Clean energy capital markets: Certainty at last?

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Think back to June.

President Joe Biden had just paused new tariffs on solar modules imported from Southeast Asia—a lifeline for the solar industry after months of tumult caused by the Auxin Solar tariff petition. 

Import shipments resumed. Projects restarted. Stability (mostly) returned.

Then came interest rate hikes to deal with record inflation which resulted in recession anxiety, further complicating the buildout of clean energy infrastructure. 

As a result, while the tariff fears eased--at least for the next two years--how will clean energy capital markets likely react to the new economic uncertainty?

In Episode 10 of the Factor This! podcast, Pine Gate Renewables CEO Ben Catt breaks down what’s going on in clean energy capital markets. He's fresh off raising $500 million for his utility-scale solar and storage development company. Plus, Catt shares how clean energy business models are evolving.

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A changing business model

Pine Gate is among a class of clean energy developers that is looking to put more skin in the game.

For the past years, many developers looked to quickly flip assets to move on to new projects. There's a growing recognition, Catt said, that green electrons hold a lot of value.

"We're really leaving a lot of the value--or selling a lot of the value--to other players," Catt said. "We're recognizing that to have a long-term sustainable platform, it can't just be developing projects, flipping them for cash, putting the cash back in and doing more projects."

The value of the independent power producer (IPP) role is evident in several fundraising deals in recent months.

For example, Intersect Power raised $750 million to develop renewables and green fuels projects with a focus on long-term asset ownership. That is a shift from the power purchase agreement (PPA) structure that has ruled corporate procurement of clean energy over the past decade.

Next, Boston-based Longroad Energy ditched its "design to sell" business model and raised $500 million to build out its solar, wind, and energy storage pipeline for long-term ownership.

And, Apex Clean Energy, announced its evolution to an IPP with an infusion of equity capital in 2021.

Gone are the majority stake acquisitions of old, Catt said. Clean energy developers are opting to accept minority investments from infrastructure firms and investment funds to fuel growth, along with project finance infusions to support pipeline execution.

"I can remember not that long ago when if you were going out with projects and they didn't have 20/25-year contracts on them, nobody would return your phone call," Catt saId. Today, he said, that that model has "shifted dramatically."

Return to certainty

Catt was at the neighborhood pool with his kids on the afternoon of July 27 when he heard the news: Sen. Joe Manchin, the big hurdle Democrats had to overcome to pass the most significant climate change and clean energy legislation in U.S. history, had reached a deal with Majority Leader Chuck Schumer on a reconciliation package.

"I walked over to my phone and saw, you know, 500-plus text messages from folks inside of Pine Gate, folks inside the industry saying, 'Holy cow, what just happened?'" Catt said.

The long-sought reconciliation package includes $369 billion in federal money for clean energy and climate.

Catt sees the bill's 10-year extension to the Investment Tax Credit and Production Tax Credit as giving everyone in the clean energy industry--developers and capital providers alike--the long-term certainty they have said they need.

Clean energy developers have grown accustomed to the rollercoaster ride that comes when Congress approves just two-year extensions to the ITC/PTC. Larger, more impactful projects simply don't get developed because they don't fit into the narrow window of opportunity, he said.

"It is incredibly difficult to raise capital into an uncertain environment," Catt said. The Senate bill--although not yet across the finish line when Catt spoke with Factor This!--gives the clean energy industry certainty and clarity, Catt said. If it is signed into law, "we can go out...and really drive the growth that needs to happen here."

Factor This! Episode 10 Transcript

Ben Catt, Pine Gate Renewables CEO

We're all realizing or we're all kind of recognizing where we think the real long term value in what we're doing is and that is in the terms of long term ownership and operations of renewable energy assets.

Host: John Engel

Jump back with me to early June.

President Biden had just paused new tariffs on solar modules imported from Southeast Asia… a lifeline for the solar industry after four months of tumult caused by the Auxin Solar tariff petition.

Shipments resumed. Projects restarted. Stability returned.

Then came rising interest rates, record inflation, and recession anxiety… all complicating the buildout of clean energy infrastructure which is… already really complicated.

I'm John Engel--- content director for Renewable Energy World.

This week on Factor This!... What's going on in clean energy capital markets? And can the solar industry handle even **more** headwinds?

I'm joined by Ben Catt… CEO of the utility-scale solar and storage developer Pine Gate Renewables… next.

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Host: John Engel

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Host: John Engel  2:00

Alright, well, this is a this is a first for the Factor This! podcast Pine Gate Renewables CEO Ben Catt is joining me. Both of us live in Asheville, North Carolina. He's unfortunately not joining us from Asheville, so that setup doesn't work as well this time. But on top of being a friend in the industry, Ben is perfect for this conversation after Pine Gate just recently landed $500 million in financing from Generated Capital to take it southeast development footprint expand all over the country with utility-scale solar and storage. Ben, thanks for joining the Factor This! podcast.

Ben Catt, Pine Gate Renewables CEO  02:32

Yeah, John, Thanks for having me.

Host: John Engel  02:35

Disclosure for the audience: We actually recorded this interview last week, completely the whole hour. And then something happened in clean energy and solar that sort of changed the tenor of the conversation, then the the reconciliation package in the agreement between Senator Joe Manchin and Majority Leader Chuck Schumer changed a big, you know, component of this topic of clean energy capital markets and fundraising and all that. What was your initial reaction, before we get into Generate and all the other stuff, when you got that news, what were you doing and what were you thinking?

Ben Catt, Pine Gate Renewables CEO  03:11

Well, so yeah. And to your point, John, we had recorded this podcast, and then only a few hours later, the news broke, which made you know, two thirds of what we're talking about completely irrelevant. And so to to jump back on with you here. Well, I was actually, at a, I was hanging out with my kids, I was at the pool, you know, just having a regular, you know, summer afternoon, and all of a sudden, I walked over to my phone and saw, you know, 50 plus text messages from folks inside of Pine Gate folks inside the industry saying, holy cow, what just happened? And it was certainly in in this business, typically, no, we've seen the ups and downs of how things go on the legislative side and when you have high hopes for a bill or you have high hopes for something, you know, that you really think is going to be impactful for the industry coming through, and then for whatever reason, the votes can't come together, or ultimately, timing doesn't work out, you know, we played that game several times over the course of the last, you know, decade plus doing this. And that's just kind of, you know, that's how it rolls is that there are times when you get a positive kind of legislative tailwinds and there are times whenever it just doesn't really all come together for you. And this certainly, you know, a couple of weeks ago, whenever the original announcement came out, Joe Manchin had effectively said, you know, inflation is too high, and we're not going to pursue some of the environmental pieces of legislation we've been discussing, we really thought, okay, well, you know, we'll take our lumps, it's a loss on this front, we'll regroup. There are lots of other things that we can do and lots of other ways that we can continue to advance the industry. But it was, you know, it certainly was taking the air out of the balloon in a big way. And then to all of a sudden, have one afternoon, this just completely pops back up. And really, as we read through the bill, and it's a big bill, it's 700-plus pages. Reading through everything inside of it, you know, you're seeing that a lot of the really impactful, you know, climate legislative aspects are in there and they are in there in a way that's really thoughtful when we think you're going to be really transformative for the industry. And so, you know, super exciting, certainly completely unexpected. It's, you know, the, when you're waiting for the Hail Mary at the end of the game kind of thing and finally, it comes through on that, you know, one out of 100 scenario, that's kind of how it feels on this.

Host: John Engel  05:27

Yeah. And some of the top line items in that package for those that haven't taken the dive into I assume everyone listening to this podcast is at least read the headlines and some of the big points but, you know, extension to ITC, PTC, standalone storage ITC, green hydrogen production credit, the Solar Energy Manufacturing for America Act provisions are in there with the entire solar value chain with incentives for manufacturing here in the US, EV credits all of that. And I you know, I've said that the the victory lap is cautious by most of us or most most in the industry, because there is a certain Senator over in Arizona who is a freshman, but still likes to throw her her weight around a little bit. So we want to not claim victory just yet.

Ben Catt, Pine Gate Renewables CEO  06:15

Absolutely. And I think that that's key right now, too, is that, you know, we'd still, you know, Senator Sinema, so has to get on board, man is a huge key piece of this, you know, we have to hope that no senators get COVID between now and when we're actually gonna be voting on this, hopefully later this week. I think that you're gonna have a lot of the procedural stuff that happens in the Senate, in the House with all of the kind of votearoma so to speak, is going to be going on and, and then ultimately getting into the House. So there are a lot of steps that have to take place here and there are a lot of things that by no means is anyone, you know, claiming victory quite yet, but I think that it really revived something and puts us in a position that we didn't think we were going to be in a couple of weeks ago.

Host: John Engel  06:53

So I want you to be completely honest with this next question. Pine Gate has one of the bigger internal policy shops for a solar developer in the US and you guys invest a lot in that that space and being active and involved, whether as the face or you know, just the behind the scenes writing policy, that kind of stuff. Were they also caught off guard, did anyone have that inside scoop that something was coming? Or were we all just as stunned as each other, even those close to policy?

Ben Catt, Pine Gate Renewables CEO  07:23

What I will say is while I agreed I think we have a the best kind of regulatory government affairs shop in the country at Pine Gate, and they do a phenomenal job, this came as a surprise to our group as well. I think this was something that however, this really ultimately unfolded, was kept under wraps really, really tightly by everybody in both the Schumer and Manchin camps. And you know, as we've seen some press coverage of this coming out after the fact, some conversations that were happening at some really high levels with some really influential people. But it seems like this was something that was held really, really close to the vest and it sounds like Senator Manchin is effectively saying he didn't know if he was going to get to a deal. He didn't know if we were going to get to something. So they really didn't want to be too public about it. But, you know, this was something that I think by and large, we had potentially heard some whispers that there may be some movement somewhere but not nearly to the kind of the scope that ultimately what came out last week.

Host: John Engel  08:18

So characterize what this last year has been like for for not only Pine Gate, but you as a leader in in clean energy. You know, the Auxin Solar trade case being one, but the overall supply constraints caused by the coronavirus pandemic. Now we have this this economic uncertainty that's bubbling up in these last couple of months with rising interest rates, inflation and, you know, anxiety over a pending recession, which I think a lot of folks think we're marching toward, and then culminating with this, this surprise, good news, what, what has that been like for you?

Ben Catt, Pine Gate Renewables CEO  08:49

Yeah, the proverbial solar coaster that we that we all reference so much, right? It's the ups and downs of this business that happen. And we've gotten so used to what I will say though, I kind of bucked him into two different things. I think that our industry is largely impacted by policy, more so than a lot of other industries. And that's just due to the nature of what we're doing. I think it's due to the nature of where we are in the energy transition, and how much of a pivotal role that solar and renewables are playing in that transition, and how, you know, just how impactful the everyone is viewing climate change, and really all the things that we're all working on right now. So I think that policy and kind of that legislative aspect is always going to be heavier in our business than if we were manufacturing, you know, tires or whatever. But, so that's always going to be something that we have to keep in mind, but I think the other side of it and so again, you're going to have, you know, tailwinds and headwinds, whenever it comes to those types of things, we've seen some really impactful both from a kind of trade case perspective, like you mentioned in Auxin, something being a significant headwind to the industry and something that we had to navigate for a period of months, and now it looks like we've got some clarity with the two year, kind of pause, so to speak on the AD/CVD, tariff rollout or potential going to, we'll see the ruling. But any impact, we're gonna have that grace period inside of that, that I think was something that gave us they certainly put the industry on its on its head for a couple of months, which is not helpful to for what we're all trying to do. We've seen this going on, again, off again, on the legislative side, which has certainly made some volatility in what we're doing. Hopefully, we are getting to a place that gives us stability, and I'll kind of circle back to that in a second. But the other side of it, the other bucket that I look at, when we talk about supply chain, when we talk about all these other things, I think that's also just that is a that is somewhat a hallmark of an industry that is growing up. And that is the maturation of what we're all doing is that we are procuring a lot more modules than we used to, we are procuring a lot more steel than we used to we are procuring a we are, you know, there are a lot more labor hours that are going into these projects, because we're building more projects and pipelines are getting larger, and just the industry is evolving. And I think that's something that if you're an auto manufacturer, or anyone else you've been dealing with for years and years now, to the extent with some of the supply chain issues, that has really exacerbated a lot of what some of those complications are. But I just think that in general, our supply chain is growing up along with our industry. And I think that's a lot of where we're seeing that friction take place. And so we expect that to mature just like our industry is going to mature. And hopefully we're able to with some of the domestic manufacturing tax credit incentives that are in this bill, along with the the domestic content, ITC adders that are also being proposed will go a long way to continuing to bolster main domestic manufacturing here, allow that supply chain to continue to mature and take a lot of that kind of supply constraint and volatility out of it. Back on the legislative side, though, one of the things there that we think is so impactful and why this is you know, why that these kind of whipsaw back and forth is ultimately hopefully getting us in a good place is we think that this, this legislation can really be a foundation for what they must a long term thoughtful growth trajectory for the industry. And that was really exciting. And we'll talk a little bit more on the the industry impact of the clean energy and climate bill and you know what that means for capital markets in a minute. But before we get into that, and in the Generate deal, and how that all came together, I do think it's important for our audience to get to know you a little bit better and your origins in finance, which I think are just so great for this conversation. Where did you start? And how did you get to solar? What's the, I guess what's the long and short because I know it's a winding road? Yeah, no, definitely. So I was prior to being in renewables I was in I worked in banking and finance, which is, I think they somewhat you know, that my story is not that unique, and that coming from that industry into this industry, but certainly for me, it was working in that industry, and really seeing where I saw my career going there, and then ultimately seeing what I thought was an incredibly exciting opportunity in renewables. And this is over a decade ago so this is whenever, you know, a five megawatt project was a big project and whenever, you know, doing maybe 40 megawatts a year was a tremendous year for an organization. Compared to now where, you know, we at Pine Gate are doing well north of a gigawatt a year in installations. And so that's, you know, when I got into this industry, it was much smaller, it was much less sophisticated and really what we were looking to in, you know, for where the industry was going was trying to find kind of where the next market was going to be or where we thought there were advantageous policies and, you know, in an environment where you could actually go and build solar and be able to have a successful business model. That's obviously changes, we're seeing an expansion and explosion of renewables across the entire country and we become kind of more policy agnostic, and really, just really looking at, you know, energy, the kind of the fundamentals of how we build good power plants and ultimately deliver green electrons to the grid. But for me, it was really saying, where can I make an impact? Where can I take my skills and be able to do something a lot more impactful for, you know, not just for myself, but for the planet, basically. And so whenever this is back when my wife was pregnant with our second child and had just quit her teaching job, and I said, I'm going to quit my very stable finance and banking job and go and take a job with a effectively a renewable energy startup, which, God bless her. She trusts me and like

Host: John Engel  14:46

I like you because you're crazy, Ben. It's not because of your steady hand.

Ben Catt, Pine Gate Renewables CEO  14:52

I will say that it was it was certainly not the most practical move at the time, but ultimately, is really something to say, you know, I want to get into this and where I saw a gap in the industry and where I was able to come in and contribute almost immediately with very little knowledge on renewables, you know, as a subject matter expert, was really being able to look at it and say, you know, I know how banking and finance works, I know how to raise capital, I know how to go out and be able to figure out a way to get these things built because at the end of the day, that's a huge piece of what we're all doing, right. We have new technologies, we have all of the complexities when it comes to development, and permitting and all the things that really go into making these work, which are incredibly important pieces of the puzzle of making all this happen. But really, at the end of the day, when you're starting out in an industry like this, getting the money to build the projects, is a really, really critical piece of the of the puzzle. And that was something that I was able to come in and start really doing immediately was going out and talking to banks, talking to financing parties, and really helping them understand the risk profiles and what the capitalization of these assets looks like, and be able to raise money and play a role in helping to evolve this market, as we all have in a very collaborative way to go from what was a very kind of basic financing model to today, which is a much more sophisticated and comprehensive kind of capital model for how we actually build and finance renewable.

Host: John Engel  16:22

So take us there then, in describing how the Generate deal came together. So $200 million in growth, equity, $300 million financing deals for projects, they'll help us help us understand how that came together with Generate, but also the broader capital markets space for clean energy. How is that looking given that you were just in the mix for this last round, you know, seeing, how the major players are going about these different headwinds that are coming up?

Ben Catt, Pine Gate Renewables CEO  16:22

No, it's a great, it's a great question. And it's, and really what I'll say is the the Generate deal, we're incredibly excited to be working with Generate, they have been phenomenal partners, from the jump into this entire process and for contact the process, like the one that we just went through, you know, takes, you know, for us almost a year to really find that right partner and get to the close transaction. And so it was interesting to watch, even the market of all over that 12 month cycle from when we started to when we ultimately ended. But what I will say is that the deal that we just did with Generate, I don't think would have gotten done two years ago. And I think a lot of the other transactions you're seeing, I think, Longroad announced one yesterday, and we've you know, Intersect is announced recently as well and we're continuing to see some of these, these, what I would consider to be more kind of minority type investments or investors who are coming along and not looking to buy the entire platform, but ultimately just looking to participate as an equity investor in the growth of that platform. That really wasn't something that we saw a whole lot, two, three years ago in this industry. I think a lot of those transactions, if we would have been doing this in 2019, or whenever we really would have been looking more along the style that we've seen where it's, you know, it's an energy major who wants a development component and so they're gonna go out and buy an entire platform 100%, and then just integrate them into what they're doing is a kind of a part of their overall, right, the MCS or it's, you know, it's a strategic, who's going out and saying, I just want to buy this group and have their pipeline and kind of bolted on to what we're already doing. And those platforms because this industry is evolving. And because projects are getting larger, and pipelines are getting larger, and capital needs are getting larger. I think two, three years ago, the kind of the transaction de jure so to speak, was really going out and saying we need a lot of money, we have to finance this pipeline so we have to basically sell the entire company to someone so that they will say we'll commit the capital to put into our project and make them happen. That's just kind of landscape we lived in. I think today we're in a very different environment. Because while the Generate transaction, we raised $500 million of collective growth capital for both at the at the parent company level and for for project, long term ownership, for $500 million, which was a incredibly key piece of our growth strategy moving forward but along with that, we've also been able to raise capital in other places. And that's key for how we're able to look at these minority style investments. I don't need someone to come in and buy the entire company and commit the dollars to do every single thing that we ever want to do. Because we're able to go out in source capital from other parts of the market. And that's really something that has really evolved rapidly and being able to go out and find development capital to be able to go out and continue to see the kind of the kind of the pool of project level capital grow. And so alongside our Generate transaction, we announced late last year a $500 million development facility with the folks at Fundamental Advisors and we have over the course of the last six months really raised over a billion dollars in project capital and tax equity and project debt. And so all of those things together allow for us to be able to say we can go out and find the right partner and Generate, we can be able to raise $500 million to fill this bucket of capital that we need. But then we can also go to the market, and we can work with the folks at Fundamental and we can raise $500 million to help feed our development pipeline. And we can go to the market and work with all of the tax equity investors and construction and perm debt providers that we need to raise over a billion dollars in capital to ultimately build out our pipeline as well. And so that allows us to stay, which is something so key to us, you know, majority owned by employees of Pine Gate, and I think that's a really critical piece of how we're looking at our capital evolution and how we're really looking at kind of where we think the long term trajectory of our company and the industry is going.

Host: John Engel  20:46

When you mentioned long road so Longroad Energy in Boston, they raised $500 million that was growth equity as well. And they said that that was to fuel a transition into long term asset ownership instead of the develop to sell model. We recently saw Apex Clean Energy, you know, major clean energy developer in the US transition into independent power producer status. Intersec Power is $750 million in growth equity. Sheldon Kimber's vision is to to get away from the the PPA structure that has driven you know, corporate procurement of renewables and really development in in this country over the last 10 years to more of that long term investment model for green fuels, whatever. And then you guys are in a similar similar boat, you talked about that long term asset ownership. So that's all to say that in the evolution of the capital markets, we're also seeing an evolution in the business models for renewable energy developers in in almost every space and battery deployment, wind, solar. Why do you think that's all happening right now what what is the trigger that is sending developers like yourself like Sheldon, Kimber and Intersect, and others to get into more of that model.

Ben Catt, Pine Gate Renewables CEO  22:02

I think we're all realizing or we're all kind of recognizing where we think the real long term value and what we're doing is, and that is in the capital, long term ownership and operations of renewable energy assets. I mean, that is what we're looking at with the decarbonisation of the economy with the energy transition, we're all going through. One of the most of prized commodity, there's going to be out there is that green electron. And I think as developers for a long time, because the point I was making before the development game is a cash hungry game. And for a very long time, the so called developing flip model is really was the prevalent model for developers and going out and saying, let's get a product NTP or COD, and let's sell it off to somebody else who's a long term investor in the asset will take that cash will reinvest that back in the company, the cycle continues, right. And I think that what we're recognizing is that by selling those assets, really at either NTP or COD, or post COD in some form or fashion, what's happening is, we're really leaving a lot of the value or selling a lot of the value to other players. And we're recognizing that a four to have a long term sustainable platform, it can't just be developing projects, flipping them for cash, putting the cash back and doing more projects, and just doing that cycle over and over, we have to build a more solid foundation that ultimately is built upon both developing new assets, because we need a ton of new renewable energy generation, but also looking to a business model that continues to look to long term energy cash flows to really bolster the balance sheet of the company. To look for us to be able to... and I think, to the point you made about Intersect, really being able to look and say, where are the innovative business models going? And can we as developers, and now you know, IPPs, ultimately, really drive the the business model in a direction that we think is positive for where the industry itself is going. And that's, you know, when you're going out, I can remember not that long ago, when if you were going out with projects, and they didn't have 2025 year contracts on them, nobody would, you know, would return your phone call. Whereas today that that model has shifted dramatically. And I think in large part, that model has shifted dramatically because of folks like the Pine Gates and the Intersects and everyone else out there, who look at the you know, who look at projects and say, this is not just a bond that we're going to monetize over 20 years, this is an energy generation asset. This is something that has a ton of value when we look at not only the kind of the electrons, but also RECs and everything else that are kind of how we can monetize these projects, and really leading that forward. And that's a big part of why for us the business model is it's so important that we continue to be an you know, a majority employee owned and independent player in this space because we can not only develop finding and think construct, but ultimately own and operate assets that we think are really going to be kind of at the forefront of where the industry is going.

Host: John Engel  25:06

you know, what comes to mind is that that's been generates bag for the last decade, you know, that long term model of partnering and investing in the infrastructure and the asset? Is that why this deal came together with them? Why they were the right partner now? Or did you go in with this vision in this shift? That, that you are going to have more of a stake in the game for longer? Or was that part of Apple's influence,

Ben Catt, Pine Gate Renewables CEO  25:31

I think it's part of generates influence, it has always been our model. So we have always, you know, as long as fine gate has been developing, financing, constructing and owning projects, we have always retained an equity piece inside of those projects we have, the amount of equity that we retain in them has been, you know, obviously, largely a part of what is the cash needs of the organization? And how do we need to continue to capitalize what we're doing. As capital markets have evolved, we've been able to, you know, own a larger and larger stake of our own operating assets. And that's a key piece of us ultimately, continuing down this trajectory of being a renewable energy independent power producer, like so many other of our folks in the industry are doing right now. But really, as we see this with the Generate partnership, a key piece of this was near point, their long term vision on where all of this is going. And that was critical, and really weathering the ups and downs of the last 12 months as they're taking a long term view. And if we were just going to go out and try and find the, you know, the highest bidder for a platform and sell the entire thing, we would have run a very different process than we did. We were in a process that was very thoughtful and very intentional and saying we're looking for a long term partner who wants to come along, who has the same vision that we do for where our industry is going and generate really, from the early stages of the process, showed themselves to be that partner showed themselves to be someone who could come in and take that long term view with us and really say how do we continue to really help pine gate play a role in the evolution of this business, and from kind of the phase one to phase two all the way to the end of the transaction, they showed themselves as a partner who was really in this for the long term, which was was really positive.

Host: John Engel  27:12

And generate comes with its own stamp of approval, you know, when that deal comes together, and you see generated pine gate $500 million, I mean, that that carries quite a bit of weight in the industry. And I'm sure it's exactly what you're trying to do.

Ben Catt, Pine Gate Renewables CEO  27:25

Well, yeah, it was. And I think it's something too, that this was something that we wanted, because, you know, making sure that everyone at Pine gate, all of our employees continued to stay really engaged in what we're all doing in the mission of what we're doing, we knew that finding the right partner was going to be key for that too. And so, you know, again, bringing them on, and being able to really have the teams work together. And even though we just closed the transaction, we're still in the early stages, we've already seen a lot of that collaboration between ourselves and generate, which is was really fun.

Host: John Engel  27:51

That's great. So take me into the mind of the finance guy, then how did you go about structuring this? And when you were looking at Pine gates needs across the business, which you have an EPC arm, you're obviously developing and financing. How did you divide and conquer what what the needs of the business were? And how is that reflected in the deal that we see what generated the 200 million growth equity in the 300 million financing deal?

Ben Catt, Pine Gate Renewables CEO  28:16

No, it's great question. And what I'll say is, it's a bit of an iterative process, really. And that's why it took a year for us to get this to a transaction, because we were we wanted to go out to the market and see what was available effectively. And that's something where even you know, a lot of times we are so head down on our own projects and getting them developed and getting them financed and built and operational. That you know, at times, you can't have to bring your head up and say, All right, we're capital markets, what's evolved in this industry, that different capital markets, but from really everything, because this is such a dynamic industry that we all participate in, we have to be able to say, what has changed what's new, I want to make sure that we are we're kind of we're taking the appropriate steps given the evolution of everything we're seeing around us. And so we initially went out with what was a pretty broad asked, which was just here are the things that we were looking for, we are looking for corporate growth, capital, effectively cash to put on the balance sheet to help us weather the ups and downs of this industry, because that is inevitable. We're looking for development capital, which is you know, for direct dollars to go into project to pay interconnection deposits to pay all of the development costs that it takes the the project from the initial start of the project, or when it's a twinkle in the developers eye all the way through to NTP and ultimately cod. And then ultimately, we wanted to be able to go out and raise project capital too. So tax equity, construction debt, perm debt, everything else. We went out to the market and said, We have a very large capital needs because we have a large pipeline of assets and wanted to entertain what the market would come back with. And so we went through kind of that initial phase and saw proposals all over the place that really had a lot of different kind of flavors to them, and we had to evaluate those and see what we thought As the most advantageous for our business, but when it landed was largely where we thought it was going to, which is that there are some folks that are excellent capital providers for development kind of true development capital, there are investors who are looking for more of an investment in the platform itself and who, and then there are investors who want more project level investments. So the long term cash flow is coming off of those. And then ultimately, you have the tax equity and debt side of the equation. And so what we found when we went out is that there wasn't one player who is going to be the silver bullet and be the perfect partner for us across all those capital sources. And so we looked, and we said, Alright, fundamental fantastic on the debt side, we already have a great relationship with them, their development facility is something that fits our needs incredibly well. And so we went ahead and did that deal independent of the kind of the Generate process with fundamental, and then we generate was a great partner on the equity and project equity side, and they put forward a really attractive offer for us, we're able to get that done. And then ultimately, while we're doing that, we're always raising tax equity in that. And those relationships were really proved out to be the most advantageous relationships in the market. And we continue to transact there. So it was really going out and saying we have several buckets of capital that we need for our business, all of them are very large. And we want to find the right partners for each one. And again, to the point I was making earlier, I don't think that that type of ala carte style of capital raise really would have been something it would have been all that effective a few years ago. But because of we have seen such an explosion in the interest in kind of the in renewables in the capital market side of the renewables business, we are able to go out there and really be a lot more creative and really tailor a solution that fits what our business needs a lot better.

Host: John Engel  31:45

So how do I square the pine gate deal, the intersect deal, the long road energy deal with, you know, rising interest rates, inflation concerns about a recession? What story are those deals telling me about the state of clean energy capital markets and resiliency, I guess, of the industry at large.

Ben Catt, Pine Gate Renewables CEO  32:08

That's actually the word I was about to use was its, I think the story that it tells you is that the capital markets for renewables is very resilient. And I think it's also the renewable industry is quite resilient as well, because as we see inflation as we see, you know, inflationary pressures, everything else that are impacting our business, there are other variables in our business that offset that to some degree, we've seen energy prices and PPA prices rise pretty substantially over the last handful of months, really, to meet a lot of the or instead of in reaction to a lot of those inflationary pressures that we're seeing. And that's really because this is a multi stakeholder process. So those energy buyers, I would say 510 years ago, I don't think that anyone who is procuring renewable energy, at the turn of the energy buyer side was really going to chase pricing up to meet where if if we would have had inflationary pressures. Fortunately, we haven't for several years, we've seen a falling cost curve. But I think that we would have been hard pressed to see energy buyers really adjust their pricing expectations to meet where project costs were going at the scale that we're seeing it a few years ago. And I think part of that was that these renewable energy procurement mandates have become more sincere in a way, these are, it's not a nice to have it to have to have for a lot of these large corporations who are huge energy buyers. And they're looking at the landscape and saying, it's not an option for us to just be able to go procure energy through kind of traditional generation methods, we have to have green energy, we have a mandate, we put this out there to be, you know, to decarbonize our energy buying profile by 2030, or 2025, or whatever it is. And so that means that we have to be able to be responsive to where the pricing in the market is going down on top of the fact that we're just seeing other inflationary pressures in the energy market as well. We're seeing that that those stakeholders, those energy buyers are coming to the table and really being flexible and where that pricing is, which is ultimately allowing us to continue to get projects done in an inflationary environment. Same thing with rising interest rates, we're able to go out and say, work with, you know, tax equity investors, with lenders with everyone else, because this is a stakeholder process across the board with all with capital providers, with energy buyers, with developers with everyone else to say, here are the facts on the ground. Here's what's happening in our industry. How do we all continue to work together to ultimately get projects done?

Host: John Engel  34:37

interested to hear what you think about how 24/7 CFE fits into all this do carbon free electricity that mandates that a lot of these tech companies Microsoft, Google and others have to go beyond the PPA and instead of matching annual consumption, they want to match our by our energy usage. Does this this shifting business model? You think fit into that mission and goal. And does that complicate the equation here?

Ben Catt, Pine Gate Renewables CEO  35:06

I? Well, I think it? I think it does. But I think it's almost we're at a phase right now, where really just filling the bucket of green electrons is that task is so large right now that I think before we even worry about 24/7 24/7, kind of energy consumption profiles or anything else, we just have to get, you know, the, the end of the the electrons on the grid, that's we got to want, I think, first, so much of that, yeah, we got to walk before we can run. And I think those are, those ambitions are incredibly impactful for our industry. And we'll continue to as we deploy more batteries as we continue to be more sophisticated about how we're ultimately engaging with energy buyers, as all of those things happen, that will shape out how those can 24/7 Buying commitments, or anything else really come to fruition. But at the end of the day, right now, there are so many kind of places where these companies are procuring energy, where even when the sun shining, and it's, you know, a beautiful day, they're still not able to get all of the green electrons that they need to fulfill their, you know, their consumption at that moment. And so being able to get those electrons to those consumers, you know, even in those periods is step one. And then from there, I think we worry about how we continue to really kind of refine the shape of how that that energy is consumed and everything else.

Host: John Engel  36:26

Well, and I brought it up because you mentioned the sincerity of the commitments. And that's I mean, that's in part because of the the companies that have already met their net zero targets in the last, you know, five to 10 years, Microsoft, Google and others, and those near term targets of people who need those green electrons. That's why they're being held to account on these commitments now, because they are not the commitments that are not 2050. And they're 2030. Or they're 2025. Those mean a whole lot more. And there's a lot of competition to get those electrons.

Ben Catt, Pine Gate Renewables CEO  36:56

Yeah, no, there is. And I think that's something that that has been for us. It's I think it's a huge tailwind. And I think even in our our podcast, that we'll never see the light of day that happened before this one. The hidden Tate's, essentially, we can talk a little bit about that where this is in that stakeholder process, those buyers really being kind of the ones who are more of a catalyst for renewables growth than potentially we're seeing on the legislative front. And then, you know, we get a big announcement, everything changes. And while that continues to be an incredibly important part of the kinds of variables that are growing our industry, now we have that kind of that federal legislation potential that could be a real kind of building block of what we're all doing.

Host: John Engel  37:37

Let's round out this capital market talk then with the impact of the mansion deal, should it go through? Should it look, should it look like it does now, because we need to at least have some level of assumption that what was proposed will get through just even have a clear headed conversation about this because I can't get into the qualifications for Sinema and others. What is the impact? Do you think to capital market, the availability of capital for these infrastructure projects, even the players who are involved in in financing these kinds of operations, you see that expanding? What do you think it looks like over the next couple of years? Should this pass with that assumption?

Ben Catt, Pine Gate Renewables CEO  38:16

Well, hopefully, you know, it's three hours from now, there's not some other announcement that I'll play make this entire podcast

Host: John Engel  38:23

I'm publishing this podcast regardless.

Ben Catt, Pine Gate Renewables CEO  38:28

I can appreciate that. So I will caveat all of this, we are still waiting. There are still a lot of factors we referenced.

Host: John Engel  38:34

It's August 2 at 9:13am, Eastern Time,

Ben Catt, Pine Gate Renewables CEO  38:38

Timestamp here's here's the world as we know it right now. So here's what I'll say is that there is I have always been a firm believer that there is no piece of legislation that is a silver bullet that will magically cure climate change. Not going to happen. But what legislation does for us and legislation like this, which again, I will I think I said it earlier, but I'll say it again, this has the potential to be it is as on paper, it is, from my perspective, the most ambitious, and has the potential be the most impactful piece of climate legislation we have ever seen. And that is not to be taken lightly. This is a huge deal if this goes through. But what it is, is it's a it's a building block, because at the end of the day, what is going to drive, the energy transition, what is going to drive the decarbonisation of our economy, what is going to drive, the expansion of renewables and everything else that we're all working on, are the players in the private sector who are ultimately developing financing, building, owning operating these assets, and ultimately, the buyers who are procuring the energy that comes off of them. And that is, but what this does, it gives all of those players it gives those developers, the folks who are financing the capital providers, energy buyers, everyone else. It gives us a long term view into what our landscape looks like and how We can build our businesses on that. Because what I will tell you, we referenced this before, whenever I got into the, you know, how I got into this industry and a capital raising function is, it is incredibly difficult to raise capital into an uncertain environment. And that is kind of what we have been living in or in some instances, I think we've had some level of transparency with the kind of the last, you know, tax credit extension. But even going back to the days, whenever there were times when we would see one or two year extensions through the kind of end of year budgeting processes, that that can be impactful to some degree, but it doesn't give confidence to capital providers to to provide capital for the long term growth of the industry, if they don't have a long term view on what the really the capitalization of these assets is going to look like. And so that the ITC extension that you referenced, that ultimately will turn into this technology neutral extension, and I believe I mentioned, right, yeah, and really being able to do that one, it allows us to say, you know, and again, this is, we're calling it a 10 year extension, but it really comes down to when we have a 75% reduction in emissions, that kind of track with the forecasts that are in the bill. But really, at the end of the day, what that means is that everyone can look and say we can can make capital for two platforms, to projects to all of these things that are now taking a longer time because I think that's a really critical piece of why this legislation matters. And why we need it right now is that when we look at the cycle of our business, we used to live in really kind of a 12 month cycle business, it was year to year, what are you doing, and you're always kind of to some degree reinventing the wheel. Because interconnection queues were significantly shorter, projects were a lot smaller. So build cycles were much shorter, we didn't have the same, you know, nearly the the lead times that we're seeing for procurement now, as I referenced before, with our supply chain kind of growing up. And with that being something that just takes a lot longer to get the materials you need to build these projects. And so we were able to work in a much more of a just in time type of industry where we're not in that anymore. We're looking and saying, Our development team, the projects that they're starting work on right now are projects that aren't going to come online until 2027 and 2028, in some instances, and they're going to be large and impactful projects. But we need transparency into that timeframe for us to commit capital today to make those projects happen. And so this legislation from an ITC extension standpoint, one just that piece allows us that transparency to be able to invest our dollars, but then also to go out and work with investors to raise capital from them to invest their dollars as well. And then also moving to the tech neutral, where we're ultimately that really is going to be kind of the storage IPC, effectively, being able to commit capital to standalone storage assets, and all of these things that we need for thoughtful long term, transmission build out planning, as the grid really evolves. And so that being able to get that transparency and have that certainty allows us to really be able to build our business and to work with our partners to build our business. And then on top of that, it allows other capital sources to come in to commit to all of the other things that it takes to make this kind of ecosystem work. And so with the we referenced it before the the manufacturing tax credit, and the kind of the ITC ad or for domestic content, that means that anyone looking to build a factory in the US can look out and say, great I haven't sent as to be able to go out and invest what is going to be in some instances, you know, 10s, if not hundreds of millions of dollars to build these facilities, and then ultimately be able to supply this market because I know the demand will be there. And I know that there is a long term runway for me to be able to really, you know, invest this capital, create these jobs, be able to really, you know, sincerely create a domestic manufacturing presence. And so that's really what it does. It gives us certainty, and it gives us clarity, so that we can go out and so the private markets can go out and really drive the growth that needs to happen here.

Host: John Engel  44:06

The manufacturing news that is already followed just the proposal, I mean, QCELLS came out and said we're ready to go melting multibillion dollars full supply chain, just say when and we're ready. So it is really exciting time. I want to close out on this. We don't talk about climate much on this podcast. it's baked in with this audience. We I think we all agree of the you know the dire costs if we don't address these issues now. So to see a proposal on the table that is agreed upon by the last holdout in Manchin when it comes to clean energy and climate $369 billion, a proposal that on paper is modeled to to reduce emissions within shooting distance of the Paris Climate Agreement goals. To see FERC taking on the transmission reform arm and interconnection reform that it is right now, simultaneous of what Congress is doing. Bundle that up for me and how this feel how this moment feels for you in the business. This is a podcast for those doers who are taking the steps to build the things that we need to meet all of these goals and to stave off those dire circumstances associated with climate. What does this feel like for you, given that you shared that little piece in your your anecdote about your path to to solar into renewables, that you wanted to make an impact, and it feels like a whole lot of impact is happening right now.

Ben Catt, Pine Gate Renewables CEO  45:35

It is an almost take a step one step back and just say, this business is hard. And everything that we know, just absent all of the policy and legislative, you know, back and forth, and all the rest of it, just getting a project from the initial kind of site, lease option, purchase option, what have you when you're going on starting it all the way to an operational asset, has so many speed bumps and has so many pitfalls along the way, just getting those projects done, and then getting doing that at scale. And being able to do all of those is a challenge all in of itself. And then you put on top of it everything that we have been fighting and when it comes to, you know, I think we all had the same reaction, whenever the announcement that the Department of Commerce was picking up the Auxin investigation, were just kind of it takes the wind out of your sails to some degree because we're doing something that's so hard. And then you run into these issues where you're you're making it even harder and more complicated. Same thing happened whenever, a few weeks ago, you know, Senator Manchin came out and said, you know, deal's off the table, we're not going to do anything here. And you know, that just that we're all working on something so complicated and and being able to effectively lead the energy transition, rebuild our entire utility, electric electricity sector effectively. And doing all of that is so technically difficult that whenever you have these factors, these external factors that make it even harder, and can take a lot of that wind out of your sails, it's so challenging. And so whenever you have something like this, whenever you actually see, we could potentially have legislation that really gives us foundational pieces to grow our businesses and work on the incredibly complex technical challenges that we're all trying to solve. We have FERC, taking, you know, interconnection and transmission very, very seriously and really looking to, you know, with the proposed rulemaking that are out there, really be able to approach the way that energy generation is coming online in a very transformational way. And you have, like I mentioned before, you have energy buyers who are taking their renewable energy procurement mandates very, very seriously. It's almost you have this the whipsaw this year where it was, we had several months of just the air going out of the balloon, and everybody's still coming in and working incredibly hard, and all the really talented people in our industry, doing what they can to make that difference, because to your point, we are all doing this, because we know what we're doing is so critical to combat climate change. At the end of the day, what we are doing is the kind of the foundational pieces of us being able to really transition our economy in a way that allows us to, to give our kids a better planet to live on effectively, right. And so when you have all that wind come out of your sails, and then this happens, and you have this kind of series of events that ultimately give you a better foundation to go in and still do all the hard work that we're doing. But ultimately do it with a little bit of a, you know, with a little bit of support from some of the other stakeholders in this process. That's really where, to me, it's incredibly inspiring. It's always inspiring to do this work. It's always inspiring to see all the people at Pine Gate, and all of our peers in the industry working so hard to solve incredibly difficult challenges to ultimately combat climate change and do all of the good that we're all trying to do as an industry for the planet. But really, whenever you start to see this, this just gives you gives you a little bit of a you know, a pep in your step when you're saying, alright, we've got we have some of the tools we have some of the momentum behind us to really continue to solve all these challenges and really make an impact.

Host: John Engel  49:18

Ben Thanks for joining us.

Ben Catt, Pine Gate Renewables CEO

Thanks, John.

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Host: John Engel

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Host: John Engel

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