Ep.1 - Building Project Financing Relationships Early, with Adam Shor of Shor Power

Adam: [00:00:00] There's a fine balance between a developer that's hard-headed and a developer that is wearing a helmet that can just handle whatever thrown at them, but continues to be smart and act tactfully as they go forward.

Bart: It's time for Banking on Solar. This is your host, Bart Frischknecht. Solar developers, investors, and lenders risk losing projects when they bog down during financing. Banking on Solar is the podcast community where energy transition project financing stakeholders share lessons learned so they get more projects built.

On today's episode, you'll hear from Adam Shor, Solar Industry consultant from Shor Power. You'll learn more about his history and how he's come to have a unique position enabling lenders, investors, and developers to get connected and get projects done.

Now onto the show.

Thanks for joining today. It's really great to be talking again and really looking forward to our conversation. It was really great [00:01:00] to learn about the work you're doing in connecting different players in the solar industry. I'd love for you to give the audience just a little bit of your background and really how you came to be today.

Adam: Thanks for having me, Bart. It's a pleasure to be here and I've been in the solar industry now for, since about 2008. I did my master's degree in photovoltaics and solar energy at the University of New South Wales in Sydney, Australia.

Came back to the United States and worked for EPRI, which is the Electric Power Research Institute, doing some research on solar and being their innovation scout for all things solar for a couple of years. And I got the fun benefit of being able to go to every conference in the United States, Europe, Canada, and Australia, that talked about solar and learn about it and make connect.

And then I got to jump into the startup world in Menlo Park. [00:02:00] I worked for QBotix selling dual access tracking robots.

I had to learn how to sell the thing three times. Had to sell it to the developer, had to sell it to the project financier, and had to sell it to the EPC, so I had to learn all three of those disciplines.

From there, I had the opportunity to go work for a company called T-Rex, which was building a risk analytics software for solar asset backed securities. And so think heavy structured finance. And along the way, these two words kept coming up. Tax equity, tax equity, tax equity. And

Since February of 2016, I've been running my own standalone consulting firm. Shore Power, helping mostly c and I scale developers, but they're

starting to scale up a little bit, find the various flavors of capital that they for their projects and kind of teaching them how to solve problems along the way.

Bart: Thanks for that intro. Super, super fascinating background and Amazing amazing [00:03:00] perspective, I'm sure, on how all of these pieces come together, especially, from the utility perspective and, and all the way down to the, to the developer perspective. You said you're working mostly on C&I scale project, but they're starting to scale up.

Could you just give a sense for kind of the size of projects that you're typically seeing?

Adam: They range, on the small end in the portfolio size, they can be sub one megawatt. But occasionally we see projects that are, close to a hundred megawatts. I'd say on average the project size is closer to five to seven megawatts. But you're talking about aggregated portfolios that are a half dozen to a dozen of those projects altogether.

They range from being just traditional p p a single off take projects to the more community solar projects that are taking place in all different states right now. I see projects from Maine to Florida to [00:04:00] California

to American Samoa. I mean, they're, they're all over the

Bart: I know one of the things that you do is, is help get people connected so that the money can flow in the right direction, right? Developers that are looking for money and lenders and investors that are looking to put their money to work. Who typically calls

you first? What does that typically look

like? When someone knocks on your door?

Adam: It's whoever needs help. A lot of times is the developers that need to find whatever is necessary to build their projects, but occasionally it's investors that are looking for a co-investor on occasion or investors that are looking for deal flow.

And you know, one of the things about our industry is that it's still not a mature industry. It's still very much growing and everybody doesn't know each other. And so candidly, it's still inefficient. And so my aim for my business is to make the market more efficient than it is [00:05:00] today by connecting folks that Basically need what the other person has. It's, it's essentially Go fish, you know? just a simplified version. And instead of using little cards, it's who's got, which megawatts where, and who's got how many dollars to match up with those megawatt.

Bart: I can feel the pain, right? In terms of people that have projects and then they're like, well, how do I even get started? You know, I, I. Austin, the two people that I knew that had financed the last project we did. I need to meet new people. And then on the other side, we have this money we wanna deploy but we need to actually find people that have high quality projects that are ready to deploy that we can deploy it.

Adam: There are different skill sets in different knowledge bases, right? Like a solar developer is a very unique skillset. But it is very different than a project lender or a tax equity investor. And so in many instances, not only do they not know each other, but at the same time, They have to learn to be able to sort of speak the same language and speak in terms that [00:06:00] both are amenable to, and so part of it is it's not just connecting them, but it's also helping them understand what the other party needs.

Now obviously each time you sort of educate somebody and bring them up to speed, then there's one more party that's more dangerous than they were but the Inflation Reduction which passed last year, has had the added benefit of bringing a whole slew of new folks into the market, which is exactly what we need in order to be able to address the goals that we have.

And so those new players have to come up to speed on how this stuff works. And it's not like some club that we're trying to keep people out of. We just need to upskill them so that they can be as efficient as.

Bart: I feel that, and as a new person in the industry, I feel like I'm coming up that curve as well. And that's one of the reasons for the Banking on Solar podcast is to get that kind of information more out of the world.

[00:07:00] As you've talked about the matchmaking that you do and then the education that you do, is there one principle or one basic concept that you feel like we could all get better at in the industry or that we could become more efficient at when we're thinking about how do to really bankable projects? Is there a mistake you see people make frequently or something that they could, that we could all improve on?

Adam: I'd say start with ample time. Okay? Because the last thing you want to do is be rushed into finding finance. If that happens, you're going to end up with less favorable terms, and if you've got more time to find it. And secondly, make sure that you give yourself ample time to get the stuff done. 99% of the time, everything takes longer than what we would expect or what we would like. And sometimes, or a good chunk of that time, it's through no fault of our own. It's through some other contingent party that we rely upon to get something done and that [00:08:00] we have no influence over. Whether it be a shipping container that's stuck off the coast of Long Beach that has the panels that a project needs or a utility that has more important things than it needs to do because it just had an ice storm and it can't get the requisite people out to interconnect the project before December 31.

There's a whole slew of things that can happen that are totally outside of your control. And so making sure that you build in a buffer to the extent possible is super helpful. And then, making sure that you've got the right people that you can call if you do end up in a scenario where you got a problem. Because what you don't wanna do is you don't want to be in a problem downside scenario and not have, whether it be time or money or a contractual relationship that you need in order to be able to get the project across the finish line.

I mean, everybody in this industry benefits [00:09:00] The more projects that are successful, both from an industry standpoint because it provides a good reputation for the industry, but also from all of the environmental attributes that come with getting these projects installed on the grid.

Bart: For sure. Wanna just go back to one of the points you made around timing and getting

started early, and that's something that I've.

heard time and time again. And I'm curious how you see the interplay between people that are traditionally a very conservative group, right? These bankers and lenders are some of the most conservative people on the planet in terms of putting their money to work. How do you navigate that relationship? Because it's not necessarily that you show up with the project completely finalized and then show up to the bank and say, Hey, we're ready for you to evaluate this. Sometimes it feels like that might be the expectation, right? That the bank's like, well, we, we don't have time to even talk to you yet because your project's not ready. And the developer's like, well, if we don't get this conversation started, we might not ever get the project going.

Help me understand what it looks like in your, in [00:10:00] your experience to get started early, and then how does that, how does that evolve as the project matures?

Adam: So, most importantly, I think, and this is crucial for everything in this industry, relationships are invaluable. Okay? And so, with respect to getting started early you want to build a collaborative relationship with whoever your lender or financier ultimately becomes. And the reason for that is there's always gonna be stuff that comes up you know, the, the intention is that it's covered by the term sheet, but sometimes there are circumstances that are not covered by the term sheet, and you have to work through 'em together. And you want a financing partner that's gonna work through that in a collaborative fashion. Rather than somebody that's gonna be antagonistic.

I mean, developing solar and getting it built and going through construction is hard enough on its own. You don't want someone that's going to make it harder or try and like crack the whip on your back [00:11:00] because they need to get something done.

You need to establish a, a collaborative relationship upfront and sort of help set those expectations so that if and when you find yourself in a situation that is less than ideal, you can work through it together because you've got a good partner.

And so I'd say the reason I say start early is because you can help establish that relationship and help create the foundation for whatever is going to occur over the next three to six months, sometimes much longer over that next milestone associated with that project.

The other thing is that starting early gives you the option to talk to a whole bunch of parties and figure out who's gonna be the best fit for you and your project or your portfolio, and candidly, your balance sheet. Because not every lender is comfortable with a small balance sheet developer. You've gotta have a certain lender that has a certain set of expertise and a certain set of experience [00:12:00] to be able to say yes, all right. I not only understand the project, what you're doing, but I also understand how we can do this in a collaborative fashion to help you get to a successful outcome, both from a project standpoint, but also from building a business.

And there are banks and lenders that are out there in this market that have helped build businesses in addition to building the solar projects and, and that is candidly invaluable to the ultimate developer. Those developers, the developers that make a ton of money.

The developers that end up struggling with a project or multiple projects, man, it would, that time is so much better spent being able to develop future projects rather than just struggling on the first one.

Bart: Talking about struggling, I'm curious in your experience is there a memorable project that comes to mind that just bogged down or kind of got outta control? Not necessarily at the start, but by the end, looking back you felt like, oh, this was actually like a slow motion train wreck or something that could have could [00:13:00] have gone better in different circumstances.

Adam: Well, There's been lots of circumstances like that. I mean, some of them are real fast motion train wrecks that happen right in front of your eyes and get over quickly. And candidly those are better because you get to spend your time on other stuff. The slow motion train wrecks are really inefficient and drain you.

Can be scenarios where a project has been started and then there's a problem with obtaining the construction financing midway through, or a developer intends to self-finance the construction and then they run outta money and the project's 80%. But now you you can't access the revenue and you have a much less sellable asset when the project is at 80% completed from a build standpoint.

So having to go back and retroactively fix a financing scenario like that Is a massive, but you can do it. It's a train wreck that you [00:14:00] have to sort of unwind and, and put the, the cars back on the tracks, per se.

Other scenarios I've seen where you can have a project that was slated to be a 2018 project and courtesy of County Planning Commission approvals becomes a 2021 project. Through no fault of the developer, the developer's doing everything they can to move the project through. And everything along the way, you got your construction finance, your tax equity, your permanent financing lined up, but you've got some development permit that somebody is holding back in the hopes of you'll give up and that developer just has to see it through.

There's a, a sort of a fine balance between a developer that's hard-headed and a developer that is wearing a helmet that can just handle whatever thrown at them, but continues to be smart and act tactfully as they go forward. And I would say that that is both a lesson [00:15:00] for the developers that are doing this today. Be smart about how you develop your assets, but at the same time, with the Inflation Reduction Act, bringing all these new parties into the space, there's gonna be opportunities where do a lot of things right, but do something wrong, and it creates a scenario for somebody else to step in and sort of pick up the pieces, and that's gonna create opportunities.

I've also had scenarios where somebody thought they had the money and then at the end they didn't for one reason or another, And then you gotta go back to the drawing board.

Most recently there are folks had the money and then the bank that had the money disappeared. And that is a real problem. What do you do there? That's just inefficiency because it's not the fault of the the bankers themselves, and there's a ton of legal dollars that have gone in to create that partnership. But now there's uncertainty that's been injected, and so you may legitimately need to go find[00:16:00] a new counterparty because we don't know what we don't know in terms of what's gonna happen to those institutions or the, the remnants of those institutions on a go forward.

Bart: Super fascinating. I'm sure there are a lot of not just the people you're talking to, but a lot more that are scrambling right now to pick up some of those pieces.

I'd love for in your mind, get one specific deal in your head could be recent, could be from a few years ago, but in very broad brushstrokes, walk through the capital stack of that deal, how it came together in terms of the pieces. So maybe give a general sense, of overall context of the deal, size of the deal, and then maybe how that capital stack came together in the end.

Adam: The most general in terms of the best example of the the typical project, the project will more or less be at the final stages of development, may have achieved ntp. They've got a working relationship with a lender. [00:17:00] In terms of who they want to be their permanent lender. Okay. And that permanent lender's gonna provide something like five to $10 million for the project. But they find me and they say, okay, well we need to find the tax equity. Well, solar has this weird thing up until transferability passed that you had, you had to find the construction financing to get to the perm. financing But in order to get the construction financing, you had to have the tax equity. And so you had to have the last piece of the puzzle before you could access the first piece of the puzzle. And so folks would come to me with a a permanent lender in mind and they'd say, help with respect to these other pieces, and in my, in the perfect world, the construction lender can be the tax equity investor.

Actually, in the perfect world, the construction lender, becomes the permanent lender, which also [00:18:00] is simultaneously the tax investor. But that's not always the case. That's more of a rarity than anything else. And so the permanent lenders identified, then we have to find the construction lender, but the construction lender conversation is sort of in tandem with the tax equity investor. And you gotta understand from a tax equity standpoint that a project of that scale, you're not gonna be able to go to the JP Morgans of the Wells Fargos of the world to get four to $6 million of tax equity. Not because they don't have it, but because materially unappealing to them, four to 6 million doesn't even scratch the itch for them.

If they're paying billions of dollars in taxes, they need opportunities that are gonna match up and actually reduce their tax bill and reduce their effective tax rate. And you have to think in the back of your mind that there's only a select group of people that any of these institutions that do these tax equity deals to get them done. And so they have to be judicious around which opportunities they choose. So you have to [00:19:00] right size tax investor with the opportunity. And so in that scenario, there's a conversation to be had with several different regional banks that have tax liabilities in the five to 20 million range. And then at the same time, some of those regional banks may have an interest in the construction financing too.

And so In that scenario that we're

talking about where the permanent loan is identified, the ideal outcome would be a regional bank. Think, you know, Minnesota or Indiana kind of geographies that has a, call it a, 20 billion, or excuse me, 20 million tax liability that is interested in making a 4 million tax equity investment that also has an interest in doing a construction financing in that scenario. You have the permanent

financing identified. the construction lender is also the tax investor. And so they know when they can inject [00:20:00] their money and still achieve IRS at risk rules guidance and, provided everybody does what they're supposed to, that solution can work out well. And so that would be kind of the best answer that I can give in a, in a non mba.

Bart: That's great. And I think that's fascinating. It'll be interesting for people to listen with, with their own ears in terms of the backgrounds they're coming from, because I think as, just like you said, as the projects are at different size and scale, there's different opportunities for different people to play and in the size that you're talking about, that ability to find someone that can partner across multiple buckets of the financing becomes really, really valuable and really useful.

Adam: Yeah. The only people that don't like that is the attorneys because the attorneys miss out on diligence opportunities in that scenario. But if I can say anything to anyone that's listening to this, like if you are out looking for financing, it is materially important for your, the time that you spend to right size the [00:21:00] opportunity for the entity you're trying to get in touch with. Approaching a big bank with a five to 10 million transaction is a waste of both of your time. Not because they can't do it, but because it doesn't make sense for them to do. And so it therefore doesn't make sense for you to be talking to them.

You want to be talking to parties where the scale of the transaction you're working on makes sense for the counterparty to do, and, and that is where your time is gonna be best..

Bart: I wanna switch into the lightning mode part of this conversation. I'll ask you just a few questions and if you can give your top of mind answer in 30 seconds or less on each of these.

So one question I'm always curious about is what beliefs do you feel like you hold about solar? Or it could be something else in life, but something that you feel like you might see differently than a bunch of other people in the world.

Adam: I think that when an appraiser does the appraisal on these assets and budgets, a 35 year life. [00:22:00] I mean, it seems almost egregious how valuable these assets could be. And candidly, I think that they're worth more than that. And the reason for that is that as we build out the grid today, the thing that that Solar project has, that's hard to really quantify in terms of value, is the interconnection point to the grid. The grid is gonna come to rely upon some form of generation at that location, and so even if the asset only has a certain value up to that 35 year life, the the actual connection point to the grid is, in my opinion, of seemly valuable because it provides you the opportunity to just rinse and repeat over and over and over again.

Bart: What emerging trends do you see that could be affecting your personal livelihood and business related to solar?

Adam: Domestic manufacturing, I hope happens with Gusto. I think that it would be phenomenal to onshore some of the products that we make and that would [00:23:00] really expedite the ability to access hardware that we need for these projects, and not have to deal with supply chain issues.

Secondarily, transferability has the potential to be either a a really massive thing that unlocks a tremendous amount of new capital. Or, it could just be sort of an .And the devil's very much in the details there. We all wait with baited breath on the transferability guidance from the Treasury Department, and so we'll see what happens.

Bart: That leads into the next question. What do you feel like are the biggest bottlenecks for the industry right now?

Adam: Candidly, I think that we're gonna run out of tax capacity for projects that are in development. In, call it 18 months, the existing investors are not gonna be sufficient to, to meet the, the growing need, especially because we have new forms of generation and, storage, like anaerobic digesters and, and geothermal and, and battery storage that not now can get access to tax credits.

I think also the [00:24:00] carbon capture stuff. I mean, if and when that stuff takes off, it's going to really soak up a ton of tax capacity. And so we need to continually encourage new players into the space.

And then at the same time we need more people, right? Like we have all of these huge goals that we want to meet from an industry standpoint and from a societal standpoint. And candidly, the number of people that we Is gonna be insufficient to do that unless we all stop sleeping. Cause there's a lot of work to do.

Bart: Yeah, for sure. All right. Thinking work and non-work related, what does a successful day in the life of Adam shore look like?

Adam: Good food. Hanging out with my family and my dogs. Finishing the, the day occasionally with A nice sip of something, some good form of bourbon or rye. And along the way, talking to people that I do business with, but that are also my friends. A lot of the folks that I do business with are. [00:25:00] You know, either start as my friends or become my friends along the way. And so I'm very lucky in that I love what I do. And I get to talk to people that I consider to be my friends and help them do good business. And then I think, you know, the cherry on top would be if I get to talk to somebody that I've not met before in the industry and, and figure out if there's a way that we can work together, not from just like a business development standpoint, but if there's somebody that has the ability to do something. Particularly on the financing side of things that I'm unaware of and I learn about, then that makes for a really good day.

Bart: That does sound like a great day. How should people get in touch with you if their ears are ringing or if something comes to mind, what's the best way for them to reach out and, and get ahold of you?

Adam: A lot of folks get in touch through people that they know. One of the things that. I like to be good at in this industry is knowing a lot of folks, and so generally speaking, if someone is trying to get in touch with me. they probably are one or two [00:26:00] degrees of connection away from me. They can email me, they can call me. Whatever works. Communication is my .

Bart: All right. So you heard it here. Adam is open and, and ready to meet new folks.

Well, Adam, thanks. This has been a great conversation and we're gonna leave it there for today. For everyone out there, please subscribe and leave a review on your favorite podcast platform so that others can find this show and we can get more people banking on solar.

If you have an interesting guest idea or someone else you'd like to see on the. show, Please leave a voicemail message at bankingonsolar.media or send me a note at bart@bankingonsolar.media. You can also find me on LinkedIn.

Now is the time for banking on solar. There's money to be made and the planet to save. Until next time, I'm Bart Frischknecht, and this is Banking on Solar