← Currents
Currents
Ep347: The Role of Distributed Solar in a High‑Demand Grid
00:26:28
Zaid Ashai, CEO of Nexamp, discusses how distributed generation and community solar can support rapidly growing electricity demand, improve grid resilience, and adapt to changing policy, financing and interconnection challenges.
Loading summary
Transcript26 lines
- [00:00]
A
Foreign. Welcome to Currents of Norton Rose Fulbright podcast. Today we're recording with Zad Ashai, CEO of nexamp. Nexham's a distributed solar developer. Zad, thanks for joining us today.
- [00:17]
B
Good afternoon, Todd. Thanks for having me.
- [00:19]
A
All right, so first I guess I said a distributed solar developer, but that's probably way too general for what you guys really do. Rather than me trying to pigeonhole you guys, maybe you can give a little minute or so explanation on what you think your role is in the value chain in the power generation business.
- [00:41]
B
Yeah, no, absolutely. So, Todd, we are a clean infrastructure platform company that is focused on consumer solutions both at the distribution level and, and the utility scale level. You know, we have made quite a mark on the community scale vertical. We are the largest community solar company in the country, but we definitely do much more than that. We have been focusing on storage, our utility scale segment. And I think what really weaves everything together that we do is we look at everything from an integrated lens. We have a development team in house, EPC team in house, ownership and asset management. And, and the focus is how do you sort of weave all those functional units together to deliver clean energy to customers in the most elegant fashion, the most high quality fashion, and the most cost effective fashion.
- [01:37]
A
So this is a little far afield from community solar, but I know it still impacts you. The biggest trend that we see in the business today, or at least one of the biggest, is the insatiable demand by AI facilities. How is that impacting the distributed solar market?
- [01:58]
B
Yeah, absolutely. So I think the insatiable demand from electrification impacts every vertical, whether it's residential, distributed utility scale, you know, a few things. A lot of this demand is also coming not only from data centers, but a lot of states are going through electrification mandates for transportation and heating. The way I sort of frame it is we need as much energy as possible, but we need it in a way that the grid can manage in a pragmatic fashion. And the unique role that distribution, the DG sector really plays is we're a distribution level asset that can improve the quality of the grid. Those costs aren't encumbered by the ratepayers, and it's a way to get load and generation together in a really quick manner. Obviously, utility scale generation has a much longer lead time. DG projects are a much shorter timeframe. So I think all these verticals are important. But the sensational demand requires all these verticals to grow dramatically in a fairly short amount of time.
- [03:06]
A
So even though you're not probably powering These thousand megawatt, 2000 megawatt data centers, how is it impacting what you're doing? Is it making it harder to get a spot in the interconnection queue or is it, hey look, we need every electron we can. Yours is as good as anybody else's. Let's you know, the more the merrier.
- [03:30]
B
Yeah, I think there's a few things may just to sort of step back. I think power sort of needs are universal across most of the country. So I think utilities, PUCs, PSCs are looking to get more power in the grid as quickly as possible in a way that's affordable and clean to the extent it can be. So distribution can play a really strong role in that. To your point, do DG projects connect to data centers? Absolutely not. But their partnership opportunities with the hyperscalers. So an example is Nexant partnered with Microsoft really to look at their rec procurement and you know, really partnering with us on the DG portfolio side across the country, which enables them to really focus on high quality recs based on their footprint. And I think this is going to be a model that you see more and more of. And we've seen some hyperscalers announce politically that they will look at community benefit programs with some of their scaling of data centers. And I think this whole community benefit with DG is something that I see customers finding attractive in certain use cases.
- [04:46]
A
So I guess what, the fact these data centers are now such big customers and that DG can't directly serve them. What's the sales pitch on the DG side and how does it in terms of a value proposition for the grid? And how do you get people, investors, how do you get utilities to focus on a 5 megawatt project when somebody's coming and saying we need 2,000 megawatts here immediately?
- [05:17]
B
Yeah, absolutely. So I think there's a few things. One is speed. DG assets can be deployed much faster than utility scale assets. Number two, the idea that size isn't there, I think is a bit of a fallacy if you look at it. NEXAM aims to bring in about 300 to 400 megawatts a year of DG assets online. And I was meeting with the center in D.C. and sort of, we were, we were going through sort of what we were doing and he said, geez, you know, every two years you're building a nuclear power plant in a much faster timeframe. So this idea of sort of speed and size I think are really important. And then I think lastly, it's no secret that the state of our grid is challenging. Across the country. DG projects are, when done right, are grid enhancing assets. And grid enhancing assets allows us to unlock electrification opportunities for heating and transportation and such, builds in resiliency. So these grid enhancing sort of assets are better for the grid, which are better for all of the consumers on it, whether they're commercial or residential. And I think that just plays a role which allows utilities then not to have to focus on certain things and they can focus on some of the large loads through AI.
- [06:40]
A
How about one of the things I thought you were going to say is that you can potentially be cited closer to the load as well, and there can be grid constraints. We know it's very hard to cite transmission, and we have transmission problems also that I would think DG could be a big help there too.
- [06:57]
B
Yeah, and Todd, you're absolutely right. It is, it is a big help because when you're closer to load, it's less transmission, less distribution costs. And I think it's just, you know, continually working with policymakers to make that case, because unfortunately, most utilities in the country are sort of, their compensation is based on capital allocations. And that's where I think the model can continue to improve. It requires cooperation between utilities, policymakers and IPPs, because DG essentially can defray your capital costs, given that you don't need all that infrastructure a large project would need.
- [07:37]
A
On the transmission side, how do you see things changing? We've been saying dg, dg, dg, but from what I know of NEXAMP is you guys are a big player in the community solar market itself, which is dg. But it's a specific type of DG that's supported by regulation and gives an opportunity for people like me, subscriber to community solar, people like me, to participate in renewables. How do you see that market transforming? You know, at what point do you get the saturation on new markets opening? Is it. Are we nowhere near that? I mean, what's the future look like for community solar as a way to promote distributed generation?
- [08:22]
B
Yeah, absolutely. So look, I think community solar as a construct will continue to evolve, and how it looks and evolves in different states is going to continue to change based on the needs of ratepayers and customers on the grid. I think, as everyone's aware, there were some really early large successes in the community solar market with states like Minnesota, Colorado, Massachusetts, Illinois, New York, Maine, among others. Now, I think as we see front of the meter systems that are connected to the distribution level, I think the Idea is as long as policymakers can construct policy where you can create good, stable, grid enhancing assets that create value for the grid, not only from a resiliency standpoint, but a cost standpoint, I think the future is very bright now. Do I think there's economic and structural opportunities to continue to expand community solar 2.0 or 3.0? Absolutely. Now the challenge really becomes rate design, policy engagement and sort of utility engagement. And I think one thing that does give me hope, I've been in this industry now I've been with nexamp close to 13 years. When I started initially there was a lot of friction between developers, ipps and the utilities in front of policymakers. Now that we have sort of this impending sort of demand shock from AI, the tenor and the cooperation between utility policymakers and the ipps are much stronger. I have conversations fairly frequently with C level execs at the utilities and you know, they're continuously brainstorming on how do we create these grid enhancing assets at a faster scale, just given that they're really under the gun. And for me, that, that I think gives me optimism that these future programs are going to continue to be designed to serve these customers in a way that is going to be cost effective and you know, creates a sort of more modern grid than what we have today.
- [10:38]
A
I'm not going to just let you get away with whetting our appetite there and saying you're having these mysterious conversations like can you share what type of reforms are potentially viable that are politically viable, that are economically viable, that could arise in at least some of the markets to help alleviate the, I guess, you know, the supply shortages that seem to be there that are causing increased pricing in the market.
- [11:06]
B
Yeah, no, absolutely. And there's no secret of these conversations. I've been pretty vocal, I think externally about what we're trying to push, the problem that we're trying to solve. If you look at installed solar costs in the US compared to the rest of the world, they are much higher for a number of reasons. Interconnection tariffs and a number of soft costs, legal and accounting as well, just baked in to a project costs. You know, for me, now that the O triple B has passed, it's really time for the industry to work with utilities to figure out how do we chop down these costs. Because the faster we do this, the more effective we will be and supporting affordable energy on the grid and allowing us to sort of make a stronger case to expand more and more markets. So for me, the utilities where we can work more effectively is on interconnection. Interconnection really has two issues that it's causing company like nexamp in the industry. One is time and the second is cost. If you think about it, with all these successes in certain states like New York and Illinois, among others, a lot of the key positions for quote unquote, easy projects were taken. And we're in a sort of in a phase in more than mature markets where interconnection just by nature is more challenging and you're having to wait for capital allocations on feeders and substations to happen before projects are viable. My big pet peeve on interconnection has been that the utilities generally have overbuilt interconnection for DG across the country. And the reason that is it's, it's a new vertical. When we go for inter interconnection applications, they're building a pipe that is used very infrequently at full capacity. And the reason utilities are doing this, they have to do this for safety. They have to do this for a number of reasons. But we're not thinking of interconnection from a flexible manner. We're not using storage to potentially disperse that energy over a longer period of the day. And the reason that that matters is if you do that, you can build a lot less infrastructure, have still have the same size project, but at the project level, work with the grid to figure out what the grid's constraints are and disperse the electrons accordingly. If you do that, you can dramatically cut down costs. So for me, pushing that with any utility that's willing to listen and any regulatory body to listen is really paramount. So that's one. Number two, as you can imagine, with the glut of projects that are interconnection queues, the glut of demand pockets that come from data centers, utilities are not staffed for this. And given a company like nexamp has the full engineering and construction capabilities, we're a big believer in self performance, meaning that companies like nexamp should be able to build up to the point of connection for a number of reasons. One is it's going to be faster. Number two, it's going to be less costly. And we've done a couple of pilots. I'll give a shout out to National Grid. And they've been very effective. We've proven that by large measure we have reduced the time to implement and we've also cut down the cost considerably. And this can all be done with, with union labor that the utilities work with, with the same safety standards, et cetera. That's a model. I think that's going to have to continue to happen. I wish it could happen faster, but that can continue to sort of reduce some of these costs into the projects. And then lastly, it's visibility working with utilities to work with the broader community about when they're making their capital decisions on upgrading the grid to doing it in a transparent manner so that projects can sort of develop in a parallel manner with them and they don't have to wait. So there's not this lead time of having those things approved and then projects going through their longer development cycle. So those are kind of some of the things that we've been focused on. The other area outside of generation is storage, using storage from ipps like us to defray long capital sort of with costs and expenses. So non wires alternatives again another, I mean National Grid is a utility we've worked for with where we built storage as a non wire alternative. And it unlocked a significant amount of capacity in a much shorter amount of time. So my hope is if we can continue to do some of these solution sets and they're proven, they're out there, we can be a lot more effective in bringing more power to the grid at a much cheaper price.
- [15:50]
A
So let's, let's talk about what it takes to actually build out these days. How, let's start I guess with how are you managing to deal with the fiat rules?
- [16:03]
B
Yeah, so nexamp's in a pretty fortunate position. So I mean, eight years ago, and this is well before FIAC was a thing or inflation reduction act, NEXAMP really started thinking about the ethics and sort of the viability of our supply chain. And an area that we grew concerned about is some of the manufacturing exposure to the Uyghur region in China. And for us, from an ethical standpoint, if we're doing good in our communities and building solar and LMI and black and brown communities, but using slave or forced labor, it sort of flies against everything that we want to do. So this was something our team really, really committed to think about eight years ago. And we embarked on this journey of sort of insourcing our supply chain and making as much of this as domestic as possible. So there were a few things we learned. One is the domestic supply chain was lacking eight years ago. And number two, the visibility of supply chains in Asia was challenging. It was really difficult to truly audit a supply chain and be sure where everything came from. So it was a multi year journey. And a few things we did is we lent our balance sheet and capacity to certain vendors that were committed to building in the US before the Inflation Reduction act to ensure that one, we could build modules and buy modules from the United States and number two, it allowed us to think about, given that we do engineer these systems, about how to build more robust systems that have a better LCOE sort of cost framework over the time. So sometimes building a module that's hail resistant or building a more robust tracking system will pay over the long term because we don't think about this as flipping an asset. We're thinking about sort of like how do you invest in capital most effectively so that the system performs best over a 30 to 40 year time frame. So fortunately we're at a point where all our major equipment is primarily manufactured in the US And I think for us FIAC became more of a administrative burden, as everyone probably knows. I think there was a 90 page document that was released from treasury and just making sure that we, you know, comply and we honor those commitments. But I think, you know, I'm really proud of our team was sort of eight years ago when it wasn't popular, it wasn't in vogue. We made the commitment to ensure that we could source from a robust US manufacturing ecosystem. And I think it is going to be important for a clean energy future is you can't not have manufacturing in this country. If we lose that completely, it's much more difficult to make the case for clean energy in various communities across the country because they do want to see those manufacturing jobs.
- [19:04]
A
All right, let me ask you a couple other quick things here before we wrap up. One is how do you think the solar industry, or especially the distributed solar end of it, fares in a post ITC world?
- [19:19]
B
Look, I think long term I feel very optimistic about our future, but you know, in the near term, in the medium term there are going to be some disruptions. I think the fact is when you go from a policy framework that is as robust as the Inflation Reduction act and then you go to a policy framework that in many ways is fairly reductive with the O triple B, it is a whipsaw and most businesses are impacted from that. That's just the reality. So a few things to note. I, you know that layered with a period of very low interest rates and then higher interest rates that came in fairly sort of coterminous with the changes in policy I think really creates a lot of challenges for the industry overall. So a few things I think one, as an industry we have to get leaner and meaner. The Fact is, we have probably too many players in the DG sector overall. I think one thing you're going to see in the near and medium term is consolidation. And I don't think that's a bad thing. I think for certain players, they probably built their platforms for a different outcome. And with these policy changes, I think the imperative is going to be being more efficient, being more productive, and I don't see any other way of doing in the industry without consolidation. I think consolidation is going to be really important. I think longer term, you look at the trend lines, aging grid PUCs and PSCs. Very skeptical about utilities spending a lot of money on grid enhancements. Utility scale project timeline's going to continue to move to the right. DG has a really strong role to play. I think DG players are going to have to continue to work with policymakers and utilities to evolve rate structures. So community solar rate structures that were relevant a few years ago may not be relevant a few years out. And as long as that sort of capability is there, I think markets are going to continue to open. You know, we can still deliver a lot of megawatts to the grid in a cost effective manner. And I think that sort of gives me hope. You know, I think, you know, the fact is with AI demand electrification of heating and transportation, which also really supports DG because that's going to create a lot of localized load that really creates a really strong, compelling proposition for the whole industry.
- [21:51]
A
All right, last question for you, which I'm going to have to make you promise you don't go on for 20 minutes because I'm sure you have a lot of war stories to share with us is what do you wish that the project finance debt community understood about your business better than they do? Because I know, whatever, I don't know the exact timeframe, but let's say seven years ago when I first started, or 10 years ago when first started doing DG project. Very hard to get financing and now there are many, but still not probably as liquid a market as you would like. So I'll give you the closing word here and you can give some advice to people in our audience here or in the finance market.
- [22:34]
B
Yeah, absolutely. Look, I To your point, Todd, I do think we've evolved quite a bit. I think we're much better than five to ten years ago in the financing and legal markets understanding dg. So a few things. I think the idea that DG projects should have a quote unquote risk premium to utility scale projects is an outdated construct. And for a Number of reasons. I think the idea is with DG projects like for us when we take a portfolio out to market, we can create geographic diversification, we can, we can create regulatory diversification, we can create customer diversification. That's very different than a large scale utility project. And for some reason I wish the finance and legal market appreciated that. I think some players definitely do. I think I wish more did. That's one number two, understanding sort of customer dynamics and rec dynamics. I think there's unfortunately been a conservatism with certain finance players on the risk. I think the reality is when you're in community solar, I'll just give you sort of a quick war story. I know I promised you I wouldn't go 20 minutes, but I'll try to go 19 is, you know, FICO scores were a construct that every finance player wanted before COVID and they looked at it as residential. We were committed not to screen any customers with FICO scores because we're like, look, if we're trying to bring clean energy to customers that can't do rooftop and we're screening them to be high credits customers, it's silly. And we made the case that any customer that is on a fixed income or low income is going to pay attention to energy savings more than a high income customer. Obviously it fell flat eight years ago, but we committed to it and we started working with community banks and regional banks, built that data set and we're able to convince now lenders like MUFG and Mitsui and Deutsche bank among others that they don't need FICO scores. So I think there's some of these idiosyncrasies where you know, my advice to the industry is show data and make this case with financing institutions. Make this case before you raise money. As Todd, I'm sure you can appreciate it's easier to convince a finance player when you have some time rather than when you have your backup against the wall. Continue to build those relationships and, and I do think we're going to get to the liquidity that we need for this market as long as private credit markets hold. And that's unrelated to DG versus utility scale. I think it's just a health issue of the credit markets, but I'm hopeful. I think it's. But it is an education process and it's also a process to ensure that they don't fear that this becomes a huge diligence exercise that is much more expansive than say for utility scale project. So one advice I also have for the industry is we we need to be better in organizing information, standardizing information as much as possible to ensure that finance institutions can build their allocations in a cost effective and scalable manner.
- [25:49]
A
You definitely did less than 20 minutes, so that's good. And with that, I'll leave you with the last word. Thanks for joining us today.
- [25:55]
B
Thanks a lot, Todd.
- [25:59]
A
You can find us online at www.www.projectfinance.law or send us an email at currentsortonrosefulbright.com Please rate, review and subscribe on Apple Podcasts, Spotify or your preferred podcast app. Our show today was produced by Emily Rogers.
- [26:15]
B
Stay ahead of the current.