Financing the transition: Key takeaways from ACORE’s Finance Forum

Intro: Welcome to The Energy Shift, a podcast series focusing on the rapidly evolving energy landscape with hosts Luisa Fuentes and James Wright.

Ray Long: When I look at the challenges that we have today that are driving the discussion around more gas deployment, it has to do with this immediate demand increase challenge that we have, particularly from the electrification and AI data center needs.

James Wright: Hello and welcome to today’s inaugural episode of The Energy Shift. I’m James Wright and along with my co-host Luisa Fuentes. We’re really pleased to be joined by our guest, Ray Long, the CEO of ACORE, to reflect on a ACORE’s Finance Forum. For many years, CIBC has been a proud supporter of ACORE, which for those of you who don’t know, is the American Council on Renewable Energy. Given the huge breadth of ACORE’s policy work across the U.S. renewable space, this conversation feels really timely as we get deeper into election season.

Luisa Fuentes: Agree, James. Many timely and interesting topics were discussed at the Finance Forum. We’re hoping to touch on many of those today with Ray, and hopefully use those as a jump off point for some deeper dives into specific themes, technologies, and trends on some of our future podcast episodes.

James Wright: With that, we’re really excited to welcome Ray. He has spent over 25 years representing growing conventional renewable energy companies in the United States. Before leading ACORE, he was Senior Vice-President of external affairs at Clear Energy, and he has a Bachelor of Science degree and Juris Doctor degree from Suffolk University. So good afternoon, Ray. Great to have you with us.

Ray Long: Good afternoon. Thanks for having me.

James Wright: Fantastic. Well, let’s get right into it then. So Ray, there is just a ton to talk about after the Finance Forum. Hugely successful event. Fantastic as always. The general policy stuff flying around as we enter into election mode this year is obviously numerous. Before we get into that, for context, can you briefly remind listeners who don’t know about the work of ACORE what you do?

Ray Long: Sure. Thanks for that, James. The American Council on Renewable Energy, or ACORE, first, what do we do? We enable policies that create essentially affordable, reliable and clean energy for all Americans. So what we are we’re a nonprofit organization based in Washington, DC that does a lot of data driven analysis on different parts of energy policy, and we have some focus areas. And we have four primary focus areas that include first finance, second transmission markets, third is supply chain and trade issues, and then finally corporate sustainability. So James, when you think about us, think about us as a group that does a lot of deep dives into difficult issues, challenging issues, dare I say weighty issues around those four general areas. And I know we’re going to unpack some of those today.

James Wright: A lot to unpack there. So just off the back of that, Ray, you have some high level thoughts about what the state of the industry is right now following the Finance Forum. I mean, again, there is, just from my perspective, so much happening in this space at the moment. It’s really challenging to keep track even for those of us living and breathing this stuff. So what are some of the high level trends you’re seeing?

Ray Long: The ACORE Finance Forum is held every year in June. We had an action packed two days this year. We had some great speakers like DOE Undersecretary for Infrastructure David Crane. We had former EPA Administrator Gina McCarthy there. United States Senator Bill Cassidy, who’s a Republican from Louisiana and heavily involved in a lot of energy issues, was one of the keynote speakers. And then we had a variety of others, including Marc Morial, who’s the CEO of the National Urban League and with whom we’ve got a very good working relationship. So some of the key themes that we saw last week, first and foremost is right now there is just an enormous amount of investing, developing, building and buying of clean energy going on in the United States. Just to touch on a couple of things. The last two years alone, with respect to manufacturing of different components in the United States, we’ve seen over $90 billion, we invested in about 200 projects in just two years. That is just remarkable. And that’s coming off of, you know, the strength of a number of things, including the advanced manufacturing tax credit, which passed a couple of years ago, and things like the so-called domestic content bonus add or tax credit. Solar is now a $60 billion a year industry in the United States. Incredible compared to what it was just a decade ago. My friend Abby Hopper, who runs the Solar Energy Industries Association, last week held a gala that celebrated the 50th anniversary of that association. So think about that, James. And the Evolution of Solar. 19, what, 72 give or take, that association launched with things like thermal solar technology. And look where it’s come today where we’ve got, you know, solar panels on so many roofs and utility scale solar projects all over the country. And obviously a tremendous amount is being built. One of the interesting stats that I pulled out of last week was offshore wind, which is a very nascent industry in the United States. The interesting thing was that the potential of offshore wind, which is there, is to get to 2000GW off the coasts in the United States, in the west, in the east. 2000GW, that’s almost double our nation’s current usage rate. Tremendous potential there as well. A couple of the themes that came out, James, about things to do and things to work on, demand increases. So for the first time in over a decade, we’re seeing demand increases. That’s now being talked about as being a huge opportunity going forward, in part because of not only electrification, but from AI and datacenter usage in the United States. So tremendous opportunity and challenge in the United States. Grid upgrades, we need to continue building out our electric grid for reliability purpose and because building out the grid is a very cost effective way to bring down costs for consumers overall. And I think in a little while, we’ll probably have the opportunity to get into the FERC order that came out a couple of weeks back. But the bottom line is clean energy is being invested in and developed in a huge way in the United States right now, and it’s a huge contributor to the economy and will continue to be so well into the future.

James Wright: Absolutely. That was great, Ray. And I think your comment there about the 90 billion in the last two years was actually a perfect tee up for my next question, which I’ll keep hoping the mindful before Luisa gets to jump in. But on scaling capital, so you had a great panel on that topic, one of the kick off sessions with some kind of grandees in the space, very topical for us, obviously on the banking side, as we’re seeing the real scale of demand for capital increasing massively. Gas was actually a big topic there as well, which was kind of funny, particularly for renewables conference, right, with some really excellent observations about the value of those assets, and really an acknowledgment that this may not be the primary source of baseload power for the next 20 to 30 years. But super important to fill a gap in the interim. So what kind of struck you about that discussion, Ray? And how will integration of more gas fired assets really affect the power markets more generally from your perspective?

Ray Long: You know this, but for your listeners. So in a prior life, I’ve worked on and permitted pretty much every technology that’s out there today. So oil, coal, natural gas, nuclear. And now of course, wind, solar storage and a variety of renewable technologies. I’ve got a healthy appreciation for the value that gas assets play in our electric system today in terms of affordability and reliability in particular. I think the important thing to think about here, when we look at new investments in technologies for natural gas, compared with all the, say, zero carbon or zero emitting resources that we’re talking about is when financial institutions, when developers come in and they invest in a natural gas project, like so many other projects that are capital intensive, it’s for a 30 year period, if not more. And when I look at the challenges that we have today that are driving the discussion around more gas deployment, it has to do with this immediate demand increase challenge that we have, particularly from electrification and AI data center needs. That’s a very short term issue, right? The opportunity is that that demand increases now, and we need to solve for that issue now. And how do we do that? But it’s also going to go into the future. When I think about natural gas assets and being developed today with a 30 year lifespan, what I ask the question is, do we need those assets for that long term? And I think given the investment that’s being made now in renewable and clean energy technologies, the long term picture is clear. The long term solution is wind, solar storage and the build out of all the other technologies that are zero carbon and zero emitting. So you get to that short term question. That is how do we meet the demand challenges now in our natural gas investments part of that solution? There’s not a clear line of sight on it. Clearly assets that are running today are going to be part of that solution for the next few years, as we as a society continue to evaluate how we’re going to meet those challenges, we need to look at what are the most cost effective ways to do it, what are the things that meet the reliability challenges that we have? And the third layer, what are the things that we can put in place to continue to meet the environmental goals that we have overall? And I think before we run head on into a solution that says we need to build out, you know, natural gas infrastructure to meet this, we need to be asking things like is building out the grid, using things like grid enhancing technologies, a faster and more cost effective way to consumers to meet that short term challenge. And I think the answer there is yes, based on everything I’m reading, and certainly the FERC order, the FERC planning rule that came out a couple of weeks ago is part of that. It’s planning. It’s looking at grid enhancing technologies, HVDC lines and other things to meet that challenge, but in a cost effective and fast deployment way. So it’s a very interesting discussion to have right now. Again, I think we need to be cognizant that if we’re investing in any of these things that are capital intensive, we have to take into account that they’re going to be around for a long time when we do it.

James Wright: Yeah, exactly. Well said.

Luisa Fuentes: Ray, it would be remiss of me or any other banker worth their salt not to touch on tax equity and tax transfer ability. Probably two of the hottest topics in our world. The former tax equity obviously being perennially there, but the latter something a little bit newer. This is a two parter. James and I will tag team this one. On the tax equity panel, continue discussion on Basel III regulations. What is your crystal ball tell you? What was your takeaway from the panel? Are you seeing more optimism that this will be resolved and what do you anticipate the timing and impact of that would be?

Ray Long: Basel III is probably one of the issues that when I talk to my wife and other people, just makes their eyes roll into the back of their head, and it’s also one of the most consequential things that’s out there right now impacting investing in renewable energy, clean energy projects overall. I think it’s safe to say that there has been so much activity on this that the delay in getting the final rules out is an example of just how the three agencies are taking this seriously and digging into it. Originally, we probably should have had the final regulations out a few months ago, and they’re not. And the reason we’re not, and we’re hearing this is because of the thoughtful process that they’re engaged in internally to look at the impacts of this. As it relates to tax equity, sure. The idea that you’re going to go from, you know, 100% risk weighting to 400% risk weighting could be catastrophic to investment in the industry as a whole. And that message, I think, has been heard loud and clear by the three agencies. So if I’m listening correctly and looking at the process, well, my sense is what you can expect to see over the next few months is some sort of very thoughtful policy to come out, potentially addressing the concerns that have been made and or you know, some sort of a redo of it, in other words, a process that gets extended out to perhaps come back and take a fresh look at equity as a whole and the provisions inherent in Basel III and that also address tax equity separately, which is ideally probably something that should have been done back when the original regulation two were proposed. So it’s not a clear line of sight to getting to a final conclusion quickly, but certainly a lot of progress and making sure that the folks who are regulating understand the impacts of this and the tax equity as a whole is working, has been working and will continue to work and add to the economy in the United States in the future.

James Wright: I’ll come in on the back of that, Ray. Because I think that’s another nice little segue into your other panel on this related topic on transferability, right, which is something we on the banking side spent a ton of time talking about the past six months or so. And I think the general sentiment seems to be that although it’s really hugely positive for the space overall, we are seeing a lot more complicated tax equity structures as a result of it. But are you generally bullish on the outlook for getting more corporate buyers into the space, at least for some of those more straightforward transfer deals? What are you seeing out there?

Ray Long: I’ll tell you what I’m seeing. I’ll tell you what I’m hearing, James. And that is a lot of excitement around the transferability, provisions from banks, from corporates and other entities that are seriously looking at this opportunity. When you think about traditional, you know, renewable energy project finance, we gravitate immediately to tax equity. And what I’m hearing from banks and others who have been involved in tax equity over time is they’re going to continue to write tax equity deals and there’s certainly a lot of interest in this. On the other end of the spectrum, or transferability deals enabled by the Inflation Reduction Act, two years ago, there’s a lot of activity around transferability deals as a whole. And we’re seeing corporates jumping in. We’re seeing things like interest and insurance companies and others coming in to do that. And then there’s this middle space which is interesting, which are hybrid deals. So combination of tax equity where a portion of the deal is done through tax equity and the portion is done in transferability. What I’m hearing is you’re going to see more and more of those hybrid deals and others on either side of the spectrum. In that three part world going forward, I think what this all means for us is more opportunities for more renewable energy and clean energy projects to get financed, and three different flexible platforms for them to be able to do it in.

James Wright: Yeah, I fully agree and keeping our lawyer friends busy in the meantime, I think as a, look, as a quick, self-serving plug for this pod, we’re going to be doing a real deep dive on what we’re seeing in the transfer space, actually, on the next episode. So more to come on that with a couple of special guests on that topic. So with that, why don’t we pivot, Luisa? So let’s go into some of the other technologies we wanted to touch on with Ray.

Luisa Fuentes:One of the topics near and dear to my heart and my mandate, quite frankly, are the role of tax credits and catalyzing development in new technologies, kind of that other nonrenewable category that you touched on earlier, things like carbon capture, hydrogen, low carbon fuels. On the banking side, unfortunately, we have seen a bit of a deceleration in some of these areas. What were some of your takeaways from the conference on this topic? Are there any specific sectors where you think the path may be more defined, and where it is more likely that there is a near-term role for PV? What have some of the hurdles been and how has Treasury impacted the current pace of development?

Ray Long: What a great question. As I look out at the future, you know, there’s three primary drivers for customers at the end, whether those are, you know, industrial customers, you know, large scale, heavy demand customers or residential customers. And those, of course, are price, reliability and clean. And I think that’s the right order to address these things. So first is the price right? Secondly, is it delivering on the reliability that we need and expect? And then finally is the technologies that’s out there helping to fulfill the buyer’s goals with respect to the environment? And as I look across the spectrum of technologies that are out there, of course you’re seeing more conventional things like onshore wind, solar with trackers that are competitive now with natural gas combined cycle. So they’re delivering on all three of those things. So you should read into that is the so-called green premiums that we’ve seen in the past for some of the cleaner technologies continue to shrink and go away. As it relates to newer technologies and you cited a few: carbon capture, sequestration, maybe direct air capture, and we can get down the list of those things. Green premiums on those continue to be higher. And it’s important that investing in those technologies continues to be something that helps to further the development of the technologies, because the more they’re invested in, the technology will be proven out and the costs will ultimately come down. You’re seeing things like carbon capture, sequestration projects around the United States. So that’s ongoing now. But the question really becomes, when will these things be more cost competitive? And I think that will continue to happen in the future. That’s my long winded way of coming back around to your original question. And that is I think you’re going to continue to see investment in those things. The rate of investment that we’ll see in those technologies will depend on how fast the technology is evolving. And coming to commercial viability in the marketplace.

Luisa Fuentes: Okay, so I hear that there’s some optimism, but to be patient.

Ray Long: Sure, we didn’t even talk about, you know, hydrogen. Green hydrogen I think is a great example of that as well, where you over the last couple of years, the hydrogen tax credit, you know, you’ve seen a tremendous amount of activity in interest across the United States in those projects. Have we seen those projects come to fruition yet? No, but there are quite a few entities that are out there trying to make the economics work on it to bring them to market. And so I didn’t want to just pick on the, carbon capture sequestration projects. There are tremendous amount of other technologies that are out there as well that vote for optimism.

Luisa Fuentes: Thank you for your fairness on that. Moving on a little bit to manufacturing, I think you mentioned the daunting numbers of investments and projects that have come up recently, particularly with regard to, manufacturing and decarbonization sectors. It’s been very exciting. And it all relates to the Inflation Reduction Act. But, you know, supply chain security being, I think, the key rationale for most of the developers that we talked to in that space. Can you discuss some of the trends that were highlighted at ACORE and a little bit about how the IRA has contributed to the 200 plus announced projects?

Ray Long: I had the privilege of being asked to speak at a ribbon cutting for a solar panel manufacturing facility just outside of Dallas two weeks ago. I went down and I expected to see 5 to 600 people working there and a lot of robots. And I certainly saw that. What I didn’t expect was the community and how they turned out for the ribbon cutting. So I’m 12 miles outside of Dallas, and we’ve got a couple hundred people that are there, workers from the plant, folks from the community, politicians and some others. And the thing that jumped out at me the most of this great event was the mayor who was there and this big guy, you know, six foot four, bigger than life, big personality gets up there and he says to the head of the plant how proud he is to be there, and thanked him for coming in for investing in their community. And then he said something that I think is something that maybe gets lost in all the investment talk and producing solar panels and all that stuff, and that is the local impact. And he said, I just want you all to know that before this facility came here, that the median income in Mesquite was about $22,000 a year, and now with the 800 people that are locally that are being put to work there, the median income from those jobs has jumped up to about $45,000 a year. And that’s emblematic of the power of the advanced manufacturing tax credit and the other things that we’ve been talking about here in the impact that it’s having in the United States. And that is this is the first time, at least, I think, in my lifetime, that we’ve actually had an industrial policy in the United States that seeks to really develop manufacturing here outside of tariffs and trade controls. I think we know that from the past decade or so that tariff and trade controls have their place. But what they don’t do is they don’t incentivize companies to come in, invest in manufacturing in the United States, and then to scale that manufacturing. What we’ve now got are things like the advanced manufacturing tax credit, which provides the incentives and provides the long term incentive for companies to make that investment. That’s what I saw firsthand, the ribbon cutting in Mesquite, Texas. And I think that’s the same thing that you’re seeing around the country now, whether that’s with solar tracking facilities, solar panel and solar cell manufacturers in the United States, you’re seeing it with wind turbine providers. You’re seeing it with energy storage facilities. And a lot of those facilities are in, you know, red and rural districts. And mindful that one of the largest and most innovative energy storage factories has just been sighted in West Virginia with a huge amount of support from the area. So just to round out your question, I think the things that are most impactful that we’re seeing right now are the advanced manufacturing tax credit and related policies are actually working. $90 billion invested in a two year period, and much more to come. 200 projects in that two year period and the local impacts that we’re seeing, that is the things that embed all this investment into the fiber in the economy of the United States are just starting to play out, and we’re going to see much more of that in the coming months and years.

James Wright: Absolutely. I think any more of those kind of on the ground tangible stories out there, right? It’s really important. I like that. Anything that was really good. Thank you. I’d love to finish off with, just pivoting back to one of your kind of core pillars you talked about at the top of the show, Ray, about what ACORE does and that was on the transmission topic, Ray. So it would be remiss not to talk about the FERC action. Recently, we spent a ton of time in this space, as you know, talking about transmission, the wires literally being the glue that’s needed to get all these megawatts from pick your project to the various low centers around the country. So just to remind listeners, this was the third quarter, 1920 from May 13th, we’ve seen was like transformational traumatic to describe this action, Ray. As a seasoned participant, what’s your view on this? Is it really the fix we’ve been waiting for? How transformational is that order?

Ray Long: James, this is a great first step. This was a couple of years in the making is an extraordinary thing that FERC did in coming out with this comprehensive planning role. As you may know, it’s 1400 pages. So it’s really difficult to summarize everything that this does in a short call, even if you’re just focused on that. But many people are trying. Let me just try to say this. It’s a planning rule. It lays out a lot of detail on how transmission planning is going to be conducted across the United States right now and in the years to come. It has a few key things in it. One of the things that we think was very important in it is that it mandates the evaluation of new grid enhancing technologies. So things like HVDC lines, advanced conductors and, and a whole raft of other things. The reason we think that that’s extremely important is it’s these newer technologies that are out there that are coming in that even if they cost more than the types of wires and technologies that are on the lines now, that they really have the potential to be more efficient, carry more power in times of heat, not to have the same restrictions that the current technologies have and their end result of that is higher reliability. It is bringing costs down for consumers. And then at the end of the day, it very well likely will result in lessening the need to just build more and more and more supply. So you may get into this situation where we’re building out, you know, what a lot of people like to refer to as the grid of the future. And what that does is because of the efficiencies inherent in those technologies, is it results in not necessarily needing to build all the different generation resources that we’ve been talking about. It’s really a fantastic thing. Now, there are other things that are going to need to be done. So permitting just takes a long time in the United States. Now, whether that’s for a project like a solar project or a wind project or a storage project or a transmission line, they take a long time. So we’re going to need action by the Congress to address permitting reform. And of course, that’s something that has been being worked on for the last couple of years. It’s got bipartisan support, and we’re hoping that either, you know, throughout this year or after we get through the election cycle, that we’ll see some kind of a legislative discussion draft that addresses that. We also need some further FERC action on things like cost allocation, really need to figure out how the entities that are going to be building out these technologies are going to get paid, and there needs to be a direct line of sight on that. And that wasn’t contained in the order either. So I think, you know, planning was the first step, took a long time to get there. And it’s a huge step in the right direction. And those other two pieces permitting reform and cost allocation still need to be sorted out.

James Wright: Thanks, Ray. There’s just a ton there, right? As you said, 1400 pages, I think. I think we’ll have to try and find a couple of budding summer interns to summarize that for us in maybe five pages or less. So we’ll get to work on that.

Luisa Fuentes: We’re going to finish each pod with a quick round robin on what’s been shifting all of our weeks. Energy or non energy related. I can share to start. One of the things I’d like to take note of is how the renewable space looks a lot like the energy space, where I’ve also done a lot of work. And quite frankly, it’s starting to remind me a little bit of the midstream space with transmission becoming critical and getting supply to demand centers and a lot of the conversation centering around that.

James Wright: I’ll share. Actually, I’d like to kind of tie it back to Ray’s example of his kind of tangible manufacturing experience he had. He referenced a couple weeks ago with that opening ceremony. You know, we took some of our team to see a solar project, actually, a couple of projects up in upstate Connecticut with a developer who we have a large standing relationship with. And, you know, us bankers don’t get out the office enough. And this was fantastic because the bank has got to see and touch one of these things on the ground, walk around the site. And there was a ton of time speaking about things that I wouldn’t have ordinarily expected to spend so much time talking about with the solar project. Things like how much time our developers spend on drainage and vegetation, which was quite novel. And, you know, a funny one talking about solar sheep, even Ray, which, apparently sheep for grazing specifically around solar projects is a thing, which I’m happy to say I was educated about getting all this out, to see and touch these things more and understand what’s really kind of driving these projects on the ground was great experience.

Ray Long: That’s great. I’ll jump in. I’ll give you one energy and one non-energy just to mix it up a little bit. One of the things that I’ve always been intrigued with as long as I’ve been in the industry is the commonality of and the bipartisanship, right, that should exist on all the issues that we’re talking about. Price or affordability, reliability and clean should be things that everybody can get around. But and yet we’re in a politically divided country right now. I think there is a whole. There is a lexicon that we can all get around, regardless on which side of the spectrum you’re on or where geographically you live in the country. One of the things that we’ve been endeavoring to do is to really try to communicate with people, and not at people at all levels on that, and to hone that lexicon. So we’ve been doing it on this call. When we talk about all the different attributes of the things that people are investing in, developing, constructing, operating, and of course, buying. On the buy side, there is a language there that works across the aisles. I’m going to stop there. I can give you a lot of thoughts on that on our next call, but I think that the more we endeavor to talk about energy in a way that frames it in a way that we can all get behind, the faster a lot of these policies will move, which will make everything that we’re trying to do on the development side and the financing side easier. On the non-energy side, and just to be a bit off the rails here, I was so disappointed to hear that Joey Chestnut was retiring from competitive hot dog eating last week. After a few decades of that.

James Wright: I love that. That did get some amusement from certain children in our household as well. So thank you, Ray. That was great. We’ll wrap up there. This is a fantastic conversation. Thank you again, Ray. Congratulations on another really impactful gathering of leaders in our space at your Finance Forum. This is a pivotal year for the US energy transition. And thank you listeners for tuning in.

Ray Long: Thanks very much.

Outro: Please join us next time on The Energy Shift as we continue to tackle some of the hottest topics in the US energy transition landscape, providing fresh insights and viewpoints to help you shift your perspective.

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