Greenbacker Solar Investments

In this episode, I interview Brett Tomach from Greenbacker Renewable Energy Company. Greenbacker offers investments in alternative energy (solar and wind) and in renewable energy in opportunity zones. They buy renewable energy facilities and sell the energy in long term agreements to utility companies.

Here is the transcript for this episode:

In this episode I’m gonna talk with Brett Tomic of greenback a renewable energy company
This is impact financial planners. I’m Bill Holliday
Impact financial planners is a fee-only financial planning firm specializing
It’s sustainable responsible impact investing and impact financial planners. Thank you for joining us
This is an interview about a company that buys up
alternative energy facilities solar mostly solar plants some wind plants and then they
Have this big portfolio of them that they’ll eventually sell to to a large investor or make it public
It does get a little in the weeds. So bear with me. I think it’s still a valuable interview
Alright, let’s go to the interview. Are you familiar with an RPS or renewable portfolio standard?
No, so that’s a requirement by a state to get to a certain level
electricity produced from renewable sources
By a certain time, okay here at California and last year
Governor Jerry Brown put into place SP 100 which is going to require the state of California and the utility companies
To get to 100 percent of their electricity
generated from clean sources
By 2045 so a clean source or a carbon-free source
It’s not 100 percent renewables or wind solar biomass etc. So that includes
natural gas include nuclear
Electricity so on and so forth. What’s interesting about the standard you put in place that’s 60 percent of that 100 percent
It’s gonna have to come from renewable sources so wind and solar and what we’re seeing
Nationwide is not only are we seeing more states add?
renewable portfolio standards we’re seeing those that do have renewable portfolio standards growing them are enhancing them which
It just goes to show you the a the incredible amount of you know, kind of groundswell
There is in the Renewable space and then also that a lot of these
Policies are driven on the state level. I mean that’s one of the biggest questions I get is, you know?
How much does the current ministration?
Impact, you know renewable energy the growth renewable energy throughout the country and my response is always not much
There may be some funding pulled on the research and development side
But ultimately a lot of it’s driven on you know
The state and the local government side of things how many states have this goal?
38 right now, okay
Yeah, so it’s it’s it’s a good amount and you know, like Maryland just bumped up to 50% I
Forget the exact date. It’s supposed to get to 50% on Nevada bumped up to 50% as well
We’ve seen Maine increase. There’s over the last month or two
We’re seeing New York and New Jersey also push up to a hundred percent similar to California
So there’s a tremendous amount of activity in space
Which is very encouraging and those are the states that usually will participate in our current fund
We are we operate in 20 states throughout the country
for the most part all of them have
You know pretty progressive
Renewable portfolio standards in place and it’s on the state level
it’s not a corporate decision or or at a smaller level or
You’re mostly seeing it. That’s correct
Could you just explain what biomasses?
Yes, so I’ll speak specifically to our deal that we have in Colorado and in you know, Colorado’s
Conflicted with a similar situation to what we have in California where?
The forests are being overrun by beetles
And the reason that the beetles are over in the forest is due to droughts that we’ve had not only in
California but in Colorado as well and what they’re doing is they’re they’re killing the timber in the forests
So ultimately the Forestry Service and in national parks and the states in the cities have to do something
with the dead timber to prevent forest fires which you know, unfortunately we’re impacted by on a
Yearly basis and so in Colorado and the specific deal that we acquired on gypsum
what they’re doing is they’re taking the dead timber from the beetles and that’s going to be burned and
That process generates electricity
Okay
gotcha, once so, you know be
The important thing when buying up at a biomass deal is the feedstock
So, you know you want to have a reliable source of timber
So not only do we have contracts to sell electricity to the city of gypsum in Vail
But we also have a contract with the federal government and Forestry Service
For the timber necessary to continue to burn
Guys, so it’s gonna have to be burned by the way some people that’s that’s one of the big things with biomass is a renewable
source
like well you’re
you’re
Burning fuel essentially burning wood, which is not you know the greenest of processes, but it’s gonna have to be burned by the way
So you might as well put it to good use sure you might as well harvest that energy and the reason that’s specifically great for
green backer and as an investment strategy is if you take a look at
Solar and wind it’s very cyclical. So
obviously the Sun is going to be out more from March November and it’s going to be out a lot less from
November through the winter or a fall and winter, um
We’ve historically found the production goes down in those months. And so we supplemented that
with wind which is
Also fairly unpredictable, but you know, we definitely see wind increases through the winter months
But the great thing about the biomass do is that we’ll be burning the wood to generate electricity
20 out of 24 hours a day
So it helps smooth out the productivity of the production on in the cash flow of our portfolio
Cool. Well, let me let me just back up a little first Brett. Thank you for joining me
Agreeing to be interviewed
So you’re with green backer renewable energy company, right?
That’s the overriding and you currently have an offering out there. Could you just
discuss the
Strategy, yeah
so our investment thesis is that we acquire and we manage a nationwide portfolio of
Renewable energy assets with which we sell the electricity generated from those assets to investment grade or high quality
You companies so, you know our off taker list consists of Duke Energy
Dominion Southern California, Edison
San Diego Gas and Electric a whole host of municipalities, you know, for example the city of Denver
Um, and then some other, you know, private universities or institutions
So, you know, we’re generating electricity and we sell that electricity to these that’s these for return which is used to pay investors
one of the huge advantages of the investment is going to be the
Tax incentive on the distribution that we face. So our investment is 100 percent tax deferred meaning on an annual basis
Investors are not going to have a tax liability on the back end when the portfolio is sold
there’s going to be they’re gonna be responsible for long term capital gains on the difference between what’s returned in their
adjusted cost basis
So that’s a huge tax advantaged and there’s going to be no recapture on the back end
which is great and that’s not due to any kind of crappy accounting or
You know incentive tax credits. That’s one of the biggest questions I get is, you know with the incentive tax credits sunsetting
how is that gonna impact the portfolio will permit it from a
Kind of tax deferral standpoint. It doesn’t it also
Energy assets on the whole whether it’s you know gas coal natural gas
Renewable energy are all depreciated on 11-year schedule compared to with real estate on 26 years schedule. So
you know with with in our structure investment structure were able to shelter the taxes through that so all
distributions that we pay to investors are treated
as
Long-term capital gains on the back end so, you know the opportunity within renewable energy is really driven off
You know two things
First and foremost the falling cost of solar. Um, if you look at the historical, you know cost curve
We always like to date it back to the 70s when Jimmy Carter put solar panels on
the roof of the wood on the roof of the White House which you know
Ron Ragan immediately took down but at that time it was
$77 per watt
to produce 1 watt lot of new
photovoltaic solar energy
password a
2019 it’s down to 30 cents. We’ve seen that cost curve over the last 10 years to rock
You know close to 95 98 percent which is tremendous
the pivotal year is
2016 when?
Utility scale wind and solar became the two cheapest forms of new energy generation
Available. So, you know at that point we’re no longer relying on on you know, subsidies or
incentive tax credits
to generate great returns
And then the second opportunity as I touched on earlier is the renewable portfolio
Standards, they’re being put in throughout the country and she’s driving tons of development in the space. Um,
So, you know, we’re not developers. We don’t like to take any developmental risk
Every deal that we enter into there needs to be a site picked out
we do not own the land we lease the lanced there needs to be a site picked out a
long term contract in place and then also
interconnection to the transmission lines
And so as I mentioned we sell electricity and that’s the electricity is sold through long-term
Contracts right now on our portfolio. The average contract length is about 17 and a half years
It’s you’re renting the land you’re leasing the energy out
But the like the solar field isn’t put in place. You’ll put it in place or you’re already assembled
So we leased the land
For the most part the land is undesirable, whether it be a rooftop or at the amount and pass where we have a wind farm
So for instance, we own the solar
Panels that surround the Denver and then at Denver International Airport you slot the electricity to the airport as well as the city of Denver
We leased that land for a dollar of year a dollar a year and we have a 50 year lease
Yeah, that’s that’s one example of but the fund is buying the panels in installing oh
You know, they’re all called three types of deals that we look
to enter into um
First you’re kind of special or opportunistic deals
Where we believe that our expertise in the renewable energy space we can lose the curve or the production
Of that asset, we find those periodically, but that’s not our bread and butter on
The next is they’re operational assets
Where we are buying the panel’s and we are essentially buying it on the contract
But we think that we can enhance the production of that asset. So all of our contracts are what’s called taker pay
so
No matter how much or how little
electricity we generate from that asset
the utility company on the other end or counterparty is responsible for buying that electricity so we can
Enhance the production by you know, 10 or 20 percent. They’re gonna be on the hook for buying that additional electricity. That’s generated
Deal which we recently started getting to in do I’d say over the last year and a half
It’s called an NTP or Notice to Proceed
so as I mentioned, we’re not taking any development risk, but we will take the construction risk, so
Development in our eyes is negotiating the long term contract
Finding the site to put the panels in
Interconnection to the transmission line. So if all that is in place, we’ll go
into a purchase agreement to buy that deal and then we won’t actually
Build the solar field ourselves. So we’ll order the panels and we’ll construct it
And how how is the competition right now, I mean is there more demand than supply
currently or are other utilities building fields as well and
no, it’s it’s very, you know, regionally based I think you know, and it’s also it’s also
dependent on utility companies different
States have different standards as to whether or not you Tillett e company can kind of old their own their power generation facilities
You know some do some don’t some say you get on a certain percentage of them others
You can’t I think another important thing for me to point out is the fact that we’re not buying the large
You know one hundred two hundred megawatt deals the you know, two hundred three hundred four hundred million dollar deals
We’re focused on smaller and medium sized deal
And that’s where the inefficiency and the kind of solar and wind market lies. We’re seeing a lot of
Call it in direct competition, but but you know other kind of institutional investors
get into
The larger deals, you know the black rocks
You know Warren Buffett’s the largest private owner of renewable energy assets in the country and he’s buying the biggest deals
Goldman sachs just came out with an energy infrastructure fund investing in those large deals
But the number of folks that are competing in our space and the smaller and medium-sized deals
It’s a lot fewer. So our biggest deal today is about 60 megawatts
Yeah
Smaller end of the market. There’s not a ton of competition when you look at
You know our nationwide portfolio, so you’ll see some might I know there’s a small outfit out in
Oregon there’s a small outfit out in Massachusetts, but they’ll be kind of on a
national scale
Okay, so you see room to grow and continue doing what you’re doing. Absolutely. You’re seeing a ton of investment in
Renewable or sustainable infrastructure. I think I
Don’t know the exact number of years but the last few years
Investments in
Sustainable infrastructure. So renewable sources outpaced traditional forms of
energy
generation
Family, I think like 55 or 60 percent of investment in new energy generation went into renewable solar and wind specifically
instead of : and
You know natural gas
We’re seeing all kind of the power plants the coal power plants
Being shut down as well national chart. Yeah. So so this fine that you have it started. What about four years ago?
Yes
Yeah, yeah
Doesn’t 14 th 2014
14 okay, and it’s been growing you’ve been receiving money to buy it more?
Facilities and then at some point that’s gonna close and be done in you’re saying within a year
That’s that’s done for new money. And
You’ll just hold that operation
For a couple years and then it’ll have a liquidation event
Yeah, okay, my perspectives three to five years before there’s liquidity of that
Okay
So it’ll close in a year and then three to five years and then it’ll sell off somewhere. I mean what’s a liquidity event an
Example I guess
So, you know are kind of thought on that topic right now is twofold
You know, I was talking about kind of the larger deals that are out there right now
You know
we have the idea that if we can aggregate and
streamline a portfolio of that size the larger deals that a lot of these institutions like
We can get a premium for that because we’ve seen the cap rates in that market come down significantly
Those deals right now are being acquired at you know, fours fives and sixes were buying are that, you know
seven eight nine cap rates
So even if we can get a percent of compression on an aggregated portfolio, that’s a great return for investors
All right, then went a little over my head cap rate meaning why
It’s similar similar to real estate. It’s how much its cash flowing versus the value of the asset Oh gotcha
Okay
So you’re leveraged a little or you’re getting a better return on assets then the bigger funds are so this would be a nice addition
for them
Exactly. It’d be a great listen so you could get bought out by a bigger
Or you can sell the portfolio to a bigger fund I guess oh yes because
Okay, and then so what’s in the future? What are you an insurance company? We’ve definitely been courted by
and you know had insurance companies inquire about
our
Portfolio, obviously the predictable cash flow of you know, these 20 25 year contracts
Matches up well with their liabilities, okay, and so what’s the next thing?
I mean I’ve heard about the opportunity zone and
Possibly greenback or – what do you see as the next?
Investment opportunity through Greene Becker. Yeah, so beginning of July we came out with an opportunities own
Investment and it seemed like a natural progression for the business
You know based on where I was speaking to earlier the NTP deals
Which is the Notice to Proceed deals?
Those are the ones that still have to be actually physically
Constructed and what we found is that 20% of our existing portfolio is made up of NTP deals that fall within
opportunity thumbs
You know, obviously we’re looking for less desirable land
So, you know, we’re not going to be building a solar farm in Beverly Hills, right?
It’s gonna be in you know, one of these that’s considered economically depressed
areas, although, you know
If you take a look at the math
Or there could be some some questions about kind of the validity of whether or not these areas are economically depressed
but the whole premise behind behind Opportunity Zones, I’m not sure if you talked to it before is
economic development in areas that
you know kind of haven’t seen economic development or Neda, you know, as I mentioned economically depressed areas, and so
You know opportunity’s own investments
in our space
We need to acquire a deal before it gets turned on
That makes sense
You need to acquire a selling contract you mean?
so
in our with those NTP deals as I mentioned those contracts are already in place, but it’s literally like the
Switch is flipped for the facility to go on so it could be constructed but having never
Generated a single megawatt of electricity
If we buy it like the day before it gets turned on that asset starts producing electricity
it can Incans in opportunities and investment if it falls into one of those geographical areas, so
We have five deals that are earmarked to go into the opportunity zone fund here shortly
When we expect them all to be cash flowing by q4 this year
Okay in the opportunity zone just to be clear
I guess her to explain those are areas throughout the United States and areas that the government’s trying to encourage development
In so there’s a capital gains break on that
Yes, so the idea behind it is, you know, if you have games from a real estate sale a business sale
You know or in your equities portfolio
You’re essentially going to sell off that game and roll it into a qualified opportunities own investment
And there are three pieces to the opportunities opportunities no investment in year five
you’ll get a step up and basis on that game of ten percent a
Year seven, you’ll get an additional five percent step up in basis on that game
so it’s all a fifteen percent after year seven and then if the investment is held for ten years you
Will not owe any taxes on the game on the gains that’s generated from that qualified opportunities on investment
I’m the new capital gains
Yeah, pay on it exactly got a step-up in basis of fifteen percent on the old gains
Yeah, there’ll be no tax liability or responsibility
For any of the gains generated from the new investment
Right, which is a nice break due to your if you have a big capital gains
You can delay it seven years give 15% forgiven and then the new investment isn’t generating any new capital gains
exactly
Okay
Yeah, no, that’s that’s great. That’s a great idea
Yeah, is that hard for you to qualify?
Or you’re saying a lot of the areas you’re looking for kind of fall into this range. So it’s pretty good
Yeah, as I mentioned about 20% of the assets or 20% of the fund our existing fund
fell into Opportunity Zones already
And so, you know right now I think in speaking to our deal team recently, you know
We’re looking to raise two hundred million dollars. We have about 100 million dollars in pipeline
That we’ve kind of set aside to go into the opportunity zone
So, you know there is a tremendous amount of opportunity in that space
They mentioned, you know, a lot of the assets that we’re buying are in kind of, you know, economically undesirable areas
To begin with that’s interesting too. I remember there’s also
criteria that you invest a certain amount of money at certain points in the to qualify for the
Opportunities own funding does that is that easy for you to meet with?
Yeah, so we’re not an opportunity zone, you know real estate investment or an opportunity zone property
We’re technically considered
opportunities own business
So that is not part of our criteria
okay, our what the
The criteria that we have to meet is that it’s it’s new development or essentially new asset or new business in the area
So as I said, you know if we actually build the solar farm
And start loose producing electricity that’s considered new development
And the point that has to be in the opportunity zone is where the interconnection to the transmission lines Falls
Okay, yeah
That’s our business. We operate out of you know, our headquarters is in New York City
Okay, so people and also, you know, we’re selling electricity to say Southern California Edison
where does that fall and so so the
Rules are it’s where the electricity is sold, which is at the point of interconnection that the transmission lives. Oh
That’s interesting. So it’s not necessarily where the Fiat solar field is just where you connect it exactly exactly
yeah in that that’s an existing find and that’s how
Long, is that going to be open or available? Or what’s its lifecycle?
Fund it’s it’s a hundred our minimums
And you know, the fun close date is going to be June 2020. That’s our plan to close date
Although we expect it to close down before that. We’ve already gained a tremendous man attraction, you know being able to go go back to
you know an existing investor base and
introduce a
topical investment that’s
Not different from what they’re already currently invested. It’s easy as easy for us to get interest in this
It’s been very well received. I feel like in a lot of the conversations that I’ve been having with Ras throughout the country
I’ve found that a lot of the risks that people are seeing in you know
real estate based opportunities on investments we mitigate particularly with the development, you know if you’re
Gonna buy first of all, we’re ten years into a real estate bull market
is not the most opportune time to be
Developing new real estate. All right
Especially in an area that’s considered economically depressed
Usually that development of you know real estate assets gonna take
You know one to three years and they then you’re gonna have to tenant ended it
So you’re looking at a few years before there’s cash flow as I mentioned the five deals that we’re putting into the fund immediately
We expect them to be cash flowing in queue for this year, which is no out. Yes
So if someone has twenty thousand of capital gains, they want to mitigate during the year
They they don’t necessarily have to invest it
I mean they did invest a hundred thousand, but it doesn’t all have to be capital gains money
Or it should be all capital gains money that year if someone was not rolling a capital gains into our investment
Or at four that was an idea that was brought to me
I would suggest that they go into our flagship offering on the tax advantages
For them are probably to be greater
in our flagship offering plus
They’re going to be receiving cash flow
Throughout that investment
Whereas with the opportunity zone the whole premise behind it is bill the game – as much as possible and defer that
and so that we’re not gonna be paying any distributions all cash flow from the assets is gonna be
reinvested to pay down debt and buy new assets
Gotcha
That’s right that they invest that you know that additional $80,000 that they had it into
Me baccarat new lighter stuff a green beret right into the initial one. Okay, great and
The opportunities own will have a similar life of it’ll shut down in then three to five years
It’ll have some kind of liquidation event. No, you know as I mentioned earlier there are kind of throw me off
That’s when it’ll have to go
We’re gonna be holding it for at least ten years
Okay
Yeah, probably longer
But I am in your mark. You’ll be able to get out. Alright?
yeah, that makes sense so that they can get the full benefit of the fund and then guys the intent is definitely
To find investors that have gains that they don’t need over the next ten years
That’s the premise fire. Yeah. Alright. No that makes sense
Okay, great and
What are you seeing any in the renewable energy field any
Trends I mean, is it both solar wing growing similarly any?
Yeah, I’d say I’d say, you know, we’re seeing more solar growth
And I and as I mentioned earlier with the renewable portfolio
Standards. I just think you’re gonna continue to see those increase and you’re gonna see the need for more development
I mean there’s a lot of legislation that’s being pushed through that’s driving all this
You know the other trend that’s interesting is we’re seeing the the current
Instead of tagging our investment tax credits attached to renewable energy
Assets that’s sunsetting
Starting next year and there will be some assets that are grandfathered in
So we’re seeing a ton of development in this space, which has been
Positive and it’s been allowing us to go out there and acquire some great deals
and I also see a lot of utility companies are more utility companies based on the RPS is
You know looking to buy more deals
Or a bit more of their electricity from renewable assets and also, you know another interesting thing on a side note
Is we’ve seen our cost of capital fall dramatically from where we started so we just extended our
Credit facility from sixty million to one hundred and ten and we saw our cost of capital drop fifty basis points
Which is more than we had modeled out for
and that’s due to just the level of comfort and kind of the validation of this strategy that
You know the banks have seen so, you know
We partner with a lot of a lot of banks on these deals and you know
They’re seeing more institutional investors coming into the space. They’re investing more dollars into the renewable energy space
so, you know as I mentioned their level of comfort with
Investing or lending on renewable assets is definitely increasing
That’s great. You know, that’s nice that they’re they’re comfortable with it. And I think with long-term agreements, they’ve got to be pretty comfortable
Absolutely. Well then, um and then
You you mentioned that green backer if that kind of closes
You don’t have a plan for green back or two yet. But the direction you’re going is a
little bit more
Liquid of an investment would be your thought. Yeah, you know, we see a lot of I
Don’t know if competitors the right word, but we see a lot of kind of alternative or illiquid asset managers
Moving into the red D space. So reg D is a
private offering in
you know rather than kind of following that trend we think there’s a lot of Appeal and going into back into the kind of the
Public market and having a public offering that’s a lot more transparent and it’s a lot more accessible
For you know the investors that you would have the retail investors
So that’s you know, the conversations that I’m hearing internally. I’m kind of thinking, you know
In your next offering would probably be sometime next year after the other two have closed up
Correct. I imagine it’ll come out shortly after we close down this fund if not, you know a month or two after
Okay, good. All right, so there’s always going to be something people could invest in
Nothing available they raise money for
If people want to find out more where can they find information read back your capital com?
Grab on there for our existing fund green backer renewal energy company as well as the opportunities that one green backer
renewable opportunities on fund
Perfect, and if people want to get in touch with you, what’s your best contact?
Bret dot Tomich
TL mich at green backer capital comm and that’s Brad with to please. Oh
Yes brought patooties. Okay. Got it. I’ll put a link on the show notes. Okay. All right, Bret. Thank you very much for your time
Doris thank you Bill. Thank you for listening to impact financial planners this podcast is for
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