Green Giants – Episode 67

Wes Ashworth (03:24)

Yeah, it’s incredible intentionality and targeted them. And here you are. That’s awesome. And you’ve really been with REC through major transitions from residential and commercial roots to becoming a full-fledged independent power producer. For listeners who may not know the REC story, can you walk us through that evolution and what it reveals about the solar industry’s trajectory?

Scott Therien (03:27)

Sure, it’s been a long, entertaining history. I’m happy to have been a part of it. REC was first founded back in the 90s, 1997, by two graduates from Cal Poly, Fred Sisson and Judy Staley. And it was started in a little office not far from where I live currently, in this little coastal town outside of San Luis Obispo. And I’ve actually had the pleasure of working with a handful of the early pioneers, the first 10 to 15 folks who were building this on a hope and a dream. But by the time I joined the organization in 2010,  they’d grown from that little tiny office into an organization that had, I think at the time, over a thousand employees. There was a residential arm, REC Solar Residential, that was building for homeowners. And then there was a commercial arm that was really more focused on the larger-scale commercial projects. And those were run as two different business units because the industries were very different, like what serves in residential versus commercial.

There was a parent organization formed over it called Mainstream Energy. They also developed a racking company, Snap-N-Rack, that was really born out of the residential arm’s need for a better solution. They were installing racking they were buying on the market and realizing, hey, there’s a better way to do this. And so, they formed their own racking manufacturing, which eventually grew to produce commercial products as well for the commercial arm and had a full suite. Mainstream Energy also acquired AEE Solar Distribution, which has roots back to, I think it was founded in the 1970s by a man named David Katz. So, the salty dogs in the solar industry might know that name as an early-time visionary.

But anyway, so from there we grew further and continued to see success in both those different businesses or all those different business units until around 2013, Sunrun acquired the residential arm of REC Solar and took with it the racking manufacturer as well as the distribution arm and the commercial business unit continued on under the umbrella of REC Solar and also continued to grow and see success until was 2014, 2015.

Duke Energy, the large utility on the East Coast, took a majority share in REC at the time and REC started transitioning from this EPC contractor, where we were building directly for clients that they owned, selling more Duke PPAs. And we’d work with other IPPs across the years, but really transitioned to doing that for Duke. And ultimately, in 2020 or 2021, REC was fully absorbed into the Duke corporate structure. Rebranded for a little while as Duke Energy Sustainable Solutions until 2023, when Duke divested basically all the commercial operations to focus more on their core business of being a utility. And ArcLight Capital acquired REC Solar and all of the operating assets that we developed.

And so, as we stand here today, ArcLight Capital is our new big, as it were, and our source of funding. And they own a wide array of energy infrastructure and have been doing this for a long time. And so, we’re a fully-fledged IPP now. We grew up doing a lot of EPC work and various niches within the market, but we’re a national IPP today, and from this dumpy little town, Los Osos, all the way up to a full-fledged national IPP. It’s been a fun ride.

I think the solar industry, while our story is special, of course, I think the solar industry writ large has a story similar to where we started as small regional players, and markets were very unique and specialized. And these small contractors, I think, the winners in those markets really grew to basically have a big or become a big themselves. And then there are still some smaller regional players that kind of found their own niche in the market. But we see that when we were under the umbrella of Mainstream Energy, our vision, our motto was to bring solar to the mainstream. And I think we’ve seen that. I mean, by the nature of coming into these bigs and Sunrun being the largest national, or at least one of the largest national providers, and Duke Energy, one of the oldest and largest utilities in the United States. It gives credibility, I think, to what we built and feels good to have made it, so to speak.

Wes Ashworth (07:50)

Yeah, without a doubt. It’s a super cool trajectory and seeing all that evolve. You mentioned it’s been a fun ride. Speaking of fun rides, as we lovingly call it, the solar coaster, you’ve been riding this for many years. What’s one major inflection point or even misstep you’ve lived through that still shapes how you approach your work today?

Scott Therien (08:12)

Well, I won’t point to a specific example. I would say the misstep I’ve seen commonly, as we talked about, kind of coming up through the solar industry, there’s been a lot of companies that have come and gone from our space. I think we saw that really big in the financial crisis of 08, where houses stopped being built and anyone with a pickup truck and a ladder started doing solar because that was a market that might still be viable. And once the housing market picked back up, they tossed the solar panels off the back of the truck and went back to building houses as they used to.

And so that’s not the only case of it, but you just see a lot of fly-by-night contractors and developers, and it’s the case in an emerging industry. And we’ve had our fair share of those who’ve come through, whether on the development side or on the implementation side, with different partners you work with. I mean, at the end of the day, what I’ve learned is you work with reputable firms and you work with people you trust.

I don’t know that that’s specific to solar, but it’s what I’ve put into my work today is that I keep a focus on working with people I trust.

Wes Ashworth (09:09)

Yeah, love that. And you’ve also obviously, between REC’s history, your history there, you’ve got tons of staying power. And I’m curious, sort of what that staying power has taught you that speed can’t. And what perspective does that give you on where solar is going next?

Scott Therien (09:24)

Yeah, you know, it’s being nimble in the solar industry is incredibly important, right? We live and die by the evolving policies and regulatory incentives and things like that. So being adaptable is really important, but that can turn into desperation calls, which can be catastrophic for an organization. So, I think those who have demonstrated staying power are those who have been able to be both nimble and prudent in their decision-making. That’s how you make it on the other side of these lulls and highs in the solar coaster. But I think from those days, when it was very tumultuous, you’d see a lot of washouts. I think when we think about the future of solar, we’ve really kind of come on the other side of being an emerging technology. We’re here to stay. And I think that gives organizations the ability to make more prudent decisions and fewer short-term desperation decisions. And the way that the industry has evolved, you see these are long-term assets, and having a long-term view and making long-term decisions is incredibly important to running it right. And so, I think most of the industry’s matured to some extent, and those that have made it at least were the ones that were smart enough to keep that as a core focus.

Wes Ashworth (10:23)

Yeah, I love that. Very well said. I think a lot of wisdom is in that. So now we’ve had a chance to look at your journey. I want to transition a little bit into one of our topics, just getting into one of the key tools driving adoption today, which is the Power Purchase Agreement or PPA. Contracts might seem technical, but they’re built around a simple idea: ease the burden, reduce risk, make solar a service. So, PPAs have become the industry standard, even after policies like the Inflation Reduction Act introduced new incentives like direct pay. Why do you think PPAs continue to be the go-to model, especially for the public sector?

Scott Therien (11:11)

Yeah, I think there are a lot of reasons and I’d agree. think in the commercial sector, there’s a forecast that about three-quarters of all solar procurement is going to be done through PPAs. I think there was a Wood-McKinsey report on that. So, we really have seen that it’s become a staple. It’s been around for a couple of decades, but it’s been growing and growing. I think when we saw the Inflation Reduction Act bring about direct pay, there was some thought that, now, the public sector, which had kind of been forced into this PPA model, or at least there was the conception that they were forced in because they don’t pay taxes, they can’t take advantage of the tax credit so the ITC pushed them into the PPA.

However, we haven’t really seen that transition towards; now we want to own it ourselves. And I think the obvious driver there is no capital, right? You don’t have to come up with the capital. The Power Purchase Agreement allows us, the IPP, to deploy our capital to build a system that we’re happy to own and operate and sell the energy as it’s produced.

And if you’re a municipality or a water district or a school district, university, the last thing you need to do is go into the business of owning energy assets. I think in some cases, some folks do, if you’ve already got a central plant and you’re running a bunch of, you’ve got a full facilities team that’s used to running complex solutions. Maybe it makes sense to do that in-house, but most organizations don’t have that expertise and would have to build it from scratch. You’ve got to come up with the cash. You’ve got to come up with the expertise, and how many times are you really going to do this in life? Develop it depends on how many properties you might own.

So, one way I think about it, I always relate the PPA to a mortgage. It makes sense to have a mortgage on a house. Even if you have a pile of cash, you’re probably going to have a mortgage on your house because there might be a different use for that pile of cash. And if you’re running a core business and you do have a pile of cash, you probably want to invest that cash in your business rather than invest in becoming an energy operator. Whereas that’s all we do, and we do it very well. So, I think that’s what’s really, at least in the commercial space and the public sector, that’s really lent to PPAs being the preferred procurement mechanism.

Wes Ashworth (13:11)
Yeah, I like that. I like that analogy to just relating it to mortgages and that makes a lot of sense, paints a picture. And you touched on this, but a lot of organizations like the idea of going solar, but not necessarily the operational lift. How does that maybe just expand on that point? A PPA model shifts the burden of design, insurance, and maintenance away from the customer.

Scott Therien (13:31)

Yeah, it does. mean, it’s one of the benefits of it is that the burden of ownership is placed on us as the system owner and operator. But it is a different means of procurement than I think a lot of organizations are used to, particularly procurement departments that are buying widgets left and right, where you pay money, you get something, and now you own it. We’re investing all of the capital to build a system, and until it is operational, all of our capital is at risk. And we’re relying on you, the customer, to buy the energy as we produce it over the course of 20, 25, 30 years. These are long-term assets.

So, there are definitely different contract considerations that can be new for first-time buyers. It’s sort of understanding the risk balance, right? In that scenario where we’re taking all the risk, there are certain contractual protections we need. The creditworthiness of our counterparty becomes very important. And so there can be, at least for first-time buyers or buyers that haven’t bought a lot through PPAs, there’s a learning process, not just in the technology, but in just the contract vehicle itself.

Wes Ashworth (14:37)

Yeah, and what does that look like? So when you’re working with a procurement team that has never done a PPA before, what are maybe some of those initial questions, concerns, and then how do you help them reframe what they’re actually buying?

Scott Therien (14:52)

Right. Well, I think to some extent, they try to become an expert in how the system operates and what’s the guarantee this thing’s going to run? How do you know you’re going to do the O&M right? And they have a tendency to want to look over your shoulders, so to speak. How do I keep my contractor honest while they’re building this thing and do all this scrutiny on the front end? And it’s not really the right lens to think about it. If I don’t perform, I don’t get paid.

The alternate scenario, the worst-case scenario for you, is that I build this system and it’s complete junk, and it produces nothing, and you keep buying from the utility. So, how do you get me off your property? How do you kick me out? And so, it’s a different focus, I think, just overall and kind of explaining how the mechanism, basically how we invest our capital, how we de-risk it for our investors, and how we satisfy them, and through satisfying them, it’s by producing the thing you want, right?

It’s every electron we sell you is how our investors get paid. So, every electron we don’t make for you, we’re not recouping our investment. And it’s a real problem. So that’s usually like just the fundamental piece I’m trying to convey and kind of get folks wrapped their heads around, and depending on what organization you’re talking to, some folks understand this, uh, very well and have types of, whether it’s direct utilities or energies that they procure in this way, and then others don’t.

So, there’s a wide array of customer knowledge and understanding of these things. And just knowing where you are in the process and what your expertise is and isn’t, I think, is important in just approaching the situation with honesty from there.

Wes Ashworth (16:11)

Yeah, absolutely. And thinking about it, so PPAs are the model, trust is the currency, and trust gets tested during development when contracts are signed, money hasn’t moved, and risks are real. I want to explore how you and REC manage that dynamic and what most clients don’t see behind the scenes. So, you’ve said that many clients are surprised to learn that you’re investing your own resources long before they commit capital. How do you explain that dynamic and what it really means for both sides?

Scott Therien (16:45)

Yeah, it’s a great one. I mean, I try to start off by letting folks know that at least for, again, first-time buyers, the development cycle in these projects can be one to two years, right? It’s been a long time since, I think I want solar. There’s a solar system on my roof producing energy. That can be multiple years. A lot of what we’re doing on the front end is working through some of the unknowns that take a lot of work to get there.

If a client approaches a situation. If I’m going to buy energy from you, I need to know what the price is. What’s the rate? How much am I going to save? And they, they come out right from there. It’s like, what’s my price? What are my savings? We, as developers, want to make sure there’s commitment from the client that they’re going to make a good counterparty before we invest all the due diligence that we need to do to validate that. Yes, this will be the price, and this will be, and this will be the savings that you’re going to generate.

Where it usually starts from is at least how we approach it. We take a quick, indicative look, hey, throw some spaghetti at the wall. It’s something like this. Does that work? Is that the kind of project you want to do? A lot of it is just understanding who your stakeholders are and what the actual goals are that make this make sense. Are you sustainability-driven? Are you economically driven? The realities are going to be all of them. How much are you concerned about the operation? Are you willing to lease out your roof for 25 years, or the field out back that you might want to expand? Kind of sussing all that up into the front end before we spend all our money to go out and do geotechnical studies and understand what’s under the ground and talk to the AHJ about the permitting requirements. Because it takes a lot of resource devotion from us to really get there.

And so, we kind of step through it methodically. And that initial indicative analysis, give us your utility bills, tell us what you think you’re looking for. We throw it out and if it looks feasible because sometimes it works sometimes it doesn’t we kind of step through it in chunks and during that you’re doing some of the education on the contracting vehicles and understanding what’s the financing plan and also understanding the technical plan and understanding their planned usage for the site is your usage going to grow you’re doing any expansions doing any downsizing so at all it’s a number of parallel paths that happen at once.

Wes Ashworth (18:48)

Yeah. Are there any other risks your team takes on during development that most customers may never see, or that they might be surprised to learn about?

Scott Therien (18:59)

Yeah, I mean, there are some; we do our best to flush them out on the front end. The big ones, the interconnection upgrades, particularly in mature markets where there’s more saturation of solar on the grid, California, Hawaii, until you really get pretty far down the process with the utility with an interconnection application, you don’t know what sort of upgrade fees they might charge. It might be $50,000 to upgrade the transformer right outside the building. It might be, you know, half a million dollars to upgrade the substation three miles up the road.

And that will really blindside folks if they’re not familiar with the interconnection process and what you’re going through with the utility. And they’ve been working with you for a year, and all of a sudden you go, Hey, your utility wants an extra half a million dollars from us. Here’s your change order on the price. What are you talking about? We usually handle that right up front. We tell them what our allowances are often put it into the contract. Look, here’s our allowance for the interconnection upgrades. Here’s the process by which we’re going to go through it and the date on which we think we’ll hear back from the utility. Contract it. Here’s what we’re going to do if X, Y, or Z happens. And there may be a walk-away clause. And that means we’re spending money at risk. You’re devoting resources at risk until we get there. But there’s no other way to step through it but to step through it.

Wes Ashworth (20:06)

Yeah, I love that. You told me this story of when you visited a university where an existing solar system was completely offline. Can you tell us that story? Explain just how it shifted your perspective on long-term system quality and ownership.

Scott Therien (20:21)

Yeah, this was somewhat earlier in my career. I was in a sort of an engineering capacity, supporting the sales team. So, I would often do site visits in preparation for a proposal to a client. Went out to this university, and they had put into the scope that we would remove a system and replace it with a new system. So, we climbed up onto the roof, and I was shocked at what I saw. There were panels mounted just flat on the ground, no tilt at all, butted up to each other. So, you just had this sea of panels and some of them were smashed, like someone had stepped on them, and there were three- four four-foot weeds growing up right in the middle of the array. And we stopped, I was with one of my counterparts, and we stopped, and we said, Is it safe to be up here? And so, we shut this off years ago. They just disconnected the entire system.

And we spent a little bit of time saying, well, you did disconnect it down, down there in the electric room, but just those panels are still hot, and you don’t know which of these wires up on your roof are hot. They’re like, well, that’s why we want you to rip it out.

But it just blew my mind and so they had this system sitting on their roof for years just being a safety hazard and an eyesore and Anyway, they were right to replace it but it was it got me thinking about like how decisions have been and are made in in designing these and one of the things that happens in a PPA and it was interesting because that University had bought that system itself and owned it and I don’t know who was responsible for maintaining it but it wasn’t done well.

And as they were coming out to procurement, they wanted us to take on the full rip and replace, and we would own the system. They were like, we don’t, we don’t want to own it. You do it, do it all through a PPA. And it kind of lends itself to what we were talking about, about why PPAs have become the go-to, is because if we’re building it, we’re the asset owner. And again, if it doesn’t produce, I don’t get paid. I got investors breathing down my neck. Hey, this thing better operate the way you said it would. And they hired an independent engineer to keep me honest and make sure I get that thing done right.

So, the university in that scenario gets to kind of just throw their hands up and be like, I’ll buy the energy. you produce it, keep it safe. That may have some safety requirements they should, as we do too. And so it was, it really was just kind of an eye opener, and there are some missteps out there in the industry that are still kind of hanging around. And for those who have something like that on their property, I would say first and foremost, make sure it’s safe.

But also, there are a lot of options. I think what we’re looking at more and more is these repowering projects where we go and find distressed assets that are, maybe they’re completely defunct, or maybe they’re operating at 70 % of what they were operating at. And the owner, the off-taker, may not have any idea how to fix that up properly. And it’s hard to find a contractor to do that, but that’s a core competency of what we do. How do we make sure these systems are operating optimally? So, we can come in and acquire that system or remove it and replace it and bring it up to snuff with modern standards and all that. So yeah, that was an interesting, eye-opening moment though, walking up and seeing that on the roof there.

Wes Ashworth (23:10)

It is. I love it. It’s such a simple story, but it really does like paint this great picture of the importance of what you do and how you approach these projects. Really, when your interests are aligned in that way, the right people are handling the right things for long-term success, and as it should be. So, another thing you’ve mentioned is that your investors, whether tax equity or sponsors, often bring that extra layer of scrutiny that clients benefit from. Can you tell us a bit about that, and just how does that pressure shape the way you design and operate systems?

Scott Therien (23:30)

Yeah, absolutely. And it is fundamental to what we’re doing when we’re building these PPAs. mean, these are 35-year assets, and we view them as such. And the way we structure our finance, all of the investment partners involved in a project or in an organization are reliant upon maintaining that revenue stream as you predicted, at the very beginning of a 35-year process, 20 or 30, whatever.

So, the way we scrutinize those folks is very sophisticated buyers. And at this point in the solar industry, they’ve been at it for decades. And they’ve seen those flaws. They’ve all been up on the roof like I have and seen what folks have built in the past. You don’t ever build a system with no tilt, right? Tilt your panels. And so, it just having kind of been through it all, you have the experts in the room, so to speak. They’ve hired their independent engineers who have audited a thousand systems, dictating the standards by which we build. And so, it forces this long view.

It shifts the conversation around the bottom-line dollar cost of the system and the optimal long-term benefits of a system, which we often call the levelized cost of energy. I think it’s really important for folks to think about because if you are going to own a system yourself, the thing you’ve got to think about is, or one of the questions I’m going to ask you upfront is, how much deferred maintenance do you currently have on your books? Because is this just going to fall into that pile of things we need to maintain that we can’t come up with the operational expenditure to actually maintain because we’re too busy focused on our core business? Well, that’s all I do: is spend money on making sure our assets operate as expected. And right, there’s this cascading effect that happens too when you don’t do that maintenance, you haven’t maintained your warranties, and then something goes wrong. Maybe it was a warranty defect. You’ll never know because you weren’t doing the O&M on it. So, you’re not getting any recouped costs for that. And then the thing just kind of falls, and it creates this snowball effect until you wind up with this defunct system out back.

When we build a system for our investors, that layer of scrutiny, while it can be a pain to deal with, and those independent engineers, they want to poke and prod at every little thing. And you’ve got to prove it to them six ways from Sunday. But at the end of the day, what that results in is a very high level of standard pushed across the industry. And it’s a good, it’s a good thing for all of us.

Wes Ashworth (25:51)

Yeah, I agree. Very good thing. Just from your view, how does the rise of structured finance in solar improve, not just fund, the systems that we’re building today?

Scott Therien (25:59)

It drives a need for innovation, as everyone’s looking to squeeze as much as they can out of any investment they make. It propels forward. I mean, we’re talking about the repowering. That’s just one example of an industry that might not emerge without some of these investors, and the scrutiny they bring is that they’re creating an incentive for developers and for asset owners to optimize, innovate, and improve. And so, it is driving improvements, I think even from a technical perspective, we’re all looking for ways to squeeze every bit more out of it. Cause at the end of the day, we’re trying to maximize the value of a given roof or a given area of land. And that’s the goal.

Wes Ashworth (26:40)

Absolutely. And just as we’ve gone through sort of that behind-the-scenes work, I think it becomes even more important when clients want more than just savings. They want uptime, they want resilience, that changes the entire equation. So, I want to dive into how those expectations are shifting and then what it takes to meet them. So, when a customer asks about resiliency, about staying online during a grid outage, how do you help them frame the value of that security in the equation?

Scott Therien (27:06)

Yeah, and I think we’re hearing that more and more microgrids and resiliency are a hot topic. And there’s a lot of great innovation happening in the space. I always approach it with skepticism when I hear folks want resiliency. I go, okay, what do you really want? Are you here for savings? Because solar will save you money. Resiliency costs money. Because it’s effective, it’s planning for that emergency. And you’re to some extent, at least to some extent, maybe to a great extent, you’re deploying resources that will sit idle most of the time and be ready for you in the case of an emergency.

And so, that’s a cost burden to the system that otherwise could operate nominally and save you money. And so, there’s a balance to be struck there, but until you can balance it, you have to quantify the value of that resiliency, and putting a dollar tag on that is pretty difficult. So, it’s a much more challenging conversation about optimizing solar savings is hard enough, but that definitely adds a whole other layer of complexity to the conversation and the evaluation process.

Wes Ashworth (28:05)

Yeah, without a doubt. And digging into that a little further. So, you have worked on multiple microgrid projects, obviously. Can you walk us through maybe one that stands out and what it taught you about how customers really do evaluate reliability versus cost?

Scott Therien (28:17)

Yeah, they are all very much snowflakes unto themselves. Every microgrid project is very unique, but I’m kind of thinking of two right now. And maybe the comparison of the two, I think, is most relevant where we worked on one that was for a municipality that was building a public safety headquarters out on the East Coast on the Eastern seaboard, where they’re prone to natural disasters like hurricanes. And they were building this new state-of-the-art facility, and they were consolidating a lot of their emergency response teams. Like the fire and the ambulatory and the police, all of the dispatch centers, this was all kind of consolidated into this one sort of hub that could be the sort of command center of disaster relief and emergency response.

Suffice to say that the building needs to stay online no matter what happens to the grid, right? And so, they had a very clear mandate for resiliency. We deployed a number of solutions there. So, there were solar car ports. There was some solar on the roof. We did both batteries, and then there were also some gen sets to provide power. And it was basically the combined solution that gave them indefinite resiliency, as it was the most important item for them.

So, was it a very clear conversation about how much resiliency is worth? It was, it’s worth everything. We’re talking about lives. How do you put a dollar tag on it? Make us resilient no matter what. And you can design for that solution.

And then I’m thinking of the West Coast of a high school district. Well, it was a K-12 district and we were looking at a high school and they had this great idea where, they have some disasters there, be they earthquakes or fires, where if the grid goes down, their community might lose service and there’s some elderly in the community and they thought, well, why don’t we make the high school, the emergency shelter in place, have some resiliency so we can keep at least the high school gym online. So, we have heating and cooling, and the community comes in there. And so, it’s a great idea. Love the concept. But we started the conversation around, here’s what solar and storage can do for you from a cost-saving standpoint. And it looks great. Here’s what resiliency can do for you. And it eats away at all of those savings. And given their responsibility to their taxpayers that the district didn’t necessarily have money to come up with, eventually it got scaled back.

We wound up with no resiliency. We deployed a solar and battery solution, and it saves them tons of money. And maybe that’s fine. It was, it took a while, though, to determine that this was a nice-to-have. This was a cool idea, but the core thing they were looking for was renewables and cost savings. And so sometimes it’s just sussing out what your real motivator here is. And a lot of times there’s, you know, a wide array of stakeholders and they all have a little bit different idea of what they’re after.

So, I don’t know, kind of think about those two. So, whenever I begin that conversation around resiliency, I go, what do you really want? And it’s never an easy answer. And what’s it worth?

Wes Ashworth (30:52)

Yeah, I could see that a lot of little nuanced things in there and what the real preferences are, but it’s important to have that conversation, uncover those things, get into it early, and then figure out what they’re actually asking for. What do they actually need? What’s feasible? Another thing that you’ve mentioned is how hard it is to have a nuanced conversation about solar economics when the buyer is locked into a rigid RFP process. And I want to dig into that a bit.

What’s missing in that structure, and how do you try to work around it?

Scott Therien (31:24)

Yeah, so I started off as sort of an engineering role, doing a lot of sales support, a lot of hats, before jumping into the sales side of the business. And when I did that, I spent a number of years serving the California public sector as a primary focus, working with a lot of municipalities, K-12 districts. Every project I worked on started with an RFP request for proposals, a competitive solicitation. And, as we talk about the optimization of these solutions, it is very nuanced, and it’s hard to have that conversation in the confines of an RFP, right? Where the RFPs ultimately have the objective there is to finding the best price. What do you mean by best price?

So, the base case, I always point out of like the simplest solution of this is you tell me you want the lowest PPA rate, and there’s the land you can use to build solar. Great. I’m going to point all my panels directly south, and that’s going to get me the maximum amount of production out of each one of those panels. And that’ll get you the lowest PPA rate. Maybe you’re paying the utility on a time-of-use tariff that charges a lot more in the afternoon, evening hours. And if I were to just tilt those panels to the West, my rate goes up because I’m getting less production out of them, but you’re saving a heck of a lot more. So, the offset rate is a lot more. So how do you kind of have that conversation in this sort of solicitation, where it’s sort of, submit all your questions and answers like officially through the portal, and you want to have a little bit of this back and forth.

It’s not impossible to do it through an RFP process by any stretch of the imagination, but it’s harder to have an optimization discussion with a trusted counterpart. So, some of the ways I’ve seen that work really well is where they go through an RFQ process, find qualified contractors, and then have a nuanced discussion with one or two of them, take it a little bit further. And I’ll say one rule I came up with real quick when I was operating in that public sector.

If any public agency released an RFP and it came directly from the public agency, we wouldn’t bid. It was just an automatic no-bid. If it came through a consultant, primarily one of the key consultants we knew were serving that space and serving it really well, we focused on those RFPs. What that told us was that you hooked up with an expert in the space who knows what they’re doing, and they’ve spent the last year or two maturing this project and identifying exactly what you want to get out of it. And they’re going to structure an RFP around what you know you want. It’s going to have a certain level of sophistication cooked in so that when we’re responding, we know we’ve got a mature deal that is actionable and that the stakeholders have been engaged.

Now, it’s not a hundred percent true, but it was a shortcut to trying to figure out, have you actually done the homework? How many of your stakeholders have you talked to? Do you actually know what you’re trying to buy? And, there are really good consultants that do nothing but this for a living, but help you get there. Because again, if you’re a K-12 school district, you don’t have a solar expert in-house, and you’re not going to staff up a whole team that’s going to help you run this process with all of the knowledge of someone who’s been in the industry for 20 years. But if you can find a way to bring a consultant on board to help you do that, you’re going to get a lot more juice for that squeeze. But it’s going to cost you money upfront. Again, you’re spending money to do that development. You’ve to make an investment at some point.

Wes Ashworth (34:24)

Yeah, I love that. I like that thought, and around just the consultant angle too. I hadn’t really thought about that, but that’s super interesting. Another kind of piece that heavily shapes a project’s value is policies like net energy metering, export rates, and time of use tariffs. How do you help customers make sense of all that complexity? And then why is it so critical to get it right in the beginning?

Scott Therien (34:47)

Yeah. I mean, these factors dictate markets, right? We, in the solar industry, as we chase markets where it’s viable, the net energy metering rules with a given utility are the difference between solar being able to save you a ton of money. And we literally cannot build you solar right there because of the interconnection rules or because the net metering policies don’t allow us to produce savings just based on your usage pattern and the rules in place.

So, understanding that is critically important. It’s step number one to just, does this idea even make sense there? And so, we are very much kind of beholden to the local policies and things like that. As I mentioned, we’ve kind of become experts in the space, and we can kind of suss it out. And, there’s not exactly a database of markets that do and don’t work, but just sort of this tribal knowledge of what works where, and sort of where your limitations are, and things like that. But it’s really important to understand that right off the bat.

And that exploration on the front end can be different if, say, you’re a national client that owns, you know, a thousand properties across 30 states, versus if you’re operating in one geographic region and all of your sites, where your single site you’re looking at has a single utility. And you just become an expert on that. It dictates it from there, but it really is step number one in understanding this complex equation of how this saves you money and what’s the long-term vision for how your system is going to operate for you.

Wes Ashworth (36:08)

Yeah, absolutely. And even more so, just the reason you need an expert. You need an expert who knows it, has been in it, and knows how to navigate it. It really is so complex and changing, ever changing quickly. And speaking of changes, obviously, many in the industry are concerned about what happens when the ITC starts sunsetting, and you hear a lot of those questions. But you’ve said, and I love this, a post-ITC world might actually bring new flexibility and cost savings.

I always love a positive take, so can you just expand on that idea for us?

Scott Therien (36:38)

Yeah, I’m an optimist at heart, and so maybe to a fault, but I think it’s important for folks to remember. Look, the ITC has been around a long time. It goes back to the 1970s when Jimmy Carter was putting panels on the White House, right? And that was a very controversial thing back then. And so, everybody’s looked sideways at solar. We’re not an emerging technology anymore. You look at the EIA data on expecting a new generation to be brought onto the grid in the US.

I mean, the vast majority of that is renewables, and the lion’s share of solar. Solar’s not going anywhere. We still are reactive to policies and regulatory changes, and the changes in incentives change the way we deliver. But at the end of the day, solar is here to stay. And so, we’ve learned a lot. It’s important to remember, especially for the folks who are newer to the industry, that this is not a new thing for us. We’ve lived through this before. There have been times in the past when the ITC was about to go away, I think it was 2015-2016 when we got right up to the edge. The ITC was about to sunset, and everybody was ready for it to go away, and it was two months before the end of the year or something. Horse trading happened on Capitol Hill, and it all got worked out.

The thing about these changes is not so much that what’s on the other side is that bad. It’s the uncertainty. It’s the uncertainty that bogs us down. And to the extent we are relying heavily on a given incentive, we’re beholden to it. And when it changes, we’ve got to change with it or things go away. But I think the industry is mature enough that I’m part of me is like excited for a post-ITC world because it takes a lot to get that ITC. A 30 % ITC is not a 30 % reduction in cost because there’s a whole cost of compliance. Whether it’s from a reporting state, the Inflation Reduction Act added prevailing wage and apprenticeship requirements. You’ve got to bring tax equity in to monetize that ITC; that’s not without cost, that’s not without additional hurdles on our end.

So, there’s a scenario in which, without the ITC, there may be some simplification to our structured finance. There’s certainly a simplification to the compliance requirements. And that may actually also drive reductions in material costs. So, in the United States, our module prices are incredibly high when you look at Europe or the Asian markets, where panel prices are a fraction of what they are here. And you have to wonder that in a post-ITC world, what happens to that market. It puts us more into the global market and has us a little less pinned in. It’s a little hard to say what the post-ITC world looks like, but I certainly am no doom and gloom on it.

Wes Ashworth (39:12)

Yeah, I think you’ve got to be, I may have said this before when we talked, you’ve got to be an eternal optimist in this industry. just have to be. But to your point, I think it causes innovation to happen, causes just people to get their heads together and really start working on, okay, how do we innovate? How do we, how do we problem solve? How do we move forward? How do we make it work? I think again, it’s going to, it’s continue to move forward regardless. There’s no stopping it at this point, I think anybody closely connected to the industry can agree on that, and even those who may be outside of that as well. And thinking about that just a little bit longer. So, you’ve been through this full ride, the full solar coaster. I think you’ve done many laps from policy cliffs, market crashes restructurings. You’ve seen people panic along the way

but the industry keeps moving forward, and your outlook remains optimistic, which I love.

What would you say to someone who maybe is newer in the space, maybe they haven’t been through it as much, they’re feeling a bit overwhelmed by the volatility right now? What words would you offer?

Scott Therien (40:12)

Sure, I think to the extent it suits your needs, read on the history of solar or find some historical podcasts and things like that. I mean, solar has got a long story. As I mentioned, it goes back to the 70s and 80s. I mean, if you find some guy with a bunch of grays in his beard who was trying to do solar in the 80s and tell him you’re worried about the volatility of the market, he’s going to laugh at you. Remember that perspective. Find a way to look back on how far we’ve come.

If you’re worried about what this volatility in the market is going to do? Are we going to make it on the other side of this? If you’re worried about the survival of your organization, that’s a good, healthy worry to have. How do we make the right decisions? How do we weather the storm? If you’re, if you’re new and you’re strapped for cash and you’re trying to do something innovative, you know, batten down the hatches and find a way to sort of ride the evolutions as all the players have had to do over the years to find a way to get on the other side of it. If you’re worried about the survival of the industry, I say, don’t worry.

We’re not going anywhere. And so, it’s just, it’s how do we as organizations and as companies and as individual contributors find a way to provide value to that industry that is here. It’s a staple of the energy economy in the United States and across the globe. So, it’s not going anywhere. So, it’s not a question of, are we going to make it? It’s a question of how we can best suit the evolving needs of the grid. I mean, you look at the rise of data centers right now and the projections on the load growth that’s going to contribute. There’s no shortage of energy needs across the globe. And so, there’s a high need for solutions, and we bring one of those solutions, and there’s going to be a new mix, right? I mean, there are folks talking about building nuclear reactors next to those data centers. And I think a lot of folks are looking harder now at clean gas options, be it renewable natural gas or hydrogen.

There are new emerging technologies. Solar’s not really one of them so much. We’re sort of the staple that’s going to augment those and maybe help the rising tides of those emerging technologies figure out what the right new solutions are to implement in conjunction with the other things we’re already doing. So, I just think it’s just a perspective shift. I don’t know, but a long-winded answer to stay positive and contribute what you can.

Wes Ashworth (42:17)

Love every part of it. I’ll ask you a follow-up to that. So, you mentioned obviously the industry as a whole is not going anywhere, right? These individual companies, I think, there are some challenges there depending, and as someone who’s led through some of that volatility, that uncertainty, what advice would you give, if your friend’s one of those business owners that hasn’t been going at it so long, maybe this does negatively impact them when they’re going okay, I gotta be flexible. I have to be nimble, I’ve got to adapt, I’ve got to shift a bit. Don’t exactly know what to do. Any advice you would you would offer to that person in terms of what they should be thinking about and how they should be going about it?

Scott Therien (42:59)

Yeah, I think focusing on markets and technical solutions that you can have an expertise in. There are a lot of different ways you can do it. Don’t try to be everything to everyone. I think a lot of folks have tripped over the goal of trying to grow an organization by answering everything in every market. I got to do roof, got to do carports, I got to do ground, I got to serve utilities, I got to serve commercial, I got to serve residential. Nobody serves commercial, residential, and utility. Nobody even serves two of the three, really, particularly well. I mean, we lived through part of that at REC Solar, and we did it as well as just about anyone, but the right solution for the business was to split out and have some degree of focus.

So, it’s good if you can be a national provider with a lot of tools in your toolbox, but trying to do too much has been a fatal flaw, I think, for a lot. So, stay focused on what makes sense for your org based on your expertise and your position in the market, be it a geographic focus, be it a technical solution focus. Know what you can do well and do it really well, and then grow sustainably from there. Sustainability is important in a lot of ways, and the growth of an organization is certainly one.

Wes Ashworth (44:01)

Yeah, great words of wisdom there. A couple of final questions. So, just thinking about your work right now at REC, what’s keeping you fired up, and what are just your thoughts about where things are headed?

Scott Therien (44:11)

You know what I really love about REC more than anything is the people. It’s a cliché answer, but we’ve had some of the best veterans across the industry come through our organization. I’ve had the pleasure of working with a lot of them and seeing them all off as leadership and other organizations is great. But the leadership we have right now at REC Solar is phenomenal. They’re veterans in the industry who’ve taken their lumps throughout the years and the decades and really know what it takes to operate in a sustainable way in this industry. And so, I’m excited to work with them. I’m excited to work with the team I’m with. That’s really kind key to me anywhere I am.

I think one thing that energizes me, I guess, about where we’re going, I don’t know, it’s just this sense I have that the industry’s kind of always, well, we’ve had times at which I’ve noticed the industry to be very hyper competitive, very cutthroat. We talked about the bloody knife fight to the death on pricing, and it was like getting into these price wars of how low can you go and which companies can survive while we’re operating on these unsustainable margins and then the washout happens and you pick yourself up bruised and battered and okay, all right, now build it back up.

I think to some extent, when you’re in an emerging industry that everything’s sort of the first time you’ve done it, I could see how it lends itself to that and this hyper competitive space, but it feels like we’re on a transition, right? Where it’s time to put on our big boy and big girl pants and cozy up to the table. We’ve made it to the mainstream, right? We would compete with all the major players. And I think that’s going to enable more of an approach of collaboration, of optimization, right? And real innovation, where we talk about the frenemies across the solar industry. Those of us are on a little more stable footing now, both in the industry and the organizations, as we’ve sort of stabilized what we do and how we operate in the industry. I think that’s going to lead to a lot of collaboration and which inevitably leads to new innovations. So, I’m excited. I think it feels like a new chapter, not without turmoil and strife, but yeah, it is what it is. I’m excited to be a part of it.

Wes Ashworth (46:08)

Yeah, that’s what makes it fun. I love that.

And I’ve seen it too. I think just the emphasis on collaboration, and I think as the industry matures. And with that, think, you know, great, great thought to end on and wrap it up. So, we’ll wrap up today’s conversation with Scott. Thank you so much for just giving us a clear, grounded look at how solar really works, not just the technology, but the trust, the modeling, the long-term alignment that makes it all viable.

If you’re listening out there, and you’re earlier in your Clean Energy Journey. I hope this conversation gave you a perspective and hope. The volatility is real, the pace is intense, but as Scott reminds us, the work keeps moving forward. The models are getting smarter; the mission is only growing. If this episode gave you something to think about, please share it, leave us a review, and be sure to subscribe. And with that, we will see you soon.