The Exchanges

Q how this was sort of approaching first of a kind for them, that they saw that you had initialized construction and that that was going well. So is that right? And were there kind of specific milestones What were the things that were decisive that, that when you showed them to the debt investors, they said, that's the thing that makes me believe in you and I'm ready to go.

A I think it was, I think it was more than one thing. I think it's a combination of a credit-worthy brand name customer with a long-term contract, so there's some guaranteed revenue from our contract with Southern California Edison, and they've been around a long time, they have a strong credit rating. That's a huge plus. Second, I think, is the fact that even though Gridstore was an unknown entity, Goldman Sachs most certainly is not, and that certainly gave the banks and lenders some sense that, okay, this isn't two guys in a truck, this is a real Uh, entity with real backing and, and Goldman Sachs has a track record of being, um, successful at these kind of things. I think that certainly helped and, and benefited us. And then the third was using, uh, technology that nobody had any real questions about. Like, who is that? Why are you using them? Do they have a credit rating? Again, people have all heard of Tesla. Probably a lot of the bankers drive one themselves. So I think that certainly helped. Um, I think long-term revenue from a credit-worthy off-taker, uh, A bank, you know, a bankable sponsor with a track record. And it's not just the name Goldman Sachs, but the people on our team had real track record building and operating projects and could answer questions. Those are probably the key, the key factors that made this attractive to banks. And also banks, you know, while …

AI assessment note: “Those are probably the key, the key factors that made this attractive to banks.”

Q Interesting. All right, let's get into the actual construction of the project. I love this part because we get to talk about real steel in the ground. So when did you break ground, and what was your construction timeline?

A Yeah, we broke ground in Q-one of twenty-twenty-three. I can't remember what month it was. I think it was probably in March, if I remember correctly. It was not the beginning, uh, of the quarter. That, that was when we had full mobilization to start. We started moving dirt and clearing and grubbing in the fall of twenty-twenty-two. Um, but we didn't actually have full construction crews on site and, and do full mobilization until Q one of 23. And we energized and started operating in, in December of 23. So effectively the project was built in under a year. Um, and like I said, most of the action happens very quickly. Once the site's been cleared and it's ready to go, unfortunately for us, then we had the biblical deluge of 2023, um, on the California coast. If you remember, it rained more than like in any year in recent memory. Um, And the places where our batteries were supposed to go looked like swimming pools. Um, so we had to dewater the site, which means come in and suck the water out so that it can dry faster. But luckily we were able to, to, to make up on schedule. We had to work some nights and weekends to get that done. Um, but we were able to do that. I think we were installing a mega pack every two and a half minutes at the peak of construction. It's pretty incredible. That's how fast they were able to load them on. Maybe it was every five minutes, but they were able…

AI assessment note: “we broke ground in Q-one of twenty-twenty-three”

Q Okay, so walk me through the process. So you've got a project that's up and running. You've got a contract signed with SoCal Edison for resource adequacy. The IRA has passed, and you're now thinking about how to apply tax credit sale to this particular project. So what's the first step?

A Yeah, the first step is, I guess, determining what you think the likely, the most likely candidates are for counterparties on the other side to monetize the credit for you. So there's a pretty well understood league table of who are the biggest investors in, in, Historically, it's been wind and solar, um, and they have different appetites of both how much they want to do and what type of deals they do. So me and my team, mostly we came from the renewable energy space, so it's all the same people we've been dealing with for the last 20 some odd years. So you kind of know, you know, the biggest investors in the US have historically been JP Morgan, B of A, US Bank, Wells Fargo, people like that. Um, so you start with those people. If they're not A fit for some reason because they have a sort of specific box of what they will do. Then you have to start thinking about smaller players who maybe have a specific niche that aligns with what you're trying to do. In this case, like I said, we wanted to go to like the big mainstream players and, and, and demonstrate that this was a mainstream product that even the biggest banks can get behind. And so that's why we did it this way, which is kind of unusual for a first of a kind thing. You typically think you'd go to some smaller niche player that's interested in doing something new and unusual. But that's not how we, we approach this one.

AI assessment note: “the first step is, I guess, determining what you think the likely, the most likely candidates are”

Q should, or is it may, and all the things that flow from that. The legal profession is awesome. Um, I mean, with all the seriousness in my heart, that's very cool. Ok, so, what happens next? So now you've completed this tax credit sale. Presumably you have a whole lot of other projects in the pipeline. Where are you building? What are you doing? Where does Goodstore go from here?

A So this was, like I said, really, you know, for us, a proof of concept, a chance to demonstrate and to both learn and demonstrate that we can do all of the things associated with, you know, financing a project, building a project. Um, now we're operating the project every day. Um, you know, that, that's a whole other expertise. Figuring out how to maximize the revenue available from a project is, is complicated. Predicting what's going to happen with power prices, You know, within the hour, within the day, a day ahead, or the day of, is, is tricky, and, you know, it's a whole industry, and, and we're having to become adept at that. Um, so we spent a lot of the last year really honing our trading skills and our predictive powers, and, and we're pretty happy with the outcome there. Now we're in the middle of building a project in, uh, near League City, Texas, which is just south and east of Houston in Galveston County, Texas. Um, and that project, equipment's being delivered, installed on site as we speak, um, Um, it's a much bigger project, 220 megawatts, and on a much bigger site, it's Texas, everything's bigger in Texas, um, but we're in the middle of, and, and that's been an interesting one. We've had, you know, weather challenges down there, we had a port strike, you know, and now we've got possible tariff things to deal with. Those, those batteries will all be in the countr…

AI assessment note: “Now we're in the middle of building a project in, uh, near League City, Texas”

Q to put together one of the first ever tax credit transfers using IRA tax credits. We'll get to that after the break. So now you have a project that's up and running, it's working, you're serving SoCal Edison's needs, and at this point you went further into exploring a tax credit sale. So can you start by just explaining, like, what that was and when you started considering doing this?

A Well, we knew we were gonna, you know, as soon as the Inflation Reduction Act passed, we knew that this project would be qualified to, to, to receive those tax credits. And actually because the, that law hadn't passed when it was, when the project was first acquired, That was really on me and my team to figure out how to, how to monetize that, that credit. Um, you know, so we have people on my team that have done tax credits. I did a lot of tax credit investing at Google and before, and obviously the Goldman Sachs team knows a thing or two about this, but it was new, and none of us had ever done it before with batteries. Um, we deliberately went to one of the biggest financial institutions in the world that, that does these kind of things. That would be more difficult to, to close a deal with them, but that if we did That would be a real proof point for us, and also they could be a potential partner for future projects because they have a lot of scale. So we kind of went straight to the biggest of the big boys, and, um, I think again the Goldman Sachs backing, the SoCal Ed contract, and the Tesla equipment probably helped get them interested in doing that deal, but we were able to structure that, which is a transfer, like I mentioned, where there is no actual partnership. You're just selling them the tax credits at some discount to You know, if it's worth a dollar, they buy it …

AI assessment note: “as soon as the Inflation Reduction Act passed, we knew that this project would be qualified”

Q this is a case where it's a little bit different, right, where you essentially were already building the project. As you mentioned, the project was kind of in train before the IRA even passed. So for you, what, what was sort of the impetus for even thinking about a tax credit sale? Like, was there something that improved about the project economics afterwards, or how did you think about that?

A I mean, the way to think, the way I think about it is similar to what you said. It's also, it can make the project itself or the product that the project is offering more Competitive and therefore more attractive to the end buyer, right? So the price that the buyer of the output of a wind farm or battery or solar project has to pay net of the tax credit is 40%, 30% lower than they would have otherwise had to pay. And so that creates more demand on this thing. It's, I think it's important to understand both that like if, if wind costs 30% more tomorrow, there'd be fewer wind contracts signed. If storage costs 30% more tomorrow, fewer people would Would sign storage contracts. So that's an important part of it is inciting demand. And the second part, as you said, is bringing, you know, is creating more financing available for those projects. But effectively, you can think of it as the government is saying, you can sell these tax credits you didn't, that you didn't have yesterday. The government's sort of giving you those tax credits by fiat, and you are selling them, and you get to keep most of the proceeds and use that to buy down the cost of the project. So I think of it as sort of an upfront capital subsidy from the government to make these projects less expensive.

AI assessment note: “use that to buy down the cost of the project”

Q about how all of these pieces came together. So talk about your plan for financing the project. Again, you're a little bit different from some other folks we speak to in that you, you didn't need or have VC funding. You essentially had a private equity funding model. So how did you think about funding the Goleta project? Did you, and what sorts of sources of funding did you consider?

A I mean, that's one other thing back to the choice of Tesla I should have mentioned is that Tesla was clearly a, um, a manufacturer that is well-capitalized, well-known, um, And, and trusted by, by lenders and investors, so that, that certainly made it easier. If we were using an unproven technology or a company that didn't have much of a balance sheet or a track record, I think that would have made this much more difficult, if not impossible. And also for us as an early stage company at the time, one thing that's important to mention is a company like Tesla, they deliver a, what's called an integrated solution. It has sort of everything that you need to, to, to go. Just, you need a transformer and a substation, and then they take care of the rest. Other things Vendors, you have to do the so-called integration. So you buy the basic building block, a DC block from them, and then you need to add the inverter, power electronics, and other pieces yourself. We're now doing that ourselves on subsequent projects, but when we were still a small team, that probably would have been too much to take on. But given that we had this advanced technology that was well accepted by the market, we had a long-term contract with a credit-worthy utility in the form of SoCalEd, It seemed to us like this, this could be a project that we could successfully finance even as a new company. We did have the …

AI assessment note: “We did have the benefit of that private equity backing, which allowed us to”