#Solar & Storage Finance Conference Notes
Explore tagged Tumblr posts
Visit Tumblr Blog
Explore Tumblr blogs with no restrictions, modern design and the best experience.
Last Seen Tumblr Blogs
Fun Fact
12.7% of mobile users access Tumblr.
Text
Solar & Storage Finance Conference Notes
Solar & Storage Finance Conference Notes
I attended the Solar & Storage Finance conference hosted in NYC in late October 2018. Presenters included a mix of capital providers & asset managers, private non-profit entities & public agencies, legal, accounting & consulting firms, intermediaries, firms providing risk analysis, ratings & mitigation, & various vendors of energy storage and IT-related services. The tone of the discussions was noteworthy for its near total absence of ideological comments about environmental urgency. Rather, it was a meeting of finance technicians and technocrats focused on the nuts & bolts of accomplishing those ends, with the merits and relevance of mission assumed.
The conference issues were organized with public agency comments at the beginning about policy targets and accomplishments. This set the stage for discussion panels to address the interests and appetites of Large Buyers, including both offtaker utilities and capital market asset buyers (institutional infrastructure portfolio managers as well as real estate asset holders). This was followed by opportunities to showcase the concerns of tax equity investors and debt providers. Interspersed were presentations and panels regarding risk mitigation, storage technologies, and storage financing concerns for both public & private sectors.
Public Policy and Agency goals
The agency sector was represented by 3 public institutions, NYSERDA, NY Power Authority (NYPA), & the NYC Office of Sustainability & Resiliency; 2 utilities, ConEd (ED), and E.On (EOAN.DE), and 5 private non-profits, ACORE, Solar Finance Council, Urban Land Institute, and NY-BEST (battery energy storage consortium).
NYSDERA’s CEO Alicia Barton as the keynote speaker affirmed a strong commitment to the State Renewable Energy Vision (REV) as the grand policy framework for transitioning from a “business as usual” carbon economy, citing a long series of goals and achievements. The NY-Sun initiative was given a budget of $1B which is being administered by NYSDERA’s NY Green Bank, of which $450M has been deployed. She noted that there were 4400 community solar projects in the pipeline, and 22 large scale projects that were announced this year. 1500 new storage projects were targeted by 2025 under the Storage Roadmap, which is part of the larger NYSolarMap project.
The Public Service Commission (PSC) has filed to allocate $350M in incentives, of which $40M will be placed through NY-Sun for solar+storage projects. These incentives are projected to produce $2B in value from grid optimization. She addressed questions about the sentiment from the development community that the PSC’s net metering successor tariff program, VDER, has quashed development by capitulating to utility concerns and shaving compensation for distributed generation, reducing incentives for private sector capital. She responded that PSC white papers published 7/26/18 & 7/31/18 addressed these concerns, which she acknowledged were plaguing the public dialogue, but she expressed her feeling that the VDER plan is the right approach. She closed by directing attention to the fact that electric generation constituted approximately only 25% of GHG emissions, that policy & development would need to address buildings and transportation.
The representative from NYC’s Sustainability Office Susanne Desroche, recited its development profile: 7GW of renewable generation installed in the 5 boroughs, 154MW solar & 67MW storage installed in NYC, goal of another 100MW by 2024, 40MW in the pipeline, for solar & storage. She reported plans to replace 85% of peaker plants with 1000MW of storage by 2030. Automated permitting is a major initiative in process.
FDNY is evaluating concerns about fire risk for indoor siting of batteries, but some outdoor sites for battery storage are being installed. Targets for 2050 include 60% building electrification and 50 DC fast chargers, with 5 DCFC’s planned for 2019. When asked about plans for the MTA to accelerate its acquisition of electric buses and build out of bus charging infrastructure, she declined to comment on MTA timelines. NYPA however noted that its EVolve NY plan has committed $250M through 2025 for EV charging infrastructure including 200 DC Fast Chargers (150kW) along traffic corridors, airport charging hubs and EV model communities.
NYPA further commented that historically, it had accumulated 25% of the entire state’s generating portfolio, but was shifting its focus to distributed generation.
VDER – Value of Distributed Energy
Stephen Wemple from ConEd articulated the premise of VDER, the successor tariff to Net Energy Metering (NEM), identifying the main categories of the “Value Stack”.
The LBMP is indexed to the wholesale ISO market price, whereas the LSRV is value for avoided line development. The Environmental value is priced on either REC prices (as determined by NYSDERDA) or the social cost of carbon (as determined by RGGI). An extended analysis was referenced in NYSolarMap analysis, which included excel modeling presentations by several large solar developers.
Daniel Spitzer, attorney from Hodgson Russ, presented a critical assessment of agency policies, in particular noting contradictions between declared goals and actual pacing in implementing the VDER framework for compensation for both solar and for storage development. He noted that NY will not be able to achieve its goals of 50% renewables by 2030 (REV, RPS or NY-BEST Roadmap,) without faster adoption of storage. $200M allocated at NY Green Bank for storage is not being committed quickly enough (which is at odds with NYSERDA’s statement that $450M had been deployed). He noted that recent legislation in CA leading the promotion and adoption of storage, citing one bill that imposes a requirement that microgrids use batteries or other storage rather than nat gas generators, recommending NY should follow that course, which would catalyze more renewable microgrid development. A 2nd CA bill directs utilities to implement 500MW of storage. He also advocated called for more aggressive efforts for restraint on interconnection costs than provided in the solar+storage Map, noting that the PSC has taken steps to update the SIR (Standard Interconnection Requirements).
Storage Applications
Storage deployments in NY have trickled in as compared to the surge in renewable generation. In part this is because grid integration of storage technology is still in an early stage, with 94% of 25.2GW of US storage capacity in pumped hydro, and all the tech innovation constituting only 6% of storage capacity.
Massive efforts will be needed to expand both capacity & grid integration.
The primary purpose of energy storage is energy arbitrage, ie., purchasing energy to charge batteries when prices are low due to surplus and discharging to sell when prices are high due to demand congestion, with the effect of providing load smoothing, at several levels within the grid architecture.
In addition to the compensation storage should receive for its contribution to the Value of Distributed Resources, it should also see revenue for these ancillary services. Storage provides “ancillary services” to the grid that are currently un- or under-compensated, including frequency regulation, voltage support, reserve capacity, load following & ramping.
The PSC is considering a “value stack” approach for storage as well as generation, to disaggregate the value streams and compensate each separately. RMI identified 13 services that storage can provide, to 3 stakeholder groups.
Determining the cashflow for a solar+storage project from VDER rules involves a complicated comparison between structuring and pricing regimes, which can create confusion when presenting a proposal for financing. Because storage can potentially participate in both state-regulated retail markets and FERC-regulated wholesale markets, storage pricing models have to ensure not only adequate compensation but must also avoid double compensation for any segregated value stream.
Spitzer advocated for expansion of incentives & subsidies in the VDER compensation model, in addition to the Transition benefits currently supporting VDER pricing. He also made reference to a supplemental subsidy for storage, a “market acceleration bridge incentive” (MAI), a proposal within the Roadmap that calls for $350M to be drawn from the State’s Clean Energy Fund. Solutions to this were briefly touched upon, including a proposed subsidy under the State storage Roadmap plan to offset soft-costs, a mechanism to ensure storage is sold in 10-20yr contract increments, a state run central procurement agency for storage, and support for specific market applications, ie, for schools to offset seasonal shifts, and replacement of peaker plants.
Institutional investors
Institutional investors are potentially the largest source of capital but currently the smallest by total assets under management, so it is an industry priority to find the means to unlock access to those large pools of funds that require very low risk assets & can tolerate relatively low returns. Institutional entities represented in the panels, included 2 insurance companies, 2 banks, 1 investment bank, 3 commercial REITs, several institutionally funded alternative funds, & several entities engaged in securitization of projects into Asset Backed Securities (ABS) that are placed with institutional investors, including 2 securities brokers, an asset manager & a major developer with a deep balance sheet. Public policy is a factor in incentivizing private sector involvement, as to federal tax incentives, state structural goals such as Renewable Portfolio Standards, property tax, carbon credits, support for valuation of storage assets, and portfolio guidelines limiting category and percentage of alt assets.
The rep for insurance company John Hancock sat on a panel discussing investor appetites for PV & storage with fund managers from Wafra Alternative Investments, C2 Energy Capital & Clean Capital.
Only 40 deals were with institutional participants, constituting .5% of transactions, in part because, as one panel member observed, there are easier ways to bet on 15-year assets than investing in power contracts, due to numerous uncertainties, in costs, O&M risks, performance both during the contracted period and after the end of the PPA, in the merchant period. Clean Capital has partnered with John Hancock (subsidiary of Manulife (MFC)), and with Blackrock on large portfolio acquisitions.
Tax Equity
The reps for AON Insurance (AON) and Royal Bank of Canada (RY) participated in a panel discussion about tax equity investments. Jonathan Silver of Tax Equity Advisors noted that pension funds, cash equity funds and insurance funds are increasing their participation in general, but also other non-institutional corporations are taking large positions in renewables via tax equity. Gary Blitz of AON focused his comments on coverage indemnifying narrow risks for tax equity partners against reversal judgments in IRS challenges, stating that insurance revenue for this line is up 2x yoy since ’17, similar to the services offered by the Surety carriers. Tax credit recapture risk can be triggered by foreclosure, which can mean that lenders concerned with loan default risk have interests at odds with tax equity investors.
RBC stated that they place funds from 80 institutional investors into their syndications of low income housing, who have been increasing their participation in renewable assets primarily to increase diversification, but since the tax reform are finding fewer tax equity opportunities. Tax advisor and syndications expert Joel Cohn of CohnReznick Capital noted that tax flips use GAAP rules primarily but also require use of “Hypothetical Linked Book Value” (HLBV) accounting rules. Other complicated factors discussed included Base Erosion Anti-abuse Tax (BEAT) rules, 5% Safe Harbor rules, and Opportunity Zone rules for pre-tax deferrals out to 2026. This discussion ended noting that it is generally simpler to employ back-leverage structures to avoid the default risk, and in some cases avoid transacting with tax partners.
Another panel that included M&T Bank (MTB), Investec Holdings (South African fund) & FTI consulting (which also operates a mid-market investment bank) continued discussion of the relative merits of back-levered debt, in which a project sponsor finances its equity contribution with Back-leverage is increasingly prevalent, in part because lenders prefer less dependence on tax equity, like to see more profit distribution to Sponsors, and because tax equity participants are ramping down on long tail risk. Revenue stacking models were discussed, that involve layering on capacity and ancillary services, to the extent that projects include front-of-the-meter storage. The head of Investec for No. America commented that simpler revenue models were favored. He pointed an earlier era in tech financing when cash flow for startups were subsidized by relationship banks backed up by entities with deep balance sheets that were able to carry the risks and negative cash flows until the developing firms were able to build “economic velocity”, suggesting something similar will need to happen with renewables.
Securitization was addressed by a panel moderated by Mike Mendelsohn from the Solar Finance Council, which offers a bond securitization rating portal, & includes on its advisory board kWh Analytics and CleanCapital. Panelists included a rep from asset manager Guggenheim Partners ($209B AUM) and brokerage firm Cantor Fitzgerald, Ron Borod from asset manager Ram Island Strategies, & Thomas Plageman from Vivint Solar Capital Markets (VSLR), a major developer with a deep balance sheet that has one of the largest financings listed by the NY Green Bank. Vivint reported it had completed $466M in ABS deals & 2 debt deals on the 144a market both levered and back levered, some that included a 2nd layer of tax equity. Their ABS securities were rated BBB on Quantum, with interest rates at L+ 1.75 rather than L+2.25, advance rate of 73-85%, and buyers were insurance companies taking 18yr dated PPA’s. Critical mass for these portfolios were 25-30,000 customers, which equated to $100M-$200M in asset scale. Ram Island noted its lease PPA portfolios were almost all residential, noted that the minimum levels of critical mass to be able to do the statistical underwriting was threshold of 15-20MW. It preferred using back-leverage to avoid IRS challenges of ITC basis, and to avoid the competition contractually for cashflow between debt holders and equity holders. Guggenheim also indicated a preference for debt rather than the complexities of managing inter-creditor relationships, and the upfront costs for legal & rating agencies in setting up ABS’s. He agreed critical mass to achieve the statistical granularity for rating purposes was $100M, preferably composed of similar asset class, with investment grade C&I offtaker. Storage, interestingly, was considered by all three to be a benefit to the project cashflow stability and the ABS, as a hedge for changes in net metering rules.
Real Estate
The real estate asset holders funding renewable developments appeared on their own panel, moderated by the non-profit Urban Land Institute. Panelists included Vornado Realty Trust (VNO), a publicly traded REIT with marquis high rise properties, largest owner of LEED-certified property in the US, DWS Group, (formerly Deutschbank) with a $50B real estate portfolio, & L&M Development Partners a non-profit builder of low income housing..
https://ift.tt/2G5e6yj
0 notes
Text
Solar & Storage Finance Conference Notes
Solar & Storage Finance Conference Notes
I attended the Solar & Storage Finance conference hosted in NYC in late October 2018. Presenters included a mix of capital providers & asset managers, private non-profit entities & public agencies, legal, accounting & consulting firms, intermediaries, firms providing risk analysis, ratings & mitigation, & various vendors of energy storage and IT-related services. The tone of the discussions was noteworthy for its near total absence of ideological comments about environmental urgency. Rather, it was a meeting of finance technicians and technocrats focused on the nuts & bolts of accomplishing those ends, with the merits and relevance of mission assumed.
The conference issues were organized with public agency comments at the beginning about policy targets and accomplishments. This set the stage for discussion panels to address the interests and appetites of Large Buyers, including both offtaker utilities and capital market asset buyers (institutional infrastructure portfolio managers as well as real estate asset holders). This was followed by opportunities to showcase the concerns of tax equity investors and debt providers. Interspersed were presentations and panels regarding risk mitigation, storage technologies, and storage financing concerns for both public & private sectors.
Public Policy and Agency goals
The agency sector was represented by 3 public institutions, NYSERDA, NY Power Authority (NYPA), & the NYC Office of Sustainability & Resiliency; 2 utilities, ConEd (ED), and E.On (EOAN.DE), and 5 private non-profits, ACORE, Solar Finance Council, Urban Land Institute, and NY-BEST (battery energy storage consortium).
NYSDERA’s CEO Alicia Barton as the keynote speaker affirmed a strong commitment to the State Renewable Energy Vision (REV) as the grand policy framework for transitioning from a “business as usual” carbon economy, citing a long series of goals and achievements. The NY-Sun initiative was given a budget of $1B which is being administered by NYSDERA’s NY Green Bank, of which $450M has been deployed. She noted that there were 4400 community solar projects in the pipeline, and 22 large scale projects that were announced this year. 1500 new storage projects were targeted by 2025 under the Storage Roadmap, which is part of the larger NYSolarMap project.
The Public Service Commission (PSC) has filed to allocate $350M in incentives, of which $40M will be placed through NY-Sun for solar+storage projects. These incentives are projected to produce $2B in value from grid optimization. She addressed questions about the sentiment from the development community that the PSC’s net metering successor tariff program, VDER, has quashed development by capitulating to utility concerns and shaving compensation for distributed generation, reducing incentives for private sector capital. She responded that PSC white papers published 7/26/18 & 7/31/18 addressed these concerns, which she acknowledged were plaguing the public dialogue, but she expressed her feeling that the VDER plan is the right approach. She closed by directing attention to the fact that electric generation constituted approximately only 25% of GHG emissions, that policy & development would need to address buildings and transportation.
The representative from NYC’s Sustainability Office Susanne Desroche, recited its development profile: 7GW of renewable generation installed in the 5 boroughs, 154MW solar & 67MW storage installed in NYC, goal of another 100MW by 2024, 40MW in the pipeline, for solar & storage. She reported plans to replace 85% of peaker plants with 1000MW of storage by 2030. Automated permitting is a major initiative in process.
FDNY is evaluating concerns about fire risk for indoor siting of batteries, but some outdoor sites for battery storage are being installed. Targets for 2050 include 60% building electrification and 50 DC fast chargers, with 5 DCFC’s planned for 2019. When asked about plans for the MTA to accelerate its acquisition of electric buses and build out of bus charging infrastructure, she declined to comment on MTA timelines. NYPA however noted that its EVolve NY plan has committed $250M through 2025 for EV charging infrastructure including 200 DC Fast Chargers (150kW) along traffic corridors, airport charging hubs and EV model communities.
NYPA further commented that historically, it had accumulated 25% of the entire state’s generating portfolio, but was shifting its focus to distributed generation.
VDER – Value of Distributed Energy
Stephen Wemple from ConEd articulated the premise of VDER, the successor tariff to Net Energy Metering (NEM), identifying the main categories of the “Value Stack”.
The LBMP is indexed to the wholesale ISO market price, whereas the LSRV is value for avoided line development. The Environmental value is priced on either REC prices (as determined by NYSDERDA) or the social cost of carbon (as determined by RGGI). An extended analysis was referenced in NYSolarMap analysis, which included excel modeling presentations by several large solar developers.
Daniel Spitzer, attorney from Hodgson Russ, presented a critical assessment of agency policies, in particular noting contradictions between declared goals and actual pacing in implementing the VDER framework for compensation for both solar and for storage development. He noted that NY will not be able to achieve its goals of 50% renewables by 2030 (REV, RPS or NY-BEST Roadmap,) without faster adoption of storage. $200M allocated at NY Green Bank for storage is not being committed quickly enough (which is at odds with NYSERDA’s statement that $450M had been deployed). He noted that recent legislation in CA leading the promotion and adoption of storage, citing one bill that imposes a requirement that microgrids use batteries or other storage rather than nat gas generators, recommending NY should follow that course, which would catalyze more renewable microgrid development. A 2nd CA bill directs utilities to implement 500MW of storage. He also advocated called for more aggressive efforts for restraint on interconnection costs than provided in the solar+storage Map, noting that the PSC has taken steps to update the SIR (Standard Interconnection Requirements).
Storage Applications
Storage deployments in NY have trickled in as compared to the surge in renewable generation. In part this is because grid integration of storage technology is still in an early stage, with 94% of 25.2GW of US storage capacity in pumped hydro, and all the tech innovation constituting only 6% of storage capacity.
Massive efforts will be needed to expand both capacity & grid integration.
The primary purpose of energy storage is energy arbitrage, ie., purchasing energy to charge batteries when prices are low due to surplus and discharging to sell when prices are high due to demand congestion, with the effect of providing load smoothing, at several levels within the grid architecture.
In addition to the compensation storage should receive for its contribution to the Value of Distributed Resources, it should also see revenue for these ancillary services. Storage provides “ancillary services” to the grid that are currently un- or under-compensated, including frequency regulation, voltage support, reserve capacity, load following & ramping.
The PSC is considering a “value stack” approach for storage as well as generation, to disaggregate the value streams and compensate each separately. RMI identified 13 services that storage can provide, to 3 stakeholder groups.
Determining the cashflow for a solar+storage project from VDER rules involves a complicated comparison between structuring and pricing regimes, which can create confusion when presenting a proposal for financing. Because storage can potentially participate in both state-regulated retail markets and FERC-regulated wholesale markets, storage pricing models have to ensure not only adequate compensation but must also avoid double compensation for any segregated value stream.
Spitzer advocated for expansion of incentives & subsidies in the VDER compensation model, in addition to the Transition benefits currently supporting VDER pricing. He also made reference to a supplemental subsidy for storage, a “market acceleration bridge incentive” (MAI), a proposal within the Roadmap that calls for $350M to be drawn from the State’s Clean Energy Fund. Solutions to this were briefly touched upon, including a proposed subsidy under the State storage Roadmap plan to offset soft-costs, a mechanism to ensure storage is sold in 10-20yr contract increments, a state run central procurement agency for storage, and support for specific market applications, ie, for schools to offset seasonal shifts, and replacement of peaker plants.
Institutional investors
Institutional investors are potentially the largest source of capital but currently the smallest by total assets under management, so it is an industry priority to find the means to unlock access to those large pools of funds that require very low risk assets & can tolerate relatively low returns. Institutional entities represented in the panels, included 2 insurance companies, 2 banks, 1 investment bank, 3 commercial REITs, several institutionally funded alternative funds, & several entities engaged in securitization of projects into Asset Backed Securities (ABS) that are placed with institutional investors, including 2 securities brokers, an asset manager & a major developer with a deep balance sheet. Public policy is a factor in incentivizing private sector involvement, as to federal tax incentives, state structural goals such as Renewable Portfolio Standards, property tax, carbon credits, support for valuation of storage assets, and portfolio guidelines limiting category and percentage of alt assets.
The rep for insurance company John Hancock sat on a panel discussing investor appetites for PV & storage with fund managers from Wafra Alternative Investments, C2 Energy Capital & Clean Capital.
Only 40 deals were with institutional participants, constituting .5% of transactions, in part because, as one panel member observed, there are easier ways to bet on 15-year assets than investing in power contracts, due to numerous uncertainties, in costs, O&M risks, performance both during the contracted period and after the end of the PPA, in the merchant period. Clean Capital has partnered with John Hancock (subsidiary of Manulife (MFC)), and with Blackrock on large portfolio acquisitions.
Tax Equity
The reps for AON Insurance (AON) and Royal Bank of Canada (RY) participated in a panel discussion about tax equity investments. Jonathan Silver of Tax Equity Advisors noted that pension funds, cash equity funds and insurance funds are increasing their participation in general, but also other non-institutional corporations are taking large positions in renewables via tax equity. Gary Blitz of AON focused his comments on coverage indemnifying narrow risks for tax equity partners against reversal judgments in IRS challenges, stating that insurance revenue for this line is up 2x yoy since ’17, similar to the services offered by the Surety carriers. Tax credit recapture risk can be triggered by foreclosure, which can mean that lenders concerned with loan default risk have interests at odds with tax equity investors.
RBC stated that they place funds from 80 institutional investors into their syndications of low income housing, who have been increasing their participation in renewable assets primarily to increase diversification, but since the tax reform are finding fewer tax equity opportunities. Tax advisor and syndications expert Joel Cohn of CohnReznick Capital noted that tax flips use GAAP rules primarily but also require use of “Hypothetical Linked Book Value” (HLBV) accounting rules. Other complicated factors discussed included Base Erosion Anti-abuse Tax (BEAT) rules, 5% Safe Harbor rules, and Opportunity Zone rules for pre-tax deferrals out to 2026. This discussion ended noting that it is generally simpler to employ back-leverage structures to avoid the default risk, and in some cases avoid transacting with tax partners.
Another panel that included M&T Bank (MTB), Investec Holdings (South African fund) & FTI consulting (which also operates a mid-market investment bank) continued discussion of the relative merits of back-levered debt, in which a project sponsor finances its equity contribution with Back-leverage is increasingly prevalent, in part because lenders prefer less dependence on tax equity, like to see more profit distribution to Sponsors, and because tax equity participants are ramping down on long tail risk. Revenue stacking models were discussed, that involve layering on capacity and ancillary services, to the extent that projects include front-of-the-meter storage. The head of Investec for No. America commented that simpler revenue models were favored. He pointed an earlier era in tech financing when cash flow for startups were subsidized by relationship banks backed up by entities with deep balance sheets that were able to carry the risks and negative cash flows until the developing firms were able to build “economic velocity”, suggesting something similar will need to happen with renewables.
Securitization was addressed by a panel moderated by Mike Mendelsohn from the Solar Finance Council, which offers a bond securitization rating portal, & includes on its advisory board kWh Analytics and CleanCapital. Panelists included a rep from asset manager Guggenheim Partners ($209B AUM) and brokerage firm Cantor Fitzgerald, Ron Borod from asset manager Ram Island Strategies, & Thomas Plageman from Vivint Solar Capital Markets (VSLR), a major developer with a deep balance sheet that has one of the largest financings listed by the NY Green Bank. Vivint reported it had completed $466M in ABS deals & 2 debt deals on the 144a market both levered and back levered, some that included a 2nd layer of tax equity. Their ABS securities were rated BBB on Quantum, with interest rates at L+ 1.75 rather than L+2.25, advance rate of 73-85%, and buyers were insurance companies taking 18yr dated PPA’s. Critical mass for these portfolios were 25-30,000 customers, which equated to $100M-$200M in asset scale. Ram Island noted its lease PPA portfolios were almost all residential, noted that the minimum levels of critical mass to be able to do the statistical underwriting was threshold of 15-20MW. It preferred using back-leverage to avoid IRS challenges of ITC basis, and to avoid the competition contractually for cashflow between debt holders and equity holders. Guggenheim also indicated a preference for debt rather than the complexities of managing inter-creditor relationships, and the upfront costs for legal & rating agencies in setting up ABS’s. He agreed critical mass to achieve the statistical granularity for rating purposes was $100M, preferably composed of similar asset class, with investment grade C&I offtaker. Storage, interestingly, was considered by all three to be a benefit to the project cashflow stability and the ABS, as a hedge for changes in net metering rules.
Real Estate
The real estate asset holders funding renewable developments appeared on their own panel, moderated by the non-profit Urban Land Institute. Panelists included Vornado Realty Trust (VNO), a publicly traded REIT with marquis high rise properties, largest owner of LEED-certified property in the US, DWS Group, (formerly Deutschbank) with a $50B real estate portfolio, & L&M Development Partners a non-profit builder of low income housing..
https://ift.tt/2G5e6yj
0 notes
Text
Solar & Storage Finance Conference Notes
Solar & Storage Finance Conference Notes
I attended the Solar & Storage Finance conference hosted in NYC in late October 2018. Presenters included a mix of capital providers & asset managers, private non-profit entities & public agencies, legal, accounting & consulting firms, intermediaries, firms providing risk analysis, ratings & mitigation, & various vendors of energy storage and IT-related services. The tone of the discussions was noteworthy for its near total absence of ideological comments about environmental urgency. Rather, it was a meeting of finance technicians and technocrats focused on the nuts & bolts of accomplishing those ends, with the merits and relevance of mission assumed.
The conference issues were organized with public agency comments at the beginning about policy targets and accomplishments. This set the stage for discussion panels to address the interests and appetites of Large Buyers, including both offtaker utilities and capital market asset buyers (institutional infrastructure portfolio managers as well as real estate asset holders). This was followed by opportunities to showcase the concerns of tax equity investors and debt providers. Interspersed were presentations and panels regarding risk mitigation, storage technologies, and storage financing concerns for both public & private sectors.
Public Policy and Agency goals
The agency sector was represented by 3 public institutions, NYSERDA, NY Power Authority (NYPA), & the NYC Office of Sustainability & Resiliency; 2 utilities, ConEd (ED), and E.On (EOAN.DE), and 5 private non-profits, ACORE, Solar Finance Council, Urban Land Institute, and NY-BEST (battery energy storage consortium).
NYSDERA’s CEO Alicia Barton as the keynote speaker affirmed a strong commitment to the State Renewable Energy Vision (REV) as the grand policy framework for transitioning from a “business as usual” carbon economy, citing a long series of goals and achievements. The NY-Sun initiative was given a budget of $1B which is being administered by NYSDERA’s NY Green Bank, of which $450M has been deployed. She noted that there were 4400 community solar projects in the pipeline, and 22 large scale projects that were announced this year. 1500 new storage projects were targeted by 2025 under the Storage Roadmap, which is part of the larger NYSolarMap project.
The Public Service Commission (PSC) has filed to allocate $350M in incentives, of which $40M will be placed through NY-Sun for solar+storage projects. These incentives are projected to produce $2B in value from grid optimization. She addressed questions about the sentiment from the development community that the PSC’s net metering successor tariff program, VDER, has quashed development by capitulating to utility concerns and shaving compensation for distributed generation, reducing incentives for private sector capital. She responded that PSC white papers published 7/26/18 & 7/31/18 addressed these concerns, which she acknowledged were plaguing the public dialogue, but she expressed her feeling that the VDER plan is the right approach. She closed by directing attention to the fact that electric generation constituted approximately only 25% of GHG emissions, that policy & development would need to address buildings and transportation.
The representative from NYC’s Sustainability Office Susanne Desroche, recited its development profile: 7GW of renewable generation installed in the 5 boroughs, 154MW solar & 67MW storage installed in NYC, goal of another 100MW by 2024, 40MW in the pipeline, for solar & storage. She reported plans to replace 85% of peaker plants with 1000MW of storage by 2030. Automated permitting is a major initiative in process.
FDNY is evaluating concerns about fire risk for indoor siting of batteries, but some outdoor sites for battery storage are being installed. Targets for 2050 include 60% building electrification and 50 DC fast chargers, with 5 DCFC’s planned for 2019. When asked about plans for the MTA to accelerate its acquisition of electric buses and build out of bus charging infrastructure, she declined to comment on MTA timelines. NYPA however noted that its EVolve NY plan has committed $250M through 2025 for EV charging infrastructure including 200 DC Fast Chargers (150kW) along traffic corridors, airport charging hubs and EV model communities.
NYPA further commented that historically, it had accumulated 25% of the entire state’s generating portfolio, but was shifting its focus to distributed generation.
VDER – Value of Distributed Energy
Stephen Wemple from ConEd articulated the premise of VDER, the successor tariff to Net Energy Metering (NEM), identifying the main categories of the “Value Stack”.
The LBMP is indexed to the wholesale ISO market price, whereas the LSRV is value for avoided line development. The Environmental value is priced on either REC prices (as determined by NYSDERDA) or the social cost of carbon (as determined by RGGI). An extended analysis was referenced in NYSolarMap analysis, which included excel modeling presentations by several large solar developers.
Daniel Spitzer, attorney from Hodgson Russ, presented a critical assessment of agency policies, in particular noting contradictions between declared goals and actual pacing in implementing the VDER framework for compensation for both solar and for storage development. He noted that NY will not be able to achieve its goals of 50% renewables by 2030 (REV, RPS or NY-BEST Roadmap,) without faster adoption of storage. $200M allocated at NY Green Bank for storage is not being committed quickly enough (which is at odds with NYSERDA’s statement that $450M had been deployed). He noted that recent legislation in CA leading the promotion and adoption of storage, citing one bill that imposes a requirement that microgrids use batteries or other storage rather than nat gas generators, recommending NY should follow that course, which would catalyze more renewable microgrid development. A 2nd CA bill directs utilities to implement 500MW of storage. He also advocated called for more aggressive efforts for restraint on interconnection costs than provided in the solar+storage Map, noting that the PSC has taken steps to update the SIR (Standard Interconnection Requirements).
Storage Applications
Storage deployments in NY have trickled in as compared to the surge in renewable generation. In part this is because grid integration of storage technology is still in an early stage, with 94% of 25.2GW of US storage capacity in pumped hydro, and all the tech innovation constituting only 6% of storage capacity.
Massive efforts will be needed to expand both capacity & grid integration.
The primary purpose of energy storage is energy arbitrage, ie., purchasing energy to charge batteries when prices are low due to surplus and discharging to sell when prices are high due to demand congestion, with the effect of providing load smoothing, at several levels within the grid architecture.
In addition to the compensation storage should receive for its contribution to the Value of Distributed Resources, it should also see revenue for these ancillary services. Storage provides “ancillary services” to the grid that are currently un- or under-compensated, including frequency regulation, voltage support, reserve capacity, load following & ramping.
The PSC is considering a “value stack” approach for storage as well as generation, to disaggregate the value streams and compensate each separately. RMI identified 13 services that storage can provide, to 3 stakeholder groups.
Determining the cashflow for a solar+storage project from VDER rules involves a complicated comparison between structuring and pricing regimes, which can create confusion when presenting a proposal for financing. Because storage can potentially participate in both state-regulated retail markets and FERC-regulated wholesale markets, storage pricing models have to ensure not only adequate compensation but must also avoid double compensation for any segregated value stream.
Spitzer advocated for expansion of incentives & subsidies in the VDER compensation model, in addition to the Transition benefits currently supporting VDER pricing. He also made reference to a supplemental subsidy for storage, a “market acceleration bridge incentive” (MAI), a proposal within the Roadmap that calls for $350M to be drawn from the State’s Clean Energy Fund. Solutions to this were briefly touched upon, including a proposed subsidy under the State storage Roadmap plan to offset soft-costs, a mechanism to ensure storage is sold in 10-20yr contract increments, a state run central procurement agency for storage, and support for specific market applications, ie, for schools to offset seasonal shifts, and replacement of peaker plants.
Institutional investors
Institutional investors are potentially the largest source of capital but currently the smallest by total assets under management, so it is an industry priority to find the means to unlock access to those large pools of funds that require very low risk assets & can tolerate relatively low returns. Institutional entities represented in the panels, included 2 insurance companies, 2 banks, 1 investment bank, 3 commercial REITs, several institutionally funded alternative funds, & several entities engaged in securitization of projects into Asset Backed Securities (ABS) that are placed with institutional investors, including 2 securities brokers, an asset manager & a major developer with a deep balance sheet. Public policy is a factor in incentivizing private sector involvement, as to federal tax incentives, state structural goals such as Renewable Portfolio Standards, property tax, carbon credits, support for valuation of storage assets, and portfolio guidelines limiting category and percentage of alt assets.
The rep for insurance company John Hancock sat on a panel discussing investor appetites for PV & storage with fund managers from Wafra Alternative Investments, C2 Energy Capital & Clean Capital.
Only 40 deals were with institutional participants, constituting .5% of transactions, in part because, as one panel member observed, there are easier ways to bet on 15-year assets than investing in power contracts, due to numerous uncertainties, in costs, O&M risks, performance both during the contracted period and after the end of the PPA, in the merchant period. Clean Capital has partnered with John Hancock (subsidiary of Manulife (MFC)), and with Blackrock on large portfolio acquisitions.
Tax Equity
The reps for AON Insurance (AON) and Royal Bank of Canada (RY) participated in a panel discussion about tax equity investments. Jonathan Silver of Tax Equity Advisors noted that pension funds, cash equity funds and insurance funds are increasing their participation in general, but also other non-institutional corporations are taking large positions in renewables via tax equity. Gary Blitz of AON focused his comments on coverage indemnifying narrow risks for tax equity partners against reversal judgments in IRS challenges, stating that insurance revenue for this line is up 2x yoy since ’17, similar to the services offered by the Surety carriers. Tax credit recapture risk can be triggered by foreclosure, which can mean that lenders concerned with loan default risk have interests at odds with tax equity investors.
RBC stated that they place funds from 80 institutional investors into their syndications of low income housing, who have been increasing their participation in renewable assets primarily to increase diversification, but since the tax reform are finding fewer tax equity opportunities. Tax advisor and syndications expert Joel Cohn of CohnReznick Capital noted that tax flips use GAAP rules primarily but also require use of “Hypothetical Linked Book Value” (HLBV) accounting rules. Other complicated factors discussed included Base Erosion Anti-abuse Tax (BEAT) rules, 5% Safe Harbor rules, and Opportunity Zone rules for pre-tax deferrals out to 2026. This discussion ended noting that it is generally simpler to employ back-leverage structures to avoid the default risk, and in some cases avoid transacting with tax partners.
Another panel that included M&T Bank (MTB), Investec Holdings (South African fund) & FTI consulting (which also operates a mid-market investment bank) continued discussion of the relative merits of back-levered debt, in which a project sponsor finances its equity contribution with Back-leverage is increasingly prevalent, in part because lenders prefer less dependence on tax equity, like to see more profit distribution to Sponsors, and because tax equity participants are ramping down on long tail risk. Revenue stacking models were discussed, that involve layering on capacity and ancillary services, to the extent that projects include front-of-the-meter storage. The head of Investec for No. America commented that simpler revenue models were favored. He pointed an earlier era in tech financing when cash flow for startups were subsidized by relationship banks backed up by entities with deep balance sheets that were able to carry the risks and negative cash flows until the developing firms were able to build “economic velocity”, suggesting something similar will need to happen with renewables.
Securitization was addressed by a panel moderated by Mike Mendelsohn from the Solar Finance Council, which offers a bond securitization rating portal, & includes on its advisory board kWh Analytics and CleanCapital. Panelists included a rep from asset manager Guggenheim Partners ($209B AUM) and brokerage firm Cantor Fitzgerald, Ron Borod from asset manager Ram Island Strategies, & Thomas Plageman from Vivint Solar Capital Markets (VSLR), a major developer with a deep balance sheet that has one of the largest financings listed by the NY Green Bank. Vivint reported it had completed $466M in ABS deals & 2 debt deals on the 144a market both levered and back levered, some that included a 2nd layer of tax equity. Their ABS securities were rated BBB on Quantum, with interest rates at L+ 1.75 rather than L+2.25, advance rate of 73-85%, and buyers were insurance companies taking 18yr dated PPA’s. Critical mass for these portfolios were 25-30,000 customers, which equated to $100M-$200M in asset scale. Ram Island noted its lease PPA portfolios were almost all residential, noted that the minimum levels of critical mass to be able to do the statistical underwriting was threshold of 15-20MW. It preferred using back-leverage to avoid IRS challenges of ITC basis, and to avoid the competition contractually for cashflow between debt holders and equity holders. Guggenheim also indicated a preference for debt rather than the complexities of managing inter-creditor relationships, and the upfront costs for legal & rating agencies in setting up ABS’s. He agreed critical mass to achieve the statistical granularity for rating purposes was $100M, preferably composed of similar asset class, with investment grade C&I offtaker. Storage, interestingly, was considered by all three to be a benefit to the project cashflow stability and the ABS, as a hedge for changes in net metering rules.
Real Estate
The real estate asset holders funding renewable developments appeared on their own panel, moderated by the non-profit Urban Land Institute. Panelists included Vornado Realty Trust (VNO), a publicly traded REIT with marquis high rise properties, largest owner of LEED-certified property in the US, DWS Group, (formerly Deutschbank) with a $50B real estate portfolio, & L&M Development Partners a non-profit builder of low income housing..
https://ift.tt/2G5e6yj
0 notes
Text
Solar & Storage Finance Conference Notes
Solar & Storage Finance Conference Notes
I attended the Solar & Storage Finance conference hosted in NYC in late October 2018. Presenters included a mix of capital providers & asset managers, private non-profit entities & public agencies, legal, accounting & consulting firms, intermediaries, firms providing risk analysis, ratings & mitigation, & various vendors of energy storage and IT-related services. The tone of the discussions was noteworthy for its near total absence of ideological comments about environmental urgency. Rather, it was a meeting of finance technicians and technocrats focused on the nuts & bolts of accomplishing those ends, with the merits and relevance of mission assumed.
The conference issues were organized with public agency comments at the beginning about policy targets and accomplishments. This set the stage for discussion panels to address the interests and appetites of Large Buyers, including both offtaker utilities and capital market asset buyers (institutional infrastructure portfolio managers as well as real estate asset holders). This was followed by opportunities to showcase the concerns of tax equity investors and debt providers. Interspersed were presentations and panels regarding risk mitigation, storage technologies, and storage financing concerns for both public & private sectors.
Public Policy and Agency goals
The agency sector was represented by 3 public institutions, NYSERDA, NY Power Authority (NYPA), & the NYC Office of Sustainability & Resiliency; 2 utilities, ConEd (ED), and E.On (EOAN.DE), and 5 private non-profits, ACORE, Solar Finance Council, Urban Land Institute, and NY-BEST (battery energy storage consortium).
NYSDERA’s CEO Alicia Barton as the keynote speaker affirmed a strong commitment to the State Renewable Energy Vision (REV) as the grand policy framework for transitioning from a “business as usual” carbon economy, citing a long series of goals and achievements. The NY-Sun initiative was given a budget of $1B which is being administered by NYSDERA’s NY Green Bank, of which $450M has been deployed. She noted that there were 4400 community solar projects in the pipeline, and 22 large scale projects that were announced this year. 1500 new storage projects were targeted by 2025 under the Storage Roadmap, which is part of the larger NYSolarMap project.
The Public Service Commission (PSC) has filed to allocate $350M in incentives, of which $40M will be placed through NY-Sun for solar+storage projects. These incentives are projected to produce $2B in value from grid optimization. She addressed questions about the sentiment from the development community that the PSC’s net metering successor tariff program, VDER, has quashed development by capitulating to utility concerns and shaving compensation for distributed generation, reducing incentives for private sector capital. She responded that PSC white papers published 7/26/18 & 7/31/18 addressed these concerns, which she acknowledged were plaguing the public dialogue, but she expressed her feeling that the VDER plan is the right approach. She closed by directing attention to the fact that electric generation constituted approximately only 25% of GHG emissions, that policy & development would need to address buildings and transportation.
The representative from NYC’s Sustainability Office Susanne Desroche, recited its development profile: 7GW of renewable generation installed in the 5 boroughs, 154MW solar & 67MW storage installed in NYC, goal of another 100MW by 2024, 40MW in the pipeline, for solar & storage. She reported plans to replace 85% of peaker plants with 1000MW of storage by 2030. Automated permitting is a major initiative in process.
FDNY is evaluating concerns about fire risk for indoor siting of batteries, but some outdoor sites for battery storage are being installed. Targets for 2050 include 60% building electrification and 50 DC fast chargers, with 5 DCFC’s planned for 2019. When asked about plans for the MTA to accelerate its acquisition of electric buses and build out of bus charging infrastructure, she declined to comment on MTA timelines. NYPA however noted that its EVolve NY plan has committed $250M through 2025 for EV charging infrastructure including 200 DC Fast Chargers (150kW) along traffic corridors, airport charging hubs and EV model communities.
NYPA further commented that historically, it had accumulated 25% of the entire state’s generating portfolio, but was shifting its focus to distributed generation.
VDER – Value of Distributed Energy
Stephen Wemple from ConEd articulated the premise of VDER, the successor tariff to Net Energy Metering (NEM), identifying the main categories of the “Value Stack”.
The LBMP is indexed to the wholesale ISO market price, whereas the LSRV is value for avoided line development. The Environmental value is priced on either REC prices (as determined by NYSDERDA) or the social cost of carbon (as determined by RGGI). An extended analysis was referenced in NYSolarMap analysis, which included excel modeling presentations by several large solar developers.
Daniel Spitzer, attorney from Hodgson Russ, presented a critical assessment of agency policies, in particular noting contradictions between declared goals and actual pacing in implementing the VDER framework for compensation for both solar and for storage development. He noted that NY will not be able to achieve its goals of 50% renewables by 2030 (REV, RPS or NY-BEST Roadmap,) without faster adoption of storage. $200M allocated at NY Green Bank for storage is not being committed quickly enough (which is at odds with NYSERDA’s statement that $450M had been deployed). He noted that recent legislation in CA leading the promotion and adoption of storage, citing one bill that imposes a requirement that microgrids use batteries or other storage rather than nat gas generators, recommending NY should follow that course, which would catalyze more renewable microgrid development. A 2nd CA bill directs utilities to implement 500MW of storage. He also advocated called for more aggressive efforts for restraint on interconnection costs than provided in the solar+storage Map, noting that the PSC has taken steps to update the SIR (Standard Interconnection Requirements).
Storage Applications
Storage deployments in NY have trickled in as compared to the surge in renewable generation. In part this is because grid integration of storage technology is still in an early stage, with 94% of 25.2GW of US storage capacity in pumped hydro, and all the tech innovation constituting only 6% of storage capacity.
Massive efforts will be needed to expand both capacity & grid integration.
The primary purpose of energy storage is energy arbitrage, ie., purchasing energy to charge batteries when prices are low due to surplus and discharging to sell when prices are high due to demand congestion, with the effect of providing load smoothing, at several levels within the grid architecture.
In addition to the compensation storage should receive for its contribution to the Value of Distributed Resources, it should also see revenue for these ancillary services. Storage provides “ancillary services” to the grid that are currently un- or under-compensated, including frequency regulation, voltage support, reserve capacity, load following & ramping.
The PSC is considering a “value stack” approach for storage as well as generation, to disaggregate the value streams and compensate each separately. RMI identified 13 services that storage can provide, to 3 stakeholder groups.
Determining the cashflow for a solar+storage project from VDER rules involves a complicated comparison between structuring and pricing regimes, which can create confusion when presenting a proposal for financing. Because storage can potentially participate in both state-regulated retail markets and FERC-regulated wholesale markets, storage pricing models have to ensure not only adequate compensation but must also avoid double compensation for any segregated value stream.
Spitzer advocated for expansion of incentives & subsidies in the VDER compensation model, in addition to the Transition benefits currently supporting VDER pricing. He also made reference to a supplemental subsidy for storage, a “market acceleration bridge incentive” (MAI), a proposal within the Roadmap that calls for $350M to be drawn from the State’s Clean Energy Fund. Solutions to this were briefly touched upon, including a proposed subsidy under the State storage Roadmap plan to offset soft-costs, a mechanism to ensure storage is sold in 10-20yr contract increments, a state run central procurement agency for storage, and support for specific market applications, ie, for schools to offset seasonal shifts, and replacement of peaker plants.
Institutional investors
Institutional investors are potentially the largest source of capital but currently the smallest by total assets under management, so it is an industry priority to find the means to unlock access to those large pools of funds that require very low risk assets & can tolerate relatively low returns. Institutional entities represented in the panels, included 2 insurance companies, 2 banks, 1 investment bank, 3 commercial REITs, several institutionally funded alternative funds, & several entities engaged in securitization of projects into Asset Backed Securities (ABS) that are placed with institutional investors, including 2 securities brokers, an asset manager & a major developer with a deep balance sheet. Public policy is a factor in incentivizing private sector involvement, as to federal tax incentives, state structural goals such as Renewable Portfolio Standards, property tax, carbon credits, support for valuation of storage assets, and portfolio guidelines limiting category and percentage of alt assets.
The rep for insurance company John Hancock sat on a panel discussing investor appetites for PV & storage with fund managers from Wafra Alternative Investments, C2 Energy Capital & Clean Capital.
Only 40 deals were with institutional participants, constituting .5% of transactions, in part because, as one panel member observed, there are easier ways to bet on 15-year assets than investing in power contracts, due to numerous uncertainties, in costs, O&M risks, performance both during the contracted period and after the end of the PPA, in the merchant period. Clean Capital has partnered with John Hancock (subsidiary of Manulife (MFC)), and with Blackrock on large portfolio acquisitions.
Tax Equity
The reps for AON Insurance (AON) and Royal Bank of Canada (RY) participated in a panel discussion about tax equity investments. Jonathan Silver of Tax Equity Advisors noted that pension funds, cash equity funds and insurance funds are increasing their participation in general, but also other non-institutional corporations are taking large positions in renewables via tax equity. Gary Blitz of AON focused his comments on coverage indemnifying narrow risks for tax equity partners against reversal judgments in IRS challenges, stating that insurance revenue for this line is up 2x yoy since ’17, similar to the services offered by the Surety carriers. Tax credit recapture risk can be triggered by foreclosure, which can mean that lenders concerned with loan default risk have interests at odds with tax equity investors.
RBC stated that they place funds from 80 institutional investors into their syndications of low income housing, who have been increasing their participation in renewable assets primarily to increase diversification, but since the tax reform are finding fewer tax equity opportunities. Tax advisor and syndications expert Joel Cohn of CohnReznick Capital noted that tax flips use GAAP rules primarily but also require use of “Hypothetical Linked Book Value” (HLBV) accounting rules. Other complicated factors discussed included Base Erosion Anti-abuse Tax (BEAT) rules, 5% Safe Harbor rules, and Opportunity Zone rules for pre-tax deferrals out to 2026. This discussion ended noting that it is generally simpler to employ back-leverage structures to avoid the default risk, and in some cases avoid transacting with tax partners.
Another panel that included M&T Bank (MTB), Investec Holdings (South African fund) & FTI consulting (which also operates a mid-market investment bank) continued discussion of the relative merits of back-levered debt, in which a project sponsor finances its equity contribution with Back-leverage is increasingly prevalent, in part because lenders prefer less dependence on tax equity, like to see more profit distribution to Sponsors, and because tax equity participants are ramping down on long tail risk. Revenue stacking models were discussed, that involve layering on capacity and ancillary services, to the extent that projects include front-of-the-meter storage. The head of Investec for No. America commented that simpler revenue models were favored. He pointed an earlier era in tech financing when cash flow for startups were subsidized by relationship banks backed up by entities with deep balance sheets that were able to carry the risks and negative cash flows until the developing firms were able to build “economic velocity”, suggesting something similar will need to happen with renewables.
Securitization was addressed by a panel moderated by Mike Mendelsohn from the Solar Finance Council, which offers a bond securitization rating portal, & includes on its advisory board kWh Analytics and CleanCapital. Panelists included a rep from asset manager Guggenheim Partners ($209B AUM) and brokerage firm Cantor Fitzgerald, Ron Borod from asset manager Ram Island Strategies, & Thomas Plageman from Vivint Solar Capital Markets (VSLR), a major developer with a deep balance sheet that has one of the largest financings listed by the NY Green Bank. Vivint reported it had completed $466M in ABS deals & 2 debt deals on the 144a market both levered and back levered, some that included a 2nd layer of tax equity. Their ABS securities were rated BBB on Quantum, with interest rates at L+ 1.75 rather than L+2.25, advance rate of 73-85%, and buyers were insurance companies taking 18yr dated PPA’s. Critical mass for these portfolios were 25-30,000 customers, which equated to $100M-$200M in asset scale. Ram Island noted its lease PPA portfolios were almost all residential, noted that the minimum levels of critical mass to be able to do the statistical underwriting was threshold of 15-20MW. It preferred using back-leverage to avoid IRS challenges of ITC basis, and to avoid the competition contractually for cashflow between debt holders and equity holders. Guggenheim also indicated a preference for debt rather than the complexities of managing inter-creditor relationships, and the upfront costs for legal & rating agencies in setting up ABS’s. He agreed critical mass to achieve the statistical granularity for rating purposes was $100M, preferably composed of similar asset class, with investment grade C&I offtaker. Storage, interestingly, was considered by all three to be a benefit to the project cashflow stability and the ABS, as a hedge for changes in net metering rules.
Real Estate
The real estate asset holders funding renewable developments appeared on their own panel, moderated by the non-profit Urban Land Institute. Panelists included Vornado Realty Trust (VNO), a publicly traded REIT with marquis high rise properties, largest owner of LEED-certified property in the US, DWS Group, (formerly Deutschbank) with a $50B real estate portfolio, & L&M Development Partners a non-profit builder of low income housing..
https://ift.tt/2G5e6yj
0 notes
Text
Solar & Storage Finance Conference Notes
Solar & Storage Finance Conference Notes
I attended the Solar & Storage Finance conference hosted in NYC in late October 2018. Presenters included a mix of capital providers & asset managers, private non-profit entities & public agencies, legal, accounting & consulting firms, intermediaries, firms providing risk analysis, ratings & mitigation, & various vendors of energy storage and IT-related services. The tone of the discussions was noteworthy for its near total absence of ideological comments about environmental urgency. Rather, it was a meeting of finance technicians and technocrats focused on the nuts & bolts of accomplishing those ends, with the merits and relevance of mission assumed.
The conference issues were organized with public agency comments at the beginning about policy targets and accomplishments. This set the stage for discussion panels to address the interests and appetites of Large Buyers, including both offtaker utilities and capital market asset buyers (institutional infrastructure portfolio managers as well as real estate asset holders). This was followed by opportunities to showcase the concerns of tax equity investors and debt providers. Interspersed were presentations and panels regarding risk mitigation, storage technologies, and storage financing concerns for both public & private sectors.
Public Policy and Agency goals
The agency sector was represented by 3 public institutions, NYSERDA, NY Power Authority (NYPA), & the NYC Office of Sustainability & Resiliency; 2 utilities, ConEd (ED), and E.On (EOAN.DE), and 5 private non-profits, ACORE, Solar Finance Council, Urban Land Institute, and NY-BEST (battery energy storage consortium).
NYSDERA’s CEO Alicia Barton as the keynote speaker affirmed a strong commitment to the State Renewable Energy Vision (REV) as the grand policy framework for transitioning from a “business as usual” carbon economy, citing a long series of goals and achievements. The NY-Sun initiative was given a budget of $1B which is being administered by NYSDERA’s NY Green Bank, of which $450M has been deployed. She noted that there were 4400 community solar projects in the pipeline, and 22 large scale projects that were announced this year. 1500 new storage projects were targeted by 2025 under the Storage Roadmap, which is part of the larger NYSolarMap project.
The Public Service Commission (PSC) has filed to allocate $350M in incentives, of which $40M will be placed through NY-Sun for solar+storage projects. These incentives are projected to produce $2B in value from grid optimization. She addressed questions about the sentiment from the development community that the PSC’s net metering successor tariff program, VDER, has quashed development by capitulating to utility concerns and shaving compensation for distributed generation, reducing incentives for private sector capital. She responded that PSC white papers published 7/26/18 & 7/31/18 addressed these concerns, which she acknowledged were plaguing the public dialogue, but she expressed her feeling that the VDER plan is the right approach. She closed by directing attention to the fact that electric generation constituted approximately only 25% of GHG emissions, that policy & development would need to address buildings and transportation.
The representative from NYC’s Sustainability Office Susanne Desroche, recited its development profile: 7GW of renewable generation installed in the 5 boroughs, 154MW solar & 67MW storage installed in NYC, goal of another 100MW by 2024, 40MW in the pipeline, for solar & storage. She reported plans to replace 85% of peaker plants with 1000MW of storage by 2030. Automated permitting is a major initiative in process.
FDNY is evaluating concerns about fire risk for indoor siting of batteries, but some outdoor sites for battery storage are being installed. Targets for 2050 include 60% building electrification and 50 DC fast chargers, with 5 DCFC’s planned for 2019. When asked about plans for the MTA to accelerate its acquisition of electric buses and build out of bus charging infrastructure, she declined to comment on MTA timelines. NYPA however noted that its EVolve NY plan has committed $250M through 2025 for EV charging infrastructure including 200 DC Fast Chargers (150kW) along traffic corridors, airport charging hubs and EV model communities.
NYPA further commented that historically, it had accumulated 25% of the entire state’s generating portfolio, but was shifting its focus to distributed generation.
VDER – Value of Distributed Energy
Stephen Wemple from ConEd articulated the premise of VDER, the successor tariff to Net Energy Metering (NEM), identifying the main categories of the “Value Stack”.
The LBMP is indexed to the wholesale ISO market price, whereas the LSRV is value for avoided line development. The Environmental value is priced on either REC prices (as determined by NYSDERDA) or the social cost of carbon (as determined by RGGI). An extended analysis was referenced in NYSolarMap analysis, which included excel modeling presentations by several large solar developers.
Daniel Spitzer, attorney from Hodgson Russ, presented a critical assessment of agency policies, in particular noting contradictions between declared goals and actual pacing in implementing the VDER framework for compensation for both solar and for storage development. He noted that NY will not be able to achieve its goals of 50% renewables by 2030 (REV, RPS or NY-BEST Roadmap,) without faster adoption of storage. $200M allocated at NY Green Bank for storage is not being committed quickly enough (which is at odds with NYSERDA’s statement that $450M had been deployed). He noted that recent legislation in CA leading the promotion and adoption of storage, citing one bill that imposes a requirement that microgrids use batteries or other storage rather than nat gas generators, recommending NY should follow that course, which would catalyze more renewable microgrid development. A 2nd CA bill directs utilities to implement 500MW of storage. He also advocated called for more aggressive efforts for restraint on interconnection costs than provided in the solar+storage Map, noting that the PSC has taken steps to update the SIR (Standard Interconnection Requirements).
Storage Applications
Storage deployments in NY have trickled in as compared to the surge in renewable generation. In part this is because grid integration of storage technology is still in an early stage, with 94% of 25.2GW of US storage capacity in pumped hydro, and all the tech innovation constituting only 6% of storage capacity.
Massive efforts will be needed to expand both capacity & grid integration.
The primary purpose of energy storage is energy arbitrage, ie., purchasing energy to charge batteries when prices are low due to surplus and discharging to sell when prices are high due to demand congestion, with the effect of providing load smoothing, at several levels within the grid architecture.
In addition to the compensation storage should receive for its contribution to the Value of Distributed Resources, it should also see revenue for these ancillary services. Storage provides “ancillary services” to the grid that are currently un- or under-compensated, including frequency regulation, voltage support, reserve capacity, load following & ramping.
The PSC is considering a “value stack” approach for storage as well as generation, to disaggregate the value streams and compensate each separately. RMI identified 13 services that storage can provide, to 3 stakeholder groups.
Determining the cashflow for a solar+storage project from VDER rules involves a complicated comparison between structuring and pricing regimes, which can create confusion when presenting a proposal for financing. Because storage can potentially participate in both state-regulated retail markets and FERC-regulated wholesale markets, storage pricing models have to ensure not only adequate compensation but must also avoid double compensation for any segregated value stream.
Spitzer advocated for expansion of incentives & subsidies in the VDER compensation model, in addition to the Transition benefits currently supporting VDER pricing. He also made reference to a supplemental subsidy for storage, a “market acceleration bridge incentive” (MAI), a proposal within the Roadmap that calls for $350M to be drawn from the State’s Clean Energy Fund. Solutions to this were briefly touched upon, including a proposed subsidy under the State storage Roadmap plan to offset soft-costs, a mechanism to ensure storage is sold in 10-20yr contract increments, a state run central procurement agency for storage, and support for specific market applications, ie, for schools to offset seasonal shifts, and replacement of peaker plants.
Institutional investors
Institutional investors are potentially the largest source of capital but currently the smallest by total assets under management, so it is an industry priority to find the means to unlock access to those large pools of funds that require very low risk assets & can tolerate relatively low returns. Institutional entities represented in the panels, included 2 insurance companies, 2 banks, 1 investment bank, 3 commercial REITs, several institutionally funded alternative funds, & several entities engaged in securitization of projects into Asset Backed Securities (ABS) that are placed with institutional investors, including 2 securities brokers, an asset manager & a major developer with a deep balance sheet. Public policy is a factor in incentivizing private sector involvement, as to federal tax incentives, state structural goals such as Renewable Portfolio Standards, property tax, carbon credits, support for valuation of storage assets, and portfolio guidelines limiting category and percentage of alt assets.
The rep for insurance company John Hancock sat on a panel discussing investor appetites for PV & storage with fund managers from Wafra Alternative Investments, C2 Energy Capital & Clean Capital.
Only 40 deals were with institutional participants, constituting .5% of transactions, in part because, as one panel member observed, there are easier ways to bet on 15-year assets than investing in power contracts, due to numerous uncertainties, in costs, O&M risks, performance both during the contracted period and after the end of the PPA, in the merchant period. Clean Capital has partnered with John Hancock (subsidiary of Manulife (MFC)), and with Blackrock on large portfolio acquisitions.
Tax Equity
The reps for AON Insurance (AON) and Royal Bank of Canada (RY) participated in a panel discussion about tax equity investments. Jonathan Silver of Tax Equity Advisors noted that pension funds, cash equity funds and insurance funds are increasing their participation in general, but also other non-institutional corporations are taking large positions in renewables via tax equity. Gary Blitz of AON focused his comments on coverage indemnifying narrow risks for tax equity partners against reversal judgments in IRS challenges, stating that insurance revenue for this line is up 2x yoy since ’17, similar to the services offered by the Surety carriers. Tax credit recapture risk can be triggered by foreclosure, which can mean that lenders concerned with loan default risk have interests at odds with tax equity investors.
RBC stated that they place funds from 80 institutional investors into their syndications of low income housing, who have been increasing their participation in renewable assets primarily to increase diversification, but since the tax reform are finding fewer tax equity opportunities. Tax advisor and syndications expert Joel Cohn of CohnReznick Capital noted that tax flips use GAAP rules primarily but also require use of “Hypothetical Linked Book Value” (HLBV) accounting rules. Other complicated factors discussed included Base Erosion Anti-abuse Tax (BEAT) rules, 5% Safe Harbor rules, and Opportunity Zone rules for pre-tax deferrals out to 2026. This discussion ended noting that it is generally simpler to employ back-leverage structures to avoid the default risk, and in some cases avoid transacting with tax partners.
Another panel that included M&T Bank (MTB), Investec Holdings (South African fund) & FTI consulting (which also operates a mid-market investment bank) continued discussion of the relative merits of back-levered debt, in which a project sponsor finances its equity contribution with Back-leverage is increasingly prevalent, in part because lenders prefer less dependence on tax equity, like to see more profit distribution to Sponsors, and because tax equity participants are ramping down on long tail risk. Revenue stacking models were discussed, that involve layering on capacity and ancillary services, to the extent that projects include front-of-the-meter storage. The head of Investec for No. America commented that simpler revenue models were favored. He pointed an earlier era in tech financing when cash flow for startups were subsidized by relationship banks backed up by entities with deep balance sheets that were able to carry the risks and negative cash flows until the developing firms were able to build “economic velocity”, suggesting something similar will need to happen with renewables.
Securitization was addressed by a panel moderated by Mike Mendelsohn from the Solar Finance Council, which offers a bond securitization rating portal, & includes on its advisory board kWh Analytics and CleanCapital. Panelists included a rep from asset manager Guggenheim Partners ($209B AUM) and brokerage firm Cantor Fitzgerald, Ron Borod from asset manager Ram Island Strategies, & Thomas Plageman from Vivint Solar Capital Markets (VSLR), a major developer with a deep balance sheet that has one of the largest financings listed by the NY Green Bank. Vivint reported it had completed $466M in ABS deals & 2 debt deals on the 144a market both levered and back levered, some that included a 2nd layer of tax equity. Their ABS securities were rated BBB on Quantum, with interest rates at L+ 1.75 rather than L+2.25, advance rate of 73-85%, and buyers were insurance companies taking 18yr dated PPA’s. Critical mass for these portfolios were 25-30,000 customers, which equated to $100M-$200M in asset scale. Ram Island noted its lease PPA portfolios were almost all residential, noted that the minimum levels of critical mass to be able to do the statistical underwriting was threshold of 15-20MW. It preferred using back-leverage to avoid IRS challenges of ITC basis, and to avoid the competition contractually for cashflow between debt holders and equity holders. Guggenheim also indicated a preference for debt rather than the complexities of managing inter-creditor relationships, and the upfront costs for legal & rating agencies in setting up ABS’s. He agreed critical mass to achieve the statistical granularity for rating purposes was $100M, preferably composed of similar asset class, with investment grade C&I offtaker. Storage, interestingly, was considered by all three to be a benefit to the project cashflow stability and the ABS, as a hedge for changes in net metering rules.
Real Estate
The real estate asset holders funding renewable developments appeared on their own panel, moderated by the non-profit Urban Land Institute. Panelists included Vornado Realty Trust (VNO), a publicly traded REIT with marquis high rise properties, largest owner of LEED-certified property in the US, DWS Group, (formerly Deutschbank) with a $50B real estate portfolio, & L&M Development Partners a non-profit builder of low income housing..
https://ift.tt/2G5e6yj
0 notes
Text
Solar & Storage Finance Conference Notes
Solar & Storage Finance Conference Notes
I attended the Solar & Storage Finance conference hosted in NYC in late October 2018. Presenters included a mix of capital providers & asset managers, private non-profit entities & public agencies, legal, accounting & consulting firms, intermediaries, firms providing risk analysis, ratings & mitigation, & various vendors of energy storage and IT-related services. The tone of the discussions was noteworthy for its near total absence of ideological comments about environmental urgency. Rather, it was a meeting of finance technicians and technocrats focused on the nuts & bolts of accomplishing those ends, with the merits and relevance of mission assumed.
The conference issues were organized with public agency comments at the beginning about policy targets and accomplishments. This set the stage for discussion panels to address the interests and appetites of Large Buyers, including both offtaker utilities and capital market asset buyers (institutional infrastructure portfolio managers as well as real estate asset holders). This was followed by opportunities to showcase the concerns of tax equity investors and debt providers. Interspersed were presentations and panels regarding risk mitigation, storage technologies, and storage financing concerns for both public & private sectors.
Public Policy and Agency goals
The agency sector was represented by 3 public institutions, NYSERDA, NY Power Authority (NYPA), & the NYC Office of Sustainability & Resiliency; 2 utilities, ConEd (ED), and E.On (EOAN.DE), and 5 private non-profits, ACORE, Solar Finance Council, Urban Land Institute, and NY-BEST (battery energy storage consortium).
NYSDERA’s CEO Alicia Barton as the keynote speaker affirmed a strong commitment to the State Renewable Energy Vision (REV) as the grand policy framework for transitioning from a “business as usual” carbon economy, citing a long series of goals and achievements. The NY-Sun initiative was given a budget of $1B which is being administered by NYSDERA’s NY Green Bank, of which $450M has been deployed. She noted that there were 4400 community solar projects in the pipeline, and 22 large scale projects that were announced this year. 1500 new storage projects were targeted by 2025 under the Storage Roadmap, which is part of the larger NYSolarMap project.
The Public Service Commission (PSC) has filed to allocate $350M in incentives, of which $40M will be placed through NY-Sun for solar+storage projects. These incentives are projected to produce $2B in value from grid optimization. She addressed questions about the sentiment from the development community that the PSC’s net metering successor tariff program, VDER, has quashed development by capitulating to utility concerns and shaving compensation for distributed generation, reducing incentives for private sector capital. She responded that PSC white papers published 7/26/18 & 7/31/18 addressed these concerns, which she acknowledged were plaguing the public dialogue, but she expressed her feeling that the VDER plan is the right approach. She closed by directing attention to the fact that electric generation constituted approximately only 25% of GHG emissions, that policy & development would need to address buildings and transportation.
The representative from NYC’s Sustainability Office Susanne Desroche, recited its development profile: 7GW of renewable generation installed in the 5 boroughs, 154MW solar & 67MW storage installed in NYC, goal of another 100MW by 2024, 40MW in the pipeline, for solar & storage. She reported plans to replace 85% of peaker plants with 1000MW of storage by 2030. Automated permitting is a major initiative in process.
FDNY is evaluating concerns about fire risk for indoor siting of batteries, but some outdoor sites for battery storage are being installed. Targets for 2050 include 60% building electrification and 50 DC fast chargers, with 5 DCFC’s planned for 2019. When asked about plans for the MTA to accelerate its acquisition of electric buses and build out of bus charging infrastructure, she declined to comment on MTA timelines. NYPA however noted that its EVolve NY plan has committed $250M through 2025 for EV charging infrastructure including 200 DC Fast Chargers (150kW) along traffic corridors, airport charging hubs and EV model communities.
NYPA further commented that historically, it had accumulated 25% of the entire state’s generating portfolio, but was shifting its focus to distributed generation.
VDER – Value of Distributed Energy
Stephen Wemple from ConEd articulated the premise of VDER, the successor tariff to Net Energy Metering (NEM), identifying the main categories of the “Value Stack”.
The LBMP is indexed to the wholesale ISO market price, whereas the LSRV is value for avoided line development. The Environmental value is priced on either REC prices (as determined by NYSDERDA) or the social cost of carbon (as determined by RGGI). An extended analysis was referenced in NYSolarMap analysis, which included excel modeling presentations by several large solar developers.
Daniel Spitzer, attorney from Hodgson Russ, presented a critical assessment of agency policies, in particular noting contradictions between declared goals and actual pacing in implementing the VDER framework for compensation for both solar and for storage development. He noted that NY will not be able to achieve its goals of 50% renewables by 2030 (REV, RPS or NY-BEST Roadmap,) without faster adoption of storage. $200M allocated at NY Green Bank for storage is not being committed quickly enough (which is at odds with NYSERDA’s statement that $450M had been deployed). He noted that recent legislation in CA leading the promotion and adoption of storage, citing one bill that imposes a requirement that microgrids use batteries or other storage rather than nat gas generators, recommending NY should follow that course, which would catalyze more renewable microgrid development. A 2nd CA bill directs utilities to implement 500MW of storage. He also advocated called for more aggressive efforts for restraint on interconnection costs than provided in the solar+storage Map, noting that the PSC has taken steps to update the SIR (Standard Interconnection Requirements).
Storage Applications
Storage deployments in NY have trickled in as compared to the surge in renewable generation. In part this is because grid integration of storage technology is still in an early stage, with 94% of 25.2GW of US storage capacity in pumped hydro, and all the tech innovation constituting only 6% of storage capacity.
Massive efforts will be needed to expand both capacity & grid integration.
The primary purpose of energy storage is energy arbitrage, ie., purchasing energy to charge batteries when prices are low due to surplus and discharging to sell when prices are high due to demand congestion, with the effect of providing load smoothing, at several levels within the grid architecture.
In addition to the compensation storage should receive for its contribution to the Value of Distributed Resources, it should also see revenue for these ancillary services. Storage provides “ancillary services” to the grid that are currently un- or under-compensated, including frequency regulation, voltage support, reserve capacity, load following & ramping.
The PSC is considering a “value stack” approach for storage as well as generation, to disaggregate the value streams and compensate each separately. RMI identified 13 services that storage can provide, to 3 stakeholder groups.
Determining the cashflow for a solar+storage project from VDER rules involves a complicated comparison between structuring and pricing regimes, which can create confusion when presenting a proposal for financing. Because storage can potentially participate in both state-regulated retail markets and FERC-regulated wholesale markets, storage pricing models have to ensure not only adequate compensation but must also avoid double compensation for any segregated value stream.
Spitzer advocated for expansion of incentives & subsidies in the VDER compensation model, in addition to the Transition benefits currently supporting VDER pricing. He also made reference to a supplemental subsidy for storage, a “market acceleration bridge incentive” (MAI), a proposal within the Roadmap that calls for $350M to be drawn from the State’s Clean Energy Fund. Solutions to this were briefly touched upon, including a proposed subsidy under the State storage Roadmap plan to offset soft-costs, a mechanism to ensure storage is sold in 10-20yr contract increments, a state run central procurement agency for storage, and support for specific market applications, ie, for schools to offset seasonal shifts, and replacement of peaker plants.
Institutional investors
Institutional investors are potentially the largest source of capital but currently the smallest by total assets under management, so it is an industry priority to find the means to unlock access to those large pools of funds that require very low risk assets & can tolerate relatively low returns. Institutional entities represented in the panels, included 2 insurance companies, 2 banks, 1 investment bank, 3 commercial REITs, several institutionally funded alternative funds, & several entities engaged in securitization of projects into Asset Backed Securities (ABS) that are placed with institutional investors, including 2 securities brokers, an asset manager & a major developer with a deep balance sheet. Public policy is a factor in incentivizing private sector involvement, as to federal tax incentives, state structural goals such as Renewable Portfolio Standards, property tax, carbon credits, support for valuation of storage assets, and portfolio guidelines limiting category and percentage of alt assets.
The rep for insurance company John Hancock sat on a panel discussing investor appetites for PV & storage with fund managers from Wafra Alternative Investments, C2 Energy Capital & Clean Capital.
Only 40 deals were with institutional participants, constituting .5% of transactions, in part because, as one panel member observed, there are easier ways to bet on 15-year assets than investing in power contracts, due to numerous uncertainties, in costs, O&M risks, performance both during the contracted period and after the end of the PPA, in the merchant period. Clean Capital has partnered with John Hancock (subsidiary of Manulife (MFC)), and with Blackrock on large portfolio acquisitions.
Tax Equity
The reps for AON Insurance (AON) and Royal Bank of Canada (RY) participated in a panel discussion about tax equity investments. Jonathan Silver of Tax Equity Advisors noted that pension funds, cash equity funds and insurance funds are increasing their participation in general, but also other non-institutional corporations are taking large positions in renewables via tax equity. Gary Blitz of AON focused his comments on coverage indemnifying narrow risks for tax equity partners against reversal judgments in IRS challenges, stating that insurance revenue for this line is up 2x yoy since ’17, similar to the services offered by the Surety carriers. Tax credit recapture risk can be triggered by foreclosure, which can mean that lenders concerned with loan default risk have interests at odds with tax equity investors.
RBC stated that they place funds from 80 institutional investors into their syndications of low income housing, who have been increasing their participation in renewable assets primarily to increase diversification, but since the tax reform are finding fewer tax equity opportunities. Tax advisor and syndications expert Joel Cohn of CohnReznick Capital noted that tax flips use GAAP rules primarily but also require use of “Hypothetical Linked Book Value” (HLBV) accounting rules. Other complicated factors discussed included Base Erosion Anti-abuse Tax (BEAT) rules, 5% Safe Harbor rules, and Opportunity Zone rules for pre-tax deferrals out to 2026. This discussion ended noting that it is generally simpler to employ back-leverage structures to avoid the default risk, and in some cases avoid transacting with tax partners.
Another panel that included M&T Bank (MTB), Investec Holdings (South African fund) & FTI consulting (which also operates a mid-market investment bank) continued discussion of the relative merits of back-levered debt, in which a project sponsor finances its equity contribution with Back-leverage is increasingly prevalent, in part because lenders prefer less dependence on tax equity, like to see more profit distribution to Sponsors, and because tax equity participants are ramping down on long tail risk. Revenue stacking models were discussed, that involve layering on capacity and ancillary services, to the extent that projects include front-of-the-meter storage. The head of Investec for No. America commented that simpler revenue models were favored. He pointed an earlier era in tech financing when cash flow for startups were subsidized by relationship banks backed up by entities with deep balance sheets that were able to carry the risks and negative cash flows until the developing firms were able to build “economic velocity”, suggesting something similar will need to happen with renewables.
Securitization was addressed by a panel moderated by Mike Mendelsohn from the Solar Finance Council, which offers a bond securitization rating portal, & includes on its advisory board kWh Analytics and CleanCapital. Panelists included a rep from asset manager Guggenheim Partners ($209B AUM) and brokerage firm Cantor Fitzgerald, Ron Borod from asset manager Ram Island Strategies, & Thomas Plageman from Vivint Solar Capital Markets (VSLR), a major developer with a deep balance sheet that has one of the largest financings listed by the NY Green Bank. Vivint reported it had completed $466M in ABS deals & 2 debt deals on the 144a market both levered and back levered, some that included a 2nd layer of tax equity. Their ABS securities were rated BBB on Quantum, with interest rates at L+ 1.75 rather than L+2.25, advance rate of 73-85%, and buyers were insurance companies taking 18yr dated PPA’s. Critical mass for these portfolios were 25-30,000 customers, which equated to $100M-$200M in asset scale. Ram Island noted its lease PPA portfolios were almost all residential, noted that the minimum levels of critical mass to be able to do the statistical underwriting was threshold of 15-20MW. It preferred using back-leverage to avoid IRS challenges of ITC basis, and to avoid the competition contractually for cashflow between debt holders and equity holders. Guggenheim also indicated a preference for debt rather than the complexities of managing inter-creditor relationships, and the upfront costs for legal & rating agencies in setting up ABS’s. He agreed critical mass to achieve the statistical granularity for rating purposes was $100M, preferably composed of similar asset class, with investment grade C&I offtaker. Storage, interestingly, was considered by all three to be a benefit to the project cashflow stability and the ABS, as a hedge for changes in net metering rules.
Real Estate
The real estate asset holders funding renewable developments appeared on their own panel, moderated by the non-profit Urban Land Institute. Panelists included Vornado Realty Trust (VNO), a publicly traded REIT with marquis high rise properties, largest owner of LEED-certified property in the US, DWS Group, (formerly Deutschbank) with a $50B real estate portfolio, & L&M Development Partners a non-profit builder of low income housing..
https://ift.tt/2G5e6yj
0 notes
Text
Solar & Storage Finance Conference Notes
Solar & Storage Finance Conference Notes
I attended the Solar & Storage Finance conference hosted in NYC in late October 2018. Presenters included a mix of capital providers & asset managers, private non-profit entities & public agencies, legal, accounting & consulting firms, intermediaries, firms providing risk analysis, ratings & mitigation, & various vendors of energy storage and IT-related services. The tone of the discussions was noteworthy for its near total absence of ideological comments about environmental urgency. Rather, it was a meeting of finance technicians and technocrats focused on the nuts & bolts of accomplishing those ends, with the merits and relevance of mission assumed.
The conference issues were organized with public agency comments at the beginning about policy targets and accomplishments. This set the stage for discussion panels to address the interests and appetites of Large Buyers, including both offtaker utilities and capital market asset buyers (institutional infrastructure portfolio managers as well as real estate asset holders). This was followed by opportunities to showcase the concerns of tax equity investors and debt providers. Interspersed were presentations and panels regarding risk mitigation, storage technologies, and storage financing concerns for both public & private sectors.
Public Policy and Agency goals
The agency sector was represented by 3 public institutions, NYSERDA, NY Power Authority (NYPA), & the NYC Office of Sustainability & Resiliency; 2 utilities, ConEd (ED), and E.On (EOAN.DE), and 5 private non-profits, ACORE, Solar Finance Council, Urban Land Institute, and NY-BEST (battery energy storage consortium).
NYSDERA’s CEO Alicia Barton as the keynote speaker affirmed a strong commitment to the State Renewable Energy Vision (REV) as the grand policy framework for transitioning from a “business as usual” carbon economy, citing a long series of goals and achievements. The NY-Sun initiative was given a budget of $1B which is being administered by NYSDERA’s NY Green Bank, of which $450M has been deployed. She noted that there were 4400 community solar projects in the pipeline, and 22 large scale projects that were announced this year. 1500 new storage projects were targeted by 2025 under the Storage Roadmap, which is part of the larger NYSolarMap project.
The Public Service Commission (PSC) has filed to allocate $350M in incentives, of which $40M will be placed through NY-Sun for solar+storage projects. These incentives are projected to produce $2B in value from grid optimization. She addressed questions about the sentiment from the development community that the PSC’s net metering successor tariff program, VDER, has quashed development by capitulating to utility concerns and shaving compensation for distributed generation, reducing incentives for private sector capital. She responded that PSC white papers published 7/26/18 & 7/31/18 addressed these concerns, which she acknowledged were plaguing the public dialogue, but she expressed her feeling that the VDER plan is the right approach. She closed by directing attention to the fact that electric generation constituted approximately only 25% of GHG emissions, that policy & development would need to address buildings and transportation.
The representative from NYC’s Sustainability Office Susanne Desroche, recited its development profile: 7GW of renewable generation installed in the 5 boroughs, 154MW solar & 67MW storage installed in NYC, goal of another 100MW by 2024, 40MW in the pipeline, for solar & storage. She reported plans to replace 85% of peaker plants with 1000MW of storage by 2030. Automated permitting is a major initiative in process.
FDNY is evaluating concerns about fire risk for indoor siting of batteries, but some outdoor sites for battery storage are being installed. Targets for 2050 include 60% building electrification and 50 DC fast chargers, with 5 DCFC’s planned for 2019. When asked about plans for the MTA to accelerate its acquisition of electric buses and build out of bus charging infrastructure, she declined to comment on MTA timelines. NYPA however noted that its EVolve NY plan has committed $250M through 2025 for EV charging infrastructure including 200 DC Fast Chargers (150kW) along traffic corridors, airport charging hubs and EV model communities.
NYPA further commented that historically, it had accumulated 25% of the entire state’s generating portfolio, but was shifting its focus to distributed generation.
VDER – Value of Distributed Energy
Stephen Wemple from ConEd articulated the premise of VDER, the successor tariff to Net Energy Metering (NEM), identifying the main categories of the “Value Stack”.
The LBMP is indexed to the wholesale ISO market price, whereas the LSRV is value for avoided line development. The Environmental value is priced on either REC prices (as determined by NYSDERDA) or the social cost of carbon (as determined by RGGI). An extended analysis was referenced in NYSolarMap analysis, which included excel modeling presentations by several large solar developers.
Daniel Spitzer, attorney from Hodgson Russ, presented a critical assessment of agency policies, in particular noting contradictions between declared goals and actual pacing in implementing the VDER framework for compensation for both solar and for storage development. He noted that NY will not be able to achieve its goals of 50% renewables by 2030 (REV, RPS or NY-BEST Roadmap,) without faster adoption of storage. $200M allocated at NY Green Bank for storage is not being committed quickly enough (which is at odds with NYSERDA’s statement that $450M had been deployed). He noted that recent legislation in CA leading the promotion and adoption of storage, citing one bill that imposes a requirement that microgrids use batteries or other storage rather than nat gas generators, recommending NY should follow that course, which would catalyze more renewable microgrid development. A 2nd CA bill directs utilities to implement 500MW of storage. He also advocated called for more aggressive efforts for restraint on interconnection costs than provided in the solar+storage Map, noting that the PSC has taken steps to update the SIR (Standard Interconnection Requirements).
Storage Applications
Storage deployments in NY have trickled in as compared to the surge in renewable generation. In part this is because grid integration of storage technology is still in an early stage, with 94% of 25.2GW of US storage capacity in pumped hydro, and all the tech innovation constituting only 6% of storage capacity.
Massive efforts will be needed to expand both capacity & grid integration.
The primary purpose of energy storage is energy arbitrage, ie., purchasing energy to charge batteries when prices are low due to surplus and discharging to sell when prices are high due to demand congestion, with the effect of providing load smoothing, at several levels within the grid architecture.
In addition to the compensation storage should receive for its contribution to the Value of Distributed Resources, it should also see revenue for these ancillary services. Storage provides “ancillary services” to the grid that are currently un- or under-compensated, including frequency regulation, voltage support, reserve capacity, load following & ramping.
The PSC is considering a “value stack” approach for storage as well as generation, to disaggregate the value streams and compensate each separately. RMI identified 13 services that storage can provide, to 3 stakeholder groups.
Determining the cashflow for a solar+storage project from VDER rules involves a complicated comparison between structuring and pricing regimes, which can create confusion when presenting a proposal for financing. Because storage can potentially participate in both state-regulated retail markets and FERC-regulated wholesale markets, storage pricing models have to ensure not only adequate compensation but must also avoid double compensation for any segregated value stream.
Spitzer advocated for expansion of incentives & subsidies in the VDER compensation model, in addition to the Transition benefits currently supporting VDER pricing. He also made reference to a supplemental subsidy for storage, a “market acceleration bridge incentive” (MAI), a proposal within the Roadmap that calls for $350M to be drawn from the State’s Clean Energy Fund. Solutions to this were briefly touched upon, including a proposed subsidy under the State storage Roadmap plan to offset soft-costs, a mechanism to ensure storage is sold in 10-20yr contract increments, a state run central procurement agency for storage, and support for specific market applications, ie, for schools to offset seasonal shifts, and replacement of peaker plants.
Institutional investors
Institutional investors are potentially the largest source of capital but currently the smallest by total assets under management, so it is an industry priority to find the means to unlock access to those large pools of funds that require very low risk assets & can tolerate relatively low returns. Institutional entities represented in the panels, included 2 insurance companies, 2 banks, 1 investment bank, 3 commercial REITs, several institutionally funded alternative funds, & several entities engaged in securitization of projects into Asset Backed Securities (ABS) that are placed with institutional investors, including 2 securities brokers, an asset manager & a major developer with a deep balance sheet. Public policy is a factor in incentivizing private sector involvement, as to federal tax incentives, state structural goals such as Renewable Portfolio Standards, property tax, carbon credits, support for valuation of storage assets, and portfolio guidelines limiting category and percentage of alt assets.
The rep for insurance company John Hancock sat on a panel discussing investor appetites for PV & storage with fund managers from Wafra Alternative Investments, C2 Energy Capital & Clean Capital.
Only 40 deals were with institutional participants, constituting .5% of transactions, in part because, as one panel member observed, there are easier ways to bet on 15-year assets than investing in power contracts, due to numerous uncertainties, in costs, O&M risks, performance both during the contracted period and after the end of the PPA, in the merchant period. Clean Capital has partnered with John Hancock (subsidiary of Manulife (MFC)), and with Blackrock on large portfolio acquisitions.
Tax Equity
The reps for AON Insurance (AON) and Royal Bank of Canada (RY) participated in a panel discussion about tax equity investments. Jonathan Silver of Tax Equity Advisors noted that pension funds, cash equity funds and insurance funds are increasing their participation in general, but also other non-institutional corporations are taking large positions in renewables via tax equity. Gary Blitz of AON focused his comments on coverage indemnifying narrow risks for tax equity partners against reversal judgments in IRS challenges, stating that insurance revenue for this line is up 2x yoy since ’17, similar to the services offered by the Surety carriers. Tax credit recapture risk can be triggered by foreclosure, which can mean that lenders concerned with loan default risk have interests at odds with tax equity investors.
RBC stated that they place funds from 80 institutional investors into their syndications of low income housing, who have been increasing their participation in renewable assets primarily to increase diversification, but since the tax reform are finding fewer tax equity opportunities. Tax advisor and syndications expert Joel Cohn of CohnReznick Capital noted that tax flips use GAAP rules primarily but also require use of “Hypothetical Linked Book Value” (HLBV) accounting rules. Other complicated factors discussed included Base Erosion Anti-abuse Tax (BEAT) rules, 5% Safe Harbor rules, and Opportunity Zone rules for pre-tax deferrals out to 2026. This discussion ended noting that it is generally simpler to employ back-leverage structures to avoid the default risk, and in some cases avoid transacting with tax partners.
Another panel that included M&T Bank (MTB), Investec Holdings (South African fund) & FTI consulting (which also operates a mid-market investment bank) continued discussion of the relative merits of back-levered debt, in which a project sponsor finances its equity contribution with Back-leverage is increasingly prevalent, in part because lenders prefer less dependence on tax equity, like to see more profit distribution to Sponsors, and because tax equity participants are ramping down on long tail risk. Revenue stacking models were discussed, that involve layering on capacity and ancillary services, to the extent that projects include front-of-the-meter storage. The head of Investec for No. America commented that simpler revenue models were favored. He pointed an earlier era in tech financing when cash flow for startups were subsidized by relationship banks backed up by entities with deep balance sheets that were able to carry the risks and negative cash flows until the developing firms were able to build “economic velocity”, suggesting something similar will need to happen with renewables.
Securitization was addressed by a panel moderated by Mike Mendelsohn from the Solar Finance Council, which offers a bond securitization rating portal, & includes on its advisory board kWh Analytics and CleanCapital. Panelists included a rep from asset manager Guggenheim Partners ($209B AUM) and brokerage firm Cantor Fitzgerald, Ron Borod from asset manager Ram Island Strategies, & Thomas Plageman from Vivint Solar Capital Markets (VSLR), a major developer with a deep balance sheet that has one of the largest financings listed by the NY Green Bank. Vivint reported it had completed $466M in ABS deals & 2 debt deals on the 144a market both levered and back levered, some that included a 2nd layer of tax equity. Their ABS securities were rated BBB on Quantum, with interest rates at L+ 1.75 rather than L+2.25, advance rate of 73-85%, and buyers were insurance companies taking 18yr dated PPA’s. Critical mass for these portfolios were 25-30,000 customers, which equated to $100M-$200M in asset scale. Ram Island noted its lease PPA portfolios were almost all residential, noted that the minimum levels of critical mass to be able to do the statistical underwriting was threshold of 15-20MW. It preferred using back-leverage to avoid IRS challenges of ITC basis, and to avoid the competition contractually for cashflow between debt holders and equity holders. Guggenheim also indicated a preference for debt rather than the complexities of managing inter-creditor relationships, and the upfront costs for legal & rating agencies in setting up ABS’s. He agreed critical mass to achieve the statistical granularity for rating purposes was $100M, preferably composed of similar asset class, with investment grade C&I offtaker. Storage, interestingly, was considered by all three to be a benefit to the project cashflow stability and the ABS, as a hedge for changes in net metering rules.
Real Estate
The real estate asset holders funding renewable developments appeared on their own panel, moderated by the non-profit Urban Land Institute. Panelists included Vornado Realty Trust (VNO), a publicly traded REIT with marquis high rise properties, largest owner of LEED-certified property in the US, DWS Group, (formerly Deutschbank) with a $50B real estate portfolio, & L&M Development Partners a non-profit builder of low income housing..
https://ift.tt/2G5e6yj
0 notes
Text
Solar & Storage Finance Conference Notes
Solar & Storage Finance Conference Notes
I attended the Solar & Storage Finance conference hosted in NYC in late October 2018. Presenters included a mix of capital providers & asset managers, private non-profit entities & public agencies, legal, accounting & consulting firms, intermediaries, firms providing risk analysis, ratings & mitigation, & various vendors of energy storage and IT-related services. The tone of the discussions was noteworthy for its near total absence of ideological comments about environmental urgency. Rather, it was a meeting of finance technicians and technocrats focused on the nuts & bolts of accomplishing those ends, with the merits and relevance of mission assumed.
The conference issues were organized with public agency comments at the beginning about policy targets and accomplishments. This set the stage for discussion panels to address the interests and appetites of Large Buyers, including both offtaker utilities and capital market asset buyers (institutional infrastructure portfolio managers as well as real estate asset holders). This was followed by opportunities to showcase the concerns of tax equity investors and debt providers. Interspersed were presentations and panels regarding risk mitigation, storage technologies, and storage financing concerns for both public & private sectors.
Public Policy and Agency goals
The agency sector was represented by 3 public institutions, NYSERDA, NY Power Authority (NYPA), & the NYC Office of Sustainability & Resiliency; 2 utilities, ConEd (ED), and E.On (EOAN.DE), and 5 private non-profits, ACORE, Solar Finance Council, Urban Land Institute, and NY-BEST (battery energy storage consortium).
NYSDERA’s CEO Alicia Barton as the keynote speaker affirmed a strong commitment to the State Renewable Energy Vision (REV) as the grand policy framework for transitioning from a “business as usual” carbon economy, citing a long series of goals and achievements. The NY-Sun initiative was given a budget of $1B which is being administered by NYSDERA’s NY Green Bank, of which $450M has been deployed. She noted that there were 4400 community solar projects in the pipeline, and 22 large scale projects that were announced this year. 1500 new storage projects were targeted by 2025 under the Storage Roadmap, which is part of the larger NYSolarMap project.
The Public Service Commission (PSC) has filed to allocate $350M in incentives, of which $40M will be placed through NY-Sun for solar+storage projects. These incentives are projected to produce $2B in value from grid optimization. She addressed questions about the sentiment from the development community that the PSC’s net metering successor tariff program, VDER, has quashed development by capitulating to utility concerns and shaving compensation for distributed generation, reducing incentives for private sector capital. She responded that PSC white papers published 7/26/18 & 7/31/18 addressed these concerns, which she acknowledged were plaguing the public dialogue, but she expressed her feeling that the VDER plan is the right approach. She closed by directing attention to the fact that electric generation constituted approximately only 25% of GHG emissions, that policy & development would need to address buildings and transportation.
The representative from NYC’s Sustainability Office Susanne Desroche, recited its development profile: 7GW of renewable generation installed in the 5 boroughs, 154MW solar & 67MW storage installed in NYC, goal of another 100MW by 2024, 40MW in the pipeline, for solar & storage. She reported plans to replace 85% of peaker plants with 1000MW of storage by 2030. Automated permitting is a major initiative in process.
FDNY is evaluating concerns about fire risk for indoor siting of batteries, but some outdoor sites for battery storage are being installed. Targets for 2050 include 60% building electrification and 50 DC fast chargers, with 5 DCFC’s planned for 2019. When asked about plans for the MTA to accelerate its acquisition of electric buses and build out of bus charging infrastructure, she declined to comment on MTA timelines. NYPA however noted that its EVolve NY plan has committed $250M through 2025 for EV charging infrastructure including 200 DC Fast Chargers (150kW) along traffic corridors, airport charging hubs and EV model communities.
NYPA further commented that historically, it had accumulated 25% of the entire state’s generating portfolio, but was shifting its focus to distributed generation.
VDER – Value of Distributed Energy
Stephen Wemple from ConEd articulated the premise of VDER, the successor tariff to Net Energy Metering (NEM), identifying the main categories of the “Value Stack”.
The LBMP is indexed to the wholesale ISO market price, whereas the LSRV is value for avoided line development. The Environmental value is priced on either REC prices (as determined by NYSDERDA) or the social cost of carbon (as determined by RGGI). An extended analysis was referenced in NYSolarMap analysis, which included excel modeling presentations by several large solar developers.
Daniel Spitzer, attorney from Hodgson Russ, presented a critical assessment of agency policies, in particular noting contradictions between declared goals and actual pacing in implementing the VDER framework for compensation for both solar and for storage development. He noted that NY will not be able to achieve its goals of 50% renewables by 2030 (REV, RPS or NY-BEST Roadmap,) without faster adoption of storage. $200M allocated at NY Green Bank for storage is not being committed quickly enough (which is at odds with NYSERDA’s statement that $450M had been deployed). He noted that recent legislation in CA leading the promotion and adoption of storage, citing one bill that imposes a requirement that microgrids use batteries or other storage rather than nat gas generators, recommending NY should follow that course, which would catalyze more renewable microgrid development. A 2nd CA bill directs utilities to implement 500MW of storage. He also advocated called for more aggressive efforts for restraint on interconnection costs than provided in the solar+storage Map, noting that the PSC has taken steps to update the SIR (Standard Interconnection Requirements).
Storage Applications
Storage deployments in NY have trickled in as compared to the surge in renewable generation. In part this is because grid integration of storage technology is still in an early stage, with 94% of 25.2GW of US storage capacity in pumped hydro, and all the tech innovation constituting only 6% of storage capacity.
Massive efforts will be needed to expand both capacity & grid integration.
The primary purpose of energy storage is energy arbitrage, ie., purchasing energy to charge batteries when prices are low due to surplus and discharging to sell when prices are high due to demand congestion, with the effect of providing load smoothing, at several levels within the grid architecture.
In addition to the compensation storage should receive for its contribution to the Value of Distributed Resources, it should also see revenue for these ancillary services. Storage provides “ancillary services” to the grid that are currently un- or under-compensated, including frequency regulation, voltage support, reserve capacity, load following & ramping.
The PSC is considering a “value stack” approach for storage as well as generation, to disaggregate the value streams and compensate each separately. RMI identified 13 services that storage can provide, to 3 stakeholder groups.
Determining the cashflow for a solar+storage project from VDER rules involves a complicated comparison between structuring and pricing regimes, which can create confusion when presenting a proposal for financing. Because storage can potentially participate in both state-regulated retail markets and FERC-regulated wholesale markets, storage pricing models have to ensure not only adequate compensation but must also avoid double compensation for any segregated value stream.
Spitzer advocated for expansion of incentives & subsidies in the VDER compensation model, in addition to the Transition benefits currently supporting VDER pricing. He also made reference to a supplemental subsidy for storage, a “market acceleration bridge incentive” (MAI), a proposal within the Roadmap that calls for $350M to be drawn from the State’s Clean Energy Fund. Solutions to this were briefly touched upon, including a proposed subsidy under the State storage Roadmap plan to offset soft-costs, a mechanism to ensure storage is sold in 10-20yr contract increments, a state run central procurement agency for storage, and support for specific market applications, ie, for schools to offset seasonal shifts, and replacement of peaker plants.
Institutional investors
Institutional investors are potentially the largest source of capital but currently the smallest by total assets under management, so it is an industry priority to find the means to unlock access to those large pools of funds that require very low risk assets & can tolerate relatively low returns. Institutional entities represented in the panels, included 2 insurance companies, 2 banks, 1 investment bank, 3 commercial REITs, several institutionally funded alternative funds, & several entities engaged in securitization of projects into Asset Backed Securities (ABS) that are placed with institutional investors, including 2 securities brokers, an asset manager & a major developer with a deep balance sheet. Public policy is a factor in incentivizing private sector involvement, as to federal tax incentives, state structural goals such as Renewable Portfolio Standards, property tax, carbon credits, support for valuation of storage assets, and portfolio guidelines limiting category and percentage of alt assets.
The rep for insurance company John Hancock sat on a panel discussing investor appetites for PV & storage with fund managers from Wafra Alternative Investments, C2 Energy Capital & Clean Capital.
Only 40 deals were with institutional participants, constituting .5% of transactions, in part because, as one panel member observed, there are easier ways to bet on 15-year assets than investing in power contracts, due to numerous uncertainties, in costs, O&M risks, performance both during the contracted period and after the end of the PPA, in the merchant period. Clean Capital has partnered with John Hancock (subsidiary of Manulife (MFC)), and with Blackrock on large portfolio acquisitions.
Tax Equity
The reps for AON Insurance (AON) and Royal Bank of Canada (RY) participated in a panel discussion about tax equity investments. Jonathan Silver of Tax Equity Advisors noted that pension funds, cash equity funds and insurance funds are increasing their participation in general, but also other non-institutional corporations are taking large positions in renewables via tax equity. Gary Blitz of AON focused his comments on coverage indemnifying narrow risks for tax equity partners against reversal judgments in IRS challenges, stating that insurance revenue for this line is up 2x yoy since ’17, similar to the services offered by the Surety carriers. Tax credit recapture risk can be triggered by foreclosure, which can mean that lenders concerned with loan default risk have interests at odds with tax equity investors.
RBC stated that they place funds from 80 institutional investors into their syndications of low income housing, who have been increasing their participation in renewable assets primarily to increase diversification, but since the tax reform are finding fewer tax equity opportunities. Tax advisor and syndications expert Joel Cohn of CohnReznick Capital noted that tax flips use GAAP rules primarily but also require use of “Hypothetical Linked Book Value” (HLBV) accounting rules. Other complicated factors discussed included Base Erosion Anti-abuse Tax (BEAT) rules, 5% Safe Harbor rules, and Opportunity Zone rules for pre-tax deferrals out to 2026. This discussion ended noting that it is generally simpler to employ back-leverage structures to avoid the default risk, and in some cases avoid transacting with tax partners.
Another panel that included M&T Bank (MTB), Investec Holdings (South African fund) & FTI consulting (which also operates a mid-market investment bank) continued discussion of the relative merits of back-levered debt, in which a project sponsor finances its equity contribution with Back-leverage is increasingly prevalent, in part because lenders prefer less dependence on tax equity, like to see more profit distribution to Sponsors, and because tax equity participants are ramping down on long tail risk. Revenue stacking models were discussed, that involve layering on capacity and ancillary services, to the extent that projects include front-of-the-meter storage. The head of Investec for No. America commented that simpler revenue models were favored. He pointed an earlier era in tech financing when cash flow for startups were subsidized by relationship banks backed up by entities with deep balance sheets that were able to carry the risks and negative cash flows until the developing firms were able to build “economic velocity”, suggesting something similar will need to happen with renewables.
Securitization was addressed by a panel moderated by Mike Mendelsohn from the Solar Finance Council, which offers a bond securitization rating portal, & includes on its advisory board kWh Analytics and CleanCapital. Panelists included a rep from asset manager Guggenheim Partners ($209B AUM) and brokerage firm Cantor Fitzgerald, Ron Borod from asset manager Ram Island Strategies, & Thomas Plageman from Vivint Solar Capital Markets (VSLR), a major developer with a deep balance sheet that has one of the largest financings listed by the NY Green Bank. Vivint reported it had completed $466M in ABS deals & 2 debt deals on the 144a market both levered and back levered, some that included a 2nd layer of tax equity. Their ABS securities were rated BBB on Quantum, with interest rates at L+ 1.75 rather than L+2.25, advance rate of 73-85%, and buyers were insurance companies taking 18yr dated PPA’s. Critical mass for these portfolios were 25-30,000 customers, which equated to $100M-$200M in asset scale. Ram Island noted its lease PPA portfolios were almost all residential, noted that the minimum levels of critical mass to be able to do the statistical underwriting was threshold of 15-20MW. It preferred using back-leverage to avoid IRS challenges of ITC basis, and to avoid the competition contractually for cashflow between debt holders and equity holders. Guggenheim also indicated a preference for debt rather than the complexities of managing inter-creditor relationships, and the upfront costs for legal & rating agencies in setting up ABS’s. He agreed critical mass to achieve the statistical granularity for rating purposes was $100M, preferably composed of similar asset class, with investment grade C&I offtaker. Storage, interestingly, was considered by all three to be a benefit to the project cashflow stability and the ABS, as a hedge for changes in net metering rules.
Real Estate
The real estate asset holders funding renewable developments appeared on their own panel, moderated by the non-profit Urban Land Institute. Panelists included Vornado Realty Trust (VNO), a publicly traded REIT with marquis high rise properties, largest owner of LEED-certified property in the US, DWS Group, (formerly Deutschbank) with a $50B real estate portfolio, & L&M Development Partners a non-profit builder of low income housing..
https://ift.tt/2G5e6yj
0 notes