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Ep324: Evolving Community Solar and Storage
00:30:49
Stefano Ratti, CEO of Chaberton Energy, shares how his team is evolving from solar-only development to integrating storage and navigating shifting market dynamics, tariffs and policy changes.
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Foreign.
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Welcome to Currents and Norton Rose Fulbright podcast. Today we're recording with Stefano Ratti who is the CEO of Shaberton Community Solar and storage developer in the U.S. thanks for recording us with us today here. I want to hear some more about what you guys have been up to. I know you got a little bit of change in business plan from what I hear. Looking forward to hearing about it.
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Yeah. Great being with you, Todd. Thank you for the invitation.
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All right, so first, maybe since I already spilled the beans here, maybe you can talk with us a little bit about what your business model is, where you guys operate and where you see the market going.
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Yeah, so we were born as a community solar developer. So we started our business in 2019, 2020 and we started in the mid Atlantic in Maryland and then since then we've expanded to some other markets. Delaware, Virginia, Pennsylvania, Illinois, New Mexico. So a few markets around the country and we've been focusing very much on community solar. So these are projects that are on the distribution system, 1 to 10 megawatt. Typically we've been pure play developers. So we do everything from land origination to permitting to engineering to community relationship and all that, all the way to to construction. And then we have not owned an operating assets up until now. And so this has been our model. We've been growing steadily over the past six years. We've actually made it to the top of the Inc. 5000 list for the last two years. So we've been growing the team and developing projects and bringing them to fruition. So with the you're asking about the market and the evolution of the market. I think for us the biggest evolution over the last few months and looking forward over the next five years is that we're really changing from a solar only company to a solar and storage company. So really taking the storage piece a lot more seriously and adding it to a lot of our projects and even going into standalone storage solutions. So that's really kind of in a nutshell where we're at today.
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B
You mentioned that you haven't owned projects. I've seen a lot of the kind of the build and flip developers over the last few years try to seek more permanent capital to try to own projects. What do you think the advantages and disadvantages are of that model? Why have you chosen your model versus trying to own projects long term?
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Yeah, there are pros and cons on both sides, so I don't think there's necessarily a right answer or a wrong answer for us. We're a relatively young company and we're really good at least I feel maybe I'm a little biased here, but I think we're really good developers. Right. We do a really good job in bringing the projects to, to the, to the construction finish, to the finish line to get the construction right. And then I think it's a really different skill set to actually own and operate projects. So I think part of it was that we wanted to be focused and wanted to do what we do well and really, really knock it out of the park in that, in that niche. Right. Then also there's different again. The pros and cons are if you do develop and sell, I think you have less need for cash. So we're able to, we got an initial investment from Greenbacker to quote unquote, prime the pond. But after that we've been cash flow positive. Right. So we've been profitable over the last four years. So I think that's a lot of benefits. We're able to reinvest into more projects and have a much, very solid foundation for, for our business. If you do, if you start to own assets, obviously you're constantly out raising capital. Right. So you need to. A lot of your focus, your lot of your attention goes to that and it's a, it's just, it's just a different mindset. That's not to say that in the future we may start to do that, but I think for the first five, six years of our existence, I think we've done really well in staying focused and really sharp.
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How have you seen the market for flipping assets? And by flipping assets, I mean selling either early stage or NTP ready assets change pre and post July 4, 2025. You know, now that we have more certainty, did you see the market kind of a little frozen in the first half of the year or did you. And now that we have more certainty kind of things change or how do you see the market evolving here in the last five months?
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Yeah, so first of all, I would say the market is probably still evolving a little bit. So I think from our perspective, frankly, we haven't seen a lot of changes. I think there's been a lot of question marks and all that. But the projects that we were selling the first half of the year, because they were pre big beautiful bill, anyway, those were not affected. So we didn't see any slowdown in that. We were able to close on a few projects in the first half of the year and we did okay. And then so that's, that's for that. And then for the second part of the year. We're out in the market right now with a few projects that we're selling as part of our business. Every few, every few months we put a few projects for sale and we're seeing quite a bit of interest. And those projects are going to be, are safe harbor. So they're still going to be ITC eligible and they're good projects. And we see, you know, we haven't seen a lot of changes. There are some, some players on the margins here and there that are like, well, we're not sure about the tax equity market. There's a lot of noise in the market. So maybe a little bit of a couple of players, maybe that pull back. But on the whole, I would say I think we see quite a bit of depth. So I think it's still pretty robust as far as assets.
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How do you see the competitiveness of the community solar or smaller DG market with given tariffs and just the other headwinds facing the industry?
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Yeah. So on the, on the, on the terror. So the benefit of the community solar projects, I would say when, when all these, this is true not just for this year, but also like three, four years ago when we had a spike in EPC prices, panels going, you know, up and down. Right. The benefit of the community solar projects is that there's a fair amount of margins in there. Right. There are smaller projects, but on a, on a dollar per watt basis, you got more room to play with. Right. So if you get a 5%, 5 cents a watt increase on panels or you get a 5 cents a watt increase because of a tariff. Right. It's not really a major, a major red flag for the project. Right. We're able to absorb that. It's a little bit different if you have a, you know, a 300 megawatt project and the margins are really thin on a dollar, what basis? If you move like up and down by 5 cents a watt, that may be, that may be the death of the project. But it's not the case in our, in the community solar market. So I think, I think in that respect, I think we're able to weather the, we're able to weather the storm, so to speak, pretty well. Also what we're seeing, you know, frankly, we get the benefit of the higher rates on the other side. Right. So because we're not locked into PPA's, right. In Maryland, we're seeing increases of 10, 15% a year for residential rates, which is what we're put, what our projects are penned to. Right. So then you see Also the upside of that. Right. So I think it's the grand scheme of things. I think the economics right now are not that different. Despite everything, you know, despite all the generation in the, in the marketplace, I think we're still kind of like in the same spot where we were a year or two ago.
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Yeah. To me it seems like not being locked in, in pricing has always made it more difficult to get long term debt financing, but it's definitely lower your risk because you're not locked in to an offtake price that doesn't work when your cost structure goes up.
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Yeah, I mean it was true a little bit like a few years ago, I think there was. The financing parties were a little bit more unsure about Community Solar. It's a new model, it's all that. But I think over the last three, four years I think everybody's gotten quite comfortable. And also, yeah, again it's, you have diversification. Right. So the things that were actually problematic before of like wait, you don't have a credit worthy commercial industrial customer or like a large off taker. And then initially that was a problem, then it became much less of a problem later because you kind of realized, well actually I don't have all my eggs in one basket actually. That's good. And then you realize, well actually if the rates are going up, I get the upside of that too, so that's great as well. So I think the financing parties have become over the last few years quite comfortable with Community Solar. At least that's, that's what we've seen.
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So yeah, you mentioned that you received some financing or equity contribution from Greenbacker to get yourself up and running and be able to expand. I don't know if you've had to go back to the market again to raise more capital. I'm just wondering what, what, how receptive and how easy you think it is for the smaller developers who are looking to implement a model like yours is to attract capital and grow. As I mentioned, it seems like a lot of people in your shoes have tried now to actually own assets longer term. And I know so far it sounds like you've shied away for that because you're not in your core competency but wondering how the, basically how you feel the markets are looking at your company.
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Yeah, so, yeah, so we raised the capital from Greenbacker back in 2020, which was probably before some of the ups and downs in the markets, I guess, but, but that was, that was, at least for us, that was a good time to raise development capital or corporate Capital at that point. Since then, I mean, we really haven't had to necessarily go out and raise capital for development. We've thought about doing more of a corporate transaction. And so we've explored the markets a little bit, like towards the end of last year. But I think that's what we've seen is that there have been, after the elections and with the uncertainties out there, definitely there was a little bit of pausing from a lot of investors and they were like, well, we're not sure exactly what's going to happen, so a little bit. So we didn't push it too far. Now it seems to me like maybe TBD to be confirmed, but I think at this point, seems like there's a little bit more clarity, at least for good or for bad. The Big Beautiful bill was passed. Right. So we know what's in there. At least that's certainty. We know what the treasury action was in August, so I think there's a little bit more certainty.
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So you mentioned recent legislation. I'm wondering one, how that's changed your overall thinking in terms of constantly having to readjust and calibrate where you're going, given the market changes, because this market constantly keeps changing. One thing you specifically mentioned was energy storage, so maybe we'll start there. The energy storage, at least for the tax credit side, did better than wind and solar.
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Yeah.
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What do you see for the future for you for energy storage for either with your distributed generation on the solar side or just on from a standalone basis? And is that. Are you more bullish on it now, given the certainty around the tax credit?
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Yeah, yeah, for sure. I think we're already going in that direction of doing more storage because I think that's a logical evolution of our market. Right. We need capacity more than we need energy. So certainly battery storage is the solution, the prime solution for that. And so we need to do more of that at the utility scale level. We need to do more of that at the residential level, and I think we need to do more of that at the distribution level. So that's. That's where we play. Yes. With the. With the Big beautiful bill having effectively preserved the tax credits for battery storage, 2032 and beyond. Definitely that was an opportunity to speed up. Right. To speed up our transition and to actually do even more of storage more quickly. So, yes, that's where we are. You constantly have to. This is the solar industry, right. Or the renewable energy industry. We constantly have to adjust and see it's a rapidly evolving industry. It's not quite mature Yet. So, you know, this was just another, another piece of that, of that adventure.
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How are you finding your ability to secure fiat compliant equipment? Because I would think that the sudden shift in the market would create a big demand for certain suppliers and that might make it different, difficult for somebody who's not placing billion dollars, billion dollar orders.
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Yeah, that's a good question. It's one that we're working on. Frankly, we don't have all the answers right now. So we're relatively new on the storage side, so we don't have a lot of mature projects at this point. So I think if you have mature projects today, right, or maybe early 26, that's where you're going to feel the hit. Right? Our projects are more like 28, 29 maturity date. So I see two paths, right? One, either between now and 2028, some of these FIAC issue issues will have solved themselves or either because there's more availability domestically or there's some adjustment that will have been made. Right. That's option one. Option two, I also see some people are talking about like, well, you know, there's. You may. Because the prices of storage is going down, the cost of storage is going down significantly, you might just forego the tax credits altogether and decide to go for the cheaper option. Right? You don't have to deal with all this fiat stuff, you just get the cheaper option and then probably economically you're going to come out more or less in the same place. Right. So I think we don't have everything solved right now, but I feel like there's a path. Right. And again, we don't have to build projects in 2026 as far as storage goes. And so we have a little bit of time to figure that out.
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What other changes or adjustments did you have to make in your business model because of changes in recent legislation and executive orders?
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Yeah, I think, I think definitely a lot of attention this year has been on safe harboring. I'm sure I'm not the first one to tell you that. Right. So we had done before safe harboring with transformers and so we did quite a bit this year. We completed a few right before the end of July. So actually the timing was great. At some point during the negotiation, a big beautiful bill, it seemed like our timing was off, but at the end of the day we're actually okay. And definitely we're preparing to do more, more of that over the next 10 months right before July 4, 2026. So that's definitely a renewed attention to that. Also we paid a lot of attention to. Okay, well let's, let's, let's be clear, right? The tax credits are going away. They were always supposed to go away. Right. So we look at new projects, right, and think about like, okay, if these projects is not going to be within the window that is going to be ITC eligible, then what is this going to be viable or not? And frankly, we had to, we pulled back of a couple of markets that were a little bit more marginal because we felt like, well, if we originate projects now and they're not going to be ITC eligible, I think the economics are not going to be quite there, at least not in the short to midterm. But most of our markets, like Maryland is our primary market. For example, we see that like now that we have a little bit of Runway with the safe harboring and coming into 29, 20, 30, we see the adjustments in the market are going to be sufficient to make projects economically viable even without the ITC at that point. So we continue to, you know, we've done a review of all the projects of all the markets and we continue to be aggressive in the markets for which we see, we see a future. And then in some other markets, maybe we, you know, we're going to, we pull back.
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One of the things that I always liked about distributed distributed energy is we have such problems. One with grid interconnection transmission constraints that especially if you're adding battery to it, seems like such a natural solution for the right spots. Obviously not going to work everywhere, but in many places it seems like a very nice solution that gets around some of the other inherent infrastructure limitations we have.
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Yeah.
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What do you think about the level of support you're getting in the states you mentioned? Maryland is supportive. Are there enough support mechanisms within the states to either counteract what has happened on the federal level for solar, or maybe even allow distributed generation to blossom even more and do even better? What markets do you like and where is DG getting good support at the state level?
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Yeah, so some of the markets that we like quite a bit are Maryland, Illinois and Massachusetts. So these markets, they have quite a bit of support for renewable energy and distributed energy specifically. All three of them in some shape or form have taken some action in the last couple of months to try to understand what they can do to help developers close the gap that may be caused by the itc. Right. Maryland actually had a hearing a couple of weeks ago and we testified the hearing, we provided material specifically around that question, what can be done? And there's a lot of Things that can be done that are just not economics. Right. Speed of permitting. You mentioned interconnection. Right. There's a lot of things that can be done that not going to cost them really anything. But if they can help us speed up the projects. Right. At least we can get those projects, like I said, in that transition zone. Until then, rates and other factors catch up and allow us to do projects without the itc. So we see quite a bit of support. I think other states are doing that too, and maybe we're a little bit less active. But New Jersey is another one where I've seen a lot of, a lot of positive momentum. Right. And so the states are trying to figure it out. And frankly, I mean, if you look at the history of Shabbaton, we actually were, we started out during the previous Trump administration and one of the, one of the things that actually prompted the birth of chapter was that the states, we saw the states being so supportive of renewable energy. We saw Maryland in 2019, they passed a really aggressive renewable portfolio standard. Virginia in 2020, the, the VCA and then other states. Right. So they really did step up. So I'm, I guess I'm always maybe half full, the glass half full kind of guy, but I think, definitely, I think that we see, we see, we see the support from some states.
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Well, you better be an optimistic guy if you're a developer. I don't think I've ever met a developer who was not optimistic. So let me end on that theme. Where do you see. Well, actually, I got two questions for you. I have another one before I let you go in terms of cost structure going forward for distributed generation. You know, one of the knocks on distributed, distributed generation is transaction costs are high, even just overall costs are high, as you mentioned, you know, there needs to be more cushion in there because of that. With some of the subsidies going away, do you think that will put downward pressure on prices because the, some of the larger guys won't be able to pay for these, the larger cost per kilowatt, which would then bring down costs or do you think that the tariffs basically will counteract all of that and prices are going up regardless? Basically project cost, cost to build are over the next couple of years headed higher.
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Yeah. Well, I don't make a lot of projections, especially about the future. But, but I would say. So the economics of the projects may evolve. Right. To the extent that they stay the same, I think the price that, you know, the buyers are going to pay will probably stay similar. Right. Everything else being equal. Obviously a Lot of moving, moving, moving parts. To the extent that there's a little bit of downward price pressure on the economics, I guess definitely it will be important for developers to become more efficient. I think there will be a move to become more efficient and I think it will be the less efficient developers, the ones that have lower conversion rates and are not able to bring the projects to the finish line quickly. And I think some of those may go away, which is part of the market. Right. This is part of, of a competitive market and it should be that way. So I think we continuously push ourselves to be more efficient, more effective. We pride ourselves that like in Maryland we've actually had a 80% conversion rates of all the projects that we've initiated, which is unheard of in the industry. And I think we've done it because we've been very disciplined and focused on finding the right side. First of all, understanding where to originate projects, being in the community early on, which is another very important thing. Right. So make sure that like you have the buy in from the community so that you can get the permit to the finish line, you can get the interconnection work with the utilities. We're very diligent on the engineering side to make sure that we get the maximum value from the project. So we do all those steps like very, very. We painstakingly, we put a lot of effort into them and, and that allows us to be, to be efficient and effective. Right. And so I think that's going to be even more important now if there is downward pressure on some of the economics in some markets to, to, to, to be successful. So I think that's, that's what we're looking at. So.
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Yeah, so I was, I know you answered the economics, you know, basically profitability of the projects, but I was asking a related question which is really just the costs of the project. Do you think construction costs.
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Oh, I see.
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Equipment supply costs. Do you think those are headed up? Obviously that impacts how, you know, the cost side. So the revenue side, you know, depending how much it keeps the pace, would impact how thin the projects become. But what I, you know, my thinking is that some of the counterparties will lower their prices given the lack of subsidy. You know, they're going to have to get more competitive also. And so we could see some downward pricing in some types of, some of the businesses. But I also know that for the imported equipment, they're now facing tariffs. So I was wondering, net, net where things would, where do you think things will pan out?
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No, no, you're right. I think I, I think, I mean, we saw the flip side of that, right, when, when the IRA was passed, right. Or in the last few years, you know, all the prices there have been a lot of like, we used to pay less for. You were talking about installation costs, but we used to pay less for leases, right. Land prices went up, right? Installation cost went up. Everything went up because there's, there is a. The projects are rich because of the, because of the incentives. So a lot of that, A lot of those incentives, though, leaked, you know, away from the, from the developers. So I think it's Economics 101 that, like, if you take those, those incentives away, right, Then some of those costs will readjust as well. Probably land prices will go back down a little bit, installation costs will go back down, equipment costs will go back down. So I think that's something that will help recalibrate also. If you give it a little bit of time over the next two or three years, things should recalibrate then. I think also at the EPC level, which is the biggest cost of a project ultimately, I think there may be maybe in the short term that actually it may go the other way because to the extent that projects still are ITC eligible and there is a little bit of a rush to actually complete projects before the 2027 deadline or before the safe harbor runs out, then you may see a little bit of upward pressure on the, on the EPC prices. But then after that, I think there may be an adjustment there because especially maybe on the utility scale level, maybe there are some players that may, they may be pulling out a little bit, so there may be a little bit less demand, and so the prices could readjust again, I don't know the future. I mean, and as we know, obviously there's so many factors, right. So we'll see. Maybe we'll catch up again in four years and see where we ended up. But I would say, yeah, maybe there's a little bit of debt up initially and then maybe an adjustment down. Right. I think it's. Again, it's economics, right. It's the law of economics. To the extent there's maybe a little bit less demand and less incentives in place, then prices will readjust.
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So let me. I can tell by the way you answered those last couple questions that you're not somebody who likes to make predictions because they're always the very.
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Well, I just did, Right?
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Yeah, you don't like it. They had to relate reluctantly, pull it out of you. But I'm going to try to do it One more time to end this podcast in terms of where you see the mix for distributed solar and storage in the next few years, and I'm not talking more than a few years out because one, as you said, obviously nobody knows and two, the farther you get out, especially if we get to another administration who knows what the policies will be. But let's just say through the end of the Trump administration or so, do you see there being any big change in kind of the overall mix both for solar and storage vis a vis utility scale versus distributed generation? And then just generally as people are looking at least, and there is definitely some activity, more activity on the natural gas side and people looking at nuclear and other options if how that will potentially change people's willingness to sign up for solar.
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A
Yeah, so I guess you have a few questions in there, so let me try to unpack that. So the first one I guess was the question about utility scale versus distributed generation. Right. So I think there's definitely a need for utility scale and there's a need for distributed generation. Distributed generation is quite beneficial though in the sense like you can, it, you really can, can help the grid. Like you don't need to build transmission, you can avoid the transmission cost. And you know, we've seen in some places how difficult, if you think it's difficult to build a solar project, try to build a transmission line. Right. I mean, where you actually touch so many, so many pieces of property, so many, so many citizens. Right. So that's, it's so definitely distributed generation has that advantage. And so I think it will continue to be a significant part of the mix and maybe tilt a little bit more in favor of distributed generation versus utility scale, even though utility scale I think will continue. So, so I think that's, that's, that's one piece of the equation. And then I think what was the, what was the second part?
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Just on the overall mix of what the generation fleet's going to look like of new installed capacity here over the next few years and also not obviously we kind of know what's going to be installed because of such a long lead time, but really what people like you are going to be looking to develop. Like am I going to be having a podcast with you in three years and you're going to be saying we're community solar plus nuclear, we design gas fired peaker developer.
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Yeah, I mean, frankly, look, you know, we kind of laugh about it, but I think we've, we actually look at all those things. I actually personally used to work in the nuclear industry. A few years ago. So I have that, I have that knowledge as well. And I think nuclear is great, I think is a great, great part of the grid, frankly, when you look at the, for, for gas too, but especially for nuclear. When you look at the lead times though, I mean, it's kind of hard to believe that nuclear is going to be a significant part of the mix anytime soon beyond what it is now. Anytime soon. Right. As far as new construction and gas, I think obviously there's a lot of, there's a lot of benefits coming from gas, especially in this environment. And so I think, I think there will be more gas that will be built, but same thing, right? I mean the order of Torbit are five, seven years out, so it's not going to be quick, right. So I think solar storage is going to be huge, a huge part. And sometimes I like to make this analogy, I don't know if it makes sense to a lot of people, but many years ago, I don't know if you remember, there used to be concentrated solar power and PV. There were the two options to do solar. This was back in the mid 2000s, right. And I actually worked at a company that was doing also concentrated solar power. And we thought like this makes a lot of sense, right? However, eventually PV won because we were deploying PV and we're not deploying a lot of CSV, a lot of concentrated solar power, right. And so we were able to learn and improve and write down the cost curve very fast on pv and concentrated solar power could never catch up. So I see a little bit of the same dynamic here with, with nuclear where when you look at nuclear today on paper, it makes a lot of sense, right, Actually. And you can say, well, yeah, if we, if we build enough, you know, we'll be able to get the cost curve down and everything. It's baseload and all that. And solar plus storage, yes, it's great, but it's not perfect because, you know, maybe storage you can only do for four to six hours, right? But what we're doing today, we're building solar storage. So we're learning a lot. And so we're going to, we're going to go down the cost curve much faster than nuclear. So if you look out five to seven years, my guess is that it's going to be solar power. Storage is going to be the main solution. And yes, there will be gas for sure. There'll be some gas, there'll be more gas than today and there will be some nuclear too. But I think it will be, it will be limited. So there you go. I gave you a, gave you a projection and prediction. So.
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B
All right. Well, thanks for humoring me and thanks for joining us today.
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A
All right. I appreciate it. Thank you, Todd. Have a great day.
- [30:18]
B
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. Stay ahead of the car.
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Sa.