Broadening clean energy deployment: Jigar Shah on Generate Capital

pv magazine: For those of our readers not familiar with Generate Capital, can you provide a brief overview of what the company does, and why you chose the route of focusing on smaller projects and lesser-known/less sexy technologies?

Jigar Shah: I think that when we started SunEdison in 2003, solar was a lesser-known technology, right? So I don’t think there is a standard for lesser-known. In fact, when you think about climate solutions writ large, there are hundreds of technologies that have been around since the 1970s that have not seen full deployment.

So we are trying to help each and every one of them reach their full potential.

 

pv magazine: And you also chose smaller projects in a lot of cases. Why?

Shah: It’s not that we have chosen smaller projects, it’s more that is where technological innovation has taken us. What has happened since the 1970s is that small really has become beautiful. With solar you have the ability to build 50 MW farms, but you also have the ability to cost effectively build 250kW rooftop systems.

That is the extraordinary thing about where technology has gone. That is true for anaerobic digesters, it is true for a lot of things. It used to be the minimum scale for a piece of equipment was $100 million, and now that equipment can be scaled down to $5 million.

So if we want to fund that area, we have to figure out how to fund smaller deals. So I am not sure that we had a choice.

 

pv magazine: This is interesting because you are taking on a place in the funding landscape that has often been a big problem, and that the U.S. government has tried to address at times through the DOE.

Shah: The U.S. government has attempted to address it through the SunShot program, meaning giving small firms $100,000 grants. Is that what you mean?

 

pv magazine: The emerging technologies in general, whether that is ARPA-E, or SunShot, the larger area within the DOE and ARPA-E umbrella that have tackled newer technologies. It is interesting to see a private firm going after that space.

Shah: I think it is important to recognize what it is that I have done in my career and what we are doing now. When I entered the solar market with SunEdison in 2003 to make solar bankable, solar had already been around, largely in its current form since 1973, when Solarex came out with multi-crystalline technology. So the underlying technology that I was financing in 2003 was already 30 years old.

So I don’t think that I am doing anything similar to ARPA-E where I am helping new technologies get off the ground. To me this is really about figuring out how to take technology that has basically been gathering dust on the shelf. Like cogeneration, or anaerobic digestors, or fuel cells, or compost. DOE wrote a report on the market size for these technologies back in the 1990s and unfortunately the technologies still have not been deployed at scale.

So I think I’m a logical extension of the DOE’s deployment efforts, a bit different than ARPA-E. I don’t think that we are really competing at all with the Department of Energy.

 

pv magazine: Thanks for that clarification. I understand that of late Generate Capital has taken on a couple of community solar projects. Community solar is a hot technology – why community solar, and why at this time?

Shah: Because it is misunderstood. When you think about community solar, the whole point of community solar when we passed the law is to say that renters, low-income residents and small businesses, who really couldn’t host their own solar system on their roof were being left out of the solar revolution.

Community solar was rolled out to given them and option to go solar. But what all the banks were saying that unless you sell all the output to Target or Walmart, and basically do the same kind of utility-scale solar project that you were doing before, we will deem these projects not bankable. So there was an opening for Generate Capital to come in and to make community solar with residential off-take bankable.

 

pv magazine: And the projects that you are funding, will these be entirely supported by residential off-takers, or will there be the same sort of anchor client that they have in some of the community solar projects for larger users?

Shah: I can’t say definitively, because these things change. We are certainly prepared for them to be 100% residential off-take. And we are prepared for some of those residential off-takers to be low-income and to have low FICO scores.

The whole purpose of community solar is that you can replace people who stop paying with new people. We are expecting to honor the original intention of community solar. And there a lot of developers who went out in the market to do just that, and they are being told that there is no financing available for you.

 

pv magazine: You have spoken in the past about the need to get large institutional investors like pension funds and other forms of conservative capital, and those that don’t have the tax liability that other investors do, involved in financing clean energy. Is the recent $200 million round led by the Alaska Permanent Fund a sign that such investors are finally coming around?

Shah: I think that we need deep pools of capital. To solve climate change we need trillions of dollars of investment, not just billions of dollars. I would take exception to calling these folks risk-averse. A lot of these pension funds fund high risk oil and gas activities. A lot of them invest money into hedge funds – a lot of them invest money into far riskier things than what we represent.

In fact, a lot of them view us as not risky enough, because they want to make higher returns. It’s really more about us being validated within their universe. Standard utility-scale solar and wind have achieved validation within their universe. But a lot of the other technologies that we have the right to invest in, have not received that same validation. I think that the investment into Generate, by definition, means that they are trusting us to decide which of those technologies and the new approaches like community solar are now able to get affordable financing.

 

pv magazine: What should we expect next from Generate Capital?

Shah: It’s not what I expect from Generate, it’s more what I expect from your readers. The only reason that the solar industry is successful is because developers have decided to wake up one morning and mortgage their house to invest in project development. There are thousands of people who have been willing to respond to new laws that have been passed around community solar or other things, and are willing to go out and secure land and interconnection queue positions to develop projects.

That is not happening in areas where banks have not approved financing. You can imagine that if you take a lot of risk and the banks are not ready to finance a project, you don’t get paid.

So what we are hoping that Generate Capital becomes, and we have already been validated by seeing some of this already, a beacon of encouragement for these entrepreneurs to branch out, and not just do solar but do solar plus storage. Or do solar plus storage plus cogeneration, and convince their clients to add electric busses, anaerobic digesters, efficiency, and other technologies.

Because what these developers are really good at is creating and maintaining relationships with outside parties to adopt climate-friendly technologies.

 

pv magazine: In the course of this interview we’ve discussed a number of technologies. If you could name one or two that you are particularly excited about that have not gotten the attention that you think they deserve, what would they be?

Shah: There is one that we haven’t talked about which is HVAC. It is amazing to me how many extraordinary technologies have been in the market for past 25 years in the heating-ventilating-air conditioning space, but we are still deploying heating and ventilation like we did in the 1950s. There has been no major innovation in the HVAC space in terms of what is available to you in your home in the last 45 years.

Things from advanced coolant technologies – there are a lot of advanced coolants now that have much less negative impacts on the climate and are much more efficient – but also just stuff like ice storage. Ice storage has been around since 1910, but has still never been deployed at scale.

I would say that is a huge area where we see a lot of opportunity, particularly for solar developers to branch into.