B (4:00)

So in today's market, how do you, what, what do you think are kind of the most fertile areas for potential investment? And, and how much does the change in eligibility for investment tax credits and potentially no investment tax credit for solar soon change the way you guys are operating right now?

A (4:24)

Well, I'll, I'll, I'll focus into the word fertile. Right. You know, so to a certain extent, I guess if I were wanting to become a billionaire quickly, I would do take the Rick Perry route and you know, find a piece of land and then say I'm a data center company and become a billionaire very quick. So I think that that is fertile, I suppose. I don't know. But you know, I continue to think that in Solar the, the CNI sub 20 megawatt type of world is interesting and I think it's less about the projects, you know, if you assume that projects need to be built well, and that's your standard. I think it's really about the business that you run around in terms of expansion. One of the things that I'm really excited that we get to do with dispatch, which I think was sort of disregarded in the, I'll call it the ESG era, is for work of fuel cells and the opportunity of fuel cells and, and just generally gas powered distributed solutions. So fuel cells, CHP and the like. And so, you know, those, those areas. I, I continue to believe in the thesis that was the thesis that I went into the sector 2008 that you know, power at the point of consumption is good for everybody. It's, it's good for cost savings, it's good for utilities, it's good for customers, it's good for resiliency, it's good for communities and ultimately that's, you know, that's where we are. And I talk about this more these days, you know, having, you know, the 15 plus years, you know, for the first time we can really look at historical trends and meaningful way in this space. And being able to reference that has been powerful both in terms of the experience of the team, but also just markets and how things, how things could play. And then to your comment about the tax credits, you have to believe in the fundamentals. We had a lot of conversations with our investors when the negotiations on the reconciliation bill were happening and the whether we should continue to charge forward in our strategy or we should readjust. And ultimately, if you believe that we need the power, then TG needs to debark the solution. And so we maintain the conviction we took a good safe harbor position. But I personally believe that there, I think that the IRA was not particularly well written and I think that the reconciliation bill is an overreaction and that's what legislating democracy is sometimes. And I also believe that we, while all the tax credit, the end of tax credits is codified for the moment in the reconciliation bill, I don't necessarily believe they're done.

B (7:38)

So given constraints on transmission, given the increasing power demands, specifically in certain other markets, where do you think that places dg? You know, one of the things from, from my perspective, you know, being a lawyer, you know, I'm not looking at it from the same advantage point that you are. I always see these deals and I say these are tough deals because the transaction costs are high relative to the overall project costs. So you need to figure out some way to do them in a programmatic way, in a portfolio way to try to control costs and then bringing tax equity. But it seems in today's market that we need. Everyone's saying it's all of the above strategy. How, how is that impacting what you're trying to do? And what do you think the constraints and the increase in demand is going to do specifically for distributed generation?

A (8:38)

Well, look, as far as a transaction cost comment, you know, I continue to look forward to Norton roars rolling out profound AI tools to manage costs, which you know is going to happen. Right. I mean, it's just there's no world where the impact of that technology doesn't manifest in ways that can help these types of transactions get done better. And we're developing our own proprietary solutions that help enable our segment of that, that we can value. But DG is the conversation. I mean, if you even look at the pronouncements that have been made by the White House even in the Last week. TG obviously now means again, not the small deals, it means the power at the point of consumption. So the data center world, whatever you're feeling is on the AI bubble and the capacity of the data center system and its posterity. The solutions really will need to include power at the point of consumption. Dispatch is not shrugging off data center opportunities, but we're not. It's not a core sales and development focus for us just because we find that it's a very, very, I don't want to say over hyped market, but we find that it's a market where a lot of people are paying a lot of attention to it. And that puts us in a position where there's still a lot of other people who need distributed solutions that don't happen to be data centers. And I think that as you look at the Intersect transaction that Google just did, I think that there is a perspective. Sheldon Kimber is a great CEO in the space. I remember looking at PPA opportunities with hyperscalers and large footprints and looking at bids at $25 or $35 PPAs, and at a certain point you're just wondering, okay, well, if you believe in this sector, why, what, what Good is a $30 PPA Fixing your cost, fixing your revenue for 10, 15 years, 20 years when you've got inflationary escalators built into your model, which obviously all those inflationary escalators have turned out to be wrong in terms of the costs, you know, post Covid, when all the costs, the operating costs went up so meaningfully. So, you know, there, there will continue to be lots of opportunities in the data center realm and beyond. And I think it will, you know, as you, you mentioned in the question, right. You know, the transmission constraints are still going to be there no matter what. And you know, I think that obviously it's a different incentive environment and I think that utilities and PCs and ultimately the federal government is getting better at being able to think about incentive structures. And I think that that actually could manifest in greater distributed generation incentive structures. Because when faced with the prospect and the difficulty of building new transmission to serve aspects of the grid, if you could put a distributed solution in place, it's probably going to be a lot, lot less expensive. And I think that you're going to see a lot more thought and sophistication going into that type of policy design related to that.

B (12:12)

How do you deal with interconnection delays and are you seeing the problem getting any better or is it still the same, getting worse? There's all this demand for power, but we've got transmission constraints, we got interconnection delays. Like what do you, what's the market doing to. And the regulators, what are they doing to try to address these problems? Or have you not seen much progress yet?

A (12:37)

Well, look, I think it's easy to come down on the utilities and the grid operators as being a constraint in and of themselves. But ultimately, you know, regulated monopoly has. The main requirement of a regulated monopoly like a utility is to deliver reliability now. And when the interconnection discussions and problems manifest, I still believe in the good faith of people that are working there. They're really trying to make sure that as generation comes onto the system that the system can handle it in the right way. I've seen announcements from the hyperscalers that are getting into being able to leverage their compute and their sophistication and data to be able to help make those decisions get better. I mean, I think that AI is going to be a profound technology to be able to work on all sorts of different things, whether it's designing new medications or it's figuring out how to make this, how to do interconnection in a more sophisticated manner and a more efficient manner. And it's, it's not great, right? It's, it's, you know, we could, you know, we had projects that, you know, used to go through interconnection in, you know, 45 days, I think is my shortest one, maybe, maybe 60 on max. And now, you know, we see two, three, four year timelines, but I don't, we're seeing two, three, four year timelines in markets and areas where people want to put gigawatts online and you know, our 5, 10, 15 megawatt projects that we want to be putting on there going online with 500 others. And there is an analysis, there is thinking that needs to be done in order to do that. Right. I think that ultimately it will be on both sides of that relationship that there's going to be needs for more sophistication. It's not just okay, well here's a plot of land, let's throw some solar on there. It's okay, well how are we going to build better technical solutions that are going to be able to interact with the grid to support reliability. And I think it's hard. I think it will continue to be hard. I think that this is a multi decade endeavor and you just have to have the right type of investors and participants who understand how to think about it with a longer term perspective and how to be able to be collaborative with the utilities.

B (15:09)

What do you think is going to happen to construction costs and development costs? On the one hand, with some of the subsidy going away from the federal, being taken away by the federal government, people might sharpen their pencils. On the other hand, you got tariffs and you got incredible demand for the equipment. You got fiat. What, where do you see that shaking out and how does it relate to where you think the price of power

A (15:36)

is going to be? Look, it's an untenable dynamic, right? You can't say that you want low cost power and impose tariffs and FIAC and all these other other aspects to it that makes it both uncertain and costly in the event that it does manifest. So there's just, there's just work to be done and that's, that's the opportunity that I think is available to participants in the market that have a longer term perspective. I was just reading a great book called the Breakneck which describes the dichotomy with the Chinese engineering state relative to the American lawyerly state. And I think both types of cultures have a lot to learn from each other. But it's not good when you can just plow through and build whatever infrastructure you want, no matter the human cost. That's not a good thing. On the other hand, it's not good when you can't build anything. So it just, this stuff takes time and I do think that the conversations are definitely more dynamic. And it's not, it's not just about, you know, okay, here's a field, here's the panels and we're go, you know,

B (17:03)

so given that market dynamic from an investor perspective, where do you see it's easiest for you to deploy capital and where do you want to deploy capital and where can you raise capital from third parties to build out your own company?

A (17:20)

Right now the easiest place for us to look at deploying capital is in acquiring platforms that have operating assets and good people and development. That is the easiest place for us to deploy capital. There are a lot of platforms that are on the market, but I don't think that that's because it's purely here's an opportunity and go. I think it's ultimately a reflection of the need for good management and the right type of capital to come in and run these platforms well. And that's really where I think there have been a lot of problems that distributed generations face over the last four or five years. The sector got red, grey hot and just legitimately overheated. And so I think that that's an opportunity to deploy capital, but it's not for just anybody. You know, if you're a financial player and your, your desire is to, you know, write a check for, for a pref investment and then sit back and say, okay, well this management team can do it. They just, you know, they just, they weren't able to do it with the, the tens or hundreds of millions that were invested before, but now they can. Right? I think that, that, that is, that is a trap that people will continue to fall in too because ultimately you do need to have the right to the management team. And I do think that one of the areas of fault in this sector is that I remember three years ago I saw multiple platforms, people spending five, $10,000 to secure a land option and then turning for hundreds of megawatts and then turning it around and selling it for a penny or two. A watt of hope and a dream and succeeding and then it doesn't work. It just definitively has not worked out. And, and I think that that is ultimately the consequences is playing out in terms of the platforms and the amount of people who are exited the market is because it's not, it's not just, you know, the Brackawatts or the Braga gigawatts type of pipelines. You really have to understand how to run the team, how to think about your dollars, how to think about what the actual costs are that go into this model. I mean Excel models will do whatever you want them to do. They'll, they'll, you know, you can, you know, once upon a time I could, I think I could, you know, probably a model to do jumping jacks if I wanted to and you know, with whatever inputs you want. But if you're going to be honest about the, the inputs that go in, I do think that there is a fair and good way to continue to make returns here. I do think that, you know, what we continue to see are, you know, are instances where people, okay, well you know, there's a new set of curves that have been published and they show that in year 15, you know, power prices are going to be $500amegawatt hours. So let's, let's value it against that. Right? I mean if that's, if that's who is making the investment, I mean go sell the project to them. But, but again, I don't, I don't, I don't think that, that anybody who has a reasonable approach to being a long term investor in this is taking that as well as I think one of the things that's, that's important about Dispatch's position, and you do see this in the platforms. There's a, there is a major difference in the bid that, you know, when I talk to my colleagues in the industry for the platforms, where management has skin in the game, not only upside, but skin in the game personally, and that's reflected in this. And if you have management that has, you know, incentives around just growth, which is rare now on its own, but management that has a tender growth or short term profitability, those are the bids that we lose to. But when you have teams that have their own money in the game as we do, that makes a difference in how the bids and how the investments are made.

B (21:42)

So you mentioned technology several times more than most people that I've talked to in this business because this business tends to be very conservative. Since reliability is so important, as you mentioned earlier, what are you keeping your eye on in terms of innovations, whether it's operational, technical, or for that matter, financial innovations in terms of structures. And how do you think those will change the distributed storage deployment rate over the next, let's say, two, three years?

A (22:17)

Well, I think just in terms of technology, I think there's, it hasn't manifested widely yet, but the integration of storage is an obvious one. And the ability to leverage storage as a way of interacting with the grid, making your projects not only economically viable, but technically viable in terms of discussions of resource adequacy, curtailment and like. So, you know, that's, you know, that's it. It doesn't have to be so cutting edge in that regard. Right. I mean, a lot of the complaints around solar and the duck curves and everything else could be storage had been part of those conversations, then ultimately a lot of those problems probably wouldn't exist from a technical standpoint. As far as operational opportunities, we're spending a lot of time and money on trying to create efficiencies in our processing. And sometimes it's not the sexiest stuff, sometimes it's about rolling out an HR chatbot so that, you know, because we, we do a lot of hourly tracking, both, you know, from a capitalization standpoint and just a data pinch from a data standpoint. But we have to do a lot of reporting to investors. So, you know, how do we manage automating that reporting instead of having somebody who's, you know, salary, excuse me, is, you know, $100,000 a year and they spend 60 to 70% of their time just generating reports. Right. I mean, what can we do to attack Those issues, there's not a silver bullet. I think I've used this before, but I think, you know, with it, when AI was released, there was sort of this desire to make it the, you know, the ozempic of power of any of these type of corporate operations where, you know, you just, you just put it in and then suddenly it's going to solve all problems. It can and it will get better, but still there will be needs of experienced human capital. But, you know, we, you know, we are, we are implementing the operational building blocks to try and, you know, get more out of our team in a way that doesn't, you know, have them revving their engagement all the time at, you know, 110%. You know, we try to keep our team operating as best as possible at the sort of 85 to 90%. Admittedly, we're failing at that. But that's the aspiration, right? Because it can't just be that there is a linear correlation between the number of projects you do and the number of people you have, because the platforms will die there.

B (25:07)

So I guess you mentioned storage, which when you said that I realized I probably should have asked you about that earlier in the conversation. It seems to me like one of the solutions, one, you still got the ITC for storage, and two, you. I would think storage would be a fantastic complement for distributed solar. How big of an opportunity is battery storage or other types of storage for your business?

A (25:35)

Technically, it's huge. I think going back to what you said about FIAC and the uncertainty and the reliability of the storage assets and the warranty discussions and all of that, it makes it a big question mark. So, you know, I had made the decision, you know, previous iterations to basically stop selling storage as a, as a product because when we were talking to commercial customers, it was, you know, something like 90% of the conversation ended up being the airtime, ended up being capitalized on or not capitalized, but. But taken away some with, consumed with, with storage. And it was, you know, 10 to 20% of the value. So it just became this type of thing that became more of a developmental distraction. But on a technical basis, the opportunity is huge. And the ITC is somewhat, you know, the continuity. ITC is somewhat reflective of that as well as probably Elon Musk's vested interest. So that's a big part of it. But, but there are other technologies. I mean, we. So we just turned on our, our first Fiacel project, which is a 4 megawatt fuel cell in Bridgeport, Connecticut. The applicability of those Technologies also great. And one of the things that was a surprise in the reconciliation bill was that there's also a new perpetual tax credit for fuel cells at 30%. So again, I think solar and wind are bad words legislatively right now, but the momentum is still there in terms of the technical need and obviously the legacy development pipelines. But I don't see that going away. I just see it as something that needs to be discussed and evaluated as part of the broader technical discussion. I mean, I think while, you know, legislators naming bills is always a very political the inflation reduction act and the fact that there were tax credits in it, you know, it had a, you know, reductive capability in inflate, you know, in the inflationary measures of power. Right. So if you take 30 or 40% ITCs away, then that money is going to have to come from somewhere. Whether it's lowering construction costs or whether it's manifesting in higher power price agreement for power, higher PPA agreements. It will have the, the, I think the getting rid of those ITC is, will definitely have an impact on power prices going up. But the question is, can the industry come up with a more measured legislative proposal in doing that such that it's not such a massive burden on the US taxpayers? And again, this is not something that this industry talks about a lot. But there is no doubt that the IRA in many ways was a direct transfer of taxpayer foreigners from the taxpayer to a small group of developers, period, full stop. It was a major wealth transfer in them regard seeing development fees in the, you know, dollar plus a lot world that is not building more essential generation or for that clue generation that's making the generation that was already on the docket more profitable for a small group of people. And you know, I was a beneficiary of a lot of that, so I can't totally complain. But I was also surprised when the IRA passed and I feel like I was very surprised about what was in it as an American taxpayer. Some of the consequential aspects of it.

B (29:17)

All right, well, let me ask you kind of a concluding question thinking a more expansive view. You've been at this a long time. What would you say are one or two biggest misconceptions you think the community has, either the public or the investing community has about distributed generation and where distributed generation has come over the last decade or so.

A (29:47)

So I think the biggest misconceptions from the investment community is particularly the financial investor community, is that anybody can do it. And it's not, I think that people looked at the models for a long time, distributed generation was a premium return over utility scale. And that looked great from a project level return standpoint. But most of that value that was, that was created was at the project level, was very, very quickly alerted at the platform level and in many cases meaningful dollars cost. And so it is about the team that is doing it. And I know some of the most successful people I know at GE are smaller shops that accreted major generation in wealth by doing 20, 30, 40 minutes. And the misconception was, okay, well if you just got more scale and you could just deploy bigger dollars and there'll be bigger returns and bigger dollars and that's all you need. But there's a very, very different set of skills that are needed from managerial stuff. So I think that that's one of the bigger misconceptions for the financial community side. I think from the community side, from the true community side of things, this, this is really a major driver of economic stimulus into the communities. And you know, all those calculations on how many jobs are created and so on, it's, it's too opaque, right? Or it's, it's too, too much in the asset route. What is it is basic property tax recommend, right? There are more teachers that are in schools because of renewable energy projects. There are better classrooms, there are better roads. There are better, you know, better instances of community infrastructure that exist because of the economic development that exists there. And that aspect of the narrative I think is, is just lost. Oh, you know, this project will generate, you know, X number of dollars for the community over this, you know, 20 years. Right? It's just, it's too hard, I think for people to grasp what are you doing for real. And you know, I, I know that from a property tax perspective and the tens of millions of dollars that we've not only paid but will, you know, will pay and generated, you know, over the course of my career. That is a true community impact, that is making those communities better. And solar is not lowering your property value. Solar is not, you know, getting into your, your, your watershed. It's not doing any of those things. It is creating a benefit for the community. And so the solar development community is actually very ready to work with communities to come up with solutions, you know, to, to make it better. Not only economic, but, you know, from a visibility standpoint, from a technical standpoint, access all. So I think that that is, is the misconception. It's really just become this, this world where some of the money, you know, people drop a project in and, and you know, there's a ribbon cutting and sort of take their chips and they go home and they go to the next thing. But, but there is really an asset there that is benefiting the community. And I will tell you there, there are projects now and I'm, I'm seeing it as we, you know, you know, I'm looking at projects that, you know, we bid on, you know, at C2 when we're looking at platforms where I'm looking at the power prices relative to where they are now. And it's not a 10% savings, it's a 40% savings, it's a 50% savings versus what those customers would otherwise be paying for that same kilowatt hour today. And you know, I don't, I don't know that data is, is really out there effectively. People have, people were able to lock in power prices at very low rates in a low interest rate environment. And that is also. So I think that there are demonstrable community benefits that are there that are very tangible and just need to be talked. And yeah, I think that VG will continue to play a role. But I do think that, you know, and everybody says this and people have been saying this since the beginning of time with power generation. Right. You know, we just don't do a good job as a community, as a sector talking about this in a way that helps people outside of what we're what, you know, what our businesses are understated.

B (34:31)

All right, well, I'm glad today to give you a chance to give you a platform to get the word out. And I'm also hoping that the next time you join us is not whatever it is 250 episodes ago, you'll join us sooner, not make me wait so long.

A (34:45)

Thanks very much. Appreciate you having me.

B (34:51)

You can find us online at www.projectfinance law or send us an email at currentsordonrosefullbright.com Please rate, review and subscribe on Apple Podcasts, Spotify or your preferred podcast app.

A (35:04)

App.

B (35:04)

Our show today was produced by Emily Rogers. Stay ahead of the Currents.