A (2:45)

Well, I think that people underestimate what carbon credit markets did to their current job. Having seen an OBVA is a great example of another legislation, legislative change, another law coming in. In 2008 there was a law that was going to be Waxman marquee that was going to bring the US into the carbon world. It didn't. But on the other hand, the whole concept and the whole movement gave rise to the world of renewable energy credits and many, many versions of voluntary carbon credits which actually led the development of all the what we call energy transition universe today. And carbon, you know, very quickly post the fact that you never want to start a company during a recession. The only one in the last memory that we have seen it really converted into first brokering and now trading all energy transition commodities which are power capacity, LCFs, RINs, Reggie, renewable energy credits, solar renewable energy credits as well as carbon credits and many other flavors which all were designed by states to support some kind of the technology we're backing in order to do generation of power, generation of fuel storage and all of the above. And since I'm covering that, you know, we basically started, I started carbon and about three years into it also started Carbon Capital Markets which was a boutique investment bank where we started first doing a lot of, you know, sell side by side advisory which evolved into doing a lot of tax credit related, tax equity related advisory as well for a long time. And in that during those years we also launched the market data research company, well, research desk I should say, covering the pricing of all these projects, all the commodities that we were already trading, which became an unexpected interest to the wider market. And then around 2015, while sunsetting capital, Carbon Capital Markets to launch Captona as an integrated renewable energy or energy transition investment and operating company which we've been doing now 11 years. We also launched, actually we're spinning out a market data company on energy transition commodities as well. So now you have three different companies, one trading the commodities, one investing and operating actually close to 57 assets today, close to $3 billion of enterprise value. And we have a separate company that kind of is going to be launched in September around market data, AI driven market data with reality check we call it.

B (5:27)

Not bad since we were trying to do the first wind farm, huh?

A (5:29)

Yes, not bad, not bad. But if it wasn't for all the quote unquote super suffering that happened in the first wind farm. I would have never been able to suffer the rest of it.

B (5:40)

All right, well, let's talk modern times. So we got the reconciliation bill that passed and you've seen some ups and downs throughout the way here. To get to where you are now. How has the passage of that bill altered your at least short or medium term energy investment strategy?

A (6:02)

I'm probably a contrarian to the general view you have on, I would call it LinkedIn and everywhere else. I think we're facing one of the best markets. Ever since 17 years, I've seen what people are not seeing. Look, I mean literally I would say 17 years is eight different laws changing midterm or statewide or federal. I've seen literally eight different versions of it. And my view has always been, look, don't buy into the direct, the pendulum swinging your way or the other way. That's just one of the components that people forget. Federal investment tax credits was just what is just one of the pieces of the whole equation when it comes to building and capitalizing these projects. But you also have the other side of the equation, which is the revenue equation. Right. Would you think that cash grant made the solar better or is it the New Jersey solar Rex that made it better? Which all of them kind of went away after two, three years as well. And then you've had many administrations kind of touch upon it, not care for it or do care for it. Let's fast forward and look at this bill. Ironically, this bill said and sent a lot of messages, it said, look, we're aware of the fact that you need energy, electricity and then you need to store electricity and then you also need to have, you know, other sources of fuel like rng, no other administration. And I'm not picking one over the other. I'm just trying to make people see the big picture. You have some new things here. Like support for nuclear is not a bad thing. It's a great thing. Because if we're all really genuinely thinking that we need a good baseload and a good mix of energy, then why not have all of them supported in one way or another? Let's start there. I think to this day I haven't seen one person talk about hydro. And we looked into doing run up the river hydro, buying those projects back in the day. And now what we're thinking to do is repowering them. There's ITC for them now. And that's great because not only you're gonna actually help out those rivers and the aged out projects, but you can generate baseload out of them. That's good for everybody. There's no negative in that. And why is it that it wasn't covered before? It wasn't. And then there is the view that batteries were kept the same way with the ira, which sends a message saying like we're aware that we're not going to get the capital expenditures to renew the grid, but what we can do is we can put a lot of, you know, stations where we can store the, you know, batteries and energy in the batteries and, and the list goes on. I am aware of the fact that wind is struggling and that seems a bizarre one because the pushback for wind happened at the statewide level and that trickled up to federal and in some other places it's different. So you really can't tell what who's driving the bus there. I've been really confused about it. But I do think wind, eventually offshore wind, will come back. It's just not its time right now. And not to mention on land when it's not easy with the new turbines to bring them there. And then you have solar. The big question mark to me, what really what I perceive with solar, yes, the ITC is going away, but is it really going away? Because you're going to have two years of you can qualify which still the rules are being written, what that means. And we all know that two years is already a long time. Four years is an eternity. So we don't know what tax credit is going to come. But I wouldn't mind seeing a little bit of, you know, does the ITC benefit, does it really go immediately to the rate payer or does it go to the EPC or the price of solar? I mean you do see solar projects being built in Europe for 50 cents. Here we're building one and a half. I mean that's just a random two and a half, three times. So you know, when push comes to shove, people maybe will find the middle ground and maybe that's better. And finally like we did the math all day long. We looked at the demand, we looked at the supply, we said there's so much GE and Siemens are going to build in gas turbines. And I'm not even getting into who's giving them the interconnection. God forbid they can get one. But your only solution is this whole energy transition market. So as an investor, what do I think? I think like the misreading of the bill and the direction is making a lot of people run for the hills. And I'm saying we're doubling down tripling down. This is the best market you can get into having, you know, more healthy PPAs, long term contracts and maybe even an environment where you can get an electrician to build a power plant. I'm sure you can't, but this is kind of my view of it.

B (10:33)

So which areas are you less optimistic about? I'm not going to say negative because I've almost never heard you say anything negative period about anything. Even. Even as you. We were joking just as we were about to get on here. Some flavor of gelato. So where do you think you mentioned, for example, offshore wind maybe being on pause. There are some potential heightened scrutiny here of starter construction, some potential heightened scrutiny over projects on federal lands. What areas do you think are less worthy of your team's attention? Let's put it that way.

A (11:09)

I mean where we don't want to spend too much time because the outcome is unknown. I think it's the timing of things, right? If you look at components for solar and for batteries. So we'll focus on it, but we may check the ones where we don't have this issue is the components made in a dislikable country where we're going to face tariffs or some retroactive tax or anything like that. So I'm not saying we wouldn't look into it. In fact we are looking into solar and wind, sorry, solar and batteries. But are we looking with our strategy of buy and hold or are we looking with our strategy of preferred equity? So we have two strategies we didn't get into all depends. For instance, we were very gung ho about repowering solar farms, which I think is a tremendously good and a win win scenario. And we still have this concept called impact electron as the output out of that. But today I'm thinking maybe we wait and see for a year to see where the dust settles to buy panels and do these like more exotic projects which may have higher return. But that's where I think it's hard for natural gas. I think while there's all this support and the demand, even though it has nothing to do with the bill, is almost like the whole government is going to help out type of thing. We're staying out of it. My opinion is it's very hard to get a turbine. The price is already double, so stay out of it. Same with nuclear. Even though you're seeing a lot of support and even though we are actually looking at one very likable project, we're finding that it's a 10 year underwriting and going online and 10 years is a long time to see a COD. So that's kind of what I would say.

B (12:50)

How concerned are you about some of these technologies facing local opposition? You talk about development cycles for natural gas, for nuclear versus solar and wind or even battery storage. How much does the opposition from the communities factor into your thinking about whether you want to support it and how early in a deal would you actually start funding it? Or is it you would only come in later stage once you're pretty confident that the whatever permits are going to be needed will be granted or have been granted.

A (13:25)

So our business model has always been to stay out of development and we only come when we know that there is sufficient permitting in place and leases and a line of sight to interconnection and then we can get into all kinds of projects again like within our 57 projects and $3 billion worth of enterprise value. We have solar, we have storage, we have fuel cells, we have rng, we have microgrid. So the way I'm thinking about it is we don't want to think of that risk. We'll come in and pick and choose and work with anybody who has already worked with it. Now we can do the engineering very well internally, which we always do, and then we will build it out. We'll become a great partner to our own project. But we do stay out of trying to predict. I think developers, rightfully so, have a much higher risk tolerance and may have a much higher return. Our business is about deploying long term capital for the long term hold and it's a bit different place.

B (14:21)

Let's talk about that a little bit. You mentioned that you've recently got into the preferred equity game as well. So why don't you talk a little bit about one, the different investment strategies that you employ and then how this whole preferred equity structure plays into your investment planning.

A (14:43)

So we have two strategies. Thanks for bringing up. First of which is we come and we buy majority of the projects pre ntp, post development somewhere in there and we bring in our own talent. We bring our commodity desk to do the contracts. We bring our engineering desk which later on does the O and M. We build and we operate these projects. Obviously we do the finance structuring for our own selves and we own them and you know, for whatever's worth. We like sizable projects as well. And that's been the classical model. Now to your other comment, I'm going to say the following. Everybody else came to PREF Equity after we pioneered that. Then I'll stand behind that. Anyone in the panel and I'll say, prove to me that you designed it before we did. We did internally design the whole pref equity structure three or four years ago. As soon as Ira was like in the discussion, we said, this is a perfect strategy. But I have to say it's one of those accidental things where Twitter was created as an accidental tool inside a company. Well, we were trying to do for ourselves and understanding of how do we find the structure now that there's tax credit transfer where we can go out and get the same fair market valuation or same fairness if you want, in the market without having go having to go down the route of partnership equity, flip structure or inverted lease or lease back in all these names. And we sat down in a room, more like with one of. With someone person and myself actually. And I like this a lot. And after hours and days and weeks and spending a lot of money after we finished everything, we did call on to lawyers after we finished the structure and to the accountants and we vetted it out. And then I actually went to speak to all the other lawyers just to make sure that if we're going to face them on the other side, they know what we're coming. But I really did that. And then we started to do these deals and we did six, seven of them. And I think we're going to do a lot more. I mean, we already have three in the closing, but the whole purpose was for ourselves. And we realized that this is a great, great structure for the investor, the sponsor, the tax credit buyer. Oh, for the lawyers, it was the best. All of a sudden it was like businesses up 10x and no, you know, you don't have to take me for that. Really? Really. That's what we discovered. I mean, it's obviously after 10 years of doing tax equity structuring, that's how it occurred and we do.

B (17:10)

Do you want to get into any more detail as to what it is that you're actually doing besides just calling it preferred equity or because you spent so much time developing the structure, you want to kind of keep it as proprietary as possible?

A (17:23)

No, I don't think. Look, I. When you said it earlier on about entrepreneurship, people have this idea that entrepreneurship is about the idea. It really isn't. The idea is I can give you a recipe to cook the best, you know, whatever. Beef Wellington, which is a favorite dish of mine, and I have like 19 vers versions of it. And also Caciopep. It's really hard to execute on it. I mean, it's not like you buy the steak and Put the mushrooms and you add on the dough and put a little sauce, bechamel. And you're going to make it right. You got to sous vide that thing. And then caciopepe, forget about it. It's like you have to time it so perfectly. The pepper, the cheese, and the timing of that pasta. With that special pasta. Did you know that every pasta name comes with its own pasta like sauces? How are we doing on the food?

B (18:06)

You said you're doing well. I got to say, you've done the most discussion of dietary practices of any guest I've had on. And I've done over 300 of these.

A (18:13)

So there we go. But prep equity, look, we think like equity investors. We become like a minority shareholder in the projects. And our, our thinking was always like, we already are equity investors. Why don't I, Todd, become a partner in your project and you did all the work. So we'll buy in at the fair market value. But hey, like any other sponsor, you know that you don't think minority investors are fun. So you can buy us out in six, seven, eight, nine years, whatever it may be, that we will work it out and in return we'll have some seniority towards your college shares or whatever you want. And you don't just get us as an equity investor, you get us as an equity investor, as a commodity partner, as a operator, you get everything. So that's the difference. And we're not trying to sell or buy tax credits. We have tax credit buying partners and friends, but we even leave that open ended. So the beauty of our structure is we are a true equity investor. And we've discovered the pref equity investor that we wrote for our own projects. And then we turned it around and we said, let us become investors in your own projects. We know like a sponsor what you like and dislike. So we are true to its nature, preferred equity investor. And we look at improving everybody's proper returns is what we look for. So we do structure it where we come in, you know, with the agreeable percentages and not more, not less. Actually there's a sweet spot and the fair market value. We really, we are an investor. So we do that calculation and then it's fairly simple. I mean, you know, we have a, you know, a little bit of a bespoke distribution schedule. And we always give you the right to buy us out so you're comfortable and you know, you can get us out. And really I'm giving the big picture. But in that big picture, we've done every deal that's the other beauty. We don't just do solar. We did solar, we did batteries. And it's, you know, with the big players, you can see it like s Volta and UBS we announced and they were each 1 gigawatt batteries. So we've also done, you know, micro grids. We've about to do RNG because we're an operator and an investor and we know what it means to invest. We're not like a tax credit player type of guy. We're equity and we bring the others.

B (20:24)

Let me pick up on another statement you made during the earlier in the recording where you were talking about who captures the value of the credit. So and the fact that developing projects in the US typically is more expensive than other parts of the world, including Europe, where you would think it would be similar. To me, that was very interesting. When the IRA passed, a lot of the, I had probably, you know, being a lawyer, you know, kind of just taken the number and said, okay, now the sponsors are getting this windfall, there'll be a bunch of projects, maybe the price on the PPAs will come down. But you know, there's all this money coming in. Then within a week or two I started getting calls saying oh, now my, the EPC contractor wants more money from me. Now the module supplier wants more money because they, they can kind of see what the project can bear. You know, they have their own internal models. Do you think that as part of the withdrawal of some of the federal support that there won't be such a large change in one the pace of development in the renewable sector and even in the pricing because fair amount of that will be absorbed by other parties that had maybe captured part of that upside when the IRA was passed.

A (21:42)

Initially I do think that the pie has been shared amongst the many. So not just one party that said I'll increase the panel prices per se. I do think it's been captured amongst the many. There's one component that you have trouble reducing, which is labor cost. So you may see deflation of labor cost or paralysis on that level for a while, which will become deflation. But I do think that the price is going to have to come. I mean it's been too much anyway in some parts of the construction. So it will put more pressure on people who didn't have to bear that pressure. Like for instance, the interconnection cost came up a lot. And I think at some point people are going to say why is it that the cost of my power is only 30% something people don't know, but distribution is 70%. Why am I paying so much to the grid? And I think the pressure is going to be put on regulated utilities one to reduce also their charges because why are we paying so much? And I don't really know or not know but I do know that it went up a lot. The differentiator. The second thing is I think between areas where it had more it. I mean first of all we kicked the can, right? There's nothing that's actually losing support. Like if you and I, we both know that the next 10 deals you're doing and in one day it's going to be buying for the safe harboring of panels people are going to buy millions and millions and millions and then next day the 50 cent panel will go to 40 cent or 40 cent will go to 30 cent. That I think will be the first reduction. But I don't think you can actually reasonably lower the cost of. I'm sorry, reasonably lower the installations. You just. People are going to build them. I mean the guy says I'm building a meta says I will be building a high percentage the size of manner to. I mean and this is purely electrical. So you're going to need to build them at any cost. That's I think is going to require future. I mean we're moving away from what legislation is doing to you know, people have very short term memory data centers which are also known financial data centers of the past, AKA Bitcoin, which is still also growing, has become a problem before even data centers become a problem. There's a clear need for power across the board data centers plus financial crypto data centers. People are just going to build at some point at all costs behind the meter on top of that.

B (24:05)

So let me wrap it up so you can go back to the kitchen and make yourself some dinner. Probably getting hungry. This conversation in summary, it sounds like you remain bullish, which I wouldn't expect anything less of you. But which areas, especially ones that you haven't already dipped your toe in today. Which areas in particular do you like?

A (24:31)

I like hydro a lot. If I can get my hands on turbines, which I haven't checked yet. I think doing hydro is a great idea. In solar, I think the play is not. It's interesting. I think in solar there's going to be different opportunities to buy a solar farm just like that we used to. I think that's going to be very complicated to buy a solar farm. But there is a world in the solar world. The prep for me, the prep strategy. I think we have a lot of partners. We can be a good partner too. But for full acquisition, repowering, hydro and also another strategy we're thinking about is a combined power plant. So, you know, solar with battery with fuel cells. Fuel cells we didn't talk about. We are one of the largest fuel cell portfolios in the US and we are, I'm looking now to use them as a solution to this data centers. You do solar data center and modularly grow all of them or decouple them as time goes by or the grid gets to you to be able to do it. So I think those are the exciting areas. And finally RNG is where we're looking at. We are doing the world's largest diverted food waste RNG plant in actually right here in New Jersey. And all that food we talk about is going to become natural gas right there. And we're saying we can roll up more, build more, and it makes sense. And it was supported by this bill. I mean, there's a lot of surprises that nobody dares to talk about. If you, if solar got like the ITC extension for five years, there will be zero complaints about this bill. So that's what I would say.

B (26:02)

All right, with that, I'll let you go. Thanks for joining. It's great to see you. Although the audience can't see you, it's, it's for me, it's great to see you.

A (26:10)

Likewise, it's great catching up and we probably should see each other and more often than every decade.

B (26:19)

You can find us online at www.projectfinance law or send us an email at currentsortonrosefullbright.com Please rate, review and subscribe on Apple Podcasts, Spotify or your preferred podcast app. Our show today was produced by Emily Rogers.

A (26:36)

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