The latest on Energetic and renewable energy trends.

The Inflation Reduction Act (IRA) was front and center two weeks ago at Novogradac's Renewable Energy conference. We entered the event with several questions - many were answered, but as we peel back the onion, even more questions emerge.  

There is no doubt that the IRA will bring about a favorable investment environment across the renewables spectrum, but there is still a lot of dust that needs to settle.  

Here are three things we learned:

1. Everyone is waiting for IRS guidance

Getting that guidance could take up to a year. The IRA offers investors 10 years of certainty around tax treatment, but as always, the devil is in the details. As guidance emerges from the IRS, the devils will be revealed, but it will take a long time before anything binding is issued. This bill represents the first time that workforce protections and content requirements have been attached to tax incentives. That, coupled with the sheer size and scope of the bill, lead us to believe that guidance will be slow to emerge.

2. Direct Pay and Transferability will have limitations

Direct pay is useful but is limited to a narrow set of circumstances - tribal lands and other tax-exempt entities. The main winner of direct pay is the manufacturing sector, which will be able to benefit from direct pay to stimulate working capital investment. Similarly, transferability will likely be more limited than initially thought - at least in the near term. IRS guidance will certainly help add clarity, but there remain numerous nuances to consider.

3. Up to 70% of the capital stack in tax equity!

Given the amount of tax equity now available, many are asking whether there is a place for debt in the capital stack. The answer across the conference was a resounding yes, and not just because most of the attendees were bankers.  Getting to 70% tax equity requires taking advantage of every adder available, which is unrealistic. The thought does leave us with two unanswered questions:  

(1) Will lenders relax their sponsor equity requirements?  

(2) If lenders are seeing their ticket sizes drop in favor of tax equity, will they need to identify ways to expand their appetite or addressable market in order to deploy the same capital volume? Time and IRS guidance will likely reveal an answer.

If you have thoughts on likely impacts of the Inflation Reduction Act, reach out or leave your thoughts in the comments.

We’ll keep you posted as we learn more.

This is a series of monthly market commentaries and updates from Energetic Insurance. It was wonderful to see so many of you over the last 3-4 months across various conferences. The energy within the industry is at an all-time high! While we are all awaiting official guidance around the Inflation Reduction Act (IRA), it has not slowed the IRA from being a focal point throughout the industry. We look forward to sharing our take on the IRA and the insights we've been hearing from the market with you soon. In the meantime, we are sharing other news we have been following below.

Market Updates

Highlighted themes include the evolving credit risk landscape, climate news, and the banking regulatory environment. Summarizing the articles below:

1. Credit Risk: 1/3 of U.S. Small Businesses are unable to pay rent in full (Alignable); Rising Default Rates (Swiss Re)
2. Climate News: State of the Market: Renewables Procurement, Scope 3, and Carbon Credits (Energetic Insurance)
3. Regulatory Environment: Inflation Reduction Act Shines a Bright Light on Renewable Energy, but Guidance is Needed (Novogradac)

Over one-third of U.S. small businesses unable to pay full rent in October, survey shows (Alignable)

"In September, rent delinquency was at a six-month low, as optimism for Q4's earning potential was high and some small business owners reported increased sales. But a month later, 37% of U.S. small business owners could not pay their rent in full and on time in October." Read the full article here.

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Rising defaults: "zombie firms" will be the first to fall (Swiss Re)

The rate of corporate defaults is likely to increase. In a severe recession scenario, a high yield default rate of around 15% - last seen during the global financial crisis – is possible. Read the full article here.

State of the Market: Renewables Procurement, Scope 3, and Carbon Credits (Energetic Insurance)

The market is ill-prepared to meet the insatiable demand for clean energy and other footprint-reducing solutions prompted by unprecedented SBTi, net zero, or other ESG commitments. The renewables market has shifted from a buyer’s market to a seller’s market. Credit presents a significant barrier to scaling clean energy procurement. Scope 3 is the next frontier, and credit issues are likely to be magnified greater when attempting to green supply chains. Keep reading for our key takeaways. Read the full article here.

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Inflation Reduction Act Shines a Bright Light on Renewable Energy, but Guidance is Needed (Novogradac)

“There is so much more opportunity to use these credits because of the Inflation Reduction Act,” said Matt Meeker, a partner in the Dover, Ohio, office at Novogradac. “The IRA will have a big impact. We just don’t know exactly how to monetize it yet.” Read the full article here.

Energetic Insurance, Credit Insurance featured as Renewable Energy Strategy Tool (ENGIE Impact)

In a recent webinar, ENGIE Impact engaged with experts from Seminole Financial Services, Nexamp, and Energetic Insurance to discuss ways to prioritize renewable energy strategy while reducing costs. Credit insurance is featured as a means to significantly drive down buyers’ overall costs and reduce the support needed to establish creditworthiness for unrated companies, subsidiaries, or those with sub-IG credit ratings. Learn more here.

Join Our Team

New job alert! We are hiring for a Head of Sales. This role comes with a great balance of direction and autonomy. You will join as a senior leader in an exciting startup revolutionizing the cleantech and insurance industries. You will be the driving force behind our sales team as Energetic Scales rapidly. This is an opportunity to use your skills for good as you help support clean energy projects and unlock financing for an untapped market. See opportunities here. Reach out to kathryn@energeticinsurance.com with interest.

Until Next Time

Be sure to follow our company LinkedIn page for more updates on the evolving commercial credit landscape, as well as news about Energetic. If you would like to submit any projects for a rapid price quote, you can do that here.  

GreenBiz and the Clean Energy Buyers Association (CEBA) convened climate action leaders in San Jose for VERGE22 and CEBA Connect last week.

Everyone from clean energy developers, to buyers, financiers, and advisors were aligned on one thing; the market is ill-prepared to meet the insatiable demand for clean energy and other footprint-reducing solutions prompted by unprecedented SBTi, net zero, or other ESG commitments. Keep reading for our key takeaways.

Corporate demand for clean energy is insatiable

Renewables procurement was top-of-mind for many of those in the audience. Thanks to programs like RE100, hundreds of businesses have committed to relying on 100% renewable energy. Procurement challenges are an unintended result as clean energy development fails to keep pace with rapidly growing demand. Businesses are competing to procure renewable energy, especially via virtual power purchase agreements (VPPAs). The winning bidders are primarily large investment-grade corporates. A huge swathe of the market remains unserved.

The renewables market has shifted from a buyer’s market to a seller’s market

Demand has outpaced supply. Developers are racing to satiate demand, while navigating ongoing supply-chain challenges, rising interest rates, lengthy interconnection and permitting queues, and more. The majority of buyers are toiling with how to successfully procure renewable energy as most of the market is unrated or sub-investment grade, including those procuring energy through third-party platforms, on behalf of franchises, or via subsidiaries.

Credit presents a significant barrier to scaling clean energy procurement

According to the Clean Energy Buyers Association, “only 23 percent of the most mature U.S.-listed companies have sufficient credit ratings to support the development of large-scale offsite clean energy projects.” Lauren Tatsuno from 3Degrees, Harry Singh of Goldman Sachs, and Brooke Malik of Apex Clean Energy spoke to four common, but imperfect solutions; leveraging existing banking relationships, credit sleeves, posting high amounts of credit, and PPA terms flexibility. Developers, buyers, financiers, and advisors emphasized the limited success they have had with these approaches, the persistence of credit barriers, and the need for more solutions.

Scope 3 is the next frontier

Those lucky enough to be able to tackle their scope 1 and 2 emissions are now increasing their focus on scope 3 emissions. Approximately 80-90% of overall emissions stem from supply chains. These emissions fall outside of the direct control of procuring entities, yet they fall within the scope of influence. Supplier engagement, education, and enablement are key. Only a fraction of companies are actively engaging with their supplier base today in an effort to decrease emissions. Entities like OneTrust provide footprint calculating tools and are working with procurers and suppliers to make reporting easier. Companies like Meta have developed support programs for their suppliers. These programs are critical for ESG success as approximately 98% of Meta’s emissions stem from scope 3 from their many suppliers providing building materials, technology for data centers, professional services, and more. Suppliers most often begin with renewable energy procurement, employee training, and energy efficiency programs. Unfortunately, credit barriers resurface here, too, as an estimated 70%+ of suppliers for major corporations are sub-investment grade or unrated. Panelists acknowledged that financing is a key barrier for suppliers. Without targeted financing and credit support, a minority of suppliers will be able to address even their scope 1 and 2 emissions.

Carbon credit investments are ramping

As the mitigation hierarchy teaches us – those in a position to eliminate and reduce emissions should do so, and then consider the role carbon offsets can play in mitigating their remaining footprint. Corporates, startups, NGOs, scientists, multilateral public and private institutions are endeavoring to bring clarity, guidance, and liquidity to carbon markets. Innovators, registries, and verifiers are focusing on how to deliver high-quality nature-based and engineered carbon credits. Early adopters are already purchasing credits or making commitments. Most prospective buyers are keeping an eye on carbon market movements, while first improving the efficiency of their operations, electrifying where they can, and procuring clean electricity to the maximum extent possible.

Collaboration is critical

The structural market challenges present in clean energy and efficiency markets cannot be solved unilaterally. We were pleasantly overwhelmed by requests for support and collaboration. Buyers need credit support. Developers need more affordable financing. Financiers need more projects to invest in. Advisors need tools in their kits to support buyers when they run into procurement barriers. Our team at Energetic Insurance solves alongside developers and financiers every day. We are increasingly interested in hearing directly from buyers and supporting their procurement needs.

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Have questions on how Energetic Insurance can reduce credit barriers, support cost-effective renewable energy procurement, and help support the greening of supply chains and reduction of scope 3 emissions? Contact us here.   

This article does not constitute and is not intended by Energetic Insurance to constitute financial advice or a solicitation for any insurance business.   

“We have stringent risk monitoring protocols in place. The protocols require us to track site performance and evaluate risks, ensure compliance with customer communications and claims reporting, and report to reinsurers on our bordereau. We must have a robust, trackable system of record. That system has to be flexible enough to add these puzzle pieces. In addition to that, we allow our workforce to be remote and would never contemplate a system that requires people to be on-site to use it. We’ve been happy that our Novidea deployment is cloud-based from day one, and we couldn’t imagine it any other way.”

Energetic Insurance partner, Novidea, featured our work in a case study this month. An excerpt is below and you can download the full case study below to learn more.

"A trailblazer in trade credit risk for solar, Energetic brings to the industry decades of experience in the energy sector, in conjunction with robust data analytics, modeling, and software. Energetic offers a new form of trade credit insurance customized for the renewable energy industry. It’s a 10-year, non-cancellable policy. However, taking on this risk across an entire energy project adds layers of complexity to insurance policy administration.

“Unlike other MGUs with one-year policies and renewals, when we book a policy with a developer or a bank, it’s often a 10-year tenor. That makes it challenging to monitor and track insurance policies. On top of that, the nature of our risk product means we must deal with dynamic limit of liability schedules that change over time. To operate, Energetic had to find a flexible system of record that can change as a function of those schedules,” McAulay says.

Energetic sought to minimize time spent on policy administration as they scaled their business. Energetic required a future-forward agency management platform that could serve as a system of record for all insurance policy-related information. This system included quotes, rating actions, issuances, renewals, compliant customer communications, bordereau reports for reinsurers, and more. Most importantly, the technology had to be able to grow with the company. When McAulay and his team started investigating traditional insurance policy management systems, they quickly learned that an energy insurance industry- specific system of record didn’t exist. Energetic had two choices: they could build something from scratch or find a flexible vendor partner with the ability to customize a solution for their needs.

“We looked at many different systems,” McAulay recalls. “Most insurance agency management vendors only offered policy administration systems for existing insurance products. They didn’t have a solution that fit our policy terms and limit schedules. In terms of functionality, they offered many things that we didn’t need and not enough of what we required.” That’s when Energetic discovered Novidea.

Energetic Insurance has partnered with Novidea to streamline its policy administration. By adopting Novidea’s cloud-based agency management system (AMS), Energetic has built a scalable, compliant system of record for managing its credit insurance policies, including the flagship EneRate Credit Cover.

This partnership allows Energetic to automate processes like policy monitoring, renewals, and reporting, enabling the company to focus on growth. Since deploying Novidea’s solution, Energetic has expanded its product line and raised $7 million in a Series A round.

Read more about this collaboration here.

Energetic Insurance has been recognized as one of the top 5 risk management solutions for energy companies in a recent report by StartUs Insights. Their innovative approach to solar project financing, through the EneRate Credit Cover, helps mitigate credit risks for unrated and below-investment-grade counterparties, streamlining financing for renewable energy projects.

Alongside Energetic Insurance, the report highlights solutions in energy trading, portfolio management, and remote asset maintenance, showcasing how technology is transforming risk management in the energy sector.

Read the full report and discover more about the leading energy startups here.