, Executive
"In terms of transmission and market design, the system is a bit broken but not horribly so."
Multi National Energy Company, Executive
"Solar dominates in the interconnection queues on a MW basis, but if you translate that to MWh then solar and wind are in parity. We need both."
European Wind Turbine Manufacturer, Executive
"Transmission is a huge opportunity to drive costs down and avoid the need for more storage, but it is not easy to make it efficient when there are so many states that want to be independent."
Solar Developer, Executive
M&A Market: Projects
"People used to sell projects at notice to proceed (NTP) [(i.e, when the project is ready to break ground)]. Now, people are selling before that, even selling land positions."
Community Solar Developer, Executive Director
"There are a lot of people with money chasing a finite number of deals."
Community Solar Developer, Executive Director
"Solar has never been boring. I expect to see more and more capital enter the industry."
Community Solar Developer, Executive Director
"Developers cannot think of early stage projects as like their children that can do no wrong. When I was a developer we took the approach in our development process of trying to find the problem that would kill the project to make sure the project can survive through the financing process. You can waste a lot of time on a project that ultimately dies, so it is better to kill it early."
Integrated Solar Investor, Executive
"If you know what issues to look for in diligence, you will lose deals to buyers that don't know what to look for."
Community Solar Developer, Executive Director
"It used to be if you waited six months the price for equipment would be cheaper and you could earn a spread for that, but right now it is all upside down with equipment prices rising."
Microgrid Developer, Executive
"We are really good at operating. We are not that good at development because we approach it with a utility mindset." So we prefer buying projects from developers.
Utility Holding Company, Executive
M&A Market: Platforms
"The amount of platform sales in the last six months is crazy. I predict there will be heartburn for the buyers. I am skeptical those platforms will produce at the valuations the buyers expect. In many cases, they are buying development practices that have never built out their own projects."
Community Solar Developer, Executive Director
"Development is a people business. No one person has all of the skills, so it is a question of how well the development team works together. It is a big red flag if a team cannot acknowledge where it is weak and needs to hire."
"A big factor in how investments in development platforms are structured is whether there investor funds overhead or not. If we are covering the overhead of the team, we want team committed to giving this all of their attention and exclusivity and non-competes."
"Investors like to provide a development loan with an option to buy the option at agreed prices at various milestones, but that raises questions of alignment between the investor and the development team."
"In utility scale solar there is more continuity if one person leaves, but with commercial and industrial (C&I) solarI there are many micro decisions to be made all the time that can be problem if someone leaves the development platform. For C&I, you really have to trust the team."
"We've done well either providing very flexible capital or adding value. Adding value can be introductions, thinking through supply chains or tax equity. Some sponsor investors can only do one of these two things. As a developer, you really need to make sure you are getting what you want. If there is a competitive bid process with a financial intermediary running it, there is not enough human interaction to make sure that the developer and the investor have an understanding of what the developer needs and the investor can provide. At the end of the day, it is a human business. You need to know and trust you are working with the right folks."
All of the quotes above are from Alternative Investment Company, Fund Manager
Cost of Wind Power
"Everyone has been looking for ways to take costs out. We need LCOE discipline and long-term policy certainty. It is hard for anyone to invest R&D or make manufacturing investments without long-term policy certainty."
Wind Turbine Manufacturer, Finance Executive
"You could probably bring down costs with behind the meter wind that does not have to be responsive to the grid. One thing such projects could do is make green hydrogen."
European Wind Turbine Manufacturer, Executive
"The cost of a lease off the East Coast of the United States for an offshore wind farm is as much as the cost of the turbines."
US Arm of European Renewable Energy Developer, Executive
Build Back Better
President Biden has proposed the Build Back Better (BBB) bill. The bill would extend the tax credits for renewable energy and create tax credits for hydrogen production, stand-alone storage and transmission. The bill includes a "direct pay" option whereby a taxpayer can elect a cash payment from the IRS in lieu of tax credits. After a transition period, the direct pay option would require meeting United States content requirements and paying "prevailing" wages for labor for construciton and maintenance; further, for projects for which direct pay is not elected, meeting those requirements would result in a bonus tax credit. The bill needs the vote of every Democratic or Independent senator to pass using the "reconciliation" process to avoid a Republican filibuster. It has stalled due to objections from Sen. Manchin (D-WV), who is generally supportive of the energy provisions but has concerns about the social spending aspects of the bill and the bill contributing to inflation, which is already running at record levels.
"We were really excited about the domestic content requirements in President Biden's proposed Build Back Better bill. It would give an incentive to invest in manufacturing in the US."
European Wind Turbine Manufacturer, Executive
"We've seen solar to go from highest cost to lowest cost energy. BBB's prevailing wage rule would push us towards union labor. Many projects are in rural areas. To comply with prevailing wages, that may mean bussing in union workers from other areas."
Solar Construction Contractor, Executive
"Expanded tax credits from BBB can only help. BBB's proposed apprentice program is good for the industry, whether it is enacted or not."
Construction Company, Executive
"We think there is a product to be built around direct pay that monetizes both depreciation and the cash flows from direct pay. We are hearing from many big sponsors that they are going to continue in the tax equity market for the foreseeable future."
Money Center Bank, Managing Director
"Direct pay would be helpful helpful for particular sponsors and specific projects, but it is not going to be right for most."
Utility Scale Renewable Energy Developer, Finance Executive
"When you do the math on direct pay, I am actually willing to take the pain of tax equity."
Renewable Energy Sponsor, Execuive
"Direct pay is not as great as it sounds."
Money Center Bank, Managing Director
"Whenever anyone asks me about direct pay I try not be defensive. There is a place for everything. It could help projects that are too small or have some nuance to them that does not allow them to raise tax equity."
Corporate Conglomerate, Tax Equity Executive
