Listen: California, Lehman Brothers, United States discussed on The Energy Gang
"In the summer of two thousand eight Britta von Essen took an internship with a major investment bank after wrapping up business school. It was considered at the time one of the top places to work it was with a company called Lehman Brothers and it was actually a fascinating summer. I was working in their global power group but focused on renewable energy and you know there was a lot going on at the time. Tax Equity was really ramping up. People were figuring out how the structuring was going to work with that. There are a couple. IPO's that were right on the horizon so it was a fascinating summer from renewables perspective and also what was going on at Leeman. It's been an unnerving week for US financial markets and now the potential collapse of Lehman Brothers once the fourth largest investment firm in the US at at that time. Lehman Brothers was the top investor in renewables it had bought big portfolios of wind and solar projects. It was a leading equity investor and it was helping take companies public it was an exciting time but as the summer war on market conditions worsened investors got nervous in things got grim for Leman analysts say the bank's future is in doubt out afterward reported a loss of nearly four billion dollars in the last quarter. Leman brothers is suffered heavy losses as a result of the US housing slump while I was there. It was just constant reassurance that that these cycles are normal and and you know financial markets go through this occasionally and everything was going behind of course it was not fine be one of the watershed days in financial markets histories. He was a manic manic Monday in the financial markets. The Dow tumbled more than five hundred points after two pillars of the street tumbled over the weekend leman brothers or one hundred and fifty eight-year-old firm filed for bankruptcy in the lead up to the Leeann bankruptcy in the fall. IPO's fell apart project financing dried up and cleantech companies beneath loans underwritten by the bank were suddenly exposed to risks. They didn't foresee. BRITTA had a front row seat to all of it. After leaving lemon she picked up and moved to Italy where she helped build wind and solar projects for a German developer soon after she witnessed yet another period of chaos the swift rollback of feed in tariffs the Italian market came to a screeching screeching halt. It did teach me a lot about developer resiliency the fundamental optimism that is required to be of renewable energy developer and and taking the long view on a lot of these projects so British took those lessons and apply them to the next chapter of her career. She now advises clean energy companies knees on how to manage risk so you've managed to witness the collapse of one of the biggest investment banks and one of the biggest European renewable energy markets back to back. That's quite an entrance into the industry well. I swear it's not me I'm not the not the driver and all of this but I think what it taught me was that things change and the markets move and those that are resilient and those that figure out how to work in the new paradigms that they're given are the ones who are successful so I've taken a huge amount of those lessons into my current job and into my current business where I'm basically advising folks how to roll with the ever changing markets that we see in wind and solar. I'm Stephen Lacey in this episode produced in partnership with Cohnresnick and cohnresnick capital talking talking with British Ivano sin about those ever changing market conditions today Britta's a managing director at cohnresnick capital over the last decade. She's seen all kinds of market risk mostly expiring or changing policies that create financial risk you know I it was the sixteen o three grant expiring then it was. ITC expiring PTC's stepping down. What are the safe harbor policies we we didn't even get the IT safe safe harbor policies until fairly recently. I think it's just a fundamental aspect of this industry. It's Salat about planning for the unexpected in British. Job is to help figure out how to get renewable energy deals done in the face of those challenges so I sat down with her to unpack some of those policy uncertainties and what they mean for renewables and I wanted to know how often does policy change derail projects so I have. You've worked on project many projects that were potentially derailed that we manage to work around various policy changes. I think change in tax law was a really interesting time where we had to figure out how to keep the investors active of an investing in two projects that would probably not be commissioned for another twelve months and how to get around the fact that there was a very likely change in tax law to be passed at that time and yet nobody knew exactly what that was going to look like. I think this PG bankruptcy recently and the California I think it was a be ten fifty four the wildfire response bill that has been high in the mind of a lot of California developers at the moment who were focused on contracts with sce NASD Johnnie and whether or not those credit ratings. We're GONNA take ahead that policy was passed and I think both of those organizations are are quite secure and short up and that was that was great news for California winging developers across the board with or without contracts well. Let's walk through some of the big drivers and uncertainties around them so you mentioned. PG Ag any I'd like to talk about PG and understand. What are you now looking for in a bankruptcy proceeding what kind of risks to contracts tracks are there currently what has been sorted out and what's still left to be sorted out that would impact renewable energy developers so I believe there is still still quite a bit of uncertainty as far as the potential for PG any to cancel contracts that are considered out out of market today so these would be some of the earlier vintage. PPA's there are several conversations and I know cohnresnick has been a part of several several of these about trying to restructure this through bilateral negotiations with pg any and kind of nipping in the bud lead and coming to a good solution for all parties but otherwise I think there is still a strong degree of uncertainty here there there are investors who are then making plays in this and trying to pick up these assets making a bet as to whether or not there will be restructuring of the contracts are not as as well as you know. It's an unfortunate situation but it's certainly a very active group of projects and sponsors that are figuring out working working through how to navigate that uncertainty. Let's go to tax equity. The solar investment tax credit is now facing the beginning of its step down schedule this is obviously going to impact the economics of project development but we have had some clarity on this step down unscheduled for for years now how is facing down the IDC GONNA change the way projects are financed and does it present any risks that were not there previously so you're right. There is a very clear step down schedule which I think has been helpful for folks trying to new forecasts what this looks like that being said given the safe harbor provision. I would venture that there is a generic assumption option from those who are procuring. PPA's at the moment that their assets that their projects will be safe harbored many of the major. I pee pees Jason. Strategic are making significant safe harbor place. They are you know doing this both for their own projects jags and under the assumption that there will be Ebony advantages over the next few years which I agree with. I think a lot of these developers that are procuring making this assumption are going to limit themselves to buyers of the assets that can then fulfill the safe harbor in order to meet the Economics Amax. What do you think the chances of an extension of the investment tax credit are. I know that the Solar Energy Industries Association has all of a sudden and put this back on their priorities list. They think maybe there's an opening to extend the federal tax credit. What do you think the chances of that arc given what you know so there's a couple a couple aspects of this that are important absolutely it would be beneficial to the industry right that being said we are months away from the step down last time this extension happened. I think we had a good twelve months of lead time so it allowed loud folks to plan at least partially accordingly in this case you would actually jam up probably some more some of the more major players who have made significant safe harbor plays that would have been capital that was not necessary to deploy a and potentially at pricing that is not beneficial to their assets so there are mixed mixed feelings throughout the industry about this. I think there is a decent chance I also think it's interesting giving kind of the economic markets at the moment and the potential for a downturn. Let's call it in the next twelve to eighteen months renewable such a critical component of job security and job growth in the US economy at the moment that especially if we're facing some type of downturn it may increase congressional and government support for some type of extension here. What about the storage tax credit. That's been floating around Congress for for a long time if there is this renewed push for potential solar. It see where does the storage. I T C fit in there would would it be something separate. Would it be wrapped together. And what do you think the chances of getting this thing finally pastor. I think the storage credit is actually much more critical critical than the than the solar one in the in the near term here I think with Alda we will continue to have murkiness around trying trying to loop storage into either wind or solar tax credits which is is just messy. It's hard for investors to get their heads around it. Just adds a lot of confusion and it also limits what you can do from adding storage onto existing renewable energy projects objects. I think throughout the energy community there is a consensus that storage is a critical component that needs to be deployed on a large scale will in order for renewables to continue on the growth. It is an in order to hit. Some of these are targets hundred percent in California boring. If for example you you have to have the storage component there otherwise you're facing you know a variety of issues on you know intermittent see or demand or any variety of aspects so. I am a little more bullish on the storage tax credit. I I think a standalone tax credit does a lot to simplify and streamline financing aspects for storage whether or not it connected to renewables and whether or not commissioned at the same time as the renewables what happens to development if we get a storage. George tax credit are there are a lot of developers working with who would very quickly integrate storage if they could obviously like the tax credit is one component of a broader water suite of market reformations that we need to make storage work and make an economic but it's a big one. I think adding adding storage on to renewable projects would absolutely boom that is that is a market right now that has difficulty accessing the existing credit's due variety of structuring challenges it can be done but it's challenging and so I think the standalone credit really sees an absolute boom in storage that is deployed. I also think you know looking at the California market for example sample and the duck curve and all of the forecasts on what merchant energy is doing for further renewables development in California to to make sense post contracted. PPA's or hedges means that you have to have a significant storage component and if if you talk to the folks that are issuing these third party Merchan- curves you know this is a major assumption that they have to make you you know assuming California's moving towards the target and storage is such a critical component of that. I worry that without a standalone malone storage credit as kind of a carrot to to deploy additional storage that's going to be difficult going forward. You hinted at a bigger your economic risk for renewable energy project."