The latest on Energetic and renewable energy trends.

The impact of climate change was laid bare in 2023. It was the hottest year on record and the ten warmest years in the last 174 have all occurred in the last decade. Climate investment is attempting to rise to the occasion – investors poured $1.8 trillion into the energy transition globally, a 17% increase from the prior year. Still, the impact of climate change is clear, and capital deployment needs to accelerate in order to meet any of the stated energy transition goals at any level. Large, flat rooftops across America’s commercial and industrial (C&I) segment present a promising solution.

Installing solar panels on industrial rooftops provides an opportunity to bring meaningful chunk of clean energy generation online. Rooftop solar currently produces 1.5% of US electricity consumption, up tenfold from 2012; although this is a significant increase, there remains a large opportunity for growth. Environment America reports that widespread installation of solar on residential, commercial, and industrial properties could result in rooftop solar generating up to 45% of all electricity currently used in the United States. If all qualifying REIT real estate assets added panels on their rooftops, the amount of energy generated would make up 25% of commercial consumption. Large, flat warehouses roofs could produce enough electricity to serve their own consumption, leaving 80.14TWh available to the grid. Industries such as furniture, textiles, metal, apparel, and printing could generate enough electricity through rooftop solar to power their operations.  

Most industrial rooftops are flat and uncovered, creating ideal conditions for installation. Developers are not required to acquire land or work through burdensome siting and permitting requirements. Prioritizing onsite generation also mitigates significant interconnection delays that plague renewable deployment across the US. On top of it all, rooftop solar installation creates meaningful value for customers. Leasing rooftops to project developers creates an opportunity for landlords to increase net operating income (NOI). At the same time, onsite generation from rooftop arrays have the potential to reduce the cost of electricity. Commercial customers could see a 9% reduction in electricity costs relative to purchasing utility electricity in 2025 by installing rooftop solar. When coupled with battery storage, there are additional opportunities to generate income and reduce costs by participating in virtual power plants or providing ancillary services.

When considering the challenge ahead to combat climate change, the empty, flat rooftops in America’s commercial segment are a valuable resource. Unlocking this resource will be a massive uplift in the energy transition.

In the race to combat climate change, the energy transition has become an essential pillar. However, as we transition to greener energy solutions, there’s a critical piece of the puzzle that often gets overlooked—insurance. Innovative insurance solutions are key to reducing risks, encouraging investment, and driving decarbonization at the pace needed to meet global targets.

The Role of (Re)Insurance in Commercializing Energy Transition Technology: Opportunities in New York State (“the Report”), written by Cara Eckholm and Brandon Luebbehusen, offers a comprehensive look into the role of the re/insurance industry in the energy transition, showcasing the untapped potential for creating new insurance products that mitigate emerging risks. The Report also demonstrates why companies like Energetic Capital, which focuses on addressing credit risks and unlocking capital for clean energy projects, are vital to the energy transition.

Financing the energy transition is a recognized global problem. In his letter outlining COP29, President Designate Mukhtar Babayev highlights the New Collective Quantified Goal on Climate Finance as the "top negotiating priority." Boston Consulting Group estimates there is a $19 trillion financing gap that must be filled if the 2030 climate goals are to be met. Accelerating financing for the climate transition is crucial.

The march of progress is relentless; the Energy Information Administration projects global electricity demand could increase by about one-third to three-quarters by 2050. We need more energy, and we need clean energy. This is a multi-technology, multi-commodity challenge that extends beyond solar and wind to emerging solutions like renewable natural gas, green hydrogen, and sustainable aviation fuel. To meet our constantly evolving energy needs, we must build—renewable energy infrastructure across the value chain to increase deployment. We must also develop new financial products to support this deployment. Long-term, low-cost financing is vital to advancing our clean energy goals.

Murphy's Law tells us that "Anything that can go wrong will go wrong." Predicting the future is difficult, so considering potential risks is essential for successful long-term project financing. These transactions depend on consistent performance by counterparties for 10 or more years. Identifying, mitigating, and appropriately allocating risks is critical. As the energy transition accelerates, intelligent risk management will be vital to enabling low-cost financing on commercial terms.

The insurance industry has traditionally absorbed risks that project sponsors are unable to take or allocate—this has been the case for hundreds (if not thousands) of years. More recently, insurance has been used to cover more nuanced contractual and transactional risks. In combating climate change, the industry has focused on resilience and adaptation to reduce their exposure to losses from extreme weather events. This is appropriate, as insurers have disproportionately borne the costs of climate change. We believe there is a key role for insurers to play as a catalyst in driving climate solutions.

Energetic has been pioneering risk management solutions for renewable energy projects for nearly 10 years, viewing insurance as a mechanism to create market liquidity. We ask, “What can I achieve if I think of insurance as an enabler, rather than a requirement?” To date, our innovative credit insurance has unlocked over $500M in distributed energy projects across the U.S., avoiding more than 85,000 MT of CO2. Additionally, 30% of Energetic’s portfolio is located in disadvantaged communities, where most of these projects would not have been financed otherwise. We’re not alone at the forefront of risk-transfer innovation—other MGAs like kWh Analytics and New Energy Risk share this mindset. The insurance industry must continue expanding acceptable risk boundaries through deep expertise and specialized underwriting. Where private insurers need help, we champion the GreenieRE coalition to address bottleneck risks and accelerate deployment.

If finance is the fuel for the energy transition, risk management is the fuel for financing. Don’t let perceived risks hold back your projects—reach out to explore how we can collaborate to mitigate risk and advance our collective clean energy goals.

As the summer sun shines bright, there's no better time to unwind with a good book. At Energetic Capital, we're passionate about not just fueling financial growth but also nurturing intellectual curiosity. That's why we're excited to share our Summer Reading List—a collection of insightful books that have recently captured our attention. Whether you're lounging by the beach or enjoying a quiet evening at home, these reads offer fresh perspectives and inspiration to enrich both your professional and personal journey.

At Energetic Capital, our longstanding expertise in structuring credit solutions has opened the doors for solar developers to engage with a diverse spectrum of offtakers, including those traditionally viewed as challenging or unbankable. This strategic focus not only facilitates access to favorable financing but also taps into less saturated markets where the potential for higher returns is significant.

Building upon the insights shared in our previous article, where we explored the benefits of proactive credit insurance integration, we now delve deeper into the strategic shifts necessary to develop in these less competitive markets. In an industry dominated by a race to secure investment-grade (IG) offtakers—where competition is fierce and often boils down to price—Energetic Capital empowers developers to look beyond. By utilizing our proven financial tools, developers can expand beyond the intensely competitive race for IG offtakers and explore projects with non-IG entities, which are often perceived as higher risk but offer the potential for greater returns due to reduced competition.

This article underscores the importance of our credit insurance solutions in enabling developers to confidently navigate and capitalize on these niche markets. We invite you to explore how embracing broader, more inclusive financing criteria not only diversifies your project portfolio but also positions your ventures for enhanced profitability in an evolving solar landscape.

The Opportunity

Enabling Broader Financing Possibilities with Offtaker Default Credit Insurance

Energetic Capital's offtaker default credit insurance is a pivotal tool for project developers seeking to expand their project financing options. By mitigating the risk of offtaker default, this insurance product opens doors to financing projects that include a broader array of offtakers, including those previously considered too risky by traditional financing standards.

The resulting financing flexibility creates a comparative advantage. In a market racing to the bottom in terms of pricing for IG-rated deals, the capacity to secure financing for projects with a broader range of offtakers allows for better pricing flexibility and deal structuring. With more flexilbity in financing, business development teams can address a wider pool of possible offtakers.  

Broadening the Spectrum of Eligible Offtakers

Traditionally, the solar financing market has favored projects with investment-grade (IG) offtakers due to their perceived lower risk. This focus has led to a saturated and highly competitive market environment. Energetic Capital challenges this status quo by providing credit insurance that reassures financiers about the viability of projects with small and medium businesses (SMBs), non-investment grade entities, and other non-traditional entities. This expansion significantly widens the pool of potential projects, enabling developers to explore new market segments and diversify their portfolios.  

Capturing Untapped Markets

There is a significant untapped market comprised of offtakers who do not meet the stringent credit requirements set by traditional financiers. By enabling financing for projects involving these offtakers, Energetic Capital helps developers access a broader customer base and fosters a more inclusive adoption of solar energy solutions across various sectors. This approach not only propels industry growth but also reinforces your company's role as an innovator in solar project financing.

Strategic Advantages

Leveraging Credit Insurance for Market Leadership and Enhanced Profitability

Energetic Capital’s offtaker default credit insurance offers not just a safety net, but a strategic tool that empowers developers to navigate the solar market's complexities with confidence and creativity. This section explores the transformative strategic advantages that our credit insurance brings to developers, enabling them to lead the market and enhance their profitability.

Enhanced Negotiating Power

Our credit insurance equips developers with enhanced negotiating power when dealing with financiers. By mitigating the perceived risks associated with non-investment grade (non-IG) and unrated offtakers, developers can secure more favorable terms. This shift not only lowers interest rates but also improves other financial conditions, allowing for better control over project economics and a stronger position in financial negotiations.

Increased Project Viability

Many solar projects that might otherwise struggle to find financing become viable through the use of our credit insurance. By covering the risk of offtaker default, Energetic Capital broadens the range of projects that can attract funding. This capability enables developers to pursue a diverse array of projects, including those in underserved or emerging markets, thereby diversifying their portfolio and reducing overall risk.

Reduced Barrier to Market Entry

For new and smaller developers, entering the competitive solar market can be daunting due to the high financial stakes and stringent credit requirements. Our offtaker default credit insurance reduces these barriers, providing a clearer path to financing and project execution. This support is crucial for fostering innovation and encouraging the development of new solar capacities across various geographic and demographic markets.

Attracting Investment

With the backing of Energetic Capital’s credit insurance, projects associated with higher-risk offtakers become more attractive to a broader spectrum of investors. Developers can access capital from sources that may otherwise deem the project too risky, such as impact investors, regional banks, and non-traditional financiers looking for diversified opportunities. This expanded investor base can lead to more robust funding rounds and increased financial stability for projects.

Streamlining Project Timelines

By providing reassurance to financiers about the creditworthiness of offtakers, our insurance speeds up the approval processes and reduces the time from project conception to realization. Faster project timelines translate into reduced holding costs and quicker returns on investment, significantly impacting overall project efficiency and profitability.  

Success Stories: Revisiting “Musical Solar” A Strategic Utilization of Offtaker Default Credit Insurance

Overview

Musical Solar, recognizing potential financing hurdles due to their diverse offtaker base, proactively engaged Energetic Capital for offtaker default credit insurance prior to approaching financiers. This foresight was aimed at enhancing the creditworthiness of their projects from the outset.

Strategy

By integrating Energetic Capital's credit insurance early in their financial planning process, Musical Solar preempted concerns related to non-investment grade and unrated offtakers, facilitating smoother and more receptive financing discussions.

Outcomes

• Efficient Financing: The anticipation and mitigation of risk streamlined the financing process, leading to quicker fund acquisition.

• Improved Terms: Risk reduction enabled better loan conditions and lower interest rates.

• Broadened Project Scope: Insurance coverage made more projects financially viable, expanding Musical Solar’s operational reach.

• Increased Confidence: Early insurance engagement boosted investor confidence, attracting more robust financial backing.

Impact

Musical Solar's proactive approach exemplifies how strategic financial planning with Energetic Capital's credit insurance can effectively secure and optimize project financing in the solar industry.

Looking ahead, Energetic Capital aims to broaden the impact of our credit insurance solutions, enabling even more developers to tap into previously inaccessible markets. By continually refining our offerings, we anticipate supporting projects in emerging technologies that have historically been overlooked due to financial constraints. This expansion will not only diversify the types of projects we facilitate but also contribute to the global growth of renewable energy adoption.

Empowering Solar Developers with Strategic Financial Tools

As we have explored throughout this article, Energetic Capital's offtaker default credit insurance is more than just a financial product—it's a strategic asset that empowers solar developers to navigate the complexities of the market with greater confidence and creativity. By enabling financing for a broader range of offtakers we help developers unlock new opportunities and tap into less competitive, higher-return markets.

The success of initiatives like those undertaken by Musical Solar underscores the transformative potential of our credit insurance. With Energetic Capital, developers are not only equipped to secure financing under challenging conditions but are also placed in a position of strength to negotiate favorable terms that enhance project viability and profitability.

Looking forward, Energetic Capital is committed to expanding the reach and impact of our credit insurance solutions. By continuously refining our offerings and extending support to projects in emerging technologies, we aim to foster a more inclusive and sustainable industry. We invite developers to partner with us in this journey.

This article explores how insurance, beyond its traditional role, serves as a powerful tool for reallocating financial risks in complex transactions. The piece delves into the strategic use of insurance in managing risks like forbearance and subordination in project finance. Key examples include the role of credit insurance in renewable energy tax equity and government-backed clean energy investments, highlighting how insurance can enable mutually beneficial agreements and drive progress.

Insurance provides financial protection that enables transactions to proceed. The simplest example is homeowners' insurance: to get a mortgage, the lender will require a home insurance policy. The same is true for auto loans, aircraft loans, and virtually every other transaction—insurance reallocates the risk of physical damage to make it possible.

There are more nuanced ways this plays out, where insurance can be used to reallocate financial risks. Insurance is also a vital tool that contractual counterparties rely on to allocate risks in commercial transactions.

In large mergers and acquisitions, representations and warranties insurance reallocates the risk that a party may breach a promise made in the contract. Errors and omissions insurance protects against the risk that a commercial counterparty makes a costly mistake during a business relationship. Credit insurance, often linked to risk mitigation, originated in early forms of trade credit insurance used post-World War II to manage recovery risks in cross-border trades.

Today, novel applications of credit insurance are emerging as risk allocation tools in complex project finance transactions. These developments create intricate intercreditor relationships, potentially leading to conflicts or disputes over seniority or forbearance. Credit insurance mitigates credit risk and reallocates forbearance requirements or subordination concerns, offering beneficiaries an alternative recovery path.

Two significant use cases for credit insurance are poised to revolutionize the energy transition.

Tax Equity Example

Tax monetization is the cheapest source of capital for renewable energy projects; projects simply do not move forward without it. It is cheap, but there are strings attached. Investors in tax equity in front-levered transactions require lenders to execute forbearance agreements. In the event of an offtaker default, lender foreclosure could be deemed a "disposition" of energy assets, triggering Section 50 recapture. Tax equity investors prefer back leverage structures, where lenders do not issue debt at the project level, eliminating the need for a forbearance agreement. While lenders may accept this, it could weaken their security position. Back leverage is not always feasible, but credit insurance can provide lenders with additional protection, offering comfort to those agreeing to forbearance by providing an alternative path to recovery in the event of default.

Government Example

Government has long been a facilitator of clean energy investment, but the Inflation Reduction Act has taken this to a whole new level. There are multiple ways that the federal government is funding projects. This capital is often cheaper, but like tax investment, there are strings attached. Government entities must always be senior and cannot be subordinate to other cash flows. Creditors working with the government can use credit insurance to strengthen their "security package." The government may accept Pari-passu or subordinate positions if insured revenue streams offer reasonable repayment assurance.

At Energetic, we take the view that insurance can be an enabler rather than a mere requirement. By reallocating risks among parties in complex transactions, insurance helps all stakeholders reach mutually agreeable terms. Insurance balance sheets are prepared to assume these risks, but market acceptance of these solutions is crucial to increasing deployment and facilitating progress. If you are encountering a roadblock in transactions due to forbearance, seniority, or credit risk in general, reach out to see if we can provide a solution.