The latest on Energetic and renewable energy trends.

Energetic Insurance has been featured in the MIT Sloan Sustainability Initiative’s 2021 Annual Report, recognized for its innovative contributions to the clean energy transition. As a Managing General Underwriter, Energetic Insurance is enabling exponential growth in renewable energy by addressing the financing challenges faced by solar projects. Through its data-driven risk management products, such as EneRate Credit Cover™, the company is helping unlock capital for unrated and below investment-grade counterparties, accelerating the shift toward a more sustainable future.

Read the full report to discover more about Energetic Insurance’s impact here.

‍

"High Energy" is the only phrase to describe Infocast's Solar + Wind Finance & Investment Summit. A conference that routinely draws 300-500 attendees (Solar + Wind combined in 2022) bolstered its attendance this year to more than 2,000! Below we share our key takeaways from conversations throughout the exceptional agenda.

The market continues to be very active, with an abundance of capital and strong interest in the sector.

The evolving world of "flexible capital" is bringing investors into all parts of the capital stack. Investors that previously deployed capital into project equity/debt structures are now moving into corporate equity/debt. Development platforms are raising capital from these investors at levels unseen just 6-12 months ago!

Competition, complexity, and capacity are challenging for developers and financiers alike.

The discussion on how to enable more commercial and industrial offtakers continues. The prevailing sentiment is still to dilute a small number of unrated offtakers into a larger (~80%) pool of investment-grade offtakers to achieve favorable financing packages.

Developers acknowledge that investment-grade offtaker deals remain the most competitive and are looking to move downstream to unrated C&I while maintaining competitive financing offers.

Large-scale utility deals continue to see margin compression and project scarcity due to EPC cost increases and scheduling delays.

Community solar remains a hot topic while developers and lenders struggle to deal with program complexity and high residential LMI requirements combined with often limited pools of subscribers. Some programs see delays and bottlenecks in recruitment as capacity grows.

Banks struggle to compete for the same set of deals and are looking for a more creative edge. Once considered esoteric, USDA loans are now "commonplace," as one banker describes. Even seasoned USDA lenders are seeking alternatives to increase the competitiveness of their financing offers.

Innovative risk management mechanisms were a focal point by panelists.

Innovative insurance products and risk management remain a focus for expanding markets. This was brought center stage during a panel with REsurety, Crayhill Renewables, and Brookfield Asset Management. On a separate panel, James Edmonds from HSBC mentioned kWh Analytics and Energetic Insurance as ways for banks to expand activity while managing risk.

________________________________________________________________________________

Two years ago, the Energetic team attended the last major Infocast conference. The opportunity to meet with in person, the many development and financier partners that, up until now, we've only been able to work with virtually was an experience we've been longing for. We were glad to see lots of new and familiar faces, and with a group this excited, it is clear that 2022 will be another great year for renewable deployment!

Thanks to Infocast, CohnReznick Capital, Silicon Valley Bank, and Keybanc Capital Markets for hosting impressive networking receptions.  

Capital, meet impactful Projects. Projects, meet our creative friend, Capital. We’ll let you connect from here, and know you’ll get along well.

Earlier this year, as Energetic Insurance was doing our annual retrospective, something dawned on us as we dug in on our bound policies; projects for which we facilitated introductions between developers and financiers had a stronger likelihood of actually reaching commercial operation.

A lot of deals fizzle out due to a lack of financing (this we knew), but when we dug in on key success indicators, we realized that facilitating introductions not only increased the likelihood of EneRate Credit Cover being used on projects, it also increased the likelihood that developers, financiers, and offtakers succeed in reaching their objectives.

Often, we work with project developers at the earlier stages of project development. This can be before the offtaker has signed a PPA and before a developer has identified their lender or financing structure.  

“Energetic not only helped us refinance a set of projects with some challenging underlying credit, they connected us with the bank that gave us the lowest cost of capital available in our survey of the market, who we had not known of previously.” - John Galante, Managing Partner at Woodfield Renewable Partners.

Conversely, we often talk to lenders even before they have a target loan opportunity to discuss because they ask us to introduce them to developers with projects that qualify for EneRate Credit Cover. Tax equity investors, development capital providers, and other financiers also call us looking for qualifying project leads.

As we find ourselves at this intersection, we want to share insights on what makes a good project-capital match.

Understanding counterparty interests, motivations, and styles can help you swipe right.

The developer and sponsor landscape is crowded. We focus on quality over quantity, and work with only the highest caliber developers and sponsors - most often medium to large companies. When we work with smaller developers and sponsors, it is often due to the presence of sophisticated founders, who have experience at larger companies and extensive background and experience in renewable energy project development.  

As part of our customer diligence, we review developer track records and experience. We focus on the best in the business – those who have demonstrated success in bringing projects to fruition. Anyone can punch a hole in a roof and install a panel. It takes something else to know where to site projects, how to secure project financing, and how to manage interconnection. Securing tax equity is often the most difficult part of the capital stack to secure; a leading indicator of developer strength is financial sophistication, as evidenced by the historical ability to secure tax equity and the presence of strong internal capital markets teams.

In a world where markets are still reeling from the covid-19 pandemic, we now learn about developer's supplier relationships. Since supply chain disruptions have delayed or put projects on hold, those with the strongest supplier relationships tend to get prioritized, and as a result are less impacted by supply chain hurdles.

On the financing side, we focus on variety, price, flexibility, creativity, and speed.

We make connections across the board and our network includes tax investors, bridge capital, development capital, construction financing, sponsor equity, aggregators, acquirers, debt lenders, syndicating/participating banks, and the list goes on...  

Of course, we like to have a good list of affordable financiers. Those who offer the best interest rates and most competitive cost of capital.

But the cost of capital isn't always the most important thing. For example, we noticed that certain lenders excel at the flexible, creative, outside-the-box thinking required for some of the highly complex portfolio deals we see. Those lenders are an excellent fit for these complex projects but may not always be the most affordable option. In scenarios like this, we caution against being penny wise and pound foolish; developers could go for the cheapest cost of capital, though doing so might put deal execution at risk. Ultimately, it’s better to get the deal done, even if it means paying the price for more flexible capital. This type of capital can include non-bank lenders and flexible debt.

“At X-Caliber, we realize that financier flexibility equates to opportunity. The market is awash with deals that just need someone to be more creative with financial structuring. Our personalized and collaborative approach allows us to find creative solutions that meet client needs.” - Jordan Blanchard, Co-Founder and Executive Manager, X-Caliber Capital.

We also look for financiers who understand the value of our insurance product, those with healthy motivations who know that EneRate Credit Cover provides downside protection, helping lenders gain confidence that they will be repaid. We avoid any financiers who see our policies as a “get-out-of-jail-free" card that allows them to take on bad risks. Aligned interests with financiers is key – they must want to protect the downside while remaining committed to selecting reasonable risks, gaining predictability in their margin.

Finally, we prioritize speed. Waiting on financing can have knock on effects and prove costly. We look for banks with teams who move fast and do what it takes to get a deal closed on time, all without sacrificing the quality of their diligence and underwriting process.

Do the above-mentioned market realities ring true to you?

If so, let us know - we're eager to learn from your experience so that we can continue to open the market to new types of projects and creative opportunities.

If you are in need of an introduction to a developer or financier to help bring deals to completion, reach out to us here.

We do this (pro bono!) because we want more renewable and energy efficiency project deployment, and often EneRate Credit Cover can help get projects over the line.

__________________________________________________________________________

This article does not constitute and is not intended by Energetic Insurance to constitute financial advice nor a solicitation for any insurance business.

Get ready for a wave of solar refinancing.

When you don’t have a crystal ball, data and certainties are a close second. Thanks to folks like kWh Analytics, SEIA, and Wood Mackenzie, we are well-equipped with both, and have our sights set on the imminent wave of refinancing about to hit the proverbial shores.

There are two primary drivers for refinances in the clean energy industry; expiring tax equity and rising interest rates.

Tax equity refers to dollars invested in third-party solar development projects that yield a tax benefit to the investor. According to Norton Rose Fulbright, typically, tax equity covers 35% of a solar project +/- 5%.[1] These tax equity structures come with a 5-year horizon, meaning that after 6 or 7 years, they are no longer eligible for tax recapture, making it the optimal moment for refinancing.

And what happened approximately 6 years ago? The solar industry saw an uptick in project development. As Richard Matsui flagged last year – 14GW of solar, or 15% of today’s installed base, was developed in 2016[2]. Matsui predicted a refinancing boom, and we think he’s spot on. Tax equity expiration drives the refinancing cycle, and now that the industry is more mature, more projects are ripe for refinancing.

Last year, Energetic Insurance supported Longroad Energy as they refinanced a C&I solar portfolio with a $24M term loan from Fifth Third Bank using EneRate Credit Cover. To learn more about this project, see this piece in Power Finance & Risk.

“The time was right for us to replace a more expensive and complex tax equity arrangement for a cheaper and simpler capital structure” said Tait Nielsen, VP of Project Finance at Longroad Energy.

Refinancing inevitably triggers a re-assessment of the original project, offtakers, and risks. A lot can happen over the course of 5-7 years; elections, macroeconomic shifts, and even global pandemics. It’s no surprise that the credit profiles of project offtakers can shift between project inception and tax equity expiration. Previously investment-grade offtakers might have become downgraded to sub-investment grade. This doesn’t mean these are bad energy project risks, it just means the underlying offtaker risk has changed, and should be taken into account when refinancing.

The second primary driver for refinances in the clean energy industry is rising interest rates. In case you have managed to avoid the news cycle – all eyes are on the Federal Reserve, and expectations are high that the Fed might raise interest rates in the near future. Rising interest rates mean a higher cost of capital, and no one likes added costs.

“Concerns about inflation abound. An interest rate hike is inevitable, and more than one hike is likely,” says Marko Papic, Partner and Chief Strategist at Clocktower Group. “We don’t know exactly when these hikes will happen, but we know that capital is likely to be more costly in the near-future, and won’t get less expensive any time soon.”

Forward-thinking developers are in a rush to refi, they see interest hikes coming, and don’t want to wait; they know that it is prudent to refinance now, rather than wait until later this year or next, when it will likely be more costly to do so.

Whether you are refinancing or financing for the first time, Energetic Insurance is here to help when project cash flows are exposed to weak underlying offtaker credit. Customers tell us that our policies typically help increase the advance rate or the loan to value, help sponsors get a lower cost of capital all in, improve loan sizing, and all of this ultimately improves levered IRR from the sponsor’s perspective.

With so many sponsors and developers looking to refinance, the opportunity for financiers is significant. For financiers actively looking to expand investments in renewable energy, our policies should help them improve cashflow projections, and enable them to consider support of portfolios that include non-investment grade risk. Harnessing our solutions might enable lenders to provide more competitive rates, helping them reel in deals and deploy more capital where it matters. If you are a financier reviewing projects with sub-IG offtakers, consider recommending to the developers you are working with to reach out to us.

Finally, regardless of interest rates, developers will need to refinance projects from time to time, for example, when:

• There is a mini-perm structure or a warehouse facility, the loan will end at a certain point, and there is the expectation of refinancing
• Projects are successfully aggregated. As developers pull together portfolios, they might have an initially high cost-of capital, however, as they hit a critical mass of projects, they should be able to get a lower all-in cost of capital
• A raw deal was reached and developers are regretting terms and financing facilities they want to get out of
• Developers want more cash from a larger loan amount
• Projects have generated a lot of cash and developers have paid down the principal balance on their loan; refinancing enables them to seek a greater loan amount

The short story: if you are a solar project sponsor or developer, you should consider refinancing sooner than you think. If refinancing is 1-3 years in the future, consider refinancing today to take advantage of a lower interest rates and to avoid more expensive capital in the future.

Interested in learning more? Reach out to us here, or meet with us at the Solar + Wind Finance & Investment Summit next month.

[1] https://www.projectfinance.law/publications/2021/december/solar-tax-equity-structures/#:~:text=Tax%20equity%20covers%2035%25%20of,terms%20of%20priority%20of%20repayment.

[2] https://www.forbes.com/sites/richardmatsui/2021/05/04/the-solar-industry-is-ripe-for-a-refinancing-boom-in-2021/?sh=2cb4e78c1bbf

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

“What if insurance, yes, insurance, could be a powerful ally in decarbonizing the economy, really helping us to actually get to scale a little bit faster on deploying … climate tech?” -Lara Pierpont

Spoiler alert: it can. It’s all about deciphering complex risks and harnessing risk transfer to coordinate an appropriate risk profile.

Our Co-Founder, Jeff McAulay sat down with Lara Pierpont for Shayle Kann’s Catalyst podcast, and discussed how insurance can actually help usher in climate mitigation solutions, in addition to playing a role in the climate response side of the equation.

Often, when people think about climate tech, naturally weather and natural disasters are the first risks that come to mind. After all, climate-related risks are growing rapidly. SwissRe estimates “that climate risks will grow the global property risk pool by 33-41%.... by 2040.”[1] The risks and costs of global climate change are significant; we must focus as much as possible on mitigating these risks and costs.

When we shift to thinking about mitigation, decarbonization and deployment of renewable energy, there are a different set of risks to be managed.  

As Jeff notes, “there are a lot of businesses buying solar electricity, but many of them who would like to have solar or other renewables are unrated or below investment grade. Because of those challenges, they have a hard time getting financing, even though solar would save them money in the long run.”

We’re talking tens of thousands of large C&I prospective energy customers who are blocked from procuring renewables due to their inability to access project finance markets.

At Energetic Insurance, we are trying to solve for deployment hurdles, not only for solar and renewables, also for energy efficiency, storage, and other cleantech solutions. We realize it is not technology risk that is holding back deployment, it is something else; offtaker credit risk. Credit risk relates to the likelihood that any given offtaker will continue to pay for the electricity generated, thus enabling ongoing debt repayment. PPA terms are long, often ~20-years. There is always the risk that a business cannot meet all payment obligations. This is sometimes exasperated by single events, as we recently witnessed during the global pandemic, especially as businesses needed to halt certain operations.

We further realized that insurance, specifically insurance that covers offtaker PPA payment default risk, can mitigate the financing hurdle and allow for more confidence and predictability of cash flows at the project-level. This is done by developing and harnessing innovative risk transfer models and mechanisms that de-risk the project for developers and financiers. These tools allow us to decipher and transfer risk efficiently, potentially unlocking capital for projects that otherwise might be overlooked by financiers and/or enabling a lower cost of capital.  

Consider a solar project that involves sponsor equity, tax equity, and debt. For project developers and sponsors, the overall metric of success is their levered IRR – it is critical that they get the best terms of debt possible. This is essential for end user C&I companies as well, as the LCOE, or levelized cost of energy, associated with the project will be directly linked to the cost of the debt capital which is a partial driver of the ultimate PPA pricing – the more costly the capital, the higher the LCOE and the higher the PPA price offered to the end user.

Ultimately, we allocate risk efficiently between the offtaker, developer, financier, and insurance provider. Shifting some risks to an insurance balance sheet may allow the total cost of capital to fall for the project, and that directly impacts LCOE, expands the market, potentially lowers costs, and accelerates deployment.

What is the result?

Insurance can actually enable and encourage transitions to climate-saving, resilient infrastructure.  

So, is the solution adding more insurance? Creating new insurance products is not easy. The complexity and diversity of the projects and location-based regulations at hand present a barrier for investment selection. Uncertainty on the short and long-term impacts of emerging regulations abounds in such areas as net metering, RECs, or community solar programs. This can spur increased costs; the more complicated an opportunity is, the higher the perceived risk, and the more investors expect to get paid for putting their money at risk. Allocating risks efficiently is no easy feat given the heterogenous market and the lack of standardized risk profiles and packages.

We collaborate with developers and financiers to determine the most efficient way to cover the risks and to unlock the overall lowest cost of capital, enabling projects to be done quickly and efficiently at scale.

We are confident that insurance already is, and will increasingly be, an enabler of deployment and resiliency. The insurance industry is well poised to send (pricing) signals that encourage climate adaptation behavioral change. If risks are reduced, lower insurance premiums might be available, and if insurance can't be procured on a cost-effective basis, dollars will flow to lower-risk opportunities.

The market for our product in solar remains sizable. We are ready to help deployment in other high-impact areas, including areas like energy efficiency, in which technology is proven, but financial and other risk-related barriers are holding back deployment.

Interested in others addressing risk management in renewable energy? Have a look at our friends at REsurety and Omnidian who are addressing asset performance and weather risk, and at New Energy Risk, addressing early-stage technology risk.

Thanks to Lara Pierpont, Shayle Kann, Post Script Media, Canary Media, and the Catalyst podcast team for helping to demystify the role insurance can play in clean energy deployment.

In a recent Catalyst podcast episode, Jeff McAulay, Co-Founder of Energetic Insurance, discusses how insurance is an often-overlooked yet vital tool for scaling climatetech solutions. While insurance is essential in many industries, climatetech has lacked tailored coverage—until now. McAulay explains how Energetic Insurance is addressing risks in solar and other emerging technologies like heat pumps, fuel cells, and geothermal, unlocking new capital and enabling broader deployment. The conversation also touches on the evolving role of private insurance and government in mitigating climate risks.

Listen to the full episode here to learn more!

‍