The Exchanges

Q And Rachel, can you dissect that blended capital stack a little bit more and talk about why that makes these deals so much more complicated?

A The variability of how you can structure rooftop solar and storage differs greatly. You could, you could put together 10 different models to finance the same deal. The distinction is that everyone takes a little piece of the pie, and it's relative to their risk profile, it's relative to How much capital they can put up, what their rates are, what their margins are, and what their overhead is. And for a lot of these projects, somebody's coming in with working capital, whether it's the developer or the business owner or the nonprofit that has that asset, and they're saying, okay, I'm gonna cover this amount of, with my own, ah, cash, and I'm gonna, I'm gonna cover my pre-development costs, which is super risky. And then people think, oh, okay, well, I've got direct pay, which is a tax credit. Well, someone's got to pay up front against that tax credit, so already we're looking at a bridge to that tax credit, so two things have to be true already. The third piece is you've got a mini perm, uh, debt portion of this that's a five-year repayment if you're able to line up the bridge financing, and so all of a sudden three things have to be true at the same time. So it's not a one-to-one. It's not one product. It's that all three things have to be in coordination in order for that deal to pencil. And insert the blank, a credit enhancement, a tax incentive, a rebate program, uh, subordi…

AI assessment note: “It's that all three things have to be in coordination in order for that deal to pencil.”

Q Rachel, what's the role of AI in standardization by analyzing patterns across thousands of deals?

A Yeah, I'm very excited about this potential. My background is in technology, and so when I started hearing, when I got into this, you can't standardize project finance, I was thinking, well, we have used AI to solve a lot of very complex challenges, and this is a very humanistic failure of our markets to come together, and it is not a technological challenge. This is a data challenge, and so I think the best tool to address data inconsistencies or a lack of Clarity is really utilizing emerging technologies like AI, and so part of what we're doing and how we're thinking about this is we've been partnered with a really great group of students out of Stanford that are incredibly intelligent and thinking a lot about how to use their data science background applied to both the product-level data that we've been collecting and the project-level insights. So The closer we can get the fields, the easier, but in a lack of perfect data, they are using modeling for predictive activities for the capital stack. So option one, you could utilize this amount for bridge, this amount for mini perm, and it might be this, this, or this capital provider based on their availability. When you start to get really regional, accurate data is very important, but it doesn't have to be perfect data. So not everybody has to say exactly what their rates are if we know what their risk profile is and what thei…

AI assessment note: “they are using modeling for predictive activities for the capital stack”

Q Rachel, thoughts on creating a cohesive risk framework?

A Yeah, someone smarter than me is going to do that. What I do think is super important is recognizing that if we focus on saying this is risk, then you're always going to have someone smarter saying, well, did you think about this, or this is how we think about this, or this is our very unique model. And it's, I don't think it's necessarily as important in the abstract as it is about getting down to the fundamentals of the project. And so I was just with a bunch of developers Last week who were, many of them had rooftop solar and storage projects, and many of them were resilient centers, and I was saying, you are presenting your project to three different audiences because you haven't bifurcated yet between the different types of capital. One type of capital cares about risk, and the other type of capital that many of these organizations that I'm talking to, ah, are, are philanthropic or below market rate or Has to align with community impact, and that, that set of capital cares about leverage and impact, and so we're already looking at two different types of incentives. One wants to mitigate risk, and one wants to optimize for leverage or outcomes, and so part of this is just knowing what are those incentive structures that you have to at least respond to to get the time of day of that capital provider to look at your project. So, Cash is king. What's your offtake? Everyone's g…

AI assessment note: “I don't think it's necessarily as important in the abstract”

Q These projects are sort of inherently customized and, and unique for the particular customer or community, and the capital markets want to see uniformity. So is there anything we need to think about to preserve the value to communities and customers when we're creating standardization for, that Wall Street requires?

A I think this is a really thoughtful question. We work with developers that look very different. We work with indigenous developers, nonprofit developers. We work with typical for-profit developers that are kind of operating at a hundred million dollar scale and everything in between. And then we work with churches and nonprofits and small businesses. And so we've seen this flavor Uh, across kind of the gamut. And I think that one of the things that is really important to recognize in this conversation is that not all assets have to be bundled. Not all of these assets have to get to the secondary markets, has to look identical. Creating standards builds a marketplace for financing to come more easily to this asset because there's more confidence in repayment, right? And that there's more confidence, um, that it's, that it's a sound investment. But for portions of the, the communities that we're supporting, community ownership is very important. So their offtake doesn't look like A power purchase agreement. It doesn't look the same as somebody who's got a PPA in hand, and it's the same agreement for 50 facilities. 10 of those might just say, look, we know that we're not gonna hit your credit box, but it's important to us to own the asset, because that's part of our wealth creation strategy, or that's part of our independence strategy, or that's insert the blank. And so, I don't t…

AI assessment note: “not all assets have to be bundled. Not all of these assets have to get to the secondary markets”