Member Spotlight: Energetic InsuranceMedium Thursday, August 19th 2021
Dynamo Energy Hub is excited to present the following interview with one of our Cleantech Members, Jim Bowen and Jeff McAulay, Co-Founders of Energetic Insurance.
James Bowen is the Co-founder and CEO of Energetic Insurance, an insurtech company focused on developing innovative risk management solutions for the renewable energy industry. Energetic created the EneRate Credit Cover insurance product, a first-of-its-kind policy which covers electricity payment default risk on long term corporate energy contracts in order to enable more financing for unrated and below-investment grade businesses. Prior to Energetic, James was the co-founder of a solar project development firm and was the Director of Business Development at the Massachusetts Clean Energy Center.
Jeff McAulay co-founded Energetic Insurance to expand the solar market through data-driven risk management. Previously, he led the distributed energy resources team at EnerNOC where he developer partnerships and pilots with major energy companies. Prior to EnerNOC, Jeff was the founding TechBridge Program Manager at Fraunhofer CSE, an applied R&D organization focusing on electric grid control systems. Jeff also has an interdisciplinary engineering background.
Mr. Bowen and Mr. McAulay sat down with Dynamo’s Chief Operating Office, Jessica Krejcie, to talk about the innovative finance work Energetic has been doing with insurance for renewable energy developers, banks and property owners. More information on Jim, Jeff, and Energetic can be found on several podcast episodes they recorded including My Climate Journey podcast and Norton Rose Fulbright.
Jessica: Jim and Jeff, thanks so much for taking the time to talk to us today! Could you start off with how you came into this space, what was missing in the marketplace, and how your product fits that niche?
Jeff: We started Energetic Insurance out of the shared frustration of trying to finance commercial and industrial (C&I) solar projects and not being able to do good deals at reasonable rates. For me that was working with some of the best solar developers in the business, but realizing a global problem of project financiers expecting investment grade credit ratings. That precludes 90% of the addressable market.
Jessica: Oh wow so how does your product address this problem and how did you launch it?
Jeff: The entire distributed energy world is financed on long term contracts meaning 5–15+ year off-take agreements. Any time you have an energy generating asset, and you have a long-term promise to pay, you have a credit threshold that must be met. And every time there is a non-investment grade counterparty, there will be an issue accessing credit. Our EneRate Credit Cover® product bridges that gap and unlocks access to financing.
To launch the product, we focused on a mature market and a clear pain point. For us that was on-site C&I solar. Demand for our product has since grown beyond C&I solar to include community solar, energy efficiency, and utility scale wind/solar projects. Ultimately, we see renewable energy taking over the world. That’s why we chose insurance as a vehicle because we’re looking at what mechanism can truly scale, especially at a global level.
Jessica: That makes sense, so who are the different audiences and consumer bases you’re targeting?
Jeff: Essentially there are three communities of stakeholders that we look to engage: First are the solar installers and developers who are our primary customers and are looking to expand their addressable market into unrated and sub-investment grade offtakers. They often run into financing challenges, and we want them to know the market is bigger than they’ve experienced, and we can provide new tools to help finance projects.
Second are the banks. They’re trying to move beyond large, investment-grade projects into commercial & industrial projects where there is less competition and more money on the table. Yet they often struggle with executing these types of deals due to the underlying credit quality. We can help get the deals done, get through credit committee, improve their ROE and deploy more capital into the sector.
And then the third category are the property owners such as the commercial real estate asset owners, REITs, and the corporate buyers of renewable energy. They know they need to increase their procurement of renewable energy and electrification of their buildings, but they either don’t get compelling offers or have huge letter of credit requirements preventing them from accessing good financing terms. Energetic Insurance’s EneRate Credit Cover® product can satisfy lender underwriting requirements, providing a real way to do this at scale, across a commercial real estate portfolio.
Jessica: How has Energetic worked to stand out in this industry?
Jeff: Basically, there are no other insurance companies offering this product. There is a robust credit insurance industry that does mostly very large deals with fairly strong credit. Our focus is to enable all deal sizes and include a wider range of credit quality. We use in-house proprietary technology and software to efficiently underwrite projects, where other credit insurers might shy away. The competition is mostly letters of credit, which are expensive, and impact availability of credit as a business owner, so most people don’t want to do that.
Jessica: That’s so helpful, I want to mention EnerNOC since you worked there before starting Energetic. Did you know Tim Healy is part of The Dynamo Energy Hub Board of Advisors?
Jeff: I did not know that, that is fantastic! I have tons of respect for Tim and David (Brewster) and the leadership team they built. The fact that I can say “I worked at EnerNOC” means something as a Cleantech Entrepreneur. Tim built an organization where young people were able to go to learn about the energy industry, build careers and have spin offs. That’s something Time and David should be very proud of.
Jessica: Yes, Tim exemplifies Dynamo’s mission to accelerate the energy transition and the work he’s done for the cleantech energy community is one of the many reasons we’ve been so lucky to have him on our Board.
I wanted to ask you how renewable energy products, specifically in the financing space, and fossil fuel-based energy projects differ in this industry and what you want the banks to know about your product?
Jeff: When you think about renewables versus fossil, it’s all about how you spread that capital cost over time — the levelized cost of energy (LCOE). Things like diesel generators are easier to finance because the capital cost is lower upfront, and more of the expense is in the fuel and maintenance. With renewable energy, most of the cost is upfront, but very little of it is in fuel or maintenance, since it’s from a renewable source. That’s why we say “finance is fuel” because cost of capital is what drives the competitive LCOE.
Jim: For the banks, we see ourselves as problem solvers. We help provide confidence and predictability in the cash flows for lenders and tax equity investors. The easiest use case would be weak credit. If it’s an unrated or below investment grade off-taker, it doesn’t necessarily mean that they’re not going to pay their electricity bills. But we also want to communicate that sometimes it’s not just about weak credit. For example, a bank might have too much “tall tree” exposure to a certain utility or a certain off-taker with all the loans that they have across their portfolio, which we can also help with risk sharing.
Jessica: So what other financing challenges is Energetic looking to “plug” their services into next?
Jeff: Our goal is to help advance renewable energy by taking on risks that are holding back the market. So as we see other complex areas developing, we know there will be other nuanced risks that are going to be hard for traditional risk underwriters to move into.
For example, we’ve identified counterparty credit risk as a key blocker, and while we’ve started in commercial on-site, we’ve moved from new construction to add refinancing operating portfolios. From there, we’re also working on technology expansion, such as solar plus storage, energy efficiency, contractual structures such as virtual PPAs, and geographic expansion as we’re looking at our first international markets in Europe.
Jessica: That’s very exciting, with all of this expansion, and as our newest cleantech member, what most excited you about joining Dynamo?
Jim: In particular, it’s the Dynamo events and community power. The in-person or virtual opportunities at events or on a panel is really important to our business development and sales process. Also, the coworking aspect is very intriguing because we are spending a lot of time in New York, where there are a lot of banks, and we spend time in D.C., where the developers and government officials are. Now knowing Dynamo is opening a Boston office, where we’re headquartered, these elements are very important to us.
Jessica: That’s incredible to hear you say. Your product is something we’re really interested in being able to showcase and talk about with our community members. Before we wrap up, what else should we know?
Jim: A key message that we’re really focusing on in the next couple months is building up the team. We find a lot of people, especially after the last year and a half, questioning what they really want to do with their lives and asking themselves if what they’re doing is meaningful. We work at the intersection of novel financial products and data analysis, but also with the meaningful goal of getting more renewable energy in more places to solve the climate crises.
Jessica: Of course, anyone wanting to get involved with Energetic can access their job openings here. Thank you both for being here, we’re thrilled to learn more about the work Energetic is doing in the energy finance sector and are excited to have you in our Dynamo network!
For media relations contactClaudia Prandoni Marketing & Communications Manager