The latest on Energetic and renewable energy trends.

Energetic Insurance was recently highlighted as a critical component in supporting renewable energy strategies, particularly by addressing credit risk in long-term agreements such as power purchase agreements (PPAs) and community solar projects. As discussed during a recent panel featuring industry leaders, creditworthiness remains a major barrier to securing financing for renewable energy developments. Energetic Insurance provides essential credit support, enabling companies with below-investment-grade ratings to access affordable financing, reduce costs, and facilitate the adoption of clean energy solutions. This innovative insurance solution is poised to accelerate the transition to renewable energy by removing financial hurdles for both corporate and community-driven projects.

For more insights, read the full article here.

The Securities and Exchange Commission (SEC) recently proposed a new rule that could require companies to provide more detailed reporting of their climate impacts and emissions, should it be adopted.

Regardless of the outcome of the proposed rule, climate-related events are already impacting businesses and portfolios. Businesses and financiers should be planning and preparing to minimize their climate-related risk exposure, and to preserve their asset values.

SEC and Disclosure Rules

The information companies are required to disclose to the SEC pertains to matters that materially affect a business and its financial health. The SEC is now joining the chorus of asset managers who have pushed for public companies to disclose climate-associated risks as they understand that the material impacts of climate change affect corporate financial health and must be accounted for.

The proposed rule focuses on Scope 3 emissions; emissions which stem from assets not owned or controlled by the reporting organization, but that are indirectly impacted by company activities. Until now, only Scope 1 and 2 emissions (coming from direct operations and electricity consumption) were taken into account by the SEC.

The newly proposed SEC rule would require companies to engage in disclosures on three fronts: material risks, greenhouse gas (GHG) emissions, and transition plans.

Material Risks

If enacted, the SEC rule will require companies to disclose any risk stemming from climate-related hazards. A given company would have to describe in detail its governance of climate-related risks and relevant risk management processes.

It would also have to focus on the identified and potential impacts of climate-related risks on its business model, strategy, and outlook – as well as on its financial statements. Filers should not only disclose impacts, but also their processes to manage the risks.

GHG Disclosures

The proposed SEC rule goes beyond the bounds of the guidelines for Scope 1 and 2 emissions, and now includes Scope 3 emissions. As such, a registrant with a set GHG emissions target, or whose disclosures are material, would now be required to disclose GHG emissions from upstream and downstream activities in its value chain.

Until now, Scope 3 emissions were not taken into account – this would significantly change the way financiers and companies think about the intersection of investments, climate impacts, corporate risks, and enterprise value. Beyond this, Scope 1 and Scope 2 emissions would have to be separately disclosed on a disaggregated and aggregated basis. All disclosures would be required on a gross basis and relative to emissions’ intensity.

Transition Plans

Under this framework, companies would have to disclose any existing targets around low-carbon strategies. The SEC would then require specific information on how the company’s plan will achieve the set targets.

Application    

Should the rule be adopted by December 2022, major companies would have to disclose most of this information as of fiscal year 2023, and smaller companies as of fiscal year 2024. If not done so already, companies should establish clear, temporally bound plans for emissions reductions, and must prioritize high fidelity data collection. Policies and procedures should be in place to gather data required for reporting, and to fulfill assurances related to emissions reporting.

The SEC would provide time for planning and reporting of Scope 3 emissions by allowing an additional year beyond the aforementioned deadlines. As such, investors and firms can initially focus on mitigating and reporting Scope 1 and 2 emissions, which should provide a more secure foundation on which to develop detailed understandings of scope 3 emissions from within and beyond their supply chains.

Scope 3 emissions reporting and reduction still represent a challenge for most companies. While the SEC protocol provides specific guidance on how to measure them, accessing the information required for accurate reporting represents a significant challenge. Quantifying Scope 3 emissions is particularly difficult and requires comprehensive consideration of all sourcing, product usage, and end-of-life disposal activities. Quantification hinges on robust data collection and accounting, which is ideally done in a collaborative manner, enabling data sharing across supply chains to enhance accuracy and to avoid double-counting.

Public Reception

As the conversation around climate change heats up within the public debate, investors, and more generally big financial firms, have been supportive of measures to reduce climate risk and stranded assets. This SEC rule will serve as a guidebook for investors seeking to quantify and assess financial risks posed by climate change, and direct their funds to the most resilient enterprises.

The proposed rule has been met with some criticism, with certain groups fighting back, arguing that the commission lacks the authority to issue this type of guidance, and threatening to remove their investments from banks supporting the rule. Despite this push back, most investors seem to favor the new rule – it is both the right thing to do for the environment and society, and it would provide another tool for financiers and corporates as they strive to make sound investment decisions.

How to Prepare

Although the final SEC decision won't be revealed until November – during midterm elections – asset managers and corporate executives should assume some new requirements will unfold, and pre-emptively prepare for the impacts the requirements might have on disclosure plans.

Whether or not the rule is enacted, requirements like these are inevitable, as are new regulations and changing consumer preferences. It is only a matter of time before climate risks are incorporated into 10-Ks and/or other corporate filings. As a result, investors, board members, and shareholders are changing the way they think about corporate financial health. Sound corporate governance and risk management is key.

Emissions reduction targets must be coupled with tangible and achievable roadmaps, and plans must be implemented. Decision-makers should prioritize investments in energy efficiency, renewable energy procurement, and other similarly de-risked climate-friendly solutions. Doing so can have the added benefit of minimizing operating costs – consider the value of locking in long-term competitive electricity prices and decreasing consumption needs – while contributing to the activity's requisite for Scope 1, 2, and 3 emissions reporting and reduction. As emissions reduction activities ensue, companies should ensure ongoing data collection, analysis, and address risks as they arise.

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References:

• https://www.wsj.com/articles/the-sec-climate-rule-wont-hold-up-in-court-west-virginia-epa-agency-congress-11657659630
• https://cleantechnica.com/2022/07/14/republican-attorneys-general-fight-sec-over-corporate-climate-disclosures/
• https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/understanding-the-secs-proposed-climate-risk-disclosure-rule
• https://www2.deloitte.com/us/en/pages/audit/articles/sec-climate-disclosure-guidance.html
• https://www.sec.gov/news/press-release/2022-46

“This is coming up in everyday conversation.... Why didn’t anyone else do this?... It feels like this should have been addressed, especially on a global market with so many customers... it feels like a totally missed blue ocean.”

Insider’s Guide to Energy Podcast hosts, Chris Sass and Johan Oberg, are talking about insurance, and the critical role it will play in the global energy transition and decarbonization. Energetic Insurance COO & Co-Founder, Jeff McAulay; sat down for episode 76 to discuss the role of insurance in appropriately allocating risk and return in green transition project finance – and how Energetic Insurance has become the leading provider of demand-side renewable energy and efficiency insurance. The episode is available here.  

Launched with the goal of accelerating and expanding the market for renewable energy, Energetic Insurance offers data-driven risk-management solutions via novel credit insurance.  

“We're doing that by … more efficiently shift[ing] risk from a sponsor or a debt balance sheet to an insurance balance sheet” says McAulay.  

Often when folks think about insurance in energy, they think about production risk – whether the sun is going to shine. They may also think about property damage and technology risk – panel longevity and warranties. These risks are well covered today. What holds back the market significantly is demand-side credit risk – concerns about whether or not offtakers will reliably pay their electricity bills, and if new offtakers will be readily accessible if needed in the future. This is the problem Energetic Insurance solves for.

Energetic Insurance is an insurtech startup that simultaneously provides a financing solution. Their business model is that of a Managing General Agent/Underwriter (MGA/MGU). The company developed a novel insurance product and rigorous underwriting guidelines, backed by sophisticated proprietary data sets and technology tools – including underwriting software, actuarial models, and electricity price models. They assess, underwrite, and price risks, and have partnered with a large global reinsurer with a correspondingly large balance sheet.  

When it comes to credit, Energetic Insurance sees electricity “a fundamentally different type of obligation than other traditional forms of credit. It is the last bill that gets paid, so we have a different thesis on the probability of default as evidenced by many businesses [that] keep paying for electricity through bankruptcy [or] restructuring.”

Further, they view electricity as a fungible, tradable commodity that is valuable to practically all business, regardless of purpose. Coupling this understanding of the nuances of electricity as a commodity with electricity market models and offtaker diligence, Energetic is able to lower the credit curve and reach more of the market.

So far, the company has unlocked opportunities for developers willing to invest in the renewable energy sector but facing credit risk issues. There is huge demand outside the Fortune 500 for clean energy and efficiency solutions. Unfortunately, the demand from this market is not being met. 90% of commercial and industrial (C&I) entities do not have investment-grade (IG) ratings or have no credit rating at all, despite having strong offtaker profiles.

“We hear from our customers that credit increasingly is a binary issue. You can either get the deal done or you can’t - you can either get the debt or you can’t, and it’s less of sliding scale... we turn a ‘no’ into a ‘yes’.”  

Developers and financiers spend significant time seeking creative credit enhancement solutions like parental guarantees, loan loss reserves, and letters of credit. They spend time pulling levers – adjusting DSCR, loan-to-value, and interest. Energetic Insurance provides a simpler, cleaner, and faster solution. They help developers get projects financed and access the best levered IRR. They help financiers get past credit committee and deploy more capital. It’s truly a novel off-balance sheet financial product, taking the form of insurance.

Energetic is also helping deliver much-desired standardization to the clean energy and efficiency industries. While already-existing APIs exist within the renewable energy ecosystem, the industry lacks the standardized platforms and tools needed to enable push-button diligence, capital provision, and project execution. Energetic helps accelerate this process, providing a playbook for how to get deals penciled, fast.

Success stories range from small-scale 50kW projects to utility-scale and multi-site portfolios. Projects across the US are at sites you may frequent – like a retail shopping center north of Los Angeles which was able to install solar panels on a parking canopy, helping to shade cars and facilitate EV charging on a major thoroughfare.  

“Not only are we taking a good risk – we are making that site more creditworthy because the solar is enhancing value for that site in multiple ways.”

Energetic’s founders applied their energy backgrounds to the insurance world. Developing an insurance product came with some challenges, but their outsider’s approach has yielded an innovative product, unmatched in the sector. The company was able to quickly build the tools they needed to get to market, notably thanks to support from the DOE’s Sunshot program and forward-looking investors.  

Getting the product to market required building a team with expertise in data science, software engineering, credit analysis, and underwriting. They are now growing and expanding the applicability and geographic reach of their product – keep your eye on energy efficiency, Spain and the European market, and more.  

Ultimately, though capital tends to be very competitive – McAulay takes a hopeful approach to the future of investments in renewable energy, and is excited about the value insurance adds, especially as economic turbulence manifests.  

Thank you to the hosts of IGTE for featuring Energetic Insurance. We strongly recommend a full listen to learn more about traditional insurance and trade credit, energy policy and incentives, the impact of rising interest rates and widening spreads on renewable energy investments, and the versatility of Energetic Insurance’s policies – they are multi-asset (solar, storage, energy, micro grids, VPPAs, energy efficiency, EV charging stations, and more) and multi-structure (from single-site to utility-scale retail energy, portfolios and wraps, refinancings).

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Have questions on how Energetic Insurance can help you get more projects done with competitive economics? Click "connect" in our main menu.

This article does not constitute and is not intended by Energetic Insurance to constitute financial advice or a solicitation for any insurance business.

Energetic Insurance has named Nathan Maggiotto as its new Senior Vice President of Commercial Underwriting, strengthening its leadership team as the company expands its efforts to provide credit enhancement solutions for the renewable energy sector. Maggiotto brings extensive experience from his previous roles at LiquidX, Marsh, and Zurich, where he specialized in credit risk and strategy. His appointment comes as Energetic Insurance scales up to support the clean energy transition by offering innovative risk transfer and insurance products.

Learn more about this leadership update here.

What do Google, Microsoft, Amazon, AT&T, Johnson & Johnson, PepsiCo, Visa, Toyota, and The Nature Conservancy all have in common?

All are striving to achieve a 90% carbon-free electricity system in the US by 2030 as members of the Clean Energy Buyer’s Alliance (CEBA). Collectively, energy customer companies have advanced over 52GW of clean energy since 2014, with 93% of this attributable to CEBA members. In mid-May, CEBA’s nearly 300 energy customers and partners, including nearly 100 Fortune 500 companies, convened in Detroit to move the needle on clean energy procurement.

The CEBA community discussed the state of the clean energy procurement market, we note four key themes:

1.   Market dynamics and demographics are changing rapidly

Clean energy is in high demand. 2021 brought 11.06GW of voluntary clean energy procurement, of which 50% is attributed to new energy customers. Demand is persistent and growing in 2022, with 6.45GW already announced between January 1 – April 22 alone. The voluntary clean energy procurement market is expanding in breadth and depth. Small and medium enterprises (SMEs) are increasingly involved, especially as large conglomerates seek to “green” their supply chains. Credit quality remains a barrier to SME growth since many are unrated or below investment-grade.

Further, aggregated buying power is being leveraged and is unlocking purchasing power, even for smaller buyers. Four recently announced sizeable aggregation deals, each with average procurement of 25MW, included some buyers offtaking as little as 3MW.

2. Policy and regulatory markets engagement and collaboration continues to strengthen

Organized wholesale markets continue to provide promising opportunities for renewable energy. ERCOT, PJM, and MISO are the most significant wholesale markets. Despite a recent dip in project volumes, these markets represented 75% of volume in Q1 2022. Encouragingly, bilateral utility deals are on the rise in the voluntary community, including in the West and Southeastern US, notwithstanding the lack organized wholesale markets.

3. Energy customers have a deeper focus on scaling for impact

The voice of the consumer is increasingly audible and influential. Energy customers are engaging much more deeply with policymakers and regulators. Nearly three dozen companies, none for whom energy is a primary focus, have asked the Biden Administration to prioritize clean energy. 35 CEBA members have signed CEBA’s Federal Clean Energy Policy Priorities, and 24 companies filed federal regulatory dockets or submitted via the agency stakeholder processes.

4. Impact goes beyond clean energy procurement

There is a broadened and more comprehensive approach to gauging impact. Interest around quantifying and minimizing direct (scope II) and indirect (scope III) emissions continues to gain momentum, especially as net zero commitments proliferate.

We heard more dialogue around managing and mitigating the carbon footprint of renewable energy equipment production. We expect this trend to persist, especially as footprint quantification resources become more sophisticated, reliable, and accessible.

Thank you to the full CEBA team for developing such an active community committed to decarbonization and clean energy procurement.

We are already looking forward to the next CEBA Connect forum at VERGE 22 in San Jose in October.

Have questions on how Energetic Insurance can reduce barriers to cost-effective procurement and help support the greening of supply chains? Reach out!

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This article does not constitute and is not intended by Energetic Insurance to constitute financial advice or a solicitation for any insurance business.

What product should “pretty much every developer out there … be looking for?” Insurance.

“If you are developing a solar project, among the hardest nuts to crack is finding bankable offtakers and actually ensuring that the promised revenue in the project will … be there as predicted.”- Nico Johnson, SunCast Podcast.

Our Co-Founders, James Bowen and Jeff McAulay sat down with Nico Johnson at RE+ in Boston and discussed how Energetic Insurance helps solar projects become bankable. Listen to the SunCast Podcast episode here.

Insurance products can be hard to understand, and onerous to purchase. Layer insurance on an esoteric space like renewable and distributed energy and it can seem even more complex. Fortunately – Energetic Insurance makes insurance products that are comprehensible and desirable.

The Commercial and Industrial (C&I) clean energy market is booming. Fortune 500 companies are hungry for renewable procurement. Developers are in intense competition for the most attractive, investment-grade (IG), easily bankable projects.

Unfortunately, a huge swathe of the C&I market falls outside of this IG niche.

Approximately 90% of the C&I market either lacks formal credit ratings (unrated entities) or are deemed below investment grade (BIG). These offtakers are hard to bank.

Developers struggle to get the numbers to work. The pool of finance willing to fund these projects is small.

Jim and Jeff experienced this first-hand as developers. They were frustrated when reputable businesses that make money struggled to procure renewable energy. If these C&I offtakers don’t have Moody's, S&P, Fitch, or other ratings, they were deemed “unbankable.” This is the case for manifold businesses that reliably pay their electric bills and cannot operate without electricity, seeing it as an essential payment.

Cue the insurance community. Insurance companies can be thought of as large financial institutions. They have sizeable balance sheets and bear risk.

The critical factor is quantifying that risk. In this case, it is the risk that a C&I offtaker defaults on their electricity payments.

Jeff’s time as an engineer at an applied R&D lab was all about testing, validating, and de-risking technologies. His time at EnerNOC illuminated that once distributed energy technologies like solar and energy efficiency solutions are de-risked, a new de-risking need arises, and is all about financing. The 90% of the C&I market that is BIG and unrated must be de-risked to enable financing.

“Do we think that 90% of the C&I market shouldn't have access to solar? Of course not!” This is not just a US phenomenon. This is a global issue, for solar, storage, HVAC, and more. “This counterparty risk is so pervasive in all of the long term infrastructure as a service agreements for all of the essential distributed resources ... There is no bigger opportunity, there is no bigger need, and most of it crashing up against counterparty credit wall.” – Jeff McAulay, Energetic Insurance

Now cue Energetic.

We’ve quantified the probability of default of electricity payments.

That probability is different and inherently lower than other risks. Our actuarial pricing and underwriting software quantify this probability, allowing insurers to know how much premium to collect in order to absorb potential future claims.

This de-risking enables the use of our EneRate Credit Cover policies. In turn, this unlocks financing as financiers are willing to lend when they can see enhanced predictability of payment.

Developers can harness our policies to reach more of the market and to support reductions in customer acquisition costs (CAC).

Instead of competing for the limited 10% of the C&I market that is IG, they can now reach 50-60% of the market. And for those wondering – no, we don’t expect to ever unlock 100% of the market. Real credit risks exist which developers and banks should be wary of.

Real estate asset owners, including Real Estate Investment Trusts (REITs) are also catching on to the value of our policies.

Many real estate entities are publicly traded and highly IG. However, based on the structure of the real estate industry, properties are owned via separate, individual, LLCs, which perform poorly relative to standard bank credit evaluations. These LLCs do not carry a parental guarantee – if they default, rated public parent entities do not have to pay LLC debts. Tenancy terms can further exacerbating this issue. Banks may be reluctant to finance a 20-year power purchase agreement (PPA) if tenancy terms are shorter. As such, if property owners seek financing to go solar, or install energy efficiency equipment, they are often declined.

The first policy we issued solved exactly this problem. A developer was struggling to get a loan approved to finance a project at a large outlet mall in California, despite the mall being owned by two brand name publicly rated owners. With our policy covering payment default risk on the PPA, backed by a AA- rated insurer, a bank became more confident in the predictability of cashflows. The unbankable 900kw project became bankable.

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Insurance has shifted from a nice-to-have to a want-to-have.

Developers and banks have realized that our policies help enable the essential elements of their businesses. Our policies may be the difference between getting financed or not, of deploying capital or not, of getting a project acquired or not, of successfully developing a portfolio or not.

We welcome project of all sizes and have expanded beyond C&I as we develop a strong, diverse insurance book of business.

We seek small, medium, and large projects from different industries and geographies. We encourage very small projects (eg 25 kW) to be grouped in portfolios.

We began in C&I, viewing it as the largest untapped segment for solar. We’ve listened to customer demand and have expanded into VPPAs, energy efficiency, building electrification, solar + storage, and into international geographies. We continually collaborate with leaders in these spaces. The US Department of Energy (DOE) and the New York State Energy Research Development Authority (NYSERDA) are leaning in on energy efficiency. Collaboration across private sector, public sector, municipalities, and developers will be critical to unlocking large-scale opportunities.

There are other pioneers in the renewables-oriented insurance space.

kWh Analytics and ReSurety demonstrated the feasibility of renewable energy insurance startups. They play critical roles in covering the supply-side. PPA cashflows ultimately boil down to dollars per kilowatt hour. kWh Analytics ensures those kilowatt hours show up. We make sure the dollars show up from the offtaker. Conventional property and casualty (P&C) and liability insurance cover the rest of traditional project risks.

Interested in learning more about how to unlock financing for unrated organizations? Listen to another SunCast podcast featuring Energetic Insurance, Jordan Blanchard, and Live Oak Bank here.

Have questions on how our policies can help unlock revenue streams, protect against downside risk, credit risk, and make unrated or BIG offtakers bankable? Reach out.

Thanks to Nico Johnson for having us on the SunCast Podcast. Looking forward to future collaborations – always glad to talk tax equity and the changing landscape!

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This article does not constitute and is not intended by Energetic Insurance to constitute financial advice or a solicitation for any insurance business.