← Currents
Currents
Ep358: Rethinking Energy Affordability and Resilience
00:29:20
Jon Powers, president of CleanCapital, discusses energy security, affordability and how distributed solar and storage can strengthen a more resilient and diversified US energy system.
Loading summary
Transcript35 lines
- [00:05]
A
Welcome to Currents, a Norton Rose Fulbright podcast. I'm your host, Jim Berger. Today we welcome John Powers from CleanCapital. John, welcome.
- [00:14]
B
Thanks Jim. Thanks for having me.
- [00:15]
A
Yeah, our pleasure. So John, you have a pretty unique background. I was hoping you could share a little bit about it and would like to also hear about your role at CleanCapital and what clean capital does.
- [00:25]
B
Yeah, absolutely. So it's. It depends if you want the short or long version, but the shorter version. Grew up in Buffalo, New York. I went in the army after college and like many folks who've served in the military, it was a life changing experience. Spent some time in Iraq in the early part of the war and that's when I first got interested in energy. Came home and sort of worked on first energy and then later climate from a national security perspective, which led down the road to a job at the Pentagon where I served as the first special advisor on energy to the Army. So I think the Army's got three times the square footage of Walmart, but had no strategy on everything from energy efficiency to electric vehicles to renewables. We sort of created that program that led to a role at the White House where I was President Obama's federal Chief Sustainability officer. So similar role but across the federal footprint. So everything from renewable energy and GSA buildings to how we're composting in VA hospitals. Right. So it was a really amazing wide spectrum of issues. And along the way we got really interested in the idea of sort of third party financing clean energy projects. But also along the way I spent a lot of time outside of the White House in Silicon Valley and in Austin and New York and got very interested in innovation. Ended up going first to a company called Bloom Energy through the venture capital firm Kleiner Perkins, who I got to know fairly well through my experiences to traveling out there and then met my co founder of Clean Capital, Tom Byrne. His brother in law and I served in Iraq together. And Clean Capital in this early stages was Tom's idea. We sort of try to really navigate how to make this a reality. And this is over 10 years ago. We just had our 10 year anniversary, but truly there was two years of work ahead of that. Just trying to build a business model, raising money now. So I'm the president and the co founder, I sort of oversee the business development side of Clean Capital. But what we do is we are in what's today known as an ipp, an independent power producer, but that didn't really exist in the solar space 10 years ago. We are backed by a firm called Manulife Life Insurance company out of Canada through really John Hancock in Boston, we've deployed nearly $2 billion in what we call the middle market. We're not doing resi, we're not doing large scale solar utility itself. That terminology has changed so much over the last 10 years. But we think of that middle market, community solar behind the meter, mush offtake. And we're in 26 states, we've got over half a gig and growing when we started. The goal of clean capital is trying to bring down the costs of capital into the asset class. So you think back 10 years ago is high cost private equity. As we've built, we've sort of focused on operating assets for the first really five years of a company like we were basically a private yield company buying up operating assets. And then about five years ago we started to get into development and community solar and storage. And that part of the company has really ramped up over the years. We're still very heavy and M and A company, but our development arm has gotten much stronger. And we do that truly by partnering with developers in these states as projects are being developed. And clearly the whole conversation how that market has changed in the last few
- [03:33]
A
years alone, that's really interesting. Well, I'm going to get back to clean capital and what you guys do. But before that I want to talk a little more about, I guess, energy independence, energy security, because I think that kind of plays into where we are today, not just on a global perspective, but what's happening in the US energy markets. So can you talk a little bit about how your time as an army captain in Iraq and as the federal chief sustainability officer under President Obama, how did that shape your view of energy independence, energy security? And also I'd like to kind of delve into kind of the difference of those two as well.
- [04:10]
B
Yeah, well, first of all, it's completely shaped it. I mean the reason I even got it, I was an elementary education major. I all of a sudden was a mayor of a 50,000 person sector of Baghdad at 24 years old in 2003. And you know, there are two big things that sort of shaped my experiences there. One was the simple need to bring in fuel trucks to fuel everything we were doing. Right. And there was a very famous memo written by a general during the time of Fallujah asking the simple question of like why can't we get solar powered generators? Literally these fuel trucks are costing us lives, right? These convoys. So that is a core experience of mine which I didn't truly understand until I got home and really unpacked it. The other part was I ran in my sector of Baghdad, there was a propane station and you know the stuff we use for our grills, those cans, that's the major heating and cooking source at the time for a lot of Baghdad. And the infrastructure, you know, we have natural. Think about you turn on your oven or your stove, it's connected to the infrastructure, right? That wasn't existent there. So Saddam had held all those propane tanks for the war. And all of a sudden when we came in, there was a complete and utter lack of support to get them out. And I had one of four propane stations in all of Baghdad. In my town, this town of Baghdad I was in charge of it was the major focus of what I did for multiple weeks was trying to create a rationing system, trying to keep riots from happening, trying to break down a black market. Also people could get the sources of energy that they needed to feed their families. So that stuck with me. So when I think about energy security today, it's funny, I've been working on this issue now for closing in on 20 years and all of a sudden the straight of hormones is something anyone could find, but three months ago most of the world didn't know. And it's understanding energy as a global marketplace, both transportation and oil, but also electricity. And I think what we have today is two very interesting competing dynamics that are going to change, but also create opportunity in this space. One, for a decade we've been undertaking an energy transition. All of us work in it. It's something that we all care about. But never before has the affordability of electricity been a top tier election issue. And it is happening right now. We as an industry could not have created that landscape if we tried. The question is, what do we do with that? That in parallel to now the war in Iran causing gas prices obviously to spike. So at kitchen tables today, energy, whether you think electricity or fuel for transportation is front of mind for a lot of Americans. So truly the question is like, what do we do about it and how do we then create true energy stability, security, resiliency, right amongst, not just for us, but I think globally. You know, I think this is a conversation that will continue very heavily right now. And you know, we can't let this crisis we're going through honestly go to waste. Like we need to take advantage of creating a new structure around it.
- [07:22]
A
I agree. It's interesting. The gas prices and the war in Iran and everyone has seen gas prices spike reminds me of what happened 20 plus years ago. But that has. Oil has very little correlation to electricity because we burn very little oil to generate electricity in the U.S. but we've also seen electricity prices spike largely because of the huge demand from AI and electrification. Talk a little bit about how, you know, why the record domestic oil and gas production, you know, doesn't really impact energy affordability, you know, I guess really in both electricity and also the oil market. I mean, we have record gas prices despite record oil production.
- [08:06]
B
Yeah, record gas prices. And I think, I think often we think of this as a domestic issue, but it's a. Because oil is a global marketplace, you know, no matter how much we're producing, it's happening and managing in a global space scale. It's really hard to unpack this in a simple way, but there's so many factions to the way we should think about energy security. So when you think about people think the straight hormones, the shipping containers are a huge issue, right. That most, that doesn't come to the U.S. most of that's going to Asia, China, the islands, India, you name it. Those places like. Well, we are not. We, we are paying, you know, maybe $5 right now or 4, was it 440 today for fuel. Their entire economies are crumbling, right. Because they can't literally get enough to drive their economy. So that's going to impact much larger than our. Just our energy pricing. Right. It's going to affect all of the economy. But that's really complex and you don't want to spend too much time on that. There's also the natural gas component of this and the LNG component. So while we are producing oil, we're also producing high. So liquefied natural gas, the transport is very complicated. Right. And while we are ramping up our ability to create that infrastructure here at home, a major part of what happened during the war is that infrastructure in the Middle east was struck. Right. The Iranians are literally flying drones into LNG facilities that are going to take years to get back online. So that does affect electricity prices and it affects the cost of natural gas. So like as we are ramping up our exports for natural gas, a lot of our electricity today comes from natural gas, right? So those prices will permeate throughout the electricity grid for a significant amount of time. The oil component of this, the complication I think around the oil component is one, I think we're going to find new ways of moving it around the world. Like the Strait will become less critical for sure. But the same point, what we're seeing other Economies doing that I think we should be considering doing ourselves is is they are now doubling down on their investments to break their reliance on it. Right. Granted. People think that this war has been happening from. It's really started February 28th. Right. We're in a very short window. I listened to an economist from a major Wall street firm, which I will not name, talk the other day and talk about how this truly is not affecting the world economy. The earnings were not showing that in the last earning numbers. And in my head, I just was so shocked to hear someone say that because it wouldn't have shown up. It literally just started happening in March. So there was a glut that is now dwindled down. All those supplies are dwindling down. So the prices we are seeing are going to significantly be there for a while. Back to your question of security. What does that mean for us? While we are producing our own, we are for the first time in a long time an energy exporter. Right. The reality is we need to continue to diversify our energy mix here at home. And going back to the comment on the energy transition from earlier, we probably weren't in a place 10 years ago to bring those type of solutions to scale. Those solutions are at scale. Solar is now in some places outpacing coal on the grid. Catching up to natural gas storage is finally no longer this thing we hope to get. It's actually proven and executing. You've got, you've got a lot of different technologies, geothermal and others starting to come. I think this will hopefully speed up the mix. Unfortunately, instead of having clear policies at a federal level that are enhancing that, we are actually having an administration that's throwing wrenches into that growth versus really allowing competition and opportunity. But there's a lot of opportunity at the state level. And I think going back to the earlier comments about affordability, there will be a significant demand for policy changes in 2027 because electorate is focused on this and we as an industry need to be prepared to help shape those at specifically state level and hopefully the federal level in the future, again, to create the landscape we need to scale. So there's a lot there. I know that I'm answering a whole bunch of pieces to it, but it's a very complex issue.
- [12:29]
A
It is. And there is a lot there. You know, you touched on a couple of things I kind of want to build on, you know, the energy affordability and then the connection of not so much oil, but gas to electricity prices here.
- [12:41]
B
Yeah.
- [12:41]
A
And so I kind of want to bring it Back now a little to more. What Clean Capital does talk a little bit about how distributed solar and energy storage strengthen energy affordability and resiliency.
- [12:53]
B
Yeah, it has. You know, I was at a, I took a reporter recently on a tour of one of our sites we built in Buffalo, which is on this amazing brownfield that at one point was the most polluted. One of the most polluted places in the country. Like literally the river outside this site started on Fire in 1968, the river. And there was a guy in a pickup truck there who, because next to us was a training zone for long haul truckers. So he and I are just chatting as I'm waiting and he finds out I'm in energy. We start talking about it and he pulls up his electricity bill on his phone. Cause he was complaining about it. And he points to the transmission costs that are highlighted in that bill. There's no way a few months ago that guy ever looked at his bill that clearly.
- [13:38]
A
Right.
- [13:38]
B
But people are starting to understand all the different components to this. So what does distributed power do? It allows us to bring the power closer to the site. Right. So like that site is literally within the city of Buffalo. Right. And we have another site right down the road at an old Bethlehem Steel site within the city limits. Right. Limiting the amount of new transmission we need to build. So it is part of the solution. I think it's often a part that is sometimes overlooked. Right. People think heavily of resi or they think large scale utility. When we, at a point of our company, we're looking at doing larger scale projects, for instance, we realize the amount of effort it took us to build one versus building 20 was the same. Right. And the risk we had as an investor was to say like if that one thing fails, it could take our whole ship down. Here we have well over 300 projects, 500 megawatts. Right. And we can have this portfolio as an investor in 26 states. That gives us diversity, diversity of offtake, et cetera. So I think that DGP's is a significant part of the solution. That said, there's not enough policies in place at the state level focused on the DG space that are helping us scale. And more importantly, as an ipp, a lot of these, an independent power producer, a lot of these policies are shaped towards the developers who are often long gone a few years into a project. Right. So how do we begin to shape long term ownership as an incentive?
- [15:13]
A
Right.
- [15:13]
B
In some of these state policies?
- [15:15]
A
Can you expand on that a little? I do a lot of DG work. There's a lot of states that now have community solar, for example. Give us a few examples of the state policies that would help incentivize the long term ownership.
- [15:29]
B
Yeah, I want to step back from the policies themselves first and just look at the infrastructure of our industry groups. You have American Clean Power, which is truly a utility scale organization. You have sia, which sort of covers a plethora of stuff. You have the ccsa, which is the Community Solar Alliance. You know, I think we are starting to see more voices in this middle market start to come to the table. Right. And talk about what they need. So I want to separate the long term piece for a second from dg. The long term ownership piece is important for sure, but it doesn't have to all be dg. So from a DG perspective, community solar is critical, I think. Better, better policies around storage. Right. You know, I think everyone has talked about storage for years, but you know, storage is really a fascinating puzzle piece when you get into the different revenue models, et cetera. I think what we are seeing right now happening both from policy and advocacy. So across the state of New York today there is a rolling set of best moratoriums, energy storage moratoriums literally being rolled out state by state. I would argue, and I'm not saying I've got proof to show this, I would argue that there is a coordinated campaign bringing those anti best policies to these towns. We as an industry are not positioned at all to fight back on that. I became aware of it during our development origination calls. I kept hearing town after town, week after week, these best moratoriums were popping up. And I kept asking, well, who's on the other side of the room?
- [16:59]
A
Right.
- [16:59]
B
From our perspective. So how do we as an industry prepare ourselves for the dialogue that's happening right now? And we're in those rooms both at the local and town level and at the state level. And then going back to your question around dg, I think New York's done a pretty decent job. Massachusetts done a pretty decent job, but all of them, when it comes down to it, the number one thing any of us need be DG or long term ownership is just some certainty. When you look back and you're changing rules or you want to change an olesrec program, it's hard for me as an investor to turn to a debt provider or a life insurance company who's our equity and say we're looking at a 20 year assumption here, not knowing if that assumption is going to change. And I think there's A huge lack of understanding of that from policymakers like, oh, if we just tweak this program. Well, if you take the program, you're driving up your cost of capital into those deals and you're not going to address the affordability issue that you're trying to get after right now.
- [17:59]
A
Can you talk a little bit about Clean Capital's play in energy infrastructure in the US So you're clearly in dg all these states. I hear about your local projects in Buffalo, but I'd like to hear a little more about how you guys play in energy infrastructure overall.
- [18:18]
B
Yeah. So truly, again, going back to that middle market, right? So we often are working with a developer who's on the ground finding sites in a new state, whether it be Maryland or Illinois, New Jersey, Massachusetts, and providing capital sort of every step of the way. Right. So from literally locking in the lease to building the project. Also we're also continue to buy operating assets, right. So we're, you know, we were probably one of the strongest operating asset acquirer in the market today. So, you know, we build our base on that. And then what's important for us is this continually and we do this quarter by quarter. Look at the landscape, the policy landscape is so critical in this space of what's changing. There's been a lot of dialogue in Maryland. So how is that affecting not only our portfolio, but should we be leaning in or leading out of that state? Illinois, I mean Illinois passed a storage bill last year that I think caught a lot of folks off guard, which was awesome and I'm glad they did it. But are we positioned to be going in and making those investments so we as a player can sort of bring capital along the breadth of the capital stack and the timeline of the project. And so what we've seen going back to the current market today, post the big beautiful bill last year, there has been a pretty significant market shift where we are seeing more projects than we've ever seen on the top of the funnel. We are seeing less capital at the table or sometimes new capital. But some of the older established firms have either gone or trying to sell themselves, right. So there's less capital. And in the middle there is truly like a, I would almost call it a human capital constraint, being able to process the amount of deal flow we have. So we sort of pride ourselves in being fluid through that process, but also recognizing like the market dynamics have shifted. So where do we find value in that dynamic? Where are we constantly talking about how our investments are changing and also talking to our partners because I think developers today are getting wise to that market change. But it took them six months because they expected pricing from before the big beautiful bill. And the world's changed dramatically. It is a constant ebb and flow. And over 10 years of this, you know, we've seen that ebb and flow. Really, Everyone sort of talks about the solar coaster, right? It's a pretty fun term thrown around, but, man, we've written it for sure. You get IRA passage, Trump election, right? Big beautiful bill, AI demand, right? Like, there's all of these different components playing again, clean capital plays in that middle market. We're probably one of the best financing partners in the middle market, but we also today developing ourselves, et cetera.
- [21:05]
A
And now that you mention AI, demand has been rising very quickly based on AI and data centers speak a little bit about how that factors into the whole energy security conversation.
- [21:20]
B
Yeah, it's critical. I mean, when the bill passed last July, I remember being sort of almost depressed post July 4th, right? Like, oh, my God, this is sort of the. This is the end. And going out to ARRI plus, which we were both flirting with out in Las Vegas in September, and being rejuvenated by, not to use a corny term, but the energy in the room, the demand for what we do as an industry has never been stronger, driven heavily by AI. I think the AI piece is while we don't sell to data centers ourselves with clean capital, we're sort of not at that. That's the scale we play at. Let me give you an example. I'm going to use Buffalo because it's where I'm from, but there's a data center that is causing a massive sort of uproar in Buffalo as we speak. And I was listening to the developer talk at a public hearing, and he said they're expecting 300 megawatts of power demand for that data center, and he doesn't think it will affect local residential prices at all. And in my head, I'm like, where are we getting 300 new megawatts of power in western New York? That's going to all of a sudden level out if you're not bringing it, which they weren't. Are you not seeing massive new development? What I think it creates is an opportunity where that development is happening. There's a whole other conversation of what is happening in the data center space right now around public pushback, et cetera, but there's a recognition of we need the supply. And the argument we have as an industry is we are the fastest, most efficient and in Many cases, cheaper power. Like if you want to build a new natural gas plant, it's going to take you five years to get a turbine right. We can help solve part of that and that's creating more opportunity for us. But I haven't seen yet, which is sort of surprising to me personally. I expected things like power purchase agreements to really come back into style where larger corporations are saying, hey, if I can lock in a portion of my energy bill today versus risking this 20% growth, we're seeing almost year after year in some markets and we'll do it. And we just haven't seen that yet.
- [23:27]
A
Why is that, do you think?
- [23:28]
B
I think there's two competing reasons. I think there is a traditional lag of buyers. They're usually not as attuned to that mix that we're seeing today. And development is a long, ugly process, so they're not as attuned to it. I think there is the bills themselves, like the actual rising cost of electricity is beginning to show up now on utility things that we were all talking about a year ago, processes that got approved, whatever, we're just now seeing those bills. So if you're a sophisticated buyer, you may know that, right? If you're a Google or one of these bigger players, but a smaller manufacturing facility may not be that attuned to it. So then all of a sudden they start getting their bills. So I think, I do believe that's still coming. I think people are going to look at some of these solutions as ways to keep their build on then. The other big unfortunate trend I think is happening at the Google level where there is an active debate right now around greenhouse gas accounting, which is my view, and it has. I used to oversee greenhouse gas accounting for the federal government. I understand how it all works, the process, how WRI and others are managing the stakeholders. But there's a clear lack of reality in the process they're running right now, which is getting a lot of folks to hold, say, I don't know, I can't sign contracts. I don't know what my greenhouse gas accounting is going to look like. We're hearing that right now in a lot of buyer forums, Clean Energy Buyer alliance and others who are saying, look, this really academic greenhouse gas accounting process that is underway right now is not taking effect, not taking into account the realities of markets. And that's a whole different podcast. But it's like around how you measure where the power is and 247 and locally. All these things are great in theory, but when you can't build in 25 or 50 states because the policies aren't right. Yeah, we're not going to meet that demand.
- [25:27]
A
Understood. You had mentioned the timeline to deploying energy and how it could be five years to get a gas turbine. I hear over and over that speed is a big advantage for solar. Just speak a little bit about how companies in the industry can take advantage of that in the market when there's such high demand for new power.
- [25:51]
B
I think we are beginning of that hockey stick of cost, demand, cost. Being able to say we can have this power in 18 months to you, I think is going to be significantly different than utility being able to come in and say hey, in 2030 or 2031. These are real costs people are paying today. Need to be able to translate that as an industry to execution and timelines. The one thing that's out of our control truly is the interconnect and utility process. So going back to the earlier conversation around how do we begin to get better policies to for things like dg, that is a huge stock that many of us are focused on unsticking. Like we need to be quicker at getting these things connected and on the grid. Because I think that will help not only drive more projects, it'll honestly help bring down the cost of power for everyday Americans.
- [26:40]
A
All right, one last question just to kind of bring it all together to you. What does a truly energy secure America look like and what do we have to do to get there?
- [26:49]
B
Yeah, I think true diversity across our energy mix. I think a transition from the centralized grid that has served us well for well over 50 years to a more of a decentralized grid that's providing both power and management, energy storage, solar, natural gas. Right. I think we're not going to just all of a sudden break away from the fossil fuels of the past, but also incorporating things like energy efficiency, which never gets talked about. Right. Those, some of those technologies that can help push down demand. When I think about our ability to export. Right. I think that's a valuable thing for us as a country that we need to not only for oil and gas, but also for other technologies like solar panels. Like all of a sudden we are soon to be an exporter of solar panel is a manufacturing company or manufacturing society. That's relatively new post ira. That strengthens us as an economy. But when it comes down to it, it's being able to sort of look out and say what's my cost of power going to be this year, next year and down the road and not being afraid, it's going to all of a sudden spike because we have a leadership in Iran who can so quickly shut down the Strait of Hormos. Right. Like that. What I hear our national leaders today or national leaders of other countries that we've gone to war with talk about being shocked by that happening. As someone who spent time in the military and in the Pentagon, there's no military exercise that we have done in the last 20 years with Iran involved that they haven't shut down those strainer hormones. Right. It was a very clear present danger that we didn't understand. So how do we take that control back to ourselves? There's a whole other argument about the global economy and creating opportunities out of that. But if I think about our domestic US it is having control of that power and having control of those costs.
- [28:36]
A
All right, we're going to leave it there. Thank you very much for your time, John. Interesting conversation.
- [28:41]
B
Thanks for doing this podcast. Really appreciate it. It's so important for our industry to be talking about these things.
- [28:45]
A
I agree. Have a good day.
- [28:47]
B
You, too.
- [28:49]
A
You can find us online at www.projectfinancecom. or send us an email at currentsortonrose fulbright.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 Currents.