EP.3 Do You Plan Enough Time For What Can Go Wrong, with Beth Goldstein of Sherin and Lodgen LLP

EP.3 Do You Plan Enough Time For What Can Go Wrong, with Beth Goldstein of Sherin and Lodgen LLP
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[00:00:00] 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 that more projects get built.

On today's episode, you'll hear from Beth Goldstein. Beth A Goldstein is a partner at Sharon and Lodgen LLP's real estate department and chairs the firm's renewable energy group. Beth's clients are engaged in complex renewable energy transactions, including construction and permanent financing of clean energy facilities, permitting development and leasing for solar and battery energy storage projects, energy regulatory matters, and transactions involving the purchase and sale of renewable energy projects. 

In 2021, Beth was named an energy and environmental trailblazer by the National Law Journal, recognizing the top energy and environmental lawyers across the nation who have moved the needle in their field.

She's been recognized by Massachusetts Lawyers Weeklys "Top Women of Law," and as a "Rising Star" by Massachusetts Super Lawyers. Beth has provided counsel to both lenders and developers and brings a decade of experience in the renewable space. You'll hear some of the wisdom from that learned experience come out in today's conversation.

Now onto the show.

Beth, it is really a privilege to have you on the podcast. I'm really excited for our conversation. We've chatted about a number of issues in the renewable industry, in the solar industry, and, excited to have you as an expert from the legal perspective on the show, and I know you can bring a unique perspective to the developers, the investors, the lenders, everyone who's in this space trying to get more projects built. Thank you again for being here. 

I'd love to start with you sharing a little bit of your background about how you ended up in renewables, and specifically working on solar and some of the other projects that you've been part of. 

[00:02:01] Beth: Sure, thanks Bart. Happy to be here as well. My background was in commercial real estate and finance, representing lenders and developers in commercial real estate and we had experience in other tax credit financing, so new markets, tax credits, historic tax credits. At that point we began representing various lenders in solar because they were transitioning from those other tax credits to solar lending and eventually I went partly on the dark side, started representing some developers after I learned their business from the lending side.

So now I have a mix of clients in all engagement renewable energy space, solar battery, bit of hydro financing, transactions involving debt and tax equity, project development, project purchase and sale on both lender side and developer side, occasionally some others thrown in there like off-takers or landlords but all, all engaged in some type of renewable energy transaction. 

[00:02:57] Bart: How have you seen things change over time? Especially even in the last two years? What have been the biggest differences you've seen as you've seen more projects come through?

[00:03:06] Beth: One thing that's been interesting is state level incentives change all the time. And as a client gets into a new area or a new space they'll learn the New Jersey renewable energy programs and then suddenly they wanna do a deal in Maine and they're learning the Maine program.

So I think the learning process never ends because, A) there's 50 state level incentives, or, there may be 50 state level incentives, and then there's federal incentives. The IRA we'll talk about it more, I'm sure. But the Inflation Reduction Act should really be changing a lot in the industry, and so there's always something new to learn. I don't think you can ever say, all right, I know what I need to know about solar, and I'll just do projects now because there's a new frontier. 

[00:03:50] Bart: And you have a really unique perspective because you've been working on the lender-financer side as well as on the developer side.

I'd love for you to maybe compare and contrast, well, I think we'll get into this in a little bit more detail with some other examples, but what have you learned sitting on both sides of the table, so to speak.

[00:04:08] Beth: Hmm. That's an interesting one. I think I, I have a unique perspective because when I'm, when I'm representing a lender, I do understand the struggles that a developer has in getting a project online. But at the same time, I need to protect that lender's investment. The lender is not the developer and while they want to be a partner to the develop, they need to, talk to their investors, they need to be able to answer to the bank and all these other stakeholders, regulatory stakeholders, et cetera. And so I think understanding that lenders and developers have the same goals in mind, but they have different incentives for how to reach those goals, I think helps. But as a lenders counsel, you really want to understand solar development. You want to understand how net meter and credits might work, how any type of offtake credits work, or the program, when we say program, you know, the incentive program works. And you need to understand the underlying real estate and all those aspects just like the developer does because ultimately it's your money going in, and if something goes bad, it's your money coming out or not. And so I think they're really more aligned than parties might think they are. 

[00:05:25] Bart: That sparked me just thinking about a conversation we had in Boston and a lot of the work that you are doing is in that Northeast market where there have been incentives, mature, mature renewables markets if there is such a thing in the United States, right? Mm-hmm. Where there have been a number of different incentive schemes in different states and things happening, is that where you're primarily focused as help? Help me understand a little bit more in your specific work, a little bit of the boundaries that you draw for yourself so that the phone is just not ringing nonstop for you to get engaged with lots of different project work. 

[00:06:01] Beth: Yeah. So on the development side we've done a ton in Massachusetts. That's where we started. That's where I'm located in Boston. And we're in, in Massachusetts, we're in the, it's third state level incentive program. So it is a more mature market. But we do work sort of all over New England. In financing as well, all over New England, New York, New Jersey. 

What we do is we just engage local council if we're in an area that we don't have expertise and if we do have the expertise, but there's a reason to engage local council on the ground. So we'll partner with another law firm, either to represent a lender or developer, but it allows us to have the relationship with the client that's ongoing. So I know that client's needs, and I know that client's pain points ,and the local counsel can jump in at the local level on what I might need to understand about the project itself.

[00:06:52] Bart: Diving a little bit deeper into those types of projects as what types of projects are you typically seeing? Are these commercial and industrial? Are these utility scale or is this a mix? What does that look like? 

[00:07:02] Beth: Sure. So it's funny, I always say people describe them differently to talk about the type of project. So I, I would say they're C&I, they're a lot of times like five megawatt projects. Or they're larger portfolios of something like a five megawatt project. Just to give you a sense of the scale, I'm not typically involved in huge utility size projects in Texas, let's say. Although I'll do PPA offtaker work for like virtual PPAs for clients that want to get into corporate social sustainability and responsibility, those kind of things. But typically the project I'm working on might be from a lender's perspective, let's say construction to perm loan or loans for either a standalone solar that's let's say five megs or a portfolio of 10, two meg projects, something like that on the lender side.

And similarly on the developer side, maybe a good example would be a membership interest purchase agreement for a portfolio of projects that would be purchased at Notice to Proceed stage as an example, and then developed by my developer client after. 

[00:08:11] Bart: So you're coming in with that purchase, that second stage developed, who's saying, okay, we've got this project ready. Now we're really ready to put all of the pieces in place to actually execute on that project. 

[00:08:22] Beth: And get financing, put, shovels in the ground and build it. 

[00:08:25] Bart: So, you've got all this experience from both sides of, of these typical transactions where we're looking for financing and then looking for the projects to get going forward.

Whether it's on the lender side or the developer side, or maybe both. Both maybe share a similar issue, but what do you think is a principle about getting bankable projects that we could all be better at in the industry? What's something that, that you see typically that you're like, wow, if we just did this a little better, it would make everyone's life easier.

[00:08:55] Beth: So I think one, I think you're gonna hear this answer from everybody who you interview, but understanding that things take longer than we expect. Time is never on our side. But I think understanding what can go wrong at the project level. So lenders might be really excited about the return investment and all that, but they need to really think about what can go wrong, like on the ground, on the land.

It could be an abutter who doesn't want solar in their rack yard. It could be a town. We're seeing this in Massachusetts. A town that doesn't want solar despite regulations allowing solar. Those things may take a lot of time to resolve even if they're not gonna ruin the project.

But recognizing that you've gotta get creative if there's a hurdle like that. One way that we can mitigate that is diversifying risk in a number of ways. So a lender might lend on a portfolio of 10 projects and feel that if any one project has an issue, it's not taking down the loan.

That can cut the other way where say they're now lending more money than they would've liked to, to one borrower that they're not yet comfortable with. If they say, okay, I'll take on a portfolio to diversify my risk, and then suddenly they're all in on a borrower. But sort of diversifying risk that way.

The other way they can do is lending on various types of renewable energy projects. So they might do community solar projects, projects in tariff rate tariffs where the revenue is more structured. Projects where the offtake is to a really strong credit offtaker. Diversifying in some way is a good way to help avoid the, "Oh my gosh, this project, can't be built because on an abutter has tied it up in court for a few years."

[00:10:42] Bart: I think there's a broad recognition that there's a lot of capital out in the market to deploy. And there's increasing interest in deploying that in renewables. Some lenders have gotten really comfortable with that and are at the leading edge of, of that. Op, that option to deploy in renewables and the others are still on the sidelines. What are you seeing in terms of, of the types of work that's happening in the, the appetite for lenders and the education curve they're coming up?

Are you seeing the advantage to the people that are already in the space or are you seeing new people come in and try to learn the space so that they can actually get to a point in their heads where, where these projects are bankable? How are you seeing the lending space change? 

[00:11:23] Beth: Sure. I've definitely seen it happen . I've been doing this about nine, 10 years. And it was a few, in, at least in my area, locally, it was a few lenders doing this. It was one, and then, a banker may have moved to another bank and said, all right, I understand solar. I'm gonna do it at this bank. I think that still happens today.

That's one of the ways that it spreads from bank to bank. The other way I see lenders that are not yet in the area starting out as participants. So they don't necessarily have the, the responsibilities of the lead lender, but they learn the program via participation. And that's a good way for a lender to sort of sit on the sidelines, watch everything, play out, understand what's going on and have a stake in that loan and later on be in a position to be lead lender. But yeah, I do think some of these banks have been in the area for 10 years and some are still sort of waiting. And I think my lender clients would agree that it's been a good investment once they got smart.

But it takes some work, you know. A loan officer or lender really needs to start studying up and paying attention and asking questions and not being shy about trying to learn from another banker or another, or their counsel or whomever they can soak up information from. I definitely see, at least using the Boston area as an example, lenders are fairly friendly. They share deals. They collaborate on deals, and I think it allows more people to get into the game. Nice. 

[00:12:54] Bart: Awesome. All right. I wanna switch gears a little bit and think about maybe some deals gone wrong. What lessons have you learned or what, potential train wrecks have, have you seen happen throughout this process?

[00:13:06] Beth: Sure. I think it all goes back to sort of the understanding what can go wrong on the ground that we talked. I've seen deals where an abutter is unhappy about an access easement that needs to go across their property and holds up a project for two years in litigation. 

One issue we keeps seeing in Massachusetts is related to taxes. So for an example is a developer signs a payment in lieu of tax agreement for personal property taxes with the town, and their real property taxes have been relatively light because it's been undeveloped land. And the solar goes online and suddenly the tax assessor raises the real property taxes high. And they say, whoa, my proforma does not reflect high real estate property taxes and these personal property taxes.

And so there's just a number of ways that financially a project can be not what we expected it to be. And I think you learn as you go. There's always gonna be something that could go wrong and you can't anticipate everything. But each time you have a problem like that, you learn one piece.

One way to try to avoid it in the future or mitigate that risk in the future. Leaving a bigger buffer for taxes in the pro forma, for example. That only has to happen once for a lender to say, wait. We could do this a little bit better. Mm-hmm. Mm-hmm. 

[00:14:24] Bart: Are there any patterns? If you thought about, the anatomy bid deal, are there any patterns that you've seen in terms of the capital stack or, or other aspects of how those deals come together to be successful? 

[00:14:38] Beth: I think a lot of it is, a developer and a sort of a group, a developer, investor and lender that have done a deal together. They learn the first time. The second time is so much smoother. They know what each party's pain points are and what each party is really focused on because a developer's not focused on everything. They have certain things they really need from a lender, let's say, and a lender similarly. Getting through the difficulties of a first deal together usually leads to a lot more business together. Just in term of terms of successful deals, I think the organization of a developer is key. When you're trying to make a financing come together, you can save a lot of time, energy, money, and just keeping everything organized and delivering.

We joke about it, about delivering a beautiful data room with, with everything, organized how the lender might like it saves everyone a lot of hassle and time because it allows everyone to jump in right away, understand what the project is, understand what the project isn't and kind of get ready for a closing. 

[00:15:45] Bart: So I think about your perspective. You see a, a lot of these deals go through potentially more than either the lender or the developer sees, and I'm guessing that you end up being able to guide or steer things in a positive direction, maybe beyond what the developer, what the lender thinks the scope is of how they've engaged you. But, but I guess how are some of the, how are some of the ways or what are the, what are the ways that legal counsel adds value that maybe aren't typically the thing that they think that they've got this line item in the budget for? 

[00:16:17] Beth: Sure. That's an interesting question. I think one way is anticipating lead time items that others might not be focused on. I think, a lender gets a term sheet signed and they're focused on XYZ. Developer gets a term sheet signed and they're focused on ABC. And I think I can look at that term sheet and say, look, you've got a, there's a mortgage to a syndicated investor, syndicated lender on this property that we're gonna need an SNDA and those take forever. So figure out either let's get ahead of it or let's find a creative solution around it at the outset so that everyone isn't just focused on what's on their to-do list. And sort of get lender developer on the same page as to what's gonna take the most amount of time and what's the easy stuff, and let's focus on those lead time items first.

Doesn't always work out, but we try. 

[00:17:11] Bart: Yeah, no, that's fantastic. And I'm sure, I'm sure there's a lot more happening there. One of the things that I like to ask guests is, what's something they believe that may not be widely held by the industry? Or at least, at least there's an, there's an active discussion about what's something that you feel that, that may fit into that category for you?

[00:17:29] Beth: Sure. So this is, might be overly simplistic, but I've had a couple of clients and contacts who are really eager about battery energy storage, which is a big deal right now, said, solar's dead. Solar's old news and I think, I don't agree with that. I think the deal, like volume we've had in the past couple years, and then the IRA, and new provisions in the IRA would beg to differ? I don't think solar is going anywhere. I think there are a lot of states that could still be doing a ton more to incentivize solar. And then those states that have incentivized solar are hopefully getting more and more creative to keep that going.

[00:18:08] Bart: Yeah, you've gotta believe that the rate that we're going, the amount of capacity, generating capacity, in solar that has to be installed is just massive. And so that may look. Some of those early players may feel like it's dead to them because they're like shiny object, right? They're like, let me go on to the next thing but from an industry perspective. 

[00:18:26] Beth: Yeah. And, and we've got grid issues. Without battery we are having problems nationwide with getting projects online due to, grid. And just capacity to take on more solar, even if there's room to build it and incentives to, yeah.

[00:18:41] Bart: Yeah. That's a great segue to the lightning round of this part of our conversation. So I'd love to switch into lightning mode where you provide just top of mind answer in 30 seconds or less for just a few more questions as we wrap up here. And maybe it's related to the grid, maybe it's something different, but what emerging trends do you see affecting your livelihood and business as it relates to, to renewables and project development?

[00:19:02] Beth: So now I guess I'll go back to this: Batteries. The IRA, made clear that investment tax credit is available for standalone batteries, and I think we're gonna see more and more of that. Now that folks are comfortable, that projects that might have not penciled out before they were clearly getting ITC, can, and so I think we're gonna see a lot more storage. And then the addition of, instead of 30% investment tax credit, being able to get maybe 30, 40, 50%, I think is gonna bring on a lot more challenges and 

[00:19:34] Bart: exciting projects. 

Awesome. What do you see as the biggest bottleneck for, for the continued growth?

[00:19:39] Beth: I think a lot of people will say construction equipment. That's been a big issue. It continues to be a big issue. And then on the flip side, we just talked about the IRA making things exciting for solar and renewables, but understanding how those adders work, understanding all the terms of the IRA.

People are really excited about the transfer of ITC that the IRA introduced, but nobody seems to understand how to do it yet. So I think learning, and I'm still hearing a lot of people say, we've gotta figure out this transfer provision. And I'm not yet seeing it in action. Right, 

[00:20:12] Bart: for sure.

Switching gears just a little bit, what does a successful day look like for Beth? Either work or non-work related? What, what does that, what does that look like for you? 

[00:20:24] Beth: So I guess work related. I really enjoy talking to maybe an existing client on a new deal, trying to structure it, help them get it from a potential to a definite deal.

That's a fun part of the day. Always talking to potential new clients or introducing people. Solar and renewables are, it's a small world. And so I spend a lot of time just talking people and introducing and being introduced to other people. Personally, try to exercise, try to stay sane. Try to spend time with family. I work a hybrid in office, at home mix, which has 

[00:20:58] Bart: helped a lot with that. Beth, this has been a fantastic conversation. I'm sure there are people that may wanna follow up with you. What's the best way for them to connect with you personally? 

[00:21:09] Beth: Sure. They can find me on LinkedIn. Beth Goldstein, my firm is Sherin and Lodgen LLP. Email is bagoldstein at sherin, s h e r i n.com. And LinkedIn's probably the easiest way to find me if you wanna reach me, be happy to chat 

[00:21:24] Bart: with anyone. Awesome. Thanks Beth. I really enjoyed this conversation and I'm sure we're gonna have more conversations in the future as, as things develop, but it's an exciting time to watch. 

[00:21:33] Beth: Thanks Bart. Appreciate you having me 

[00:21:34] Bart: Please leave a review or share this podcast with others so that 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 at the website bankingonsolar.media or send me a note at bart@bankingonsolar.media. You can also find me on LinkedIn. Now is the time to be banking on solar. There is money to be made and the planet to save.

For now, I'm Bart Frischknecht, and this is Banking on Solar.