Soundbites II From Solar + Wind Finance And Investment Summit 2022 – Renewables

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

“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

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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