The Real Art of the Deal: How to Negotiate Billions in Renewables Projects

How do you broker billions of dollars worth of renewable energy deals — and do it again and again?

It takes grit, sure. But it also requires empathy. And that, says Conor McKenna, is the real art of the deal.

McKenna is a senior managing director at CohnReznick Capital Markets. He’s helped close 8 gigawatts of wind, solar and biomass projects over his career.

We all know “The Art of the Deal,” Donald Trump’s 1987 book that offers hard-nosed business advice. The book includes lessons like fight back, play the game hard, and deliver the goods. 

This advice has shaped our perception of real estate and Wall Street culture. But McKenna says one important lesson is missing: how to form good relationships so that everyone benefits from a deal.

“Every time we’ve seen someone focus on getting that last dollar out of an individual transaction, we’ve found that they’ve had a much harder time in repeating business and growing and scaling at the same rate as this industry.”

This isn’t a soft tactic. When you’re trying to pull together hundreds or thousands of megawatts of projects — and repeat the process over many times — you have to actually care about the people on the other side of the table.

“Those that have left money on the table and and allowed for their partners to feel successful as well, have had a lot more repeat business.”

In this episode, produced in partnership with CohnReznick Capital, we look at how empathy can translate into billions of dollars in cash and push renewables further into the mainstream.

from GTM Solar https://www.greentechmedia.com/articles/read/the-real-art-of-the-deal-how-to-negotiate-billions-in-renewables-projects

Clearing Up Confusion Over Community Solar in New York

Community Solar in New York has a messaging problem. It is confusing, and even some industry professionals have given up in disgust because of aggressive marketing and a lack of clarity.

Fortunately, aggressive marketing is not universal among community solar developers. Unfortunately, the lack of clarity is almost universal.

The system the New York utility regulator set up for community distributed generation, or CDG, is counterintuitive for most potential customers. Such programs include community wind and hydropower, as well as solar.

Under the CDG system, the utility pays for a project's electric production with credits which can be used to reduce the electric bills of any of its customers in the same load zone. The project sponsor cannot directly monetize these credits, but instead signs up CDG members (also called customers or subscribers) who pay the sponsor in return for the credits, which reduce the cost of their electric bills.

The wrong assumption

The confusion arises because most individuals who sign up for a CDG contract (which can be a purchase or a subscription model) think of it as buying renewable electricity. In many cases, the credits are even denominated in kilowatt-hours. Others are denominated in dollars.  

In fact, community distributed generation bill credits are that and only that: bill credits. CDG members are getting the financial benefits of clean power, but not the environmental benefits.

According to Jeff Irish, VP and General Manager of solar installer and community solar developer SunCommon, the utility gets the right to claim that it is using solar power, a benefit that it uses to meet state requirements under the Clean Energy Standard. The Value of Distributed Energy Resources (VDER), which is used to calculate the value of the credits members receive, includes a payment (“E”) for the environmental attributes of the energy generated.

The CDG members receive the “E” payment as part of the bill credits they receive, while the utility gets the environmental attributes of the electricity. These attributes include the right to claim that it is using solar (or other renewable) power equal to the amount generated by the project. This renewable energy becomes part of the energy mix used by all the utility's energy supply customers. 

The solar energy generated is therefore shared between all of the utility's energy supply customers, and reflected in the utility's environmental disclosure. It also helps the utility meet its Clean Energy Standard requirements.

The problem comes from double counting

This may all sound like bureaucratic nonsense, and many readers are likely wondering why anyone should care if community solar member think they are getting solar electricity, and not just savings on their electric bill. 

After all, the solar electricity is being generated, and the community solar member is helping the project sponsor by allowing the sponsor to turn CDG credits in to cash. Without community solar members, there would be no way for the sponsor to make money, and hence no community solar. 

The problem comes from double counting. If community solar members sign up just for the financial benefits (which can be substantial, typical savings are a 10 percent discount on the utility bill) it does not matter if they think they are getting solar electricity.  

If, on the other hand, the members signed up in part because they want to advance solar energy in New York by making sure that all the electricity they personally use is renewable, they will be disappointed if they learn that “their” solar electricity is being used by their utility to meet its Clean Energy Standard mandate. 

When utilities can count community solar towards their state-mandated renewable energy goals, every kilowatt-hour a utility gets from community solar allows it to buy less renewable electricity from some other source.

In any case where a utility is purchasing clean energy solely to comply with the state Clen Energy Standard, community solar customers of that utility will not add to the total amount of renewable energy used by the utility. Instead, their community solar will displace renewable energy from some other source.

This is why US EPA guidance regarding green power claims clearly states that purchasers of green power ensure that the contract “conveys the full rights to the environmental benefits of the generation source. In the United States, this is generally substantiated through the conveyance and ownership of renewable energy certificates (RECs).” 

Without the REC tracking mechanism, there is a risk that people will claim to be using more renewable electricity than is actually generated. For every megawatt-hour of renewable electricity generated, only one person can claim to have used it, and that person is the one who bought and retired the REC (or had the REC purchased and retired on their behalf.)

An Exception

While New York community solar members do not get the right to claim that they are using renewable energy with their subscriptions, there is a loophole.

Hydropower from facilities put in service before 2015 does not meet the eligibility requirements of New York's Clean Energy Standard, with a few exceptions. Some hydropower facilities smaller than 5 MW are switching over from previous power purchase agreements with their existing facilities to compensation via the CDG mechanism and the Value of Distributed Energy Resources (VDER).

Facilities that do not meet those eligibility requirements do not get the “E” value of VDER, and the hydropower operators retain the RECs, which are tracked by the New York Generation Attribute Tracking System (NYGATS.) These RECs cannot be sold, but they can be transferred to CDG members.

One such community hydro company is Natural Power Group, Inc., which is signing up customers at its Wallkill Community Hydro, and Wappingers Falls facilities. Central Hudson customers receive bill credits on their electric bill at a 10 percent discount. This small, family-owned firm does not receive the “E” value in VDER, and so its customers are eligible to receive RECs and other environmental attributes of its generation, though it does not currently provide them to customers. 

Natural Power Group's contracts specify in the fine print that the customer has “no right with respect to any attribute or commodity associated with the hydro, including any environmental attributes, renewable energy attributes or credits, carbon offset credits.”

When asked about this, Natural Power Group owner Sarah Bower replied that the contract was written when she and Central Hudson believed that the company would be receiving the “E” value.  More recent rule changes mean that Natural Power Group is not receiving the “E” value. According to Bower,  “Although we are creating environmental certificates that are registered with NYGATS, they are going nowhere.” 

She had not previously looked into transferring these certificates to customers because she believed that “it would simply increase book keeping with no tangible results.”

Customer Confusion

Many New York community solar customers and community hydro customers don't know if they should be claiming to be using renewable energy. On the solar side, a cleantech professional wrote that when he asked for “more clarity on the REC question... the sales process fell apart” and the community solar developer lost what should have been an easy sale.

On the hydropower side, the current limbo has led different customers to reach different conclusions and make different claims.

A group of representatives of local governments participating in New Yorks's Clean Energy Communities Program recently gathered to share the result from their climate action planning efforts. Several had signed up for community hydropower with Natural Power Group, but their interpretations of the impact on their carbon emissions varied. 

Ulster County and the Town of Marbletown chose to strictly adhere to the EPA guidelines. According to Amanda LaValle, Coordinator at the Ulster County Department of the Environment, “In line with the EPA guidance, we deem it necessary to own the environmental attributes in order to make green power claims. For electricity, this means owning the RECs." 

"Ulster County has been buying 100 percent green power using voluntary RECs since 2014, and the County’s need for RECs has been decreasing since then due to energy efficiency upgrades," LaValle said. "The County intends to acquire an increasingly larger portion of its RECs from local sources, such as through its contract with Natural Power Group.”

The Town of Rosendale also spoke to Natural Power Group about RECs and concluded that, since Natural Power Group is not selling the RECs to anyone else, it can count them towards its carbon reduction goals. 

While not at the meeting, the Town of Woodstock states in its March 25th environmental report to the Ulster County Climate Smart Committee that Woodstock's “recent subscription for hydroelectric power from the Natural Power Group will eliminate most of the carbon emissions attributed to electricity.” 

In an email, Kenneth Panza, Woodstock's Liaison to the committee, explained that he believes Woodstock has no need for RECs or other environmental attributes to make these claims.

Natural Power Group is investigating what would be involved in providing RECs to customers who want them. Its supply of RECs is far more than would be needed for this task. Without the “E” value from VDER, the credits the company receives for its generation are worth less than half what retail customers are charged for the same amount of electricity used by its customers. 

It is possible that the company may find that it is able to provide its customers two to three times as many RECs as they need to cover the electric use. This could be useful to Towns such as Rosendale and Woodstock which also buy electricity for street lights, because street-lighting bills are not eligible customers for community solar or hydroelectric, and these Towns might be able to apply the extra to electricity usage from streetlights or other bills that are signed up for community solar (and hence do not receive RECs.) 

The possibility that Natural Power Group may be able to transfer more RECs to a customer than their current usage also holds a risk for others claiming environmental benefits without actually owning the RECs.

RECs can be transferred at any time until they are “retired” as part of a customer's claim to be using renewable energy. 

While Natural Power Group's RECs are currently in limbo, until Natural Power Group actually transfers these RECs, those of its customers who are claiming to be using renewable electricity are opening themselves up to embarrassment. If used in advertising to sell a product or service (i.e. “made with 100 percent renewable electricity”), such claims can even invite legal liability.

Conclusion

New York's electricity regulator chose to separate the right to claim to be using solar electricity (RECs) from community solar because allowing the utility to use the RECs to meet its Clean Energy Standard mandate means that the utility can pay more for the electricity than it would otherwise. This means that community solar customers get more savings on their electric bill, and more community solar farms can be built.

No good deed goes unpunished, and the system has led to confusion.

In some cases, confusion has led potential customers not to sign up for community solar because they are not getting the RECs.

More often, it leads to customers assuming that they are getting renewable electricity when they are not. This leads to double-counting and undermines the State's renewable energy goals. Some customers who want to do their part by buying renewable electricity believe they are getting it when they sign up for community solar or hydro-power, even when they are not.

Customers need to realize that community solar and community hydropower are a great deal even if they do not include renewable electricity. Typical subscriptions provide utility bill credits at a price of ninety cents on the dollar. Purchases of panels at a community solar farm (such as those offered by SunCommon) can provide even greater financial savings for customers able to use the Federal tax credits.

Fortunately, there is nothing to prevent a community power customer from also buying RECs by switching to a green energy supply company, urging their municipality to join a green Community Choice Aggregation program, or persuading their community hydro company to include RECs in their contract. 

The significant savings from community solar and hydro can easily pay for the low cost of RECs. While some retail customers may find themselves using their entire savings from community solar to buy green electricity, large and sophisticated buyers like Ulster County or Community Choice Aggregators can purchase RECs for a fraction of a penny per kilowatt-hour, or less than one percent of a typical electric bill.  

from GTM Solar https://www.greentechmedia.com/articles/read/clearing-up-confusion-over-community-solar-in-new-york

Loanpal Rockets to Second Largest Solar Loan Provider in the US

Rooftop solar enjoys strong public support across the United States. So why aren’t solar panels blanketing communities across the country?

The reason there aren’t millions more homes with rooftop solar isn’t due to a lack of demand, it’s because a lot of American homes aren’t solar-ready, according to Hayes Barnard, CEO of Loanpal, which recently became the fastest-growing solar lender in the nation.

Getting solar ready may require installing a new roof or upgrading the home’s electrical panel. And these things are not cheap, with a price tag anywhere from $2,000 to $10,000. That’s typically a deal breaker for a customer trying to go solar for zero money down.

Roughly 2 percent of homes in the United States have gone solar, and people don't really understand why that number isn’t higher, said Barnard, who previously served as chief revenue officer at SolarCity. “They just assume it's demand, and that the customers don't call. But that's not the case.”

“When I was [at] SolarCity I became very frustrated that so many people were told … they couldn't get solar,” he said. “The main reason was people would get hung up in the financing process for solutions to get their home solar ready.”

The idea behind Loanpal was to find a way to finance home upgrades for prospective solar customers. For that reason, Loanpal is focused specifically on the financial piece of the solar purchase and does not actually build any rooftop solar systems. The company’s secret sauce is its proprietary fintech platform that serves as connective tissue between banks, clean energy system installers and homeowners.

For homeowners, Loanpal offers zero down financing and virtually instant loan approvals for solar, batteries and other home upgrades, like the “Square or PayPal” for clean energy purchases, said Barnard. For installers, the benefit is Loanpal’s technology directly integrates into their point of sale and operational systems, creating a seamless sales and back office experience. Banks, meanwhile, benefit from an efficient way to deploy capital without the traditional costs associated with a consumer-lending platform.

So far, this approach appears to be paying off.

Loanpal announced today that it is now responsible for financing 21 percent of all new residential solar loans in the U.S., after just 15 months in the market. That figure aligns with research from Wood Mackenzie Power and Renewables, which currently ranks Loanpal as the second largest residential solar loan provider in the U.S. with 20 percent market share in that space in 2018. That makes Loanpal the third largest residential financier overall, after Sunrun and Mosaic.

In addition, Loanpal claims that 80 percent of the top 50 solar providers in the U.S. now use its fintech platform. The company also closed a $241 million dollar securitization with Goldman Sachs earlier this year, and claims to have partnerships with a number of other large institutional banks. Barnard said the firm’s goal is to sign forward flow agreements with another five to six banks over the course of the year.

Loanpal launches with SolarCity expertise

These stats represent rapid growth since the launch of Loanpal’s solar loan origination platform in December 2017. But the company isn't entirely new to the market.

Loanpal was previously Paramount Equity Mortgage, which was incorporated in California in 2003 to provide residential mortgage loans. Paramount launched a residential solar finance company, Paramount Solar, in 2009, which was acquired by SolarCity in 2013. SolarCity was then acquired by Tesla in November 2016, and has since seen its presence in the residential solar sector shrink significantly.

Barnard left the company shortly before the Tesla acquisition, in August 2016, according to LinkedIn. He went on to launch the Loanpal brand and brought several former SolarCity employees along with him, including COO Tanguy Serra and SVP of Market Development Matt Dawson.

Loanpal has funded more than $27 billion in total loan volume since its inception as Paramount Equity Mortgage. This background has enabled the company to get a jump on the solar loan competition.

“They are a relatively new solar loan provider, but with the backing of a large mortgage company and the expertise from several seasoned industry executives, which gives them clout,” said Allison Mond, solar analyst at Wood Mackenzie.

“I think Loanpal is likely the last major entrant into the uber-competitive solar loan space, and they were able to do so because of their mortgage business plus solar executive team,” she added.

Barnard acknowledged it would not have been possible to launch a consumer finance company like Loanpal from scratch, without prior history of working with the banking business.

Loans are now the dominant residential solar financing option in the U.S., outperforming third-party-owned solar sales in 2018 for the first time since WoodMac (formerly GTM Research) started tracking the solar sector.

But while Wood Mackenzie is projecting growth in the solar loan space over the next few years — albeit slower than in past years — Mond said there are so many companies currently occupying that space that the market is likely to see a contraction or possibly some exits.

A new model: link solar loans to mortgages

Loanpal is uniquely positioned in the solar market because of its ties to the mortgage industry.

Not only does the company originate loans to homeowners for home improvement projects, like rooftop solar, but Loanpal also holds residential mortgage licenses in all 50 states. Most notably, the company has found a way to roll those clean energy loans into the customer’s mortgage.

“Ultimately, it's gravity,” said Barnard. “All of these loans will live in the first mortgage at some point in time. But we don't try to do a first mortgage that demands this asset up front, because that would be too onerous of a process for the homeowner and the contractor doesn't have that patience.”

“Instead, we do a consumer finance loan, a simple, easy, frictionless loan,” he said. “And then later in the relationship with the consumer … we can have an educated conversation on whether or not they'd like to roll it into their first mortgage.”

This model failed in the past, said Barnard, because there was too much paperwork for the homeowner and the solar installer to handle. The development of fintech solutions and a growing consumer preference for loans made the business possible.

Today, this model means that installers like Sunrun or Vivint manage the solar customer relationship entirely at the outset, and simply present Loanpal as a financing option. The mortgage conversation only happens once the solar project finance deal is complete.

There are a few consumer advantages of rolling a solar loan into a first mortgage, said Barnard. For one thing, it's tax deductible. It also means the customer can avoid making two separate payments.

Banks like it because they traditionally haven’t had enough data on the residential solar asset class to know what the system performance would be, and didn’t get into financing these assets as a result. Plus they get to drive significantly more loan volume overall. Solar installers, meanwhile, have already made their sale using Loanpal’s back-end system by the time the mortgage conversation comes up, and are indifferent to the customer’s next move.

“Loanpal’s strategy to eventually roll their solar loans into mortgages is novel and not yet proven,” said Mond. “But if it works, it could be an effective way to grow both businesses.”

Eventually, Loanpal wants to go beyond solar, storage and basic home upgrades to finance virtually every major aspect of the home.

“We're really going to look at all of these things that homeowners want to do to turn their outdated home into an energy efficient smart home, and continue to find new ways to unlock capital from the biggest banks in the country,” said Barnard. “We’re going to build a conduit for world-positive banking."

***

Attend a keynote interview with Loanpal CEO Hayes Barnard at Greentech Media's Solar Summit next month in Scottsdale, Arizona. Now in its 12th year, Solar Summit remains the premier conference for defining the latest industry needs for installers, developers, system manufacturers, regulators and financiers.

from GTM Solar https://www.greentechmedia.com/articles/read/loanpal-rockets-to-second-largest-solar-loan-provider-in-the-us

Verizon Hints at Big Renewables Purchases As It Pledges To Go Carbon Neutral

Verizon announced Monday it will go carbon neutral by 2035 for scope 1 and scope 2 emissions, encompassing direct emissions and those from the purchase of energy.

The commitment is the third in a “trifecta” of recent corporate sustainability announcements, said Jim Gowen, the company’s chief of sustainability. In February, Verizon announced the creation of a $1 billion green bond program, with proceeds going to projects such as energy efficiency, renewable energy and other sustainability efforts. In December, the company pledged to reach 50 percent renewable energy by 2025.

Gowen said Verizon is in the midst of a sustainability evolution, pushed along by global moves towards more environmentally-friendly business practices and better economics for clean energy technologies. 

But many of the company’s peers in the wireless space have been quicker on the uptake: In 2018 T-Mobile committed to 100 percent renewable by 2021 and the Renewable Energy Buyers Alliance ranked AT&T second in 2018 for corporate renewables deals. Last year AT&T procured 820 megawatts of wind. 

Verizon said its ready to compete with those commitments — even as it expands its 5G network. 

"When Verizon does things ... we go all in," said Gowen. "We will continue to push the needle."

To achieve its carbon neutrality target, Verizon will need to significantly raise its 50 percent renewables by 2025 goal. The wireless company also has a long way to go to reach that target: according to Gowen, current onsite renewable generation makes up less than 3 percent of the company’s consumption. 

Though Gowen declined to offer specific details about the company’s coming clean energy commitments, he said more “significant” announcements are to come in the next year. 

But according to the company, because its 50 percent by 2025 goal encompasses Verizon's entire operation — the company has both a wireless and wireline business — the target "will allow us to more than cover 100 percent of Verizon Wireless' consumption."

Back in 2013, Verizon dropped $100 million into solar and natural gas fuel cells. In 2016 the company committed to another 24-megawatts of onsite projects by 2025. Now, Gowen said Verizon is investigating wind and other onsite options as well as power purchase agreements (PPAs) and virtual PPAs.

Verizon may also consider renewable energy credits, though Gowen said they’re not a first priority. But in meeting the 2035 goal, he said “nothing is off the table” (aside from fuel-cells, which won’t count towards the target).  

“The way we’re looking at this is it is the right thing to do," said Gowen. "We’re starting from that premise and then we’re going into the business case.” 

But like many companies investing more in clean energy, Verizon did emphasize that the business case needs to be there. 

“I do want to be clear: we don’t do anything at Verizon without a business case,” said Gowen. “We are a for-profit. We’re going to be looking where business case make sense, where incentives make sense and where we can strike the right business relationship.”

Verizon will be looking at sites that can power its larger locations in states like New Jersey and California, which also happen to have healthy renewables incentives. 

If wireless companies continue making such clean energy commitments, the implications would be wide-reaching. According to Verizon, more than 92 percent of the company’s emissions come from electricity that powers its wireless networks, which fits within scope 1 and 2 emissions.

from GTM Solar https://www.greentechmedia.com/articles/read/verizon-announces-carbon-neutrality-commitment-hints-at-increased-renewable

Nevada’s 50% Renewable Portfolio Standard Clears Legislature

A bill increasing Nevada’s renewable portfolio standard to 50 percent by 2030 cleared the state assembly on Friday with zero no votes, sending it to Governor Steve Sisolak’s desk. The bill unanimously passed the Senate on Tuesday. 

The governor’s office did not respond to an immediate request for comment on Friday, but Sisolak is widely expected to sign the legislation, called SB 358. The governor, a Democrat, campaigned on support for a higher renewable portfolio standard. The law also has support of the state’s largest utility, NV Energy. 

The law speeds along a target that Nevada voters approved in 2018: Question 6, which would have changed the state’s constitution to include the higher renewable portfolio standard. In Nevada, voters must approve constitutional changes in two separate elections held in two even-numbered election years. That means the amendment was up for vote again in 2020. The passage and likely signing of the 50 percent bill means Nevada can move ahead before it holds its second vote. 

Clean energy advocates widely applauded the passage on Friday. Groups including Battle Born Progress, a Nevada-based progressive group, Chispa Nevada, part of the League of Conservation Voters, and the Vote Solar Action Fund spoke in its favor. 

“Since 2017, Nevadan voters have been repeatedly calling for a stronger RPS, and today the Legislature delivered,” said Andy Maggi, executive director of the Nevada Conservation League, in a statement. “Senate Bill 358 will bring thousands of jobs, reduce costs for consumers and keep our clean energy momentum going. We look forward to seeing Governor Sisolak sign this bill.” 

Nevada joins a flood of states and jurisdictions enshrining in law higher renewable portfolio standards or zero-carbon commitments.

Washington state this week advanced 100 percent carbon-free by 2045 legislation, last week Puerto Rico Governor Ricardo Rosselló signed legislation calling for 100 percent renewables by 2050, New Mexico recently passed a bill for 100 percent zero-carbon electricity by 2045 and Maryland legislators also passed legislation for 50 percent renewables by 2030.

Those targets will drive new solar and wind additions to the U.S. grid. Analysts at Wood Mackenzie Power & Renewables forecast that Nevada’s law will mean an additional 4 gigawatts of renewables, likely to be mostly solar, in the state. The Solar Energy Industries Association currently ranks Nevada fourth in the country for installed solar capacity. 

Analyses from the Natural Resources Defense Council and Western Resource Advocates also found that the 50 percent renewable portfolio standard would reduce carbon dioxide emissions 28 percent by 2030 and, compared to future reliance on gas-fired power plants, could offer ratepayer savings exceeding $192 million over the next two decades.

from GTM Solar https://www.greentechmedia.com/articles/read/nevadas-50-renewable-portfolio-standard-clears-legislature

Bifacial or bust? Engineering solar financings of the future

The solar industry hates stasis, which is exemplified in industry members’ self-proclaimed rides on “the Solar Coaster.” Solar trade shows and conferences are filled with companies looking to provide solar with its “next big thing.” 

One of solar energy’s (literal) shiny new objects — bifacial modules — has been a hot topic at these conferences and in news articles for a few years now. Until recently, most of the potential benefits of bifacial modules have remained… potential.

However, bifacial modules are starting to transition from theory into reality, as more projects around the world and in the United States specify bifacial modules, reach financing and construction, and begin operation. 

We get it. You probably think you’ve read this story before. You’re expecting another article about the existence of bifacial modules (with accompanying diagrams), reviewing how there’s some benefit of the technology while expressing a decent amount of uncertainty, and a conclusion of “I guess we’ll wait see what happens with this promising new technology.”  

We’ll cover all those bases. But this time, we’ll also dig into the wonky details of how implementing this technology impacts a real structured finance model, how a debt provider’s confidence in that energy benefit affects returns, and what you really need out of your bifacial project to generate positive returns. 

It’s time to grab your bifocals and look at (both of) the bright sides. 

Introduction to the Technology

Bifacial solar photovoltaic modules produce energy on both sides of the module. Energy is captured on the back of the module by collecting sunlight on its backside that was reflected off the ground.

There’s minimal doubt that there will be some benefit to project performance due to energy from the backside of the module (known as bifacial gain), but the question remains: exactly how much?

While a relatively standardized process for energy modeling has been developed and accepted for monofacial systems, this has not yet happened for bifacial systems. 

The main roadblock to standardization has been that their implementation greatly increases the importance of a few variables that have a negligible effect on monofacial systems and are thus less well studied, such as albedo (the measure of ground reflectance), and the shading and mismatch created by the racking structure underneath the modules. 

While a number of field test sites have been installed in the last few months, operational data from those projects to support better energy modeling practices is months away.

Few analyses have looked at how this uncertainty impacts the actual financing of a project. The increase in cost, energy generation, and uncertainty on that energy generation, will affect all three of the main parties in a structured transaction: sponsor equity, debt, and tax equity.

We’ll examine these impacts first in a general sense, and then through the lens of a real project. 

The Juicy Model Details

We’ll examine an existing development project with monofacial modules, then assume the substitution of bifacial modules of an equivalent frontside power rating while holding all other project variables constant. We then assume a market-based module cost increase for a project in 2020, as well as an “EPC Adder” taking into account second-order impacts of adding bifacial modules: 

When modeling, we used an inverted lease structure with project-level debt, one of several commonly used financing mechanisms for structured solar transactions.  

All else being equal, the more debt a project can support, the better the returns because debt is generally the “least expensive” source of capital for a project. Lenders tend to be a risk-averse bunch, but if a lender will value more of the increase in energy yield, this will increase the amount of debt the project can raise. 

However, debt providers we spoke with suggested they might only value a portion of the modeled bifacial gain given the increased uncertainty and the current lack of available bifacial project performance data.

This means that if a project had a modeled bifacial gain of 8 percent over an equivalent monofacial project, all else being equal, a lender valuing 100 percent of that gain could be expected to provide 8 percent more debt than for the monofacial project. However, a lender valuing only 50 percent of that 8 percent gain may only provide an additional 4 percent more debt. 

This lender valuation variable is intended to illustrate the additional energy production uncertainty for bifacial projects. In order to make a project work, not only do you need enough modeled bifacial gain, that gain needs to be supported by sufficient certainty to be economically justified.

Show Me the Money

Our analysis suggests that for a fixed EPC cost increase of $0.05/W (roughly 5% on a typical utility-scale project that costs about $1.00/W to build), a bifacial gain of above 3-4% results in a more valuable project. 

Remember — this is one project, and this analysis depends on some high-level assumptions, so these results will vary significantly project to project. However, the data still tells a compelling story.

We calculated a baseline monofacial structured Sponsor IRR. We then ran the model incorporating the cost of adding bifacial modules, and a range of debt valuation of bifacial gain.

The graph below shows the incremental increase in bifacial gain required for the project to “break even” by achieving our established benchmark IRR after incorporating bifacial modules. We show this at both our base assumption of a cost increase of $0.05/W, and at a more optimistic $0.035/W cost increase for comparison purposes. 

Looking specifically at the case of 100 percent lender valuation of bifacial gain, anything above this breakeven point of around 3 percent caused a positive change in a theoretical project acquisition price.

This means a bidder strategically valuing bifacial gain could offer a higher price and provide more value to project developers. 

Looking at the more complicated case where we recognize the higher uncertainty of bifacial projects and potential variability of lender valuation of bifacial gain, the breakeven point can range from around 3 percent to nearly 4 percent.

At a 5 percent bifacial gain, the value that a lender places on that gain can change the incremental project bid price by nearly $0.03/W. At a higher 10 percent bifacial gain, this change based on lender valuation leads to an even larger difference of about $0.08/W.

Looking at this another way, a bifacial project where the lender will value 100 percent of a 7 percent modeled bifacial gain is just as valuable as a project where the modeled bifacial gain is 10 percent, but a lender will not value that when sizing the project’s debt. This highlights the importance of combining technical accuracy with commercial practicality and the need to reduce uncertainty wherever possible.

For buyers in a market with abundant capital chasing a finite supply of projects, any increase in project debt and subsequent reduction in cost of capital creates a competitive advantage. For developers, there’s no need to overstate the importance of any additional cent of margin. This suggests that bifacial modules may no longer be a fancy “upgrade” for projects, but rather an important part of the industry’s competitive toolbox.

Let’s Get Real

So theoretical projects are great, but what people ultimately want is to know whether to hit “proceed to checkout” on that Amazon Prime bulk order of bifacial modules. What better way to do that than analyze whether it makes sense to incorporate bifacial modules on a real project that is currently in development. Watch the breakdown: 

These energy modeling inputs were chosen to represent the full range of albedos for “grassy” sites, and the rear-side shading and mismatch factors were chosen to represent the widest range of loss assumptions we’ve seen in the market.  

The graph below shows that for this particular project, even when lenders fully value the bifacial gain, the low case (2.8 percent energy yield increase) does not support the increased costs of going bifacial. However, the mid and high cases begin to present an argument for implementing the technology so long as lenders aren’t overly punitive in their valuation of the projected energy yield increase.  

As a note on this particular project: this site was not optimized from the beginning with bifacial modules in mind. In fact, as a project in a particularly low-albedo region (~16 percent), with tight row spacing of a 42 percent ground coverage ratio, and a high DC:AC ratio of 1.41, this is exactly the type of project and design with which bifacial modules are not supposed to be valuable.

Even so, the mid case for energy yield increase leads to a small, but positive, increase in sponsor returns, no matter what valuation is applied to that bifacial gain by the lender. If this project and its design was optimized with bifacial modules in mind from the start, we’d almost certainly see higher returns.

What about PPA prices?

Indeed. Looking at this from the flip side (pun intended), this could also translate into a developer’s ability to offer a lower PPA price to an offtaker while still maintaining benchmark economics. 

Using the same low, mid, high methodology, we analyzed the incremental change in PPA price that would support our base case monofacial sponsor return.

In the low bifacial gain scenario, the project required a higher PPA price to maintain economics given increased cost and minimal lender valuation of the bifacial gain. In contrast, once we move to the mid and high scenarios, we can reduce the PPA price and still maintain economics.

From what we’re seeing in the industry, this is already happening, especially on the larger utility-scale side. Bring on the bifacial RFPs. 

Wrapping It Up

There’s real value to be gained from this technology, but we may have a chicken and egg problem.

Recognizing the value of this technology is contingent on multiple parties properly valuing bifacial gain, including lenders. However, lenders may be resistant to doing so until better market data exists, and developers may hesitate to implement the technology until they can calculate tangible benefits through increased sale prices or sponsor returns.  

Based on this analysis, even for a site and design that has not been optimized with bifacial modules from the start, a very small increase in energy yield can support the additional equipment and installation costs.

While it wasn’t necessarily a slam dunk on this particular project, what we take away from this is that bifacial modules should be a part of your evaluation and optimization process for every project.

So get out there and talk to your friendly neighborhood independent engineer. Collect test site data. Work with buyers (like Helios) who know how to assess the value of this technology.

There’s yield to be had, and the grass may in fact be greener on the other side of the module.

****

Becca Glazer is a director on Sol Systems’ structured finance team. Kevin Mayer is a development engineering manager on Sol Systems’ customer solutions team.

from GTM Solar https://www.greentechmedia.com/articles/read/bifacial-or-bust-engineering-solar-financings-for-the-future

Progress at Tesla’s Gigafactory 2 Remains Murky Amid Concerns Over Jobs Target

This month, Tesla hits against its first employment target with New York state, negotiated around the siting of its Gigafactory 2.

The deal, part of Governor Andrew Cuomo’s troubled “Buffalo Billion” development initiative, requires 500 workers by April 2019 and 1,460 citywide with 500 in manufacturing by April 2020. In exchange Tesla received $750 million in sweeteners from the state to build and outfit the factory to produce its solar roof, a product that’s seen numerous delays. 

Tesla told Greentech Media that it’s already met its 2019 target. But the company’s precarious financial position and whiplash sales strategies have others concerned about the future of the plant and the solar roof itself, which CEO Elon Musk has framed as a keystone product. 

Challenges at the Buffalo plant are just one of many questions hanging over the future of Tesla’s solar business. Residential installations at the former SolarCity unit have dropped precipitously in recent years. 

Tesla declined to comment on concerns about meeting its 2020 jobs target. But the uncertainty around Gigafactory 2 comes at a critical juncture for the company. Mixed signals abound.

In its latest quarterly financial report, Tesla called 2018 “the most pivotal year” in its history. In a January email announcing it would shrink its total workforce by 7 percent, the company also recognized it was “the most challenging.” 

The automaker recently clocked its first quarters of profit in years, met seemingly impossible vehicle production goals, and laid off huge quantities of employees. It also shifted its sales strategy multiple times: first announcing it would close most retail stores, then saying it would keep “significantly more” stores open. 

Several former Tesla employees told Greentech Media that meeting its job targets within those circumstances will be tough. 

“At best, [meeting the jobs target] will be challenging for them,” said a former executive with knowledge of the development of the solar roof product and who left the company in 2017.

The move to pare back retail stores, where Tesla may have generated leads for solar roof sales, would seem to further cloud the factory’s future, the former executive added. 

‘$1 million per job?’ 

At the end of 2018, Tesla reported over 800 employees at Gigafactory 2. About half are employees of Panasonic, Tesla’s partner at the plant. After cutting 7 percent of its overall workforce in January, Tesla told Greentech Media it still has more than 750 employees working there. 

While that number is well above their target for 2019, a former production employee among those laid off in January voiced concerns about the 2020 state target.

“Before the layoffs I thought they were going to be hitting it, because they were still looking for people. Towards the end of November, they were hiring [for] everything,” the employee said. “But after the layoffs happened, I do not think they’re going to be reaching that goal.” 

State lawmakers share the concern.

“It would be my hope on behalf of our community that they meet the target, and that many people are gainfully employed there,” state assembly member Robin Schimminger, who represents a district that overlaps with a part of Buffalo, said in an interview. “But they don’t seem to be on that trajectory at this point.”

Tesla committed to bringing 1,460 employees to Buffalo by 2020, some of whom may work outside the Gigafactory. It must deliver 5,000 jobs to New York within a decade of the facility’s completion, according to a 2016 filing with the Securities and Exchange Commission (SEC).

In exchange, the state would invest $750 million to build the plant and lease it back to the company for $2 a year plus utilities, according to a 2017 SEC filing. Starting in 2020, if Tesla fails to meet the agreement’s terms, it faces a penalty of $41.2 million for each year it falls short.

In February, state legislators grilled Howard Zemsky, the CEO of Empire State Development, the state’s economic development agency, about the jobs number and whether the state would enforce the penalty.

“So we spent $1 million per job?” asked state senator Liz Krueger.

Tesla also has a deal with Panasonic associated with the plant, with Panasonic partnering to produce PV cells and modules and Tesla incorporating those cells into the solar roof. In exchange for a long-term purchase commitment from Tesla, Panasonic agreed to cover capital costs. Tesla declined to comment on whether Panasonic pays Tesla to lease space. 

New York’s Department of Labor did not respond to requests for comment on Tesla’s reported job numbers. But ahead of the round of layoffs in January, Tesla did not file a notification tied to the state’s Worker Adjustment and Retraining Notification Act. That law requires businesses to give warning prior to layoffs if they impact 25-plus workers that make up at least a third of all employees at the site. That suggests the layoffs didn’t significantly cut into Tesla’s employment at the plant.  

A spokesperson at Empire State Development told Greentech Media “the state is confident Tesla will meet its obligations,” but confirmed it will enforce the penalty if the company does not. 

Assembly member Schimminger said he believes the state will hold Tesla to the agreement.

“If they were to walk away, they would walk away,” said Schimminger. “But [they] still have an obligation to the state of New York under the terms of that deal.”

“A very complex engineering feat” 

Tesla introduced its solar roof in October of 2016, just ahead of officially acquiring SolarCity. Since that unveiling, information on product development and installations has been relatively scarce. The company has accepted solar roof orders through its website since 2017 and notes that customer installations are underway, but it doesn’t offer buyers a timeline on when installations may take place.

Media reports on the product have been concerning. In August, Reuters laid out delays at the Buffalo Gigafactory, which is supposed to produce 1 gigawatt of solar capacity per year when fully ramped. That report noted that, at the time, only 12 solar roof systems had been connected to the grid in California. 

Tesla told Greentech Media that number is low but declined to offer specifics. According to an analysis of more recent records from the state's three largest investor-owned utilities, the state looks to have connected just 21.

Former employees say the solar roof’s development process has been difficult from the start. 

At the time the previously quoted executive left the company, in 2017, the product was still in early stages. Developers were working on how to cut glass safely, negotiating weight constraints and coping with the product’s complicated installation.

“The solar roof approach of Tesla is unlike anything that has come in the past in terms of aesthetics. … It’s making solar absolutely disappear on a roof,” said the former executive. “That’s a very complex engineering feat.”

Encumbering progress further: each installation is basically bespoke. 

In recent months, the U.S. Patent and Trademark Office published several applications Tesla filed in 2017 regarding solar roof tiles (patent applications are generally published 18 months after filed, though there are exceptions). One published in late February focuses on “flexible solar roofing modules.” Another, published in late March, concerns “optical-filtering coating for managing color of a solar roof tile.” Another published that month involves “moisture-resistant solar cells for solar roof tiles.”

Those applications imply work continues, and in its latest financial report Tesla said it would ramp solar roof production in 2019 “with significantly improved manufacturing capabilities … based on the design iterations and testing underway.”

Several former employees suggested not many roofs have been installed so far, though none could cite specific numbers. 

“The [deployment] numbers that I think they had hoped for are probably not going to happen,” said another senior executive, who left the company last year. 

A drag on the national rooftop solar market

Meanwhile, doubts continue to swirl about another critical piece of Tesla’s solar master plan: its downstream rooftop installation business.

For months, solar market analysts have warned that Tesla’s brand-driven and online-focused sales strategy, unprecedented amongst its peers, would likely hurt the company’s solar arm. 

And though Elon Musk in March named 2019 “the year of the solar roof and Powerwall” and stopped by the Buffalo factory in April, Tesla’s residential solar business seems to be languishing.

Data from Wood Mackenzie Power & Renewables shows the company’s residential installation volumes nearly halved from 650 megawatts in 2016 to 352 megawatts in 2017, and then tumbled again last year to 208 megawatts.

Wood Mackenzie Power & Renewables

The pullback may be strategic. Senior vice president of energy Sanjay Shah has said the company doesn’t want to grow “just by chasing volume.”

In any case, Tesla Energy still makes up a small portion of the company’s overall business. Energy generation and storage revenues came in at $1.6 billion last year, compared to automotive revenue in excess of $18.5 billion. 

Still, slowing sales of residential solar systems begs the question of where the company’s solar roof product will go once the factory is online.

Analysts suggest that Tesla may plan to rely on its brand power to turn sales of its luxury vehicles into leads for its battery product and boutique solar roof.

That may not lead to the wide buy-in that Musk peddled as a linchpin in the sustainable Tesla lifestyle when the company acquired SolarCity. But Allison Mond, a senior solar analyst at WoodMac, says Tesla no longer seems to be selling that solar-powered life. 

“It seems to me we’re just going to continue to see their installation volumes plummet,” she said.

from GTM Solar https://www.greentechmedia.com/articles/read/progress-at-teslas-gigafactory-2-murky-amid-concerns-over-jobs-target