Why and How to Invest in Solar Energy in a Volatile Market

This interview with Sun Fund’s Scott Licamele covers why, and how to invest in solar energy.

Check out Sun Fund’s white paper: www.SunFund.io.

Here is a transcript:

Why Invest in Solar in a Volatile Stock Market?

Ian: [00:00:08] Thank you for watching the Blockchain Report. This is sponsored by Sun Fund. I’m here with Sun Funds’ Scott Licamele. Scott, how are you doing?

Scott: [00:00:15] Very well. How are you?

Scott: [00:00:16] Today we’re looking at the renewable energy market and the blockchain cryptocurrencies. We’re talking about a lot of articles today — and we’ll have hyperlinks to those in a show. And today we’re looking at a macroeconomic context for the markets. Scott the cover of The New York Times has some news… What’s going on there?

Scott: [00:00:36] Well markets are selling off particularly the stock market because a lot of tech stocks are under pressure. And also there are mounting concerns over an escalating trade war between the United States and China.

Ian: [00:00:47] What does that mean in terms of volatility — downward pressure — is that affecting the entire market.

Scott: [00:00:55] It’s dominated by the downward price action for tech stocks. But clearly, volatility levels are higher as a result because there have been some pretty big moves relative to the calm and orderly price appreciation we’ve seen over the past few years.

Ian: [00:01:11] And today Scott we also have an article in Bloomberg Technology By Olga Kharif entitled quote “The Crypto Hedge Fund Bubble is Starting to Deflate.” And this article says nine hedge funds have shut their doors some with returns down by 23 percent. What’s the force at work there?

Scott: [00:01:29] I think you’re seeing a risk-off scenario where the crypto assets are kind of trading down to a certain extent with equities although in a much more magnified manner. And it’s also I think the result of an increasing regulatory enforcement action globally around the world where U.S. regulators clamping down on cryptocurrency like the SEC here in the United States.

Ian: [00:01:52] So now we’re just going to hop over to this other article story at Solar Wake Up by Frank Andorka, a Senior Correspondent there. He says “Renewables FTW! Price Drop Sends Natural Gas Reeling” and he’s talking about another Bloomberg article that says that solar and wind prices have dropped appreciably. And also lithium-ion battery prices have declined since 2010. The price of lithium-ion batteries he says have dropped by 79 percent.

Ian: [00:02:26] So Scott what is this overall story we’ve got a declining bitcoin market. We’ve got a declining overall stock market and we have the renewable energy sector would it appears to be some kind of gateway some kind of opening or possibility for an opening as a result of these technological advances. Tell me what’s going on here?

Why Solar Investment is an Exciting Story

Scott: [00:02:48] We’ve seen a very large drop, a consistent drop, in the price of solar. (That that’s pretty much all the equipment whether it be the panels or the inverters or whatever part you’re talking about.) But those are the two main components where prices have been dropping pretty consistently to the point where even without subsidies a lot of these projects in the United States which previously were not profitable are now very profitable. So a lot of institutional money is flowing in. When you combine that with recent clarifications regarding tax policy that favorably treats solar and will continue to do so for the next decade and also combine, add on to that, the fact that solar tariffs — There were concerns that the incoming President would materially increase tariffs on solar panels. They did implement tariffs but they were very minimal.

[00:03:41] And that is very positive for the industry. So these three factors: 1) falling equipment prices (falling solar prices) 2) clarification of tax policy and 3) reduced risk associated with tariffs are the trifecta for the solar industry to really boom in the United States. We’re seeing a lot of institutional capital flooding into this market.

Ian: [00:04:03] What does that mean though in terms of a volatile market like where you have these entire across-the-board declines in stock prices. What does that mean in terms of the accessibility to renewable energy investment from that position? I imagine if you take a look at the balance of investment most of it is not in renewable energy at this point. How does somebody get out of a declining position like that in order to get into renewable energy? [And does everyone know how to invest in solar energy?]

Scott: [00:04:34] Sure well I mean if you look at legacy fossil fuel stocks some performed some don’t it just depends on the country the market and where they are you know on the supply chain whether they’re upstream or downstream. So there are a lot of factors there, but… For people that are looking to kind of transition towards renewable energy, if not maybe perhaps based on their values and a desire to invest in something that now really is very profitable in many markets particularly in the United States, I think there are great opportunities available in very low-risk stories that can earn predictable returns for investors. And specifically what I mean is: if you look at the typical solar project — let’s say a solar farm. We’ve all driven by fields of solar panels where you see acres and acres of solar panels.

Scott: [00:05:20] Those types of projects now because of the falling costs and low tariffs and favorable tax policy are very profitable. And you know there are ways to gain access — [that’s just one aspect of how to invest in solar energy] but I think through the public markets it’s less exciting.

How to Invest in Solar Energy

Ian: [00:05:36] When you say public markets do you mean like Nasdaq?

Scott: [00:05:38] Yes. Other words that that if you just log in to your brokerage account and you search for solar companies you’re going to come up with some companies that manufacture solar equipment which is called the upstream part of the sector: that’s really not that attractive because it’s what they call a “commoditized market” which means that it’s kind of a declining margin scenario. Margins are always under pressure. Profitability, and therefore earnings, of these companies, are under tremendous pressure because they’re all competing for market share in this structurally exploding industry. And by exploding I mean positively: going up.

Ian: [00:06:13] So what does that mean in terms of this other side of the market. How would you describe this other side of the market that is not the commoditized part?

Ian: [00:06:23] Wealthy individuals invest directly in solar projects. So in other words, if you’re a high net worth individual you can have a stake of — a large stake — 100 percent stake whatever it might be in a utility-scale solar project it’s going to give you returns it’s going to give you tax credits depreciation all these things. But for the typical everyday investor until very recently there really weren’t that many options other than just buying the stock of a large company that has some exposure to solar. Or maybe what’s called a yield co or things like that. Now you’re seeing a number of companies that have evolved that offer investors direct exposure to the debt that finances solar or in some cases direct equity exposure through either diversified or concentrated positions. But but it’s important to note that that individual retail investors are increasingly able to gain exposure to that sector.

Everyone Can Know How to Invest in Solar

Ian: [00:07:16] Scott you mentioned that wealthy people can invest in these renewable energy projects that have these long-term payment structures called Power Purchase Agreements. But I imagine that even wealthy people who are experienced accredited investors may not [know how to invest in solar] because these projects are so “math-y” to put it in blunt terms. There are so many factors around energy and production that may not be readily understood by even experienced investors. How does an investor begin to approach the complexity of predicting whether their investment will turn out well for them? [Does everyone know how to invest in solar energy?]

Scott: [00:08:01] Well I think with legacy investment models high-net worth individuals — wealthy individuals — that usually have what was called a family office that manages their assets or private wealth manager — they would allocate usually a private equity fund that then, in turn, actively manages and invests in solar assets for precisely the reason that you mentioned: Very complicated. Until now relatively esoteric you know basket of assets so you really need people who have a very deep understanding of [how to invest in solar] renewable energy development and finance and law tax law in particular because the tax credits play an import role. You need a specialist team. There are however new technologies new investment platforms that are being developed that are that are seeking to simplify the process and allow a more democratized version of that investment vehicle.

Scott: [00:08:55] So in other words the everyday investor [seeking to learn how to invest in solar energy] will hopefully eventually be able to invest directly in one or many solar projects with a relatively small amount of money. In other words, buy a fractional share but have had it displayed and defined and laid out in a way that makes it relatively understandable to a typical investor. [So with this platform, they will know how to invest in solar energy.]

Ian: [00:09:15] So it’s transparent for the investor and the producers as well: The producer has some information about their investor and the investor has information about the producer and where their money is going so that there’s a bit of common ground between them that’s formalized and obvious on a Web site or something like that.

Scott: [00:09:37] To be very specific: with a blockchain based or a blockchain enabled, if you will, an investment platform that investors could potentially use to invest in solar projects or other renewable energy projects. Essentially what you have is a scenario where the history — the asset of history or the performance of the asset — will be immutably recorded on the blockchain. And that’s very important because it means that as assets are what we say “tokenized”, meaning that they are digitally represented as assets you know using a blockchain investment platform that reduces transaction and due diligence costs associated with buying and selling those assets either fractionally or fully. It’s a critical point because without that it simply wouldn’t be feasible for individual investors to try to understand or frankly even professional investors who are in the space: The due diligence costs are very high. It’s the same for whether it’s a 500-kilowatt project or a 50-megawatt project. The due diligence costs are similar. You know you have to confirm things like site control, ownership, permitting, Power Purchase Agreement, credit quality the off-taker, or the list goes on and on. So blockchain technology is transformative or I think will be transformative for the renewable energy sector and what’s really exciting about it is the structural conditions of the renewable energy market are so attractive meaning that there’s so much potential annual growth that is dramatically higher than the regular economy that if you can use technology such as blockchain to further accelerate that process we actually can make an impact on global warming by you know making a marginal difference in the amount of solar capacity that’s built and producing. [Obviously ,this depends on making sure the world knows how to invest in Solar Energy].

Ian: [00:11:25] Well, Scott thank you very much for joining me on this edition of The Blockchain Report [about why and how to invest in solar energy.]

Scott: [00:11:30] Thank you. Have a good one.

Ian: [00:11:31] And everybody please remember this is an opinion it is not investment advice. Please do not make any investment decisions on the basis of what we say. Please consult with a qualified financial adviser if you’re going to be doing any investing because investments are dangerous and you can lose your money and sometimes even more than the money that you’ve invested. So thanks. And we’ll see you next time on The Blockchain Report. [Where you may learn more about how to invest in solar energy.]