What are some of the latest innovations in clean energy across various financial instruments and asset classes? What role do specialist intermediaries play in navigating the complex landscape of renewable energy investing and how can we work together to build a stronger clean energy financing ecosystem?
Rounding out the afternoon at Confluence’s 2019 Climate Solutions Summit, Marisa de Belloy, Executive Director at Overlook International Foundation, moderated a plenary on the state of renewable energy investing. Three clean energy investing veterans sat on the panel: Dan Adler, Vice President of Policy at Energy Foundation; Alycia Kellman, Chief Legal Officer at SunFunder; and Danny Kennedy, Managing Director of the California Clean Energy Fund and Confluence Board Member.
Successful Solutions
To begin the discussion, Belloy asked which solutions, working on the ground today, the panelists would recommend to clean energy investors. Kellman said the solar market has worked for SunFunder, a firm that has financed solar and other clean energy projects for over seven years. She says the goal is to aggregate capital: “The solution is to help provide scalable debt and capital for these solar businesses.” Kennedy agreed that solar was one of the best stories in the renewable energy sector.
Adler shared a nuanced perspective, saying that he believed proven assets like wind and solar are just the beginning of the growth story for this sector. To capture all of that potential, he says, the opportunity is in bonds. “It does seem to me to be a debt market play for reliable returns,” Adler said, “and you can see that in the emerging green bond pool as well.” He added that the green bond pool is oversubscribed.
Challenges
Next, Belloy asked the panelists to discuss the challenges facing the industry. Kennedy recalled frequent instances of misguided expectations around the sector. He shared that the challenge is that investors want to find their own “private unicorn” whereas the solution is deployment of existing solutions. “We are not going to come up with another mousetrap to do this better in the time we have left, so we have to scale PV, wind, storage, and other technologies,” Kennedy warned investors, “this is an amazing, trillion-dollar economic opportunity and we have just begun.” He says the size of the market is too vast to be shouldered by one business so it will take a conglomeration of smaller operators to get the job done.
Adler named three categories of risk as the biggest challenges facing the sector. Similar to Kennedy, he named scale as the first category of risk. The transaction sizes need to be large enough for investors to “take seriously,” Adler says. He also identified psychological risk and perceived credit risk as problems for this asset class. In his opinion, any action that mitigates perceived credit risk—including scale—is positive for the sector.
Kellman reinforced and nuanced the issue of scale and the need for philanthropy to become long-term lending partners for these businesses. “Doing something at scale means doing it over and over again, which does not fit the definition of innovation” she says, “I would love philanthropies to know that intermediaries need the long-term scalable financing too.” Kennedy identified the challenge of philanthropists asking for protection and special treatment. ”If they say they want to take risks and they want to solve climate change, then do it,” Kennedy said frankly.
Looking Forward
Belloy requested panelists share opportunities that went awry to better understand lessons learned. Kennedy suggested looking forward instead of looking backward. He named the Opportunity Zones as a vehicle to deploy a great deal of money toward clean energy. He also reinforced the need for philanthropists to support the good work that is happening, again, without asking for special protections and treatment. Picking up on this message, Kellman shared how valuable it would be to have philanthropists play a subordinate role versus a senior role to attract more commercial capital, which is commonly known as more risk averse. In addition, Adler suggested that investors would benefit from being more attentive to what the asset classes really are in the clean energy sector to help with the dissonance related to risk and returns.
All three panelists confirmed that what would be most helpful would be capital which helped unlock additional capital—whether called subordinate, catalytic or heroic.
Belloy also asked what it would take to engage more mainstream investors. Adler suggested that green bonds offered a clear opportunity in the future. Kennedy felt optimistic about the millennial generation and expressed hope about investors in Eastern countries, demonstrating greater likelihood to invest according to their values than Western nations. Adler shared that he believed that the hunger already existed and that it is about developing enough sizeable products to meet the demand.
Opportunities
To conclude, Belloy asked the panel to name an opportunity they see in the field. Kellman named some of the commercial applications of solar including the nexus between solar and agriculture as well as solar powered cold storage, while Adler identified community scale solar power projects. Kennedy said it was really a matter of “picking your poison” but highlighted the Navajo Nation’s recent commitment to solar energy as a significant impact opportunity in the renewable energy sector. The Navajo Nation has relied on uranium and coal for over 50 years, but now they are transitioning to a sustainable solar model. The initiative inspired the new president of the Navajo Nation to release “Navajo Sunrise,” a bold political vision statement that proposes to support in their transition to a fully sustainable model. “Of course, it’s not all catalyzed by this one story, but it is the sort of ripple effects that can come from something like that.”
When asked by an audience member about how the panelists make the case for community centered projects to hard-core investors, Kennedy shared, “The question hangs and stands as it is—there is a bigger possibility than just the business proposition.”
