What do you do within the renewable energy sector and why is it essential?
My work focuses on law and policy analysis for renewables and other clean and emerging energy technology sources.  It is an extraordinarily exciting time to be working in this area.  Law and policy for renewable energy are moving fast; they need to.  The sector is rapidly evolving, and the old rules of the game are quickly being changed.
 
Can you describe 2 of your most impactful past projects or engagements?
Last year, Sanya Carley and I conducted an assessment of the factors that led to changes in the net metering laws in Nevada, compared against other jurisdictions that have considered moving away from net metering but decided not to.  This work has been very useful, I think, to those concerned about what is going to come next in rooftop solar, and where possible solutions might be found.  I have also provided analysis to the Korean government about green growth as well as about how feed-in tariffs and renewable portfolio standards function.  That experience was very rewarding.
 
What are you most excited about for the renewable energy industry in 2017-2018?
Opportunity.  I think that’s what this year holds first and foremost.
 
There is opportunity emerging at every turn as prices for different technologies continue to fall, as the public becomes increasingly interested in participating in the energy sector, and with the promise of new infrastructure across the nation.  States like Nevada are looking to build electric vehicle corridors.  Rooftop solar has transitioned from a minority position to a major player.  And there are so many more opportunities that are only now emerging or are about to.
 
In these and other opportunities that we cannot yet see, there is significant potential for the renewable energy industry to contribute—to change the way we make energy, to improve the security of our nation, to help forge new paths forward.
 
For those of us who work in the industry, that makes these very exciting times.  Our task is to capitalize on these opportunities—to be leaders and innovators.
 
What are you most concerned about for the renewable energy industry in 2017-2018?
Uncertainty.  We already were living in quite uncertain times, and that uncertainty has only heightened as the new administration has assumed office.  Conventional wisdom is that national efforts to curb carbon emissions are likely to be allayed—or evaporate—but exactly how and when that will happen remains to be seen.  At the same time, energy is often a more bipartisan issue in Washington, D.C. than other topics, so there is good chance there will be federal legislative movement on energy this year.  Meanwhile, the states have been very active in their own right, and I only expect that to continue.
 
While uncertainty is always difficult to deal with, it also opens doors for new and innovative solutions.  So, while the uncertain times of today of course concerns me, I remain eager to help find those solutions going forward.
 
What is one trend in the renewable energy sector that few are paying attention to?
Breadth and diversity.  I think many people view the renewable energy industry as one particular thing, when in fact that is not true.  Both the scope and the differences within the industry are wide, and important.  Renewable energy is not just wind or solar or distributed generation.  It’s that but a lot else as well, including large centralized projects, storage, and a million other imminently creative solutions that are not receiving adequate attention, are just emerging, or are not yet discovered.
 
Why does renewable energy law and policy matter?
I can’t emphasize enough how important it is that every part of the renewable energy industry works together.  What this industry is really building is a massive, new, emergent ecosystem.  So law and policy cannot get lost in that mix, just as finance, engineering, sales, and every other part of the industry can’t be forgotten.  It all goes together; it all relies on each other.  Law and policy set the ground rules for the game—and they can and do change, and can be influenced by those who must play within their constraints.
 
What has surprised you most about your career in the renewable energy sector?
In my prior career, I represented (usually large) investor-owned utilities.  That knowledge is extremely useful, because the clean energy industry is growing in a world that the historical vertically integrated utilities created.  There is also much room for synergies between that part of the energy industry and the renewable energy industry itself.  Synergies matter.  And they are available.
 
What are 1-2 pieces of advice you would give someone thinking about entering the renewable energy industry today?
Buckle up.  It’s a fun ride, but there is no question you’ll go fast.  In many ways, what we are working on today is really a project in building the future. 

What do you do within the renewable energy sector and why is it essential?
I am the Founder for CBC Consulting, a global transportation technology consulting firm. We work with cities and transportation and technology organizations around the world. Our focus is to advance new transportation and municipal infrastructure options that are energy efficient and designed to deliver better mobility and living experiences.  Examples include the high speed air/surface transportation options, drone travel, autonomous transport movement, municipal electric vehicle programs, electric buses/trolleys and more.
 
Can you describe 2 of your most impactful past projects or engagements?
I had the opportunity to be on the Vulcan/USDOT Advisory Council for the Smart City Challenge project in 2016 that promoted smart city planning in 80+ cities across the US.  This project emphasized a reduction in greenhouse gas emissions in municipal energy grids, the advancement of electric vehicle programs, the launch of alternate transportation options (bike share/EV buses/trucking) and new energy options for cities (wind, solar and hydro power).  This project spurred a whole new wave of smart city planning/investment in the US that continues today.
 
Our firm also developed the first self-driving vehicle simulator comprised of a 3D printed electric vehicle and fully-immersive autonomous vehicle driving experience.  We deployed our self-driving vehicle simulator in Seattle last year and have plans to bring this simulator to other facilities/markets in 2017. Our objective is to help educate the public on what it will be like to travel in self-driving vehicles and to gain some insight into the future of vehicle manufacturing - highlighting alternative manufacturing materials that promote energy efficiency and environmental sustainability via recycled vehicle platforms.
 
What are you most excited about for the renewable energy industry in 2017-2018?

• Utilities continue to embrace solar as a viable option for broader energy capture and power distribution.
• Large scale transportation projects in the US and overseas are taking a more proactive approach to utilizing solar energy as a viable method for operating mass transit, airports, vehicles and other modes of transport.
• Wind power is evolving into more of a mainstream energy option – especially for large offshore and commercial wind farm operations.  The UK and other markets are embracing wind power.

 
What are you most concerned about for the renewable energy industry in 2017-2018?
The Paris Climate Meetings in late 2015 represented a groundbreaking moment for the future of renewable energy adoption.  The gathering of 183+ countries and the subsequent agreement to reduce greenhouse gas emissions in order to achieve a 2-degree Celsius reduction in global warming was a huge first step toward reducing fossil fuel consumption around the globe. The outcome of these meetings was a global recognition that change is required in our energy production and consumption.
 
Fast forward to February 2017. We are now seeing the Trump Administration signing executive orders to reverse advancements in alternative energy measures in favor of traditional coal, oil and natural gas exploration.  Executive orders to approve the development of the Keystone Pipeline, the Dakota Access Pipeline and renewed shale fracking represent a stark reversal in earlier federal policy intended to promote renewable energy adoption.  None of these Executive Orders align with the goals of the Paris Climate meetings and represent a roll-back in US GHG reduction goals.
 
In addition, the Trump Administration has proposed the removal/reduction of EPA standards and guidelines that impact air quality restrictions for coal facilities and pave the way for a renewal in coal exploration.
 
Lastly, the new Department of the Interior is being urged by the Trump Administration to reduce restrictions on offshore oil exploration and oil fracking operations by now allowing possible access to federally protected land for more energy exploration.
 
None of the above activities help encourage renewable energy, better air quality, responsible management of federally protected land and a general focus on improving the environment.
 
What is one trend in the renewable energy sector that few are paying attention to?
Advancements in Graphene over the last 2-3 years are introducing new possibilities for renewable energy via hydrogen energy, kinetic energy and other fuel cell options.  Graphene has the potential to be a real game changer in energy, industrial manufacturing, medical research, consumer electronics, transportation and more.
 
Why are you motivated to do you what you do?
The global warming trends of the last 10-15 years clearly cannot continue without causing irreversible harm to our environment, our long-term quality of life and our ability to sustain a planet that can support a rapidly growing population.  The adoption of renewable energy measures is not a fad or trend but truly a recipe for a sustainable environment that balances growth with responsible resource management for generations to come.
 
What has surprised you most about your career in the renewable energy sector?
I never thought I’d see the day when solar energy could power an entire airport in India. Nor could I envision that a car could be 3D printed, equipped with an electric motor and driven down the street. The advancements in new technology and energy are changing how we move around the planet in ways I never thought were possible.
 
What are 1-2 pieces of advice you would give someone thinking about entering the renewable energy industry today?
The renewable energy market is a gold mine of opportunity. This market represents perhaps some of our biggest potential breakthroughs in energy development, transportation, medical research, clean water options and urban development.

What do you do within the renewable energy sector and why is it essential?
I help renewable energy (i.e. solar, storage, efficiency, etc.) business owners sell their companies by running a process to find the right buyer at the optimal purchase price. A healthy M&A market is an essential tool for companies looking to achieve scale and for equity-holders to realize returns on their investments.
 
Can you describe 2 of your most impactful past projects or engagements?
Leveraging Duke Energy’s acquisition of a wind energy services business to expand the company’s service offerings to other wind energy asset owners. Co-leading the 2014 Duke Energy NC Solar RFP and successfully acquiring 128 MW of solar projects and signing 150MW in new purchase agreements.
 
What are you most excited about for the renewable energy industry in 2017-2018?
I am excited to support the rapid maturity of wind and solar businesses in the market. As companies continue to consolidate with one another, the efficiencies gained will further drive down the costs of renewable energy installations making them more and more competitive with traditional fossil fuels. I am also confident that over the next two years the renewable energy industry will continue to shock and awe with dramatic increases in installed capacity of matured technologies and with its pace of innovation.
 
What are you most concerned about for the renewable energy industry in 2017-2018?
Policy or rather “bad” policy is always a concern for stewards of the clean energy industry. Uncertainty in any market can slow growth and stifle innovation. I am concerned about the resistance in the renewable energy industry for there to be winners and losers in terms of the types of technology and methods of deployment that win the day. If the industry tries to advocate for everyone to be a winner it will result in sub-optimal policies. Encouragingly, the renewable energy industry has time and time again proven its resilience to political uncertainty and I think is well on its way to being even less dependent on the whims of elected officials.
 
What is one trend in the renewable energy sector that few are paying attention to?
I think the trend of EVs becoming closer and closer to mainstream is sometimes lost in the noise created by Tesla, as if the whole EV industry depends on Tesla succeeding. At one point, I would have agreed, but now I see daily announcements for new EVs by all the major manufacturers and the cars actually look good. It feels like EVs are finally becoming mainstream enough that most consumers won’t see them as weird spaceships but rather consider them a viable, affordable, and attractive alternative to a gas-powered vehicle.
 
Why hire an investment banker to sell your business?
For the same reasons you would hire a lawyer to write an operating agreement or an accountant to do your books, you want experts to help you with non-core competencies. All we do as an investment banking firm is sell companies so we are good at it and know the pitfalls, the same way a good solar developer knows the permitting traps to avoid.  
 
What has surprised you most about your career in the renewable energy sector?
I have been surprised by how much finance played a role in the success of the industry. The renewable energy economy has been built on innovations in financial structures sometimes for better or for worse (remember yieldcos).
 
What are 1-2 pieces of advice you would give someone thinking about entering the renewable energy industry today?
As a theater major, I never thought I would end up being an investment banker with a career in renewable energy. I am a testament to the fact that there are many paths to the same place. My advice to someone would be to try something scary, don’t get stuck in your comfort zone. 

1.  Have no delusions about policy risk -- it exists, but it is not unique to the solar market

It is not an uncommon stance for private equity investors to claim that they will not enter markets with “policy risk.” Being someone trained in economics, this statement comes across as somewhat strange, bordering on naive.  

Markets are policy constructs. There remains some secular ideal of a free market without government or policy intervention. While this may exist out in the far reaches of less formal economies, it is wholly inapplicable to electricity markers.  

The policy landscape defines the contours of where and what kind of solar development can take place and where capital can be deployed with the reasonable expectation that it can meet investor hurdle rates. Ignore policy at your own peril. The most enterprising investors are constantly searching for ways to anticipate markets movements largely through the lens of policy.

That said, if there is anything that will put a damper on sustained investment activity, it is policy uncertainty. And that pertains to everything from state-level mandates to utility-level interconnection practices to local land use planning.

While it is relatively easy to have a clear view of the state-level policy, it requires much more on-the-ground knowledge of utilities, permitting agencies, and landowners to really discern where the most productive spaces to invest are.  


2.  The states rights debate emerges in the electricity market

It is easy to assume that the biggest energy-related issue at stake at the federal level is the Clean Power Plan. Of course, whether the CPP makes it through the Trump administration’s grinder is a matter of no small importance, but let’s just say the odds are not in its favor. It’s a shame, as the CPP was never really given a chance to shine (pun intended).

There is a larger structural issue at stake concerning federal vs. state jurisdiction. States used to control most of the electricity market regulation, but has started to cede authority to FERC as the electric grid has become more regionalized, interstate electricity markets have formed, and and transmission development issues have cropped up.

Yet again, the age-old story of federal vs. state rights comes to bear its head. States have lead the charge with RPS mandates, various compensation schemes for distributed resources such as RECs, implementation of PURPA, and a host of competitive policy issues. And, as any clever investor or developer knows, this has created a remarkably vibrant but fragmented investment landscape for solar in the U.S.

FERC is left to argue over who is responsible for creating a coherent picture of this vast mosaic of policy approaches. Left to their own devices, states will forge ahead with their own plans and policies. But that will not necessarily suffice when trying to address regional and national resource adequacy, generation mix, and transmission concerns.

Keep an eye out for more rulings on how the energy transition will be governed and regulated at the federal and state level. Especially for states that are behind the curve, so to speak, it will be really impactful on how utilities are regulated and where new emerging markets for solar development and investment emerge. ​

(Source: GreenTech Media)


5.  Is solar ready to wean its from the ITC? The time might be sooner than you think.

Lest you thought that I was going to skip over perhaps the most important incentive in the solar industry, here are my two cents on the ITC.

First of all, weren’t we just here? I recall at the end of 2015 all the consternation over whether the ITC would be extended beyond 2016. We poured over what-if scenarios like the one from BNEF below.

We were all in store for a blitz to the ITC finish line at the end of 2016, and, lo and behold, Congress passed an extension just before holidays. That led to some interesting dynamics in 2016, as some solar development that was slated for 2016 ended up being pushed into the future. But, all in all, the solar industry thrived in 2016, and business-as-usual was the expectation through the early 2020s.

Given the proliferation of fossil fuel industry proponents and climate skeptics entering the new administration touting the “all of the above” energy strategy as their cornerstone approach, it does call to question whether the ITC is as safe as we thought it was just a short time ago.

On the one hand, the solar industry has, with notable success, achieved bipartisan support from the bluest to the reddest states. Solar job creation is an unadulteratedly positive story that few can dispute.

On the other hand, there are many Republicans that would love to cut government subsidies of all kinds, regardless of the public good that they might provide. Moreover, there is some momentum behind the idea of a large tax reform, which might lead to a reconsideration of the ITC, among many other tax-related subsidies.

Is the solar industry strong enough to survive without the ITC? Clearly, yes. But not everyone, and not all markets. There are many investors who would not lament the elimination of tax equity from the capital stack.

But make no mistake, it would be a rude awakening to abruptly end the ITC. I would not put my money on that happening. The cost is modest and there is a sunset clause already in the policy to limit long-term government liabilities. But I cannot, in good faith, make any strong predictions, so be prepared for anything. ​

​2.  Most battery investors are angel and venture capital investors — for now

Technology — both software and hardware — are today’s investment focus. As such, angel and venture capital investors drive this discussion.

The table below from the witty and savvy data scientists at CB Insights offers a great summary of who’s investing in energy storage technology. ​

(Source: LBNL)

Disclaimer: the sunniest places are not necessarily the best markets for solar. That largely is a policy driven issue, which will be a topic of another post. But sun (or insolation if you want to sound clever) can be very useful.

The real takeaway from understanding geographic distributions is that capacity factors (e.g., the underlying technology performance of generating electricity) places some bookends around what sort of revenues and costs a project can support to hit your hurdle rates. The Northeast needs a bunch of incentives to have projects pencil for investors. Less so the case in sunny California or the Southwest.

Developers are often inclined to slightly (or aggressively) inflate the performance of their projects. This is an easy area to push back if you have the right data at your fingertips. Remember solar negotiations 101: Don’t take the developer’s project valuation at face value.  ​

(Sources: GTM)


5.  Community solar is the real anti-establishment energy choice

Even though SunRun wants you to think that “roof-top solar is the anti-establishment energy choice” (Source: GTM), it is not a choice available to nearly half of all U.S. households. Enter community solar, the renewable energy choice for the masses, including the often forgotten low- to medium-income households.

The benefits to offtakers are obvious -- access to clean, reliable electricity from solar farms built at a much lower cost than their roof-top solar siblings ($2.00-$2.50/W vs. $3.00-$3.50/W). And based on a simple savings-to-investment ratio, 35-48 states are attractive locations for community solar. No wonder NREL projects that community solar will make up half the distributed generation market by 2020 (Source: NREL). 

Once investors can get comfortable underwriting the somewhat unique risks of community solar projects, there will likely be a fairly attractive risk-return profile and a largely untapped market if and where policy falls in line.  ​

If you work in renewable energy or infrastructure finance, then you might like this...

Yesterday, I published an article in the Real Assets Newsletter for Preqin, a global leader in market intelligence for the alternative assets investment industry, serving 40,000 investment professionals in 90 countries. 

See the link below. It's on page 8.

"The Mainstreaming of Renewable Energy Infrastructure Investing - Risks, Returns and Emerging Sectors"

​Here are two  highlights...

Figure 1 shows the attractive risk-return of infrastructure vs. other asset classes. Note that renewable energy made up 54% of all infrastructure deals globally in Q3 2016.

Figure 2 illustrates that solar projects in the developing world tend to be larger (i.e., allow for greater volumes of capital allocation) and generate higher IRRs (albeit with more political and other country risks).

What does it all mean for investors?

It's time to look forward, not backward. Most perceptions about renewable energy are outdated because the sector is changing so quickly.  Those wait run the risk of being late to the (raging) party.

Although these vehicles are often deemed to be “too expensive,” many electric vehicles actually offer a lower total cost of ownership than conventional vehicles when assess over their entire lifecycle.

Moreover, by 2022, the average first cost of electric vehicles is projected to be the same as the average first cost for conventional cars.

​With cost concerns removed, plus the other benefits of less noise, no gasoline smell, fewer moving parts, and the “cool factor,” this market is expected to grow quickly from this point forward (BNEF, 2016).

In fact, the growth of electric vehicles is expected to be so meaningful that Fitch Ratings recently stated that the sector’s rise presents potential for “investor death spiral” negatively impacting the oil sector (Financial Times, 2016).

And at the Oil & Money Conference last month, Statoil’s CEO noted that electric vehicles could catalyze oil’s peak sales within five years, with a steady decline thereafter (Climate Home, 2016).

Considerations for infrastructure investors:

• Today vs. tomorrow — Most capital flowing into this sector is relegated to angel and venture capital investments, which have seen investments across the entire transportation sector increase by 200 percent since 2010 (i3, 2016). Accordingly, large asset finance opportunities are limited for now, but early investors may be rewarded with larger share of the electric vehicle market in the years ahead.

• Chicken vs. egg — Larger investment opportunities may be possible by answering the “which comes first debate” — more vehicles or more charging stations — and investing in both at the same time within the same boundary (e.g., campus, headquarters, town).

• Opportunity to rebuild the global gasoline station network? — This grandiose investment potential is unlikely to be realized in its entirety due to increasing battery ranges and the expanded vehicle charging at homes or work locations. Consider that recent surveys suggest new car battery ranges can meet 98 percent of typical driving needs before recharging (Carbon Brief, 2016). However, it is fair to say that private capital will be needed to fund some fraction of this new public charging infrastructure. And as the saying goes, “A small percentage of a large number is also a large number.”

• Third-party ownership of the vehicle batteries — This could provide two benefits. First, the barrier of higher first costs would be removed, thereby facilitating more rapid market uptake of electric vehicles. Second, batteries could be treated as assets to the broader grid, which could result in additional revenue streams from utilities (e.g., frequency regulation) and building owners (e.g., resilience during power outages).

You’ve seen many headlines touting “record new solar panel efficiency.”

We get excited seeing those, too. But they don’t matter.

Alright, that was shock value. Let me explain.

First, take a gander at the mind-numbing chart from the US National Renewable Energy Lab (NREL) below. This is one of my favorite figures in the whole world.

Now, please memorize it -- there will be a quiz later. (Or so I tell my corporate and military executive students. They laugh at my false threats.)

What does this figure say to you?

Three potential takeaways:

1. There are way more types of solar panels than you thought, right?

2. Solar panel efficiencies have improved considerably between 1975 and 2015. Duh.

3. The guys doing the stuff in red font should get new jobs given their low efficiency. (Not really. Those are super cheap organic polymer-based solar cells. Their future will come one day.)

​
OK. Now forget that graph. Look at these two more important charts from Bloomberg.

Do you see any relationship between these the red and blue lines? (I hope you do.) Cost falls. Solar installations go up.

And now for the next chart.

​Yes, you are reading that right. A 99% drop in solar panel prices since 1976.

I know, I know. I hear the devil’s advocate: But doesn’t greater volume of solar installations drive down costs?

Yep, but the opposite is more true. Cost drives volume.

China got in the manufacturing game just as the recession of 2008 hit and EU solar demand fell off. Solar panel prices fell faster and haven’t really stopped, resulting in an 80% drop prices in the last 8 years.

For more data and graphs about solar's falling costs and coming world domination (insert dramatic music), see energy rockstar Joe Romm's piece "You’ll Never Believe How Cheap New Solar Power Is."

In case you fear that my ponytail is getting in the way of my PhD and love of private equity (insert humor), and that I'm being too kind to solar, consider this projection from Bloomberg: 

By 2040, global investment in solar will total $3.4 trillion, while fossil fuels and new nuclear will only receive $2.1 trillion and $1.1 trillion, respectively. 

One word: Yikes.

So what?

The next time you hear a sales pitch about panel efficiency, praise them for their ingenuity. They are real wizards.

But just keep asking: What is the resulting $/kwh and Internal Rate of Return of the solar project?

Efficiency is the finger point at the moon. Please go after the moon.

You may have heard of phrases such as “The Internet of Things” (IoT) or the “Smart Grid.” Both terms are defined differently by many people.
 
According to IBM, the IoT refers to the “digitization of the physical world.”
 
According to the U.S. Department of Energy, the smart grid can be defined as “a [new] class of technology to bring utility electricity delivery systems into the 21st century, using computer-based remote control and automation.”
 
The investment opportunities in improving the intelligence of our electricity generation, transmission, and generation system can be summed up by a joke reserved only for energy geeks (like me).
 
It goes like this: “If Thomas Edison were alive today, and you showed him a smart phone, he would be blown away by the innovation. In contrast, if you showed him how we produce and distribute electricity, he would say, ‘Oh yeah, I recognize that.’”
 
As an example of the scale we are talking about, estimates suggest that the U.S. alone needs to invest US$2.1T by 2035 to upgrade its electrical grid and integrate the massive surge in renewable energy and the need for greater resilience. (International Energy Agency, 2016)
 
As an example of what is coming, consider analyst predictions that the number of internet-connected devices globally will grow from approximately 13 billion in 2015 to almost 39 billion in 2020. (Juniper Research, 2015)

Or consider the scale of the opportunity in the infographic below.

Can the energy storage industry withstand the scrutiny of having their own ITC?

It cannot be understated how transformative an energy storage ITC would be for the industry. At IronOak Energy, we have written previously on the impact of such an ITC, and even presented a positive take on its potential rollout.

Here, I want to pose the question of whether the industry is really ready for such a game-changing policy.

The graph above shows projections for the growth of energy storage development under the current policy regime. Not too shabby.

But is the energy storage industry prepared to put that delicious tax equity to good use on stand-alone energy storage projects (in practice, solar + storage applications currently qualify for the solar ITC)? Of course, the answer is always: it depends.

Depends on what? Some would argue that the critical issue holding back a tidal wave of energy storage projects is the technology.

One could easily view the vast array of energy storage technologies vying for prominence with some trepidation. Some are commercially viable, while many are not.

It takes some brainpower to suss out the contenders from the pretenders. Even the smarties at MIT have a tough time doing it.

Do we want the government to incentivize the deployment of technologies that may not be ready to contend for the main stage? Conversely, is that precisely the role we want the government to take?

The double-edged sword of government subsidy

​This is a classic double-edged sword phenomenon. On one edge, there are green grassy fields of opportunity in rolling out new storage technologies in commercial applications. Accelerating storage deployment will drive down costs and help evolve viable business models. Beautiful.

Lurking on that other edge is the distinct possibility that many storage technologies in earlier stages of development will simply fail.

And failure is bad press, even if it is the Darwinian process of technological progress.

It puts the government in the untenable position of having subsidized a “reckless” experiment with taxpayer dollars.

“Picking winners and losers” they will say, even though an ITC is designed to avoid precisely this potential conflict.

And, let’s just say that there is a history of nasty repercussions for such interference with the so-called free market for energy (ahem - myth).

Solyndra - need I say more.

Some will say that Solyndra was blown out of proportion (it was) AND it was 5 years ago (a lifetime ago in the clean energy industry).

To top it off, Solyndra was backed with loan guarantees, not really what the ITC is about. Details, details...

But now, the vengeful energy gods have gifted us SunEdison. It was an altogether explicable collapse, but one that, nonetheless, provides ammunition against government support for the clean energy industry.

Who knows what would have happened with the extension of the solar ITC if SunEdison has filed for bankruptcy in 2015 rather than 2016.

So, be careful for when you wish upon your industry the scrutiny of being a target of government support.

Technological risk is a red herring -- it is really all about how to finance storage

Sure, risk exists with many energy storage technologies.

Even the most established battery technologies lack the operational history to assuage the concerns of investors looking at decadal time horizons. If you are absolutely intolerant of risk, go invest in government treasuries (just kidding - terrible idea).

Just running down the ladder to the cheapest storage technology fails to capture the complexity of the underlying value proposition. Cost is king, but there are many other factors competing for a role on the king’s court.

Energy storage technologies cannot be reduced to a simple efficiency or production metric, as with solar or wind (even that is an oversimplification, but at least a reasonable one).

There are more than a dozen potential services that could be generated by a given storage technology, many of which have few established market mechanisms to generate reliable revenue.

So, here’s the central takeaway.

The biggest challenge in the energy storage market is not how to choose the right technology. It is how to design the right market structures to support financial innovation.

Making energy storage bankable is close to being a precondition for the successful utilization of an ITC.

Recall that the success of the solar PPA model hinged on stable, contracted cash flows. Making solar bankable unlocked a vast market potential that we are still in the early stages of witnessing.

There is no equivalent financial structure with energy storage, yet there remains a distinct need to create consistently financeable project cash flows.

But wait, SolarCity and Tesla (perhaps soon to be joined in holy matrimony) pioneered a solar + storage PPA earlier this year.

The energy storage industry needs a financial product the equivalent of a PPA, and perhaps we are not too far off.      

Thus far, it has taken a savvy, not mention risk tolerant, investor to back energy storage projects. There is only so much runway with this sort of approach.

Easing the path for new investment in storage will hinge on making this inherently complex technology and market application simpler.

There are already frontrunning markets generating experiences that will guide future market design and development - thanks, California.

In tandem with this type of market development, energy storage needs a greater degree of standardization of financial strategies and structures to help make projects pencil.

And not just for the smartest guys in the room, but for a broad swath of interested investors.

The question remains as to whether an energy storage ITC will aid or inhibit such progress.

Related Reading:
​

• 5 Surprising States Where Commercial Energy Storage Works Today GreenTech Media, 7/20/16

• Making Energy Storage ‘Bankable’ Renewable Energy World 12/7/15

• Energy storage for renewables can be a good investment today, study finds MIT 6/13/16

• Energy Storage Would Get US Tax Credits in Bipartisan Bill Renewable Energy World 7/19/16

​

• Smart Grid, Battery/Storage, & Energy Efficiency Companies Raise $433 Million In Q2’16 CleanTechnica7/21/16

Amid the buzz of Solar Power International 2016 last week, there was a persistent cry of the financing gap in C&I solar. Yes, big money is flooding in searching for good projects to finance. The low-hanging fruit has always been utility-scale solar. Scale, credit-rated offtaker, stable cash flows - check. But margins are being squeezed as the race to bottom out PPA prices builds momentum.  

​Enter C&I solar - a tantalizing large potential market of smaller-scale projects, trending towards 3rd party ownership (translation = welcome investors!), with low hanging fruit ripe for the picking. Commercial and industrial offtakers seem more willing than ever to sign up for solar, and at PPA rates often substantially higher than what can be gotten from our utility friends. But, is C&I solar the greenfield opportunity that many hope it to be?

(Source: GreenTech Media)

C&I solar is not blessed with the same attributes as a utility-scale project - smaller scale, offakers with no credit ratings, and, most importantly, extreme heterogeneity. Diversity is every infrastructure financier’s nightmare, as it stymies standardization, which is the key ingredient to scaling investment from more risk-averse, low cost of capital investors. And the C&I solar market has bedeviled many attempts to solve the standardization challenge.

By way of example, I am going to pick on beEdison and their flagship risk analytics product, truSolar. TruSolar, a project cofounded by Distributed Sun, Dupont, RMI, and Underwriters Laboratories, was an attempt to create a uniform method for assessing project risk in C&I solar. The truSolar Risk Screen Criteria and Methodology (RSCM) identified over 800 unique risk elements and thousands of scoring dependencies. Impressive? Or overkill? Hard to say.

​On top of this great risk analytics tool, they created a marketplace platform, used a ton of project data to train their risk algorithms, created nifty flow charts like the one below, and hoped that buyers and sellers would seek holy matrimony at their table. By all accounts, truSolar is the real deal, and who doesn’t like marketplaces, but are buyers and sellers coming? They built it, so did they come? beEdison claims to have 200 members and 1,000+ projects totally over 4 GW and $10B of dealflow. But, I have to admit - I am skeptical. Around 2 GW of solar was developed in Q2 2016, and less than 20% of that was in C&I market (SEIA). So, it appears as though the 4 GW number is just maybe a bit of an overstatement.

(Source: beEdison)

To be sure, I am fan of beEdison’s approach. It is ambitious, and it solves a real challenge in the solar C&I market using - everyone’s favorite buzzword - BIG DATA! So, why is it not sweeping through the marketplace with wild abandon? Perhaps, they made the risk analytics process too opaque and complex. Perhaps, sellers do not trust the idea of using a platform to meet sellers, or vice versa. Or, perhaps the real issue is that solar C&I projects are not penciling like investors would hope.

The real challenge in the solar C&I market is not just standardization and credit analysis. It is that these projects do not turn out to be nearly as rich as investors had hoped. It is a classic case of failing to achieve economies of scale. Development and construction cost efficiencies in the utility solar market allow projects to pencil even with really low PPA rates. It is really difficult to translate those cost efficiencies into the C&I solar market due to the aforementioned issue of extreme heterogeneity. Said another way, solar C&I projects just cost more. And only in niche markets can those high project costs be supported by the prevailing PPA rates that a C&I customer will accept.

Many geographies are blessed with low retail electricity rates, especially for large electricity users. These offtakers are not likely to accept a PPA which locks them into a higher electricity cost today, even if the long-term impact will likely be in their favor. When high development and construction costs run up against this ceiling of acceptable PPA rates, you start to see margins squeezed. But the difference is that these margins are on small projects with funky risk profiles.    

​So for the time being, solar C&I remains a “diamond in the rough” market. Investors are seeking the gems out there, while many (I mean, many) projects out there just fail to meet their hurdle rates, risky or not. But be on the watch - there are many other companies exploring ways to serve this sector efficiently, and at scale. The real gamechanger may not be nifty platforms, but rather the tried and true method of securitization. Solar securitizations are happening, pioneered by SolarCity and SunRun, but can the question remains as to whether they can open the floodgates of institutional capital given the fragmented and idiosyncratic nature of solar C&I projects.

Nobody likes paying more than they should. And my dad is a CPA, so this is definitely true for me, too. 

But this barrier is not unique to renewable electricity. The same expectation is true for most non-luxury goods and services. 

Yet I still hear the objections everywhere -- from sophisticated investors to family friends -- that solar and wind are too expensive. 

Is that still true? Yes, but increasingly no. 

OK, to be clear, most of the data says no, but as you know, perception is reality. 

This lingering misperception is also being observed by other energy leaders, including the Director of Sustainability and Cleantech at Schneider Electric in recent a Greentech Media article about Scheider’s New Energy Opportunities (NEO) Network. 

Consider the graph below from Clean Edge, which is based on data from the US Lawrence Berkeley National Laboratory. 

The levelized costs for solar electricity (LCOE) has fallen from 22.5 c/kwh to less than 5 c/kwh. That’s a roughly 78% drop in price over the last 10 years. 
​
But unless an investor or corporate executive has regularly re-evaluated the business case for alternative energy, they might have missed these market changes.

It’s important to note that this refers to utility-scale solar, not rooftop solar. The latter has a higher LCOE (c/kwh), but it also competes with higher retail electricity rates. 

Additionally, Deutsche Bank estimates that unsubsidized rooftop solar is 30% cheaper than retail power prices in many countries. 
​
See their map below showing countries with substantial areas of grid parity.

Finally, here’s another data-driven perspective from investment advisory firm, Lazard. 

The resolution is not great, so let me help you out. 

Here are some of the lowest LCOE values from highest to lowest: 
​

• 16.5 c/kwh - natural gas (peaker)
• 9.7 c/kwh - nuclear
• 6.5 c/kwh - coal
• 5.2 c/kwh - natural gas (combined cycle)
• 4.3 c/kwh - solar (utility scale)
• 3.2 c/kwh - wind (utility scale)
• 0.0 c/kwh - energy efficiency

Here’s a link to the full Lazard report, version 9.0. 

If you like data and charts, you’re going to really enjoy this. Grab a big coffee and settle in for some quant goodness. 

And next time someone says that solar is too expensive, you can admit they are partially right. 
​
But then give them a little dose of 2016 data.

The Chief Technology Officer of Tesla, J.B. Straubel, stated recently that it doesn’t make sense for electric vehicles to send electricity back to the grid.

In the same remarks, he also noted the following:

1. reuse of old EV batteries (so called “second-life batteries”) is not economical either (implying that the best thing to do with them at the end of their life is to send them to the recycling bin)
   
2. dynamic, time-based charging of EVs does make sense, and thus will be coming

What the CTO is criticizing — vehicle-to-grid or V2G -- is essentially distributed energy storage on wheels.

The function It takes advantage of unused EV battery storage capacity to allow for power sales back to the grid, either by draining some power when the vehicles are not in use or reducing the vehicle charging rates.

At a basic level, V2G has three requirements:  
​

1. charging station electronics that allow for bidirectional power flows between car and grid
2. real time communication between the grid operator and vehicle owners
3. precise metering software

The EV technology and services company AC Propulsion, a V2G proponent, outlines the potential benefits of V2G as related to grid services: peak power sales, spinning reserves, base load power, peak power (either as a form of direct load control or to reduce demand charges), and reactive power.

In turn, the EV owners get paid for the energy services provided. But aren’t all of these benefits just the same as those for storage, but in EV form?

​The figure above seems very similar to one that would be drawn for fixed batteries.  

The challenges of V2GSeveral hurdles would have to be crossed in the current market and policy environment for V2G to be commercially viable.

​Among the not-so-attractive characteristics of V2G:

• Additional wear and faster degradation of the EV battery due to more frequent charging and discharging. Whether the car owner could be fully compensated for this -- both for the loss of vehicle value as well as the inconvenience of having to replace it more quickly -- is yet to be determined. Such compensation to the EV owner would have to be in addition to that received for power sales.

• Additional cost of interconnection at the charging site. According to the Tesla CTO, current regulations would treat power downloaded from an EV the same as that coming from a solar system, and the implications could get complicated.

• Finally, unverified availability of EV power. V2G enthusiasts point to a data point often, that most vehicles are parked 23 out of 24 hours of the day. This seems to allow for 23 hours of potential charging and discharging time available to the grid. But what happens when all of these vehicles are unplugged from the charging stations, being driven home during a rush hour commute -- a time that happens to coincide with peak late afternoon electricity demands?   

V2G Lite -- Commercial Fleet Applications

The first of those challenges above could potentially be met with a market-derived refund incentive, though it is unclear how many EV owners would be willing to own a car with a shorter lifespan in exchange.

Alternatively, EV battery manufacturers could design future batteries for more frequent power cycling, but that would require a major and disruptive shift from the current design parameters that do not take V2G into account.

The second challenge would seem to be one of public policy, and conceivably overcome if stakeholders from the EV space were united in pushing for V2G (which they’re not).

The third challenge might be addressed with commercial EV fleets. In this “V2G Lite” scenario, a fleet owner -- who with the help of data analytics has a good sense of the driving patterns of the fleet -- would be able to sign a power supply contract with a utility that guarantees a certain amount of EV battery capacity at different times during the day.

Fleet contracts could be bundled, so risk is spread and utilities only have to deal with a few intermediaries when relying on this stored power source.

Even if a fleet was designed to spend most of the day on the road and most of the night charging, there could still be some battery capacity free at certain times, available to be used by (and sold to) the grid.

Along these lines, Nissan is notably optimistic about V2G’s horizons, and has been so since last spring when it announced cooperation on V2G efforts with Endesa, a subsidiary of the Italian energy multinational Enel.

Now the automaker is working with Enel and the Californian V2G services provider Nuvve to install a commercial V2G hub in Copenhagen, Denmark. The 100 kW project is admittedly small, with 10 Enel 10 kW V2G charging units paired with 10 Nissan EV vans and a Nuvve platform to coordinate when idle vehicles can send energy back to the national grid on demand.  

V2G Strong -- V2G for Everyone? Or, what might be good for the public isn’t necessarily good for Tesla

A group of EV researchers at the University of Delaware is at the leading edge of EV research and those advocating for full V2G penetration.

In one study the numbers and justification for a full V2G push are impressive: if we put 20 million light duty V2G EVs on the road (just 10% of the current total U.S. fleet), and conservatively assume a peak power rating of 50 Kw for the cars, we could have a combined power capacity equivalent to the entire U.S. Electric grid.

Paired with renewables, the V2G EV fleet would bring game-changing results for CO2 emissions and other transportation sector pollution.

The EV future is being built now, with new cars, new charging stations, and new rules and practices.

As this new EV built environment grows and develops, integrating V2G capabilities may just add an additional layer of complexity to the overall project, without a certain return.

​But if we were to make a major push for V2G capabilities to be integrated at the ground level, the benefits for society and the planet could be large.  

You may remember BP’s attempt to rebrand as “Beyond Petroleum” years ago. 

Perhaps sincere, or maybe a public relations game, it did not last long. 

One thing for sure: It bred some real clean energy innovators, some of whom we at IronOak Energy work with today in their new ventures. 

The question is this: Are today’s headlines about fossil fuel majors investing in renewable energy any different? 

As I prepared to deliver a webcast to 75 global energy investors on this topic, many of our investment colleagues were doubtful. 

But I do think that things have changed. 

I’ll try to illustrate why I think this is the case (and hopefully I won’t look back in five years with my tail between my legs). 

Consider the leading conventional energy company in this new paradigm: Total, the French energy giant. 
​
Below is a figure which illustrates most of Total’s alternative energy investments, whether direct or indirect.

But their clean energy play doesn’t stop there. Consider these additional facts from 2015:

They committed to investing $500M in renewable energy per year going forward.

They invested $225M to convert an unprofitable oil refinery into a biofuel plant. 

Why are oil and gas giants moving to more clean energy? 

1. Granola-eating, Birkenstock-wearing

They have become a bunch of long-haired hippies. Nope, not true. I'm just seeing if you’re paying attention.
 
2. FOMO?

​If you’re not a Millennial, let me clarify. This is not a curse word. Instead, it stands for Fear of Missing Out. The global energy mix is projected to change, and they don’t want to miss out on high-growth opportunities. See the graphs below.

3. Costs

Solar and wind costs are much more competitive today. Consider the two large solar farm contracts at 2.9 c/kWh in Chile and the Middle East. See graph below.

4. Global policy

The Paris Accord showed 197 countries agreeing to significant greenhouse gas reduction goals. If their forecasts by the International Energy Agency are correct, $16.5T of low-carbon finance is needed to achieve the goals laid out in Paris. 

5. Stranded assets

Experts at the London School of Economics, Citi, and Carbon Tracker suggest that 60-80% of assets held by publicly listed conventional energy companies may be “unburnable” if the world is to stay below the 2 degrees Celsius target. 

​Citi’s estimate is that $100T of oil, gas, and coal reserves may fall into this category. Yikes.

​(See graph below. Compare the smaller pink circle to the larger purple or blue circles. Units are GtCO2.)

6. Growing interest in infrastructure
​
The World Economic Forum estimates a $1T/year gap between global infrastructure needs and what limited government budgets can afford. This spells a big need for private capital to fill this gap.

This combined with the current low-yield environment has led to growing investor interest in the global infrastructure market with an aggregate $3.7T/year need.

Investors are seeing the attractive risk-reward fundamentals of infrastructure investment, in which renewable energy represented 55% of all deals in 2015.

​See the graph below highlighting the relative attractiveness of infrastructure investments.

And by the way, I’m just getting started. We haven’t even talked about clean energy investments by other oil majors. 
​
With between $5B and $30B in cash on hand, how will they diversify going forward?

​Surely not all to renewable energy, but probably a greater allocation than in years past.

Does every solar project have to be big?

Many solar investors’ intuition rests easy when they see the graph below. It fits into the elegant framework of “economies of scale.” The bigger the project, the lower unit cost of installation. The smaller the project, more cost-inefficient. Going big is part and parcel with cost efficiency, or so the saying goes.

(Source: Lawrence Berkeley National Laboratory)

But be careful, this is precisely the rationale used to advocate that utility-scale solar is the only form of solar in which we, as a society, should be investing. Heck, Warren Buffett believes so, and that guy never makes a bad bet (at least publicly). Why produce electricity from projects that can be built at $4/MW on top of a house, when you can generate those same electrons from a larger project that can be built for half the cost?

It is a compelling argument, I must admit. But it suffers from the same “big infrastructure” fallacy that is currently hamstringing our legacy centralized energy system. Build BIG projects for cheap on a per MW basis. Big is cheap and efficient. But, as any good economist knows, external costs can cause headaches (and asthma, skin cancer… you get my drift).

Utility-scale projects have gotten a free ride

​See, BIG projects are cheap, in part, because they burden society with costs not borne by the projects themselves. What costs you might say -- only the never-ending litany of transmission and distribution expenditures. Billions of dollars of deferred T&D expenditures hang like a dark cloud over electric sector. And who is paying for those? Not the project owner, that is for sure. Yes, there are interconnection costs, but let’s be real, they hardly cover it.

That is not to say that there is not, in fact, a significant need for big projects. But only to a certain extent. Why only build projects that necessitate that we continue to invest so heavily and T&D infrastructure? Small can be beautiful (and efficient), too.

Yes, we should invest in more high voltage DC transmission. But, why not minimize the need for such costly investments by building smaller C&I and residential projects? They may be more costly on paper, but at the scale of the whole grid, they may actually be introduce some much needed cost-cutting.
Thus, it is the prospect of avoided T&D costs that gives any credence to the claim that smaller-scale projects can be both both prudent and cost-efficient. Avoided costs is a common concept in utility-scale generation, but, for some reason, this logic is not applied to smaller-scale projects. It is not because they don’t make sense, it is because utilities are uncomfortable with power producers that they do not control.

Investors start to take notice of smaller-scale solar

Now, from the perspective of an investor looking to be a long-term project owner, things get interesting. The graph below show the slow march down the path of PPA price decline.

(Source: Lawrence Berkeley National Laboratory)
​
On the one hand, great - solar power is getting cheaper, and fast! On the other, there is a palpable sense that there is large-scale suppression of investors returns taking place. Fair enough. Once a market matures, actual or perceived technological risk reduces, and returns should decrease. But that does not stop investors from feeling the squeeze.

​And that squeeze is happening particularly in the utility-scale market. In part because utilities have a lot of negotiating power in many markets, PPA prices are plummeting, some creeping below the $0.04/kWh threshold. There is still value to be had, but the pressure to find good deals has encouraged (ahem… forced) investors to look back into the C&I market for the returns they seek.

This is great from the standpoint of increasing access to capital for a market segment which historically has been more difficult to finance. Less standardized and smaller projects, diverse off-takers, many without credit ratings, and less financially robust developers have all hampered the expansion of C&I solar.
But, now the suppression of utility-scale solar returns has led investors to start poking around the sleeping giant of C&I solar. Many C&I off-takers have the ability and willingness to pay much higher PPA rates than utilities. Translation = sweet returns. And, there are a LOT of them. If you are lucky enough to find them in places like Nevada where many large-scale C&I customers have been summarily pissed off by the antagonistic treatment by the utilities commission, then you could make some big waves. And, as C&I developers have become more sophisticated, projects are trending towards more consistency, bankability, and less risk.  

So, keep a lookout as the C&I solar market starts to find that sweet spot in the classic risk vs. return story. Small can be beautiful in the solar market.

We are all familiar with the proliferation of cost projections out there, much like the one shown above. Lots of reputable establishments produce these projections, with many clever approaches to thinking about technological progress (e.g., stuff getting cheaper and better).

They all tend to take a similar shape, gently downward sloping cost reductions to that special place of widespread commercial adoption. This is the hallowed “no-brainer” zone which solar now enjoys in many locales.

There is nothing inherently wrong with this blanket approach to understanding the trajectory of an industry. In fact, I have spent many years of my professional life developing nifty statistical projections and models.

After all of that time and effort, it is clear to me that (1) projections are all inherently wrong, though at times useful and (2) projections obscure the more important question of “why.” It is the second point that I want to dig into here.

I often encounter the question - “What does the future hold for the energy storage industry?” Often, the response I hear has something to do with projections - X% growth over the next five years, X units of installed capacity, etc.

Rarely do I hear any mention of the underlying driver of why this growth is happening. There is just a secular belief in progress, and the only real question is how fast.

Here is where things get interesting with energy storage. Unlike solar, energy storage is an remarkably heterogeneous technology with applications that span a wide variety of industries. Yes, solar can be big or small, installed at a residence, commercial building, or as a grid-connected farm. There is some variety, but it all boils down to producing electricity for an off-taker.

Technological progress — solar getting cheaper and more efficient — has been driven by ramping up installations across the spectrum of solar applications. “Learning by doing” it is called. The more solar we built, the cheaper it became.

Energy storage, on the other hand, has drivers across sectors. There is a boom of interest in residential storage, but not to be outdone by interest in the C&I sector for behind-the-meter storage.

Utility-scale storage lurks in the corner, and may ultimately be a larger driver of industry growth when the right market mechanisms are in place.

But the 800-pound gorilla in the room are electric vehicles. The explosion of interest in EVs — lead by Tesla, Chevy, Nissan, Volkswagen, and others — is building up pressure for cost reductions in battery technology.

If and when battery costs drop below the $200-$300/kWh threshold, it may unleash a flood of consumer adoption. This would be fuel to the flame of that virtuous cycle of adoption driving further cost reductions, which, in turn, would drive even more widespread adoption.

​My hunch is that growth in EVs will be a more powerful initial key driver in pushing down energy storage costs for building- or grid-level applications.

The simple fact of the matter is that EVs can scale faster, thereby spurring much-needed “learning by doing.”

​So, it may behoove you to keep an eye outside of the normal places to understand the “why” behind the reductions we are witnessing (and hope to witness) in energy storage technology.

Nobody likes paying more than they should. And my dad is a CPA, so this is definitely true for me, too.

But this barrier is not unique to renewable electricity. The same expectation is true for most non-luxury goods and services.

Yet I still hear the objections everywhere -- from sophisticated investors to family friends -- that solar and wind are too expensive.

 Is that still true? Yes, but increasingly no.

 OK, to be clear, most of the data says no, but as you know, perception is reality.

This lingering misperception is also being observed by other energy leaders, including the Director of Sustainability and Cleantech at Schneider Electric in recent a Greentech Media article about Scheider’s New Energy Opportunities (NEO) Network.

Consider the graph below from Clean Edge, which is based on data from the US Lawrence Berkeley National Laboratory.

The levelized costs for solar electricity (LCOE) has fallen from 22.5 c/kwh to less than 5 c/kwh. That’s a roughly 78% drop in price over the last 10 years.

But unless an investor or corporate executive has regularly re-evaluated the business case for alternative energy, they might have missed these market changes.

It’s important to note that this refers to utility-scale solar, not rooftop solar. The latter has a higher LCOE (c/kwh), but it also competes with higher retail electricity rates.

 Additionally, Deutsche Bank estimates that unsubsidized rooftop solar is 30% cheaper than retail power prices in many countries.
​
 See their map below showing countries with substantial areas of grid parity.

Finally, here’s another data-driven perspective from investment advisory firm, Lazard.

The resolution is not great, so let me help you out.

Here are some of the lowest LCOE values from highest to lowest:

• 16.5 c/kwh - natural gas (peaker)
• 9.7 c/kwh - nuclear
• 6.5 c/kwh - coal
• 5.2 c/kwh - natural gas (combined cycle)
• 4.3 c/kwh - solar (utility scale)
• 3.2 c/kwh - wind (utility scale)
• 0.0 c/kwh - energy efficiency

Here’s a link to the full Lazard report, version 9.0.

If you like data and charts, you’re going to really enjoy this. Grab a big coffee and settle in for some quant goodness.

And next time someone says that solar is too expensive, you can admit they are partially right.
​
But then give them a little dose of 2016 data.

You’ve heard the buzz. Tesla (est. value $32.6B) seeks to acquire SolarCity (est. value $2.8B).

Could a holy trifecta of clean energy come to pass?

Solar + electric vehicles (EV) + energy storage all under one excited electron-pumping roof?

A clean energy corporate union more valuable than Apple one day?

Ah, to dream.

Or, perhaps not a dream, and instead an achievable goal -- that is, a dream with the master plan of today’s Edison?

We have concerns about the potential merger, and investors do, too.

However, the benefits for U.S. consumers are tantalizing. And we’re big Musk fans.

So consider us cautious enthusiasts.

Let’s look at some numbers from a recent article by soothsayer and king of candor Jigar Shah’s recent piece “The Bullish Case for the Tesla / Solar City Merger.”

(If you don’t know who he is, check out Greentech Media’s Energy Gang podcast. His honesty will shock and delight. A good dude, too.)

1. Cars are expensive to own and maintain. AAA says we pay about $800/month.

See the breakdown below.

(To clarify, if this calculation is based on a new-ish car that is financed. Cheaper vehicles purchased with car would see lower implied monthly costs than $800/mo.)  

2. Going all solar and driving a Tesla can actually save many consumers money each month.

For rough math, Jigar assumes $200/mo in energy bills. So, car plus energy equals $1,000/mo.

If the solar system ($20k) and EV ($35k), plus some efficiency ($10k), were financed at, say, 8% for 20 years, and treated partly like a service, consumers could see payments of less than $600/mo.

In that hypothetical, they save $400/mo, or 40% vs. status quo.

But now they can also brag to their friends about how “green” they are.

I’m just making up numbers, but you get the idea.

The point: It’s not a scenario of selling your kidney to go carbon-free.

Plus, the idea of EVs as a monthly cost vs. a one-time purchase is in line with current EV adoption: 75% of EV users lease vs. about 30% of conventional vehicle owners.

3. This EV + solar thing is a global opportunity, so think about big, big potential revenue.

Deutsche Bank projects that solar power will be at grid parity -- that is, the same or lower cost than retail rates from conventional power -- in 80% of the world by 2017.

Just to clarify, that is next year, not 20 years from now.

Moreover, we’ve got about 1.2 billion cars on the road now. But in 2035 that number is projected to reach 2.0 billion. Ugh.

Why not start those new car owners off on the right foot -- Tesla-finance EVs that cost less than conventional vehicles on a monthly basis, and offer fun features like air purification (cough, cough, Beijing)?

Finally, consider that EVs are expected to be cost neutral vs. gas-powered cars from a first-cost point of view by 2022.

As wiser men have said before, the future is [already] here; it’s just not evenly distributed.

How fast can that future be more evenly distributed? So far, we’re liking the slope of that graph.

But don’t get too excited yet. We’re still just at the starting line of an exciting marathon ahead of us. Start drinking that Gatorade.
​

You’ve seen many headlines touting “record new solar panel efficiency.”

We get excited seeing those, too. But they don’t matter.

Alright, that was shock value. Let me explain.

First, take a gander at the mind-numbing chart from the US National Renewable Energy Lab (NREL) below. This is one of my favorite figures in the whole world.

Now, please memorize it -- there will be a quiz later. (Or so I tell my corporate and military executive students. They laugh at my false threats.)

What does this figure say to you?

Three potential takeaways:

1. There are way more types of solar panels than you thought, right?

2. Solar panel efficiencies have improved considerably between 1975 and 2015. Duh.

3. The guys doing the stuff in red font should get new jobs given their low efficiency. (Not really. Those are super cheap organic polymer-based solar cells. Their future will come one day.)

OK. Now forget that graph. Look at these two more important charts from Bloomberg.

Do you see any relationship between these the red and blue lines? (I hope you do.) Cost falls. Solar installations go up.

And now for the next chart.

Yes, you are reading that right. A 99% drop in solar panel prices since 1976. 

I know, I know. I hear the devil’s advocate: But doesn’t greater volume of solar installations drive down costs?

Yep, but the opposite is more true. Cost drives volume. 

China got in the manufacturing game just as the recession of 2008 hit and EU solar demand fell off. Solar panel prices fell faster and haven’t really stopped, resulting in an 80% drop prices in the last 8 years.

For more data and graphs about solar's falling costs and coming world domination (insert dramatic music), see energy rockstar Joe Romm's piece "You’ll Never Believe How Cheap New Solar Power Is."

In case you fear that my ponytail is getting in the way of my PhD and love of private equity (insert humor), and that I'm being too kind to solar, consider this projection from Bloomberg: 

By 2040, global investment in solar will total $3.4 trillion, while fossil fuels and new nuclear will only receive $2.1 trillion and $1.1 trillion, respectively. 

One word: Yikes.

So what?

The next time you hear a sales pitch about panel efficiency, praise them for their ingenuity. They are real wizards.

But just keep asking: What is the resulting $/kwh and Internal Rate of Return of the solar project? 

Efficiency is the finger point at the moon. Please go after the moon.

(Source: RMI Electric Vehicles as Distributed Energy Resources)

Where are you, rational car buyers?

The myth of the rational economic man lurks around the issue of electric vehicles (EVs). 

See, rationality is something to which many learned folks aspire, but it turns out to be a mirage. Yes, we stumble towards it in a thirsty stupor, dreaming of drinking up its cool, clean sensibility. But, we never get there. It always remains a misty illusion just out of reach. 

The rationality dilemma with EVs is pretty simple. Let’s make it clear -- EV purchasers are no more rational than EV skeptics. EV purchasers will look at the graph above, and say -- ha! -- I am saving money on a per mile basis compared to all of your fools with internal combustion engine (ICE) cars. They are not wrong, but neither are they entirely right. 

EV skeptics will look at the graph above and say -- ha! -- you are being duped into assuming this is an apples-to-apples comparison. Again, they are right, but that is not the whole picture, either.  

Why you are going to lose the “EVs are cheaper over the long haul” debateIt boils down to this.

Yes, electricity is a great source of energy, and it is cheaper on a per mile basis than gasoline (even the highly subsidized gasoline that we enjoy, and abuse, in the US). 

But electricity is electrons, difficult to contain, eager to be used immediately. Gas is a portable, energy dense liquid fuel that affords the owner of this magical worker unsurpassed flexibility in how and when to use it. Ironically, in certain places electricity and gas are made of the same stuff -- oil. I am looking at you, Curacao and Gibraltar, where 100% of electricity is generated from oil! 

So the real calculation about EVs is more complex because the services that you gain from gas and electricity are not interchangeable. 

What value do you place on your American right to cruise the highways to your heart’s delight? If the answer is high, then the comparatively lower cost of an EV-mile is meaningless. Your peace of mind in hitting the road without a worry in the world as to how your next mile will be fueled is, in economic terms, infinite. It trumps all other concerns. The term of art for this is “range anxiety.”

What value do you place on cheap, clean transportation within a relatively small driving radius? If the answer is high, then the EV vs. ICE cost comparison is how your explain to your beloved significant other why you just purchased a car that cannot comfortably drive the family to visit your in-laws. Oh, and by the way, the sticker price was a little steeper than that conventional car you had agreed to purchase.

But really, the EV question is even more complicated than that

​And that is just the tip of the iceberg. There are many other factors -- your comfort with rapidly improving battery technology, your assumption that EV charger networks will continue to expand, your belief that manufacturers will not bail on EVs in the future, etc. -- that ultimately weigh heavily on any rational calculation justifying or dismissing the idea of purchasing an EV. 

Dilemmas breed a “let’s wait and see” attitude, how boring

Which brings me to the last point. I grant you permission to purchase (or lease) an EV (or PHEV if just want to dip your toes). Don’t feel like you have to explain yourself to your neighbors (though this tactic will not work with your significant other). 

After all, why did they buy that Honda Odyssey? Was it on a purely rational, benefit-cost maximizing basis? No, they wanted something comfortable and reliable for the family, period. 

They just wanted it, just like you just want an EV. And let’s be real, you want it because it is cool, wave-of-the-future technology. Because it allows you to avoid ever patronizing another neerdowell, franchised Exxonmobil (or BP, or Shell, or fill-in-the-blank) gas station. Or maybe you just like getting all the best EV charger parking spots. 

It doesn’t matter - embrace the irrationality. Be an early(ish) adopter. Get onboard, because EVs are where we are headed, like it or not. Queue EV hockey stick graph.

Congress is again considering an energy storage investment tax credit

The proposed H.R.5350, known in short form as the “Energy Storage Act of 2016,” seeks “To amend the Internal Revenue Code of 1986 to provide for an energy investment credit for energy storage property connected to the grid, and for other purposes.” Sponsored by Silicon Valley’s Congressman Mike Honda (D-CA), the bill has bipartisan co-sponsorship from Reps. Tom Reed (R-NY), Chris Gibson (R-NY), and Mark Takano (D-CA). As reported, it also has the full support of the Energy Storage Association: “The bipartisan Energy Storage Act of 2016 would unlock competitive access to investment in a more resilient and efficient modern electrical grid by expanding the investment tax credit (ITC) to include all types of advanced energy storage,” according to ESA Executive Director Matt Roberts.

We’ve seen public support for energy storage tried before at the national level, such as with last year’s push to pass a national storage mandate. The current initiative builds on earlier efforts for a storage ITC. For example, in 2013 Sen. Ron Wyden (D-OR) proposed a bill that would have granted a 20% tax credit for systems above 1 MW/1 MWh and a 30% credit for smaller 1 kW/5 kWh systems.

A potential $2 billion for energy storage

The details are as follows. A 30% investment tax credit is allowed for any “qualified energy storage property” (see below). Two billion dollars would be set aside in total credits for the life of the proposed program, with any single storage project capped at $40 million. As a side note, under these constraints it makes sense to assume that energy storage project developers would be incentivized to keep total project size under a $133 million price tag.  

What qualifies? At a first reading there does not appear to be a capacity size requirement for any large project, as long as it is used for one of the following purposes: 1) peak demand management; 2) deferral or substitution of investments in generation, transmission, or distribution; 3) backup for variable generation; 4) transmission or distribution grid reliability; 5) end-user energy consumption management; or 6) disconnection of load from the main grid. All energy storage technologies are also covered, including mechanical, electrical, thermal, and electrostatic. Small residential storage would qualify as well, if installed at primary residences and used for peak energy reduction for primarily onsite consumption. These systems must have a 5 kWh capacity and the ability to deliver 1 kW of electricity over 4 hours.

What doesn’t qualify? In general, non-residential energy storage that is designed primarily for on-site consumption does not qualify, unless it exceeds a 5KWh energy capacity and the ability to discharge 1 KW for 5 hours. Special exceptions are given to both pumped hydro and compressed air storage -- these projects must begin construction and operation within set timeframes or risk losing the credit.  

Supporting storage? Two points to consider

The first point to consider is that -- to the extent to which energy storage is paired with renewables -- it may be under-supplied in the current market and deserving of public support. A study that was released in-press last week in Applied Energy from researchers at the University of East Anglia is garnering a lot of attention. In the article, “The value of arbitrage for energy storage: Evidence from European electricity markets,” researchers simulate the arbitrage value of price-taker pumped hydro and compressed air energy storage under different market characteristics and across a portfolio of energy trading strategies. Not surprisingly, decisions can be made to maximize these values across different conditions. More significant was a summary conclusion: “Government subsidies should be used to encourage investment in energy storage systems if renewable power is to be fully integrated into the sector…”

The second point is that a separate energy storage ITC is not the only pathway to support energy storage. Some storage is in fact already eligible for the solar ITC as long as it follows strict rules about explicit pairing with and charging from solar power generation sources. As seen below, we already know that energy storage is expected to receive a huge boost from the extended ITC for solar, whether or not it takes advantage of this limited opportunity under the solar ITC.

(Source: Greentech Media)

The current IRS rules on storage eligibility under the solar ITC have been described as “ambiguous.” In February, the IRS issued a request for comments on this issue, with observers hoping for further clarification in future letters. Regarding the eligibility of storage, the required pairing with renewables was seen as necessary in order to avoid subsidizing storage that was existing merely to arbitrage with the grid, rather than serving as a support for renewables. Conceivably the IRS could decide to expand storage eligibility under the existing solar ITC, but this seems like a case of trying to fit a new effort (storage) under a policy for which it was not designed (solar power promotion).  

The good news is that the new proposed energy storage ITC excludes subsidizing projects that exist merely for arbitrage. Allocation of the credits across projects would be determined by the DOE, to choose those that maximize the following metrics: reliability or economic benefit, integration of renewable resources on the grid, or efficiency of grid operations. H.R. 5350 is just beginning its path from bill to law, but the possibility is there for an energy storage ITC to complement the existing solar ITC.
​

(Source: GreenTech Media)

Co-ops and munis finally get a spot at the clean energy table

In the energy industry, utilities have long run the show. The transition to clean energy is undercutting utilities’ historical dominance of how electricity generation, transmission, and distribution occurs. Distribution cooperatives and small municipal utilities have long ridden on the shoulders of these giants, working through contracts that typically stipulate that they must purchase nearly all of their electricity from generation and transmission (G&T) providers. In most contracts, a whopping 5% has been the limit placed on their self-generation, rendering these smaller players [almost] powerless in determining their own energy future.

There is some poetic justice in having the small folks granted a spot at the distributed clean energy table. As electric cooperatives and municipal utilities were severely handicapped in their ability to procure their own electricity, they have only dabbled in contracts with independent power producers (IPPs) and other clean energy generators. This came to a head with probably the most unsuspecting sounding cooperative you could think of, the Delta-Montrose Electric Authority (DMEA). As a member-owned, rural electric cooperative based out of southwest Colorado, it is not hard to imagine that the time would come when they would want to be afforded the right to procure their electricity from whoever they please. In an act of magnanimity that perhaps surprised many, the Federal Energy Regulatory Commission (FERC) ruled in favor of DMEA in their case against Tri-State, another cooperative that provides generation and transmission services to 44 distribution co-ops across five states.

In short, the ruling lifted the limit on DMEA’s ability to procure electricity from renewable qualified facilities (QFs). The loophole, of sorts, lies in the fact that the Public Utility Regulatory Policies Act of 1978 mandates that utilities must purchase electricity from QF projects. The de facto interpretation of PURPA, for oh the last 38 years, has been that larger-scale utilities and G&T providers would be sole purchaser of electricity from QF projects. DMEA, in a moment of true inspiration, said “to hell with that,” and managed to supersede their contract with Tri-State by asserting that they are themselves a utility, and should be afforded the same rights. This move did not ingratiate DMEA to Tri-State, to say the least, and Tri-State attempted to impose an exit fee on DMEA, which FERC summarily rejected. Message received. Renewables on the grid will no longer be a unilateral decision. 

Co-ops & Community Solar = Match Made in Heaven

It is not hyperbole to claim that this is a game-changer for the nation’s 905 electric co-ops and 835 municipal utilities who woke up following this FERC ruling to a new world of opportunity. How fitting. Co-ops and munis were probably on the leading edge of support for renewables, and now they have license to act on their values, rather than be subjected to energy procurement decisions out of their influence. And that is a very good thing. In fact, it is 987 TWh/yr of a good thing, which if you do the math, implies that the potential market for co-op/muni renewables approaches 400 GW.

Many co-ops and other smaller utilities are structured in ways that are much more conducive to serving the public good. Often they are publicly or member-owned, or at the very least not publicly traded, which makes them more intimately connected to their customers and ratepayers than the larger utilities and G&T providers that dominate much of the electric power procurement space.

Moreover, they are more likely the engage in novel project types like community solar. There is some cosmic symmetry in enabling co-ops/munis to sponsor community solar projects. It makes so much sense. It seems ludicrous that this was ever challenging to execute at a meaningful scale for many co-ops. According to RMI, the market for community-scale solar projects ranging between 500 kW and 5 MW of capacity each could exceed 10 GW by 2020.

Wake-up Call for the Generation and Transmission Providers

An ancillary benefit of this new arrangement is that community solar projects may now be easily integrated into the local distribution system, therein avoiding many costly infrastructure upgrades. Translation: electric distribution co-ops/munis may be able to purchase power directly from QF projects at a lower cost than what they are currently charged by their G&T providers. Memo to G&T providers. This also means that they will be reducing their reliance on your services and undercutting your revenues, unless you can evolve together into helping to co-create a clean energy future.

Now, there are limits to be sure. Electric distribution co-ops/munis have only been afforded the right to negotiate PPAs (and not just based on avoided costs, as in the past) with QF projects in their territory. Not a bad deal, but it does not make them an autonomous entity. Co-ops/munis still have to balance their energy supply, which can only be done through grid management in the transmission and generation system. So, there may be some building tension in the marriage between electric distribution co-ops and their larger G&T brethren. No one wants to see the G&T providers go extinct. In fact, they are still a critical species in the electric grid ecosystem. But, the challenge will be in better collaborating and coordinating with their member co-op/muni friends. This is not a reach. And there is no better time than now. Look for inspiration? Well, look no further than RMI’s  Shine Initiative, an innovative program aimed at helping accelerate solar procurement in the community-scale market.

Fragmented Commercial and Industrial Marketplace

The recent barrage of articles detailing the bankruptcy of a renewable energy giant (SunEdison) and the pending sale of Elon Musk’s third favorite company (SolarCity) has been nothing short of suffocating. IronOak Insights contributed our own sobering account to the stockpile of SolarCity acquisition articles last week as we didn’t want our readers to think that we were living under a rock. 

But outside of those two headline grabbing companies lies a diverse ecosystem of large scale developers working to expand the commercial and industrial solar landscape. Per the graphs below, while only 42% of the U.S. residential solar market in 2015 was serviced by regional installers, 70% of the C&I solar market in 2015 was serviced by companies whose names were not SolarCity, SunEdison, Sunpower, or Borrego Solar. Let’s dive into some of the activity within the fragmented C&I solar marketplace.
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California’s Cash Crop

As the perpetual leader in the U.S. solar race, California dominates every other state with its relentless pipeline of large-scale solar PV projects. The state’s consistent appeal exists because above-average electricity rates are coupled with some of the best insolation in country, along with a small state program called the California Solar Initiative. In addition to solar electricity generation, all of that sunshine has long supported California’s agriculture industry, and now California-based solar developers, like CalCom Solar, are targeting Ag companies as perfect companions for mid-scale PV facilities. 

CalCom recently completed a 2.2 MW solar farm for a fruits and vegetable grower, and the single-axis tracker installation now stands as the largest customer-owned, net metered system in Monterey County. CalCom is one of many developers across the country that are leveraging USDA REAP (Rural Energy for America Program) grants along with the federal ITC to provide attractive PPA rates for applicable off-takers. PFMG Solar (Partners For Many Generations), a top 15 U.S. solar developer, also takes a targeted approach in California by focusing on mid-scale solar solutions for suitable school districts. PFMG recently completed a 1.5 MW installation for a California school district and they’re a likely candidate to pick up some of SunEdison’s solar assets related to education centric off-takers. 

Full Steam Ahead in Colorado and North Carolina

Just this week, Xcel Energy received the Colorado Utility Commission’s approval to move forward with the utility’s plan to develop 29.5 MW of PV from community solar projects. This is welcomed news for Denver-based community solar developer SunShare who commissioned a1.5 MW community solar garden in Arvada, CO on June 21st. SunShare joins Community Energy and Clean Energy Collective as the three juggernauts supercharging the community solar space in Colorado.

​Community Energy made headlines recently when they offloaded six North Carolina-based projects to Duke Energy with a total capacity of 30 MW. North Carolina’s solar market has remained strong despite the repeal of the state’s lucrative 35% solar tax credit. San Francisco-based Ecoplexus also recently completed six projects in NC, totaling 54 MW and requiring $79M in total investment. Ecoplexus has 36 MW under construction and claims more than 1 GW in their development pipeline that spans across 12 US states and dispersed international development. 

The West Texas Solar Patch

Have you ever imagined an oil field man camp with LED lighting, tankless hot water heaters, and bike racks? Me neither, but maybe that concept becomes a selling point for solar field workers relocating to West Texas for the impending solar boom. ERCOT, the grid operator that services 90% of the Texas electric grid, is anticipating more than 560 MW of PV to be installed in Texas during 2016. That’s more than double the 212 MW installed during the previous year. Texas already ranks 9th in the U.S. in terms of installed solar capacity, and many analysts are expecting that ranking to climb up in the coming years. Texas, specifically West Texas, has some of the highest insolation in the U.S., large tracts of suitable land, low regulatory costs, and above average electricity rates.

Although solar produced electricity will only account for 3% of the state’s generation capacity in 2017, ERCOT is projecting solar to supply more than 17% of the state’s electricity by 2030. While a large percentage of the anticipated development will come from utility-scale developers including First Solar and Recurrent Energy, regional developers will still have the opportunity to fill a void in the marketplace. I recently spoke with a developer that was already complaining of long interconnection study delays, so make sure to get your paperwork started sooner rather than later.