GreenieRE’s Post

Transcript

Hello, and welcome to another video in our Greenery series on impact insurance and the climate. I'm Amy Anzac from Energetic Capital, and today I'm talking to Michael Kalmus, underwriter at kWh Analytics. Michael, thanks so much for joining us. Can you tell us a little bit about yourself? Thanks for having me, Amy. Yeah, uh, nice. Nice to see you again. I am an underwriter, Katabuchi Analytics, where I specialize in using insurance to support renewable energy projects, either on the property insurance side or on mitigating risk through production guarantees, which I think we'll get into later. So, Michael, as you know, in this series, we are exploring different types of credit enhancements and insurance offerings that mitigate the risk of renewable energy projects. Can you tell us a little bit about kWh analytics and how they fit into that ecosystem? Yeah, absolutely. So kid WH fits into the ecosystem of renewable energy in. Really by bringing carriers into the space, so you know as a managing general agent, we partner with insurance carriers and allow them to deploy their balance sheet towards projects in ways that we bring about with our data-driven approach. So give you originally started out as a data company. For the first about seven years of its existence, we had a software offering that allowed major investors in renewables to better track and compare and predict the outcomes of their renewable investments. And these are big unwieldy portfolios. And our idea was to come in, make it easy. Someone asked you how, how a project here or there or with what type of equipment is doing. We were tried, started out being the only game in town. That that could help them sort through that data. Through that process, we collected a lot of data and then it became an issue of finding out what can we do with it. We knew that when you get up to 30% of the US operating fleet in your data set, there's got to be some value there. So what we've done is we've partnered with insurance companies and and help them bring their capital to the space. We do that in two ways. One is with our production guarantee that we have a number of carriers supporting. And our property insurance program, which is protecting renewable projects from typical natural catastrophes as well as nutritional losses. And that's backed by our lead carrier, Aspen RE. That's wonderful. I'm so curious about your Solar Revenue Put product. Who's the typical kWh customer for that product and why do they need it? Yeah. So that product it's it's purchased by the developer of the project to believe the the long term owner who is concerned about the long term production, the ability of of a project to produce as much electricity as you have in your forecast. But the the motivating factor is going to be on the lending side. So typically all of these projects have some amount of debt and the downside scenarios that those lenders. Contemplate due due diligence against or the type of scenarios that that we look to mitigate with our production coverage so the. The best type of transactions for us, the ones that get us excited are these binary decision making processes where we can come in and it's a sponsor who can't otherwise execute on the structure that they currently have. And we help get lenders comfortable knowing that this substantial amount of risk is being mitigated, is being outsourced to the insurance industry and allow those developers to get capital where otherwise they may have had to give up on developing a project. Alright, so would you say that providing your investment grade insurance product has allowed solar developers to obtain financing for projects that probably otherwise would have been deemed too risky? Absolutely, absolutely. I mean, and we've done that a number of different times. Uh, sometimes, uh, we can help make a project financing financially viable if the lender provides an explicit benefit to these sponsor for using us. So either that can be higher amounts of debt or lower interest, but you know, very often we'll see lenders provide more of an intrinsic requirement for our coverage where they're going point blank to the sponsor and saying, hey. Uh, we're having issues with our credit committee, you know, we aren't comfortable with the amount of risk. We need to do something here to, to, to make this project viable and, and make it work for us. And often, you know, we're the, we're the pinchetti there and we can come in and help outsource a substantial amount of the risk of a deal to the insurance market and do that in a very efficient way with our data-driven, largely automated approach. That's wonderful. We love to hear about risk transfer that's allowing renewable projects to to move forward. So I'd love to hear more about how the product works in the world. Do you have a success story that you could share with us about demonstrating how the solar revenue put has actually made an impact for a particular client? Absolutely. So I'm happy to talk about good friends at Enterprise Community Development, ECD that is the development arm of the larger enterprise organization. Enterprise as a whole is, is one of the largest, I believe they're the 6th largest nonprofit affordable housing developer class. We looked they had over 23,000 residents spread out across the US, so very substantial real estate portfolio. They know their business well. Uh, and their very mission driven these people really care about their residents and through that. Vein, they were looking to bring the benefits of renewable power to their residents. They wanted them to be able to participate in the green transition. They wanted to reduce the environmental footprint and the cost savings that they expected to bring about and to pass those cost savings on to their residents. So they while they have a great experience developing real estate, securing debt against real estate from financing for real estate, doing solar. Development was a bit of a new game for ECT and so we were able to come in and help get their counterparties comfortable with the risk of solar development really not just their counterparties their their lenders who is crucial for but even the CD, you know, they were making a long term commitment to solar as a program and they didn't want that commitment to be dependent on the ability to always hit. Uh, certain levels of production, uh, they didn't want to be dependent on their ability to very accurately forecast how their sites were going to produce. And frankly, it was nice to be involved because we were to help on those fronts as well by providing some support on, on forecasting, the same forecasting we used to, to underwrite the insurance that helps support their development. That's so wonderful. I thought you were able to help with the bringing the the so many benefits of solar to lower income communities who, like you said, have mostly been locked out of the green transition. I'm curious to do all the banks that lend against solar projects require coverage for production risk because this is something that you're seeing all the time. No, no, not all banks. Uh, there are a number of large commercial and investment banks that have been able to develop very strong renewable lending practices. We have a lot of those banks that we work with regularly and those lenders are comfortable, a lot of them are comfortable taking production risk. They have a lot of expertise and in-house teams that they've built up to do that. They'll, they'll still work with them, but that's more of like the explicit. Benefit, uh, group we work with, but unfortunately you need a lot of business to support developing a very specialized renewables team and you know, I think even more so today that human capital is one of the biggest constraints of the renewable transition we see we talked to a lot of lenders who are hopeful to start their own renewable lending practice and they're not there yet it takes it's not just a few folks it, it takes a team of experts to really. Get comfortable putting capital behind these transactions. Uh, so unfortunately the large, uh, more established players in the space that are capable of, of underwriting these deals often won't engage with the sponsor on the scale of ECD. They, they have higher costs and they also have not a community motivation, community focus, but a lot of the smaller lenders they typically work with have. So our goal and the role that our coverage has played has been to help open up renewables and investing in renewables for these lenders that otherwise wouldn't be able to get comfortable taking on that risk. And ECD is a great success story where we were able to do that. They have a go to lender, they're almost sister company Enterprise Community Loan Fund who had never lent against material amount portfolio of renewables before. Uh, and we were able to help make that binary decision, get them comfortable, outsource not just some of the risks to the insurance market, but also some of the due diligence that comes behind it, allowing this lender to get comfortable doing renewables that otherwise wasn't looking to make that big leap and build out that extensive team that they would have otherwise needed. Yeah, that's an interesting point about project, project scale. Have you found that the the size, the scale of the projects, it really limits the products and services that aren't available to smaller companies, smaller folks like CD? Absolutely, 100%. So I mean, I would say 2 two ways, uh, that we see that one is, uh, just the counterparties and the amount of due diligence engineering that those developers are able to secure. So there are lenders that it's not worth them talking to. There are engineering firm that it's not worth them talking to. There's OEM providers. A lot of folks have a target market size. And it's unfortunate that, you know, on the small end of the spectrum, you miss out on a large portion of the providers for those services. And you also miss out on all of the efficiencies for cost. So it's not just challenging to, to get people's attention, but it's challenging to get a good deal when, when the scale is, is that small. I think this, this project we're taught portfolio we're talking about for ECD was 2.3 megawatts of power. So there were some parties they found they're interested, but you know, it's, it's not the same scale and the same expertise that you're bringing in as if you can hit, you know, the countries. 2345, most established providers. The other way it comes up is even on our side, the ability to provide insurance and that's part of why we're so excited about Grey Reef. So we work with for profit carriers, they're very large companies. And they do impose minimum deal sizes for us. Unfortunately, a lot of the companies that are set up to do small insurance deals so you're. Personal, you know, your car policy, your home policy, these are not the carriers that or the teams that are set up to do renewable power. So it's a lot less. They tend to go for it. You need chunkier transactions to make sense because it's very hands on process. So that that has limited the amount of availability of insurance for these small developers. They get much shorter list of folks that they can place coverage with. And on the production side for our own product, the solar revenue put, it creates some barriers via these minimum deal sizes that we face with our backing carriers. One way around that and what we have is as a very automated approach, we're data-driven and our underwriting process is data-driven. That's the only way we we make this work and why we think it's something that can work in the long run. We have a very low cost per per per doing business. And so we can handle these smaller transactions and do do large scale as well and that's something a lot of carriers can't. So if we had a carrier such as green. He was motivated, had a nonprofit community focus, uh, you know, mission driven. Then we believe that they could be come in and be a great option for these developers who either face a lack of options or simply can't get insurance out of at a rate that the rest of the market can can achieve. But at a rate for their size that can make a deal work just because they are exactly so constrained by, by those small development sizes. Right. That's so true and and thank you for pointing out exactly what we're trying to do with Greeny Ree. We want to take on those risks that's the traditional insurance market hasn't been able to in order to facilitate renewable energy deployment, whether that's because of poor credit and low income and disadvantaged communities or small project size like you mentioned or you know, just lenders concerned about electricity generation and equipment failures. Greenery will work with MGA's like kWh analytics, analytics like Energetic Capital. To alleviate some of those risks so that our traditional insurance partners and lenders can be comfortable with backing these types of projects. So that's what we're excited to do. And Michael, thank you so much for joining us today. It was so interesting learning more about kWh Analytics and what you guys are doing over there. We so look forward to working with you with Greenery. And if you would like to learn more about kWh Analytic Analytics, excuse me, please check out kwhanalytics.com. And of course, check out greenery.org For more information about our nonprofit insurer for decarbonization. Thanks so much for watching and have a great day.