Green Giants – Episode 81

Mike Silvestrini (02:37)

One of the reasons that I attribute to our success at Greenskies was our inability to raise capital, believe it or not. I saw a lot of companies getting big checks, bringing in big investors with big expectations. And then they felt the reality of the industry, which is that it’s very slow. It’s a very challenging industry. Projects never go the way you want them to go. And when you’re reporting up to a big check writer, you’ve got egg on your face quarter after quarter after quarter. And eventually those guys collapsed under the weight of that capital.

Whereas, you know, we had no business experience really. We were scrappy and we were cheap and we were lean. And that was really the characteristics that gave us success. Cause we dealt with the same problems as the other guys. Our projects didn’t work right either. And our customers were paying the button. Everything was really challenging, just the same, but you know, we didn’t have the baggage of excess capital to drag around with us. And if we were willing to suffer through those challenges, then that worked.

So, high tolerance for pain and not someone else’s money, I think, are two of the main reasons why we were able to take the long road to success that Greenskies was.

Wes Ashworth (03:48)

Yeah, I love that. It’s so cool. Scrappy. And I love those stories. Thinking about it from obviously pretty humble beginnings to scaling it to a pretty substantial business, before you exited. What went into that success? In terms of like, what was the recipe to scale?

Mike Silvestrini (04:04)

Well, certainly a lot of luck because we got in the same month, I want to say it was January of 2011. We had been at it for four years. We had a couple of projects under our belt, but it was still two guys above a pizza shop. And in that condition, we were able to get commitments from Walmart and Target at the same time. I was actually doing some work with the state department. I was on a boat in Africa doing some nonprofit work when I got a text because they have good cell service out there. And I got a text from my business partner that we had gotten yeses from both Walmart and Target after I think we were, you we proposed solar 30 or 40 different ways with those clients.

Eventually, we proposed something that made sense for them. And they gave us a shot. Walmart gave us five projects in New Jersey as power purchase agreements. And Target gave us another five projects where they were going to buy and own the asset, which was serendipitous as well, because selling the projects to Target created the cash flow that I needed to buy and own the projects and sell the power to Walmart. And if it weren’t for those two customers, you would never have heard of the name Greenskies.

Wes Ashworth (05:15)

Yeah, that’s incredible. Pretty remarkable and yeah, some luck, right? But you had to be doing the right things. You need to be in the right places. You had to work hard. I think there’s that quote of like, I find the harder I work, the more luck I have type of thing.

Mike Silvestrini (05:22)

And for me, I’m the type of entrepreneur who kind of works in the back of the house. I kind of solved the problems. I figure out how we’re going to pay our taxes and figure out how we’re going to pay our people, and figure out how we’re going to create the broader strategies of the company. But I’m useless by myself. I really need to be partnered with a dyed-in-the-wool salesperson, somebody who can get out there and get a doc signed. And that’s going to give me something to work with. And in that first business, it was a guy named Andrew Chester.

And he was the one who successfully brought in Walmart and Target. And I was the one who figured out how to service those contracts and make sure that they were happy with us. And between the two of us, we got it done.

Wes Ashworth (06:03)

Yeah, a ton of power in that too. I think just the realization of knowing like that’s not my strong suit. I’m gifted and I can add my best contribution in other areas. I need to pair with someone. Some people just, I don’t know, it’s pride, ego, what? They can’t really get there or admit that. So, I think that’s a big piece of it, too.

Mike Silvestrini (06:19)

You can’t be good at everything. They’re stronger in some suits.

Wes Ashworth (06:22)

Yeah, absolutely. So, all that grew Greenskies eventually ended up exiting in 2016. What did that moment teach you about timing and solar cycles and just knowing when to pivot?

Mike Silvestrini (06:33)

I learned too much during that exit process. I actually sold that business twice. the first time I had a signed contract, with a company called NRG, to buy Greenskies. And at the time, it was run by a guy named David Crane. And, I was very excited to fold in under NRG Renew, which was their division of renewable energy. And they were a step ahead of everybody else. So, I was super stoked. only there was a fateful board meeting at NRG where they canned David Crane and canceled that contract all in one swoop. And we were back to owning Greenskies again.

And we had to sell the business a second time, run a whole other process. My bankers hated me, my lawyers hated me, because we did this deal twice. And the difference was, is that the window of companies overpaying for solar businesses had closed. So, we had caught a tremendous price point with NRG. Maybe that’s why the deal didn’t close.

And by the time we actually sold the business, it was for about half the value of the original transaction, but it was a fair value. I mean, it was based on the projected cash flows of the projects we own. It was still a couple hundred million dollars. I don’t think many will feel sorry for us, but it shows you the power of an excited market and versus the challenge of a market that hates your guts. And it’s had nothing to do with Greenskies or how we were performing. It was really just about a change in conditions.

Wes Ashworth (07:54)

Yeah, absolutely. And so, then after that chapter, what lessons from all of that going through that process and just think growing and scaling Greenskies as well, like what lessons did you carry into Energea and what you’re doing now?

Mike Silvestrini (08:07)

Well, I remember thinking about starting Energea and insisting that I learn from the lessons of Greenskies and build those into the fabric of Energea. And there were a couple. One of them was obsessive dedication and focus on accounting. Greenskies grew so fast and we had so much capital flowing around that business, hundreds of millions of dollars. Again, two guys above a pizza shop, I’m coming from like a line cook position to owning a solar energy company directly.

And I underestimated the importance of bookkeeping and closing out months, and really paying attention to detail on that. Well, Energea is the polar opposite. I mean, we have perfect accounting. Our audits come back clean time and time again, and they cost a fraction of what it costs to audit Greenskies because we were kind of a mess over there. So that was something I knew that we were going to hammer out in the second go-around.

And then the other one that kept me up at night was the way to structure relationships with people. Greenskies, I had some business partners there and they were very much in the belief that, like, look, there’s gonna be a salary, and that’s your relationship with the business. You do the work; we pay you your compensation. And that works a lot of the time, but it doesn’t work all the time, especially with your most talented people. And especially when you’re working as hard as we work. We don’t work normal hours here. We work exceptional hours.

And also, some of these people are exceptionally talented, and I can’t afford to pay them what the market rate would be for their skills. And when you run into one of those situations, you really need to open up the cap table. And I fixed that at Energea. I was able to bring in these great people. I was able to do it in a way that the company could afford them, even maybe before we had the cash flow that could do that. And we did that by sharing the business with my colleagues. And because when we started Energea, we had a clean slate. I feel like those are stronger bonds than the ones I was able to achieve at Greenskies.

Wes Ashworth (09:57)

Yeah, I love the evolution and seeing leaders just taking what they learned, which was a success. It wasn’t like it was a failure. It was a massive success. But you’re still taking that ownership, still learning from like what we didn’t do well, carrying that into the next business, making that even better. So, I love that. Just taking all that experience and the operational grind, the deal structuring, all the things that you learned, and then turning it into also a new kind of platform.

And I want to dig a little bit into that and what you’re doing now with Energea. So, what gap did you see in the market that led to the creation of Energea?

Mike Silvestrini (10:27)

Well, so after selling Greenskies, the very next day, I’m on a plane with my family, and we go on this fabulous trip around the world. As one would do when you sell a business, it was really an exciting time for us. It was life-changing for us. And along the way, I couldn’t help myself but meet with every solar company of every country we visited. So, I had a pretty packed day. Whether we’re in Vietnam or Europe or wherever we were, I was meeting with the companies and asking them. I had one success under my belt, which is more than most, and I was able to go into these offices and say, what’s your challenge?

And I kind of got a wake-up call when I was in Singapore, and I was talking to this company that had a multi-megawatt power purchase agreement with Unilever, a fantastic credit in India. And they couldn’t get the money to build the project. I just thought that I would want to own that. I believe Unilever is going to pay us.

And the return on the project was in the middle or upper teens. I can’t remember at the time, but it was a good deal, and there should be capital for those deals. And there’s not, especially in these emerging markets. And that’s when I realized I think I could be useful to this industry because, courtesy of the Walmart and Target credit, I used to tote around at Greenskies. I learned how to finance these projects. I learned how they operate as a financial personality.

And I could maybe build a bridge between these guys in Singapore, whose project deserves to get built, and the types of people looking for that type of investment. Because it is actually a really good investment in a lot of cases with solar if you do it right. So, that’s really one of the main drivers of starting Energea was to bridge the gap between investors who never see a 14 % IRR. They don’t see those types of deals in the private sector, and bridge that to guys like the guys I met in Singapore there who never see $2 million checks from investors coming their way. So put them together and let the sparks fly.

Wes Ashworth (12:20)

Yeah, that’s so awesome too. Just traveling around the world, post-selling the company, just being passionate and curious, and wanting to see it. And then, like noticing this problem, this gap, and turning that into a business model. That to me is so cool. I love talking to entrepreneurs and hearing those stories.

Mike Silvestrini (12:37)

The only reason I was able to raise any money at all the first go around was because I had Walmart and Target. But if I replace those with any other name, and it’s a lot harder to raise money to build those projects, especially because I specialize in distributed generation or like smaller-scale stuff. So, nobody would have touched us with a 10-foot pole if I didn’t have Walmart. And I was seeing that across the industry. And that’s why it just felt ripe for financial innovation.

Wes Ashworth (12:41)

Yeah, it’s so cool. Just to better understand Energea, for someone hearing about Energea for the first time, not familiar with what you do, can you just break it down and explain how it actually works? How do investors earn returns, and what kind of assets are they tied to?

Mike Silvestrini (13:15)

Sure. Yeah, so Energea is an investment platform. On one side, investors come to the platform and buy shares of Delaware companies. And then we, as Energea, manage those Delaware companies. And those companies go, their job, their only purpose in life is to go and acquire solar energy projects, generally solar energy projects. We have some batteries, we have a hydro project, not opposed to other technologies. But I’ll generally use the word solar because it’s the vast majority of what we do.

So, we have two sides of our shop. On one side, we are serving investor clients. We’re giving them communications and transparency about the stocks that they own. And then on the other side, we’re investment managers, where we are selecting projects to add to our portfolios. And the way that we decided to build this out was to take each individual investment thesis and create a product out of that, and then ask our clients to diversify across multiple products.

So, for example, we had a hunch that Brazil was going to be a high-yielding solar energy opportunity. So, we created a fund specifically to pursue high-yielding opportunities in Brazil. Well, we also had a hunch that South Africa was going to be a good place to do solar energy business. So, we created another product specifically for the purpose of investing in solar energy and battery projects in South Africa. And then our clients might buy a little bit of both. And then they’re going to end up with a diversified portfolio of stuff that we believe is all good. And we also have a US portfolio. We do business in Colombia.

So, we have a mixed bag. Our clients have a well-diversified portfolio. And the product goes something like this: Each month, the projects that are owned by those Delaware companies produce cash flow. That cash flow pays for the operating expenses of the projects and the Delaware company itself, like audits and regulatory filing fees and things of that nature. And whatever drops to the bottom gets distributed to the shareholders pro rata. And it’s a nice product for clients looking for dividends because we issue dividends monthly. Those revenues adjust with inflation. So, it’s fairly inflation-protected, cash yield, and over the course of the last five years, we’ve been able to deliver north of a 12 % return across those portfolios. So, it’s working well for our energy user customers and it’s working well for our investor clients too.

Wes Ashworth (15:36)

Yeah, refreshingly simple and incredible, like a genius idea and obviously, takes care of itself in terms of the value and things like that you’re creating, but that’s remarkable. I know you two; you’ve recently launched a private wealth channel to make energy available to financial advisors and accredited investors. Tell us a bit about that and what problem you are solving for them that maybe wasn’t covered before?

Mike Silvestrini (15:57)

Sure. So, we’re looking for the capital that is south of the institutional Mendoza line. So, this is everything from foundations and family offices down to your neighbor next door, who is generally not a professional investor. But that category wields $130 trillion, so like most of the money in the world. And it’s really not; it’s on the sidelines as it relates to energy infrastructure. And everybody’s talking about energy infrastructure, whether it’s for AI here in the US or in emerging markets, they need energy infrastructure just to build a basic economy. But where’s the capital going to come from? Well, we’re looking at that 130 trillion and saying, I know where the capital is.

And in order to approach that capital, we had to come up with a couple of different schematics. The first one was directly to the consumer. So, we have a phone app, and we have broad marketing strategies. We pop up very high on your Google searches if you’re trying to invest in solar energy and things like that that attract retail investors to our products. But that’s only really getting at the direct-to-consumer market. Another section of this category is what we call wealth. Those are like the foundation side, family offices, people who use a professional investment advisor, and people who find stock buying opportunities through broker-dealers.

So, in order to open up our products to those types, we have a parallel offering that is specifically tailored towards them. They’re buying into the same portfolio of projects at the same price as everybody else. But there’s different documentation that a family office would use versus a private individual. And that’s really why we’re excited to be launching that wealth product.

Wes Ashworth (17:39)
Yeah, it sounds like an extremely smart expansion, same product, different access point, as you said, just tapping into a lot of money that’s out there, and that’s really cool. When you’re looking at your portfolio performance, what types of metrics do you care about most? And just tell us about just kind of the whole story and what you’re looking at.

Mike Silvestrini (17:54)

Yeah, there are really two metrics that we want to pay attention to. One is cash yield, and the other is IRR. So, cash yield is basically the amount of cash that is actually being distributed through dividends, divided by the net asset value of the portfolio. In other words, if you put in 100 bucks, how much money am I really going to get each year? Is it five bucks? Or is it seven bucks, 10 bucks? That’s going to be your cash yield basis. So, we want to make sure that that money, that number, is a good number.

The key there is that you have money that we raise that we may be using to build a project, or we may be storing up cash in preparation to buy a project. Well, while we’re storing it or while we’re building it, it’s not producing any dividends, and that’s going to cause that cash yield to be lower than what we anticipate it to be in the future. So, it’s a number to use, but it doesn’t tell the whole story. To get the whole story, we have to look at IRR. And IRR is basically a combination of two numbers. It’s the cash yield on one hand and the value of the stock itself on the other.

So, if my money is sitting, waiting to be put into a construction project, we’re getting closer to the point of time where that project is going to produce cash flow. That causes the value of the stock to go up because the time value of money we’re closer to those dividends. So, we take both of those things into consideration. appreciation of your stock, because remember you’re buying stock on energea.com stock in these Delaware companies. So, the appreciation of your stock plus your cash yield is approximately your IRR. And that tells you the whole picture. So, it’s a combination of the cash yield and the IRR.

Wes Ashworth (19:33)

Yeah, so when you’re communicating risk to investors, how do you communicate it and how do you explain it and talk to an investor about just the risk involved?

Mike Silvestrini (19:41)

Well, I certainly don’t care about scaring them off. This is too much risk for some guys. And the goal is to really just be absolutely transparent and honest with them. We do it professionally through filings with the SEC. We have a 100-page offering circular, 30 pages of which are the risks. And that’s very intentional because this is risky. We’re taking capital, we’re going into Brazil, we’re buying solar power plants, and we’re selling it to thousands of individual energy customers.

There are political risks in Brazil. There are currency risks related to Brazil. There are technology risks related to the projects. There are contractor risks. There’s a litany of risks. And investors need to understand that. The good news is that I think those risks start to become mitigated as these portfolios mature. We have a pretty wide range; we built a couple of hundred megawatts down in Brazil of five megawatt projects. There are a lot of them. And we’ve been doing it for five years. And we haven’t missed a dividend.

So there comes a time when we say, those are risks, but it’s a risk I’m willing to take for double-digit yield. And that’s really in the eye of the beholder. Some investors shouldn’t touch energy with a 10-foot pole, and some investors should dive face-first in. It really depends on what you’re trying to accomplish with the money that you manage.

Wes Ashworth (20:46)

Yeah, I like that, and just to focus on transparency, obviously, and building trust, obviously, and attracting the right investors as well. So definitely like that approach. Just that honesty around mechanics, I think, sets the tone for everything else. And I want to talk about the part of the market you’ve touched on their briefly that you’ve really mastered, and one that some people really overlook, and that sort of like commercial community solar, kind of the middle of the space, not the huge stuff, that mid-size space. What is that segment, or why does that segment still hold so much opportunity for you and why focus there?

Mike Silvestrini (21:26)

Yeah, I’ve always been in that segment, and I’ve watched so many people spend a little bit of time there and then sort of graduate to the utility scale segment. But I remain here because I think it’s where I can make the most money. And number one, on a technological basis, one of solar’s great attributes is that it can be installed near the load and in some cases even behind the meter. So, it’s cutting off the load before it becomes a load.

That’s a great characteristic, and it gets a high value for that energy being produced. I like that element. I like it being diversified. Instead of having one project in Texas where I can get curtailed and get smashed. I have hundreds of smaller projects with a variety of different customers and credit risks and different scenarios, exposure to theft, exposure to hail, exposure to line outages. So, I like the diversification of that middle market segment. And I’m just completely over the moon for community solar, where we can build sort of three to five megawatt projects and sell that power to a couple of hundred energy customers. That’s what we do in Brazil. That’s what we do in New York. I can’t get enough of that stuff.

And for me, the porridge is the right temperature in that sort of community solar segment. But you can do it, you can move a lot of cash in utility scale. And for people who manage cash for a living, who are getting paid fees based on the amount of money they manage, that makes a lot of sense. But I’m a pound-for-pound guy. I want to make sure that every dollar is at the optimum yield. My expertise guides me, keeps taking me back to that middle segment of distributed generation.

Wes Ashworth (22:56)

Yeah, it makes so much sense. So, when you’re looking at this middle segment, what are those like maybe the top two deal breakers that will make you walk away from a project? How do you evaluate it? Maybe when even the economics look good on paper.

Mike Silvestrini (23:07)

I mean, we kind of break down a project into three different criteria. You have the technology, you have the legal contracts, and you have the financial. And our team is subject matter experts in those areas. And what we want to do is, first, there are components of a contract that we will not accept. We walk. There are financial returns that don’t hurdle. We walk. And there are technological issues that we don’t accept, and we walk. So, we call that our minimum technical requirements.

It’s only when a project crosses all three thresholds. And that almost never happens when we first encounter a project. I can’t remember a case where I walked upon a project and said, it’s got the right contracts, it’s got the right technology, and it’s got the right return hurdle. What normally happens is we encounter a project and say, it’s pretty good. It’s pretty good. It’s not great. But we can improve it. If we fix this over here and that over there, I’ll buy it. And that’s what our team does all day is we analyze projects coming in from multiple jurisdictions. We know what we’re looking for, and if something comes close and we think we can push it across the line, we acquire it.

Wes Ashworth (24:07)

Yeah, I think that’s powerful too and being able to say no to the wrong stuff, when sometimes even it’s tempting, and it’s there and a lot of people would say yes to it. But then also, I think to your point, seeing the potential, seeing when something, nothing is ever usually perfect when you’re walking in, as you said, but having that, like, yeah, it’s close enough. We know the factors, we can work with them, and we can get it to where it needs to go. So that’s awesome.

Thinking about kind of the other side of like what makes a great off-taker, especially when they don’t have maybe a really established credit rating, or if you’re dealing with some of these, like kind of middle, middle of the road kind of mid-sized type of deals. How do you evaluate just what would go into that for you?

Mike Silvestrini (24:44)

Well, first is a foundational belief that there’s no such thing as a bad customer. There’s just a bad price. So, there is a certain scenario where even a lousy customer, if my payback period is going to be one hour, I would still do a solar project for you, for example, to take an extreme example. So, it’s really about sizing the risk and the reward and trying to appropriately get a risk-adjusted return.

So, as I said, we have sort of multiple flavors in our book. In South Africa, for example, one of our good customers is a retirement community. So, this is a real estate company. They own maybe 50 different complexes where retirees stay. It’s like assisted living. But they have a lot of real estate and they have financial statements. It’s a professional organization that runs well, been around a long time. I like that credit.

So yeah, we’re in South Africa, but I’m on the roof of a customer that I like and they’ve, and they pay before the invoice comes out for crying out loud. It’s a wonderful customer. down in Brazil, customers can be few and far between customers that meet the standard credit underwriting process, but we have community solar. So, I have thousands of energy customers in Brazil. Some do default. So, it’s not, it’s no longer a question of will everyone pay? No, everyone’s not going to pay. The question is how many of them will default? And then, how quickly can I replace them with somebody willing to pay?

And those things are seasonal. We start off when you build a project in Brazil, you might have 4 % default rate for the first couple of months. And you remove the customers who don’t pay. You replace them with some new guys. And now you’re down to maybe 2%. Remove them, find some new guys. And then it settles in. Before you know it, there’s very little default. And you have a good, stable asset. And that thing cranks.

Wes Ashworth (26:24)

Yeah, it’s really cool, and it directly translates into your global strategy. You’ve mentioned that a couple of times. I do want to get into just a little bit in Brazil and South Africa and just unpacking that a bit. So, operating in those spaces, the US, Brazil, and South Africa. What do those markets teach you about how policy can either accelerate or suffocate renewable energy growth? What’s unique about those different markets for you?

Mike Silvestrini (26:48)

I mean, everything is unique about each market. But the good news is I went to school in the United States, where every state is essentially its own country in terms of energy policy. So, we’re used to, as solar guys, underwriting a lot of circumstances, particularly in a marketplace. So, looking at South Africa isn’t much more work than looking at Oklahoma and figuring that one out. So, they’re each in unique circumstances. Policy is temporary.

So, policy comes in; you have to understand which policy regime your project is actually going to live under. You have to decide if you like that. But the good news is, once you build a solar project under a particular policy regime, with a few exceptions, they tend to stay. They’re kind of grandfathered into that policy regime for a long period of time. So, you’re buying in the now, and then you’re going to own it for a very long time.

I ranged from policies like New Jersey, which were flatly overpaying us. There’s no two ways to say it. Back in 2010 and 11, 12, we were selling SRECs for 400 bucks or whatever it was. Down to markets like Brazil, where there is no incentive. There’s no advantage for solar versus natural gas. The cheapest kilowatt hour wins, and that’s us. So good news is that as solar has matured and cost has dropped, we’re not reliant on policy. Policy is more like permission. You let me do what I want to do, and I’ll worry about it being cheaper and attracting customers. And when I’m given the ability to do that, it’s pretty easy.

Wes Ashworth (28:13)

Yeah, in terms of like you made an interesting parallel there, operating in a new state versus operating in a new country altogether. Is it about the same level of difficulty and complication or is one still more difficult than the other?

Mike Silvestrini (28:27)

I think that not only that, but every project within that state is going to be slightly unique. So, there are characteristics of each project that are unique. Then there are characteristics of the market in which it’s in. And then there are characteristics of the country that the market is in. And Oklahoma’s probably a little easier because it’s dollars. And there’s a transparency. And I know how to work. I know how to get answers around here. You go into a place like South Africa, and you start off with learning the geopolitical winds, how they are blowing, and what’s the currency, what’s its weakness, what’s the balance sheet of this country look like, who does it owe money to? And there are a lot of different things you need to probe that we already know the answers to, in the American context. So maybe it’s a little bit heavier lift.

It took us about three years to get comfortable with investing in Brazil before we put our first dollar in. And we just finished the full underwrite of Columbia. I’ve been down there for about two and a half years. And we’re about to make our very first investment there, too. So, it takes a couple of years to unpack this and put it back together again.

Wes Ashworth (29:26)

Yeah. And I guess, specific to Brazil, which has been a major success story for you. What makes that market so resilient? What is it about Brazil?

Mike Silvestrini (29:35)

Well, I mean, we are uniquely successful in Brazil. Most people went to Brazil and got their asses kicked. So, it’s not like this is a common outcome. In fact, of the thousand companies that call themselves solar companies in Brazil, there are like two left. So why were we successful? It’s attention to detail, moving at the right speed, operational excellence, going slow so that we don’t get over our shoes a little bit, and the right partners.

It’s doing a lot of things right, which is necessary to make money in this business. But if you do that, the reward is tremendous because now we’re in a situation where a lot of companies built one or two or three projects and they were just totally unequipped to own and operate these assets. We have invested millions of dollars into software and built a fabulous team in Rio de Janeiro. If you don’t have the resources, overcome these challenges, you’re going to be in a tough spot. And now, we get to turn around and say, I’ll buy those projects from you. I can end your pain and suffering. And that makes me, as the second owner of these assets, in a great position where I can study the historical actual performance of these things, apply my team and our minimum technical requirements, legal due diligence, and financial due diligence, and make sure I know exactly what I’m buying. And when you’re the only buyer in town, you get some good prices.

Wes Ashworth (30:55)

Yeah, it’s cool. I love how resilient you are and resourceful and just see where again, most people fail in that market. You figured it out and now you get to reap the reward, which is awesome. South Africa, a whole different kind of story and kind of their setup, unstable grid, massive opportunity. How do you design projects that thrive in that environment?

Mike Silvestrini (31:15)

We have a couple of different flavors in South Africa, but the one that has been the most productive for us has been commercial and industrial stuff with batteries. So, we’re going to collect customers who want to defect from the grid. When we first got to South Africa, there was a tremendous issue with load shedding. Load shedding is when they turn you off for four to six hours during the middle of the day, and banks and restaurants, and they don’t like that

So, people were looking for any way to get solar and storage at their facilities. And it was a fairly easy sale. And we were able to save them a couple of bucks, too, versus the S-Com price. Nowadays, load shedding is less of an issue for most people, but not for everybody. And it’s more of a price-based decision. But we’ve gotten good enough at this. We have the right partners and the right places where we can make a compelling business proposition to these clients and there’s just a ton of roadway in South Africa, in Africa broadly.

Our mandate for that fund is actually Pan Africa. We’ve just been successful in South Africa as our first stop. We also look at utility-scale stuff in South Africa, believe it or not. So, we have a 60-megawatt project that we’re financing the development of, which we’re very optimistic about and those markets are starting to mature where there’s sort of a power pool and real power markets where power can be moved around where it’s needed through financial transactions. That’s fairly new science down in the South African power pool.

So, we want a front row seat to that because that’s going to create a lot of opportunities for power plant developers like our partners and us.

Wes Ashworth (32:43)

Yeah, it’s really cool too, just in how unique each market is, the US and Brazil, and across the way as well to South Africa and those other markets.

Mike Silvestrini (32:52)

They’re kind of like the same ingredients. They’re at different levels, and you kind of have to read the tea leaves and figure out if the combination of circumstances is a good one or not.

Wes Ashworth (33:00)

Yeah, it is cool, just the nimbleness to do that, and I guess the awareness to do that. You see a lot of companies fail by just going into a different country and trying to operate it like this is what we know, and trying to force these ways upon it.

Mike Silvestrini (33:14)

Yeah, that’s like everybody ever. We really are uniquely unique in that space. I don’t mean to toot our own horn, but it’s hard to do, and you have to take your time and you have to not die along the way. You keep mentioning perseverance. It’s like really, is like kind of sticking it out and planning to be able to stick it out and having a realistic expectation of how hard it is. And then if you know going into it. You have a realistic, sober appreciation for how hard this is, and you plan for that; you will be successful. Very few people do. Most people think they’re going to have their project done in a year. Surely a year is enough to build 500 kilowatts. No, not normally. I mean, it takes forever because there’s just a lot of things to do it well.

Wes Ashworth (33:59)

Yeah, absolutely. And you did also mention Colombia, which I did want to touch on as well. Looking at those new markets, getting in that new market as well, like what are those signals that tell you a country is ready for foreign renewable investment? What drives you to Colombia or elsewhere?

Mike Silvestrini (34:15)

Well, one of them is certainly energy pricing. Hydro is the foundation of energy production in Colombia, and hydro is getting even harder to predict as years march on, and climate change has more of an impact on these systems. And that’s causing more radicalized pricing. And nobody likes radicalized pricing, especially manufacturers and stuff like that. So, they need something that’s not hydro in Colombia.

Well, what are their options? Well, the fastest thing to deploy and the cheapest is going to be solar. So, there you go. It’s got greater radiance. There are loads of locations. And there’s almost no solar penetration. So, at a market that’s as early-stage as Colombia, you have to be sober about it. Again, you’re going to hit every single problem that’s going to be your problem for the next couple of years. And that’ll be enough to kill most of the companies trying this. But we believe we’ll be successful in that by using our tried-and-true methodologies and picking the right partners and pursuing the right projects, being patient with the reality of how long it takes, I guess, that two and a half years in haven’t invested a dollar. And that’s okay, because we’re figuring this thing out. And now we’re ready. And we’ve got a great partner down in Colombia. Couldn’t be more excited. I’ve been flying down there very frequently because I’m just so excited about what’s happening outside of the city called Barranquilla, tremendous industrialization.

It’s sunny as the day is long. Energy prices are super high. And there’s a policy that allows us to do something very similar to what they have in Brazil, where I can install, in this case, up to only one megawatt kind of a bummer, but we’ll take it, install one megawatt, and I can sell that power remotely to these customers hungry for an alternative to the hydro-based price fluctuations.

Wes Ashworth (35:49)

Yeah, we’ve talked a little bit about just operating globally, and then that comes with its own set of hard realities and the marketing conditions and learning each one, all that sort of stuff. We have also talked before about just what it takes to keep those assets performing. I thought one of the interesting points you mentioned was that theft, not weather, can be one of your biggest operational risks. And I’m sure it varies country to country as well. But what measures have proven most effective in protecting assets?

Mike Silvestrini (36:12)

Well, number one is that I really don’t like building solar power projects. So, my preference is to buy operating assets. We do build them, though, when we need to. And when I say we, it’s like there’s a partner, there’s a development company beneath us that’s receiving capital to build the project. But we have to pay real close attention to that. And that’s where 90 % of your problems happen is during the construction phase. But once we get through that, then you’re operating, and we own and control the methods of our asset management.

So, operations and maintenance, we like to keep that in-house. Commercialization or the sale of power in the relationship with the customers, we like to have that in-house because we have our methods and our software, and the way we like to do things, and we don’t like the way anybody else does it. So, it’s really about kind of like committing, and after 17 years of doing this, we’ve screwed up enough times to get pretty good at owning and operating these solar energy plants. We know what inverters are going to be a pain in our butt. We know which technologies to stay away from, which installation methods to run like hell from. Because it’s, you repeat, the problems repeat themselves. There’s nothing new here. It’s just whether or not you’ve been screwed by it enough to get it through your head that you can’t do that anymore.

And it’s really about sticking with it, like you said, dealing with those problems, making the corrections. and institutionalize that knowledge into your business so that you don’t make the same mistake again.

Wes Ashworth (37:49)

Yeah, absolutely. It reminds me of a really funny story when I first started in recruiting, they made us watch these like really old school training videos, like old, old school. They would be completely banned today. But the guys in a room bring somebody up to the front, and he’s like, hey, I’m going to slap you. Is that OK? And people like, I guess so. So, he kind of like lightly slaps the guy, and he’s like, OK, I’m going to slap you again. This time is going to be a little harder. And he does it again, right? And then he keeps doing it.

And finally, the guy likes blocks it, and he goes, I was wondering how long it was going to take for you to block me. That’s what that reminds me of. You’ve got to learn, right? You can only get slapped so many times. Beyond theft. What are, what are some of the toughest, like cost pressures or operational challenges, you face right now?

Mike Silvestrini (38:23)

I mean, there’s always basically, weather is weather. We don’t care about the weather. We don’t, a cloudy month; that’s not a blemish on us. That’s just a cloudy month. But operational issues are a problem with us. And as I mentioned to you when we were talking earlier like, theft is the number one issue that I encounter everywhere in the world, especially United States. So, it’s not, this is not something that actually South Africa doesn’t, I haven’t had a theft incident there, but.

So, I’m not naming, name-calling any jurisdiction in which we operate, but theft is, it’s a copper. I mean, people steal copper, that’s a thing. And these plants are sometimes hanging out by themselves and all their lonesome in the middle of nowhere, pretty accessible. You know, I’m not keeping dogs or full-time security on these things, so they know where there’s a free buck. That’s an issue. We have different strategies for addressing that throughout different markets.

Generally, operationally speaking, though, I mean, you have strings out here and there. We’re really into landscaping. We’re really into module cleaning, which is kind of new for me. I don’t think I cleaned a module for the first 10 years in this business, but now I understand its virtues. If you take good care of a project, it’s gonna take good care of the investors and make sure that your trucks are not overburdened with megawatts, having good, efficient ticket systems and trained and experienced experts out there. My O&M guys stay with me for years, and they get really good at this and we give them the software that they need to prioritize the issues they need to remedy, and it works for us.

We’re above P50 on a lot, it’s just like, nobody produces what they think they’re going to produce in solar. I’ve been guilty of that as much as anybody in the past, but eventually, again, stop slapping me. And the way that we’re going to do that is we’re going to start expecting less energy. How about that? You can take your PVsyst, and I’ll tell you what to do with it; that’s just not going to be the end of the story of our financial projections. Why? Because I’m sick of getting slapped, and it’s kind of worked out.

Wes Ashworth (40:20)

Let me ask you this. So, looking back, what operational mistake may have just taught you the most and what did you do to change it?

Mike Silvestrini (40:44)

Geez. Operational mistake that taught me the most. I mean, I’ll tell you one. I got a good one. All right, so there’s this project that’s called Taquara-Chinga, and it’s in Brazil, and it’s a theft-related thing. Turns out, I’d never been to Taquara-Chinga, right? And I built it because I had a contract with Vivo Telefonica, a telecommunications company. And we put five megawatt projects all over Brazil for these guys. But I didn’t go to every single place. And this place, called the Quarachinga, it’s like a favela, basically. And it’s a very dangerous place. And there are gangs there. And the gangs are stronger than the local police force. And they took a liking to the copper at my site.

Well, so number one is we switched it to aluminum wire, that’s a little trick for your listeners. If you have theft issues, use aluminum wire; they’ll stop stealing it. But what we did to correct this was say, look, we’ve got to really take into consideration the area and the community around our project. And we have to start adding that to our due diligence. And this kind of was around the time when ESG investing was becoming a thing. And in my mind, what really came out of all that was a respect for the place in which you operate and not necessarily in a liberal context, but out of the successful investing basis, you got to know those threats.

We take that really seriously now at Energea after that project. We pass on projects that are immediately adjacent to a favela. Shockingly, we didn’t in the case of taquara-chinga. so that’s a lesson hard learned.

Wes Ashworth (42:18)

Yeah, love the honesty, right? And it’s how we learn the best, mistakes, go through it, learn from it and move on. Obviously, you’ve done that excruciatingly well and just continuing to be resilient, I’ve said many times over, but love it. As we get closer to the time, I want to end with some hopeful thoughts and questions, and just thinking about the future of renewable energy, our ability to make real progress. What’s giving you hope right now? What’s on your mind and what gives you hope for the future?

Mike Silvestrini (42:44)

I mean, on the climate change basis, which is obviously one of the drivers, is why I got into this thing in the first place. I’m at the same time excited about the progress being made and the fact that so much renewable energy is being installed year after year worldwide in almost every single country. That’s an exciting moment. I don’t know that we’ve made a ton of headway against the climate change issue, and the world is warming, but I do have confidence that mankind has the plumbing in place to turn off the spigot on carbon dioxide. And we’re doing it every day. Things like Energea are just, it’s like another pipe for capital to find its way. It’s like an emergency situation. We need to fund all these projects. Well, there’s another method here to add to that scenario.

So, I’m excited about what we’re capable of, what our industry has proven to be capable of, while simultaneously concerned that the rest of the world’s never gonna understand this. They’re never gonna accept that climate change is a threat that needs to be contended with, but maybe it doesn’t matter. Maybe solar is cheap enough, and wind is cheap enough, and now there’s this renewed excitement around nuclear, which I think is great. Maybe it just doesn’t matter if people agree with us because we’re going to win on an economic basis anyway. And that’s a stronger argument.

Wes Ashworth (44:01)

Yeah, I think it’s inspiring. It certainly gives me hope and to where, yeah, I think the climate conversation is very real and a problem that needs to be addressed for sure, but maybe get there a different way. And as you said, maybe it’s the economics, it’s the other pieces of the puzzle as well. So, for me, that’s inspiring. I get a lot of hope from that.

Let me ask you this, too. So, you’ve founded businesses, you’ve scaled businesses for that next generation coming up of founders, engineers, everything in the field, people with ideas, and kind of that startup energy. What’s some advice that you would offer from your time and what you’ve done and what lesson would you want them to just carry forward and take to their business?

Mike Silvestrini (44:37)

It’s to be frugal. I think that people want to start off. I see this a lot because people come to me with investment ideas to invest in their companies. And what I most often see amongst the younger crowd of entrepreneurs is that they’re going to spend their way to success. And that’s just not it. You’ve got to start off with a sale, a customer. And then you work your ass off, and you take nothing. It’s a very difficult thing to build a business. Everything you hear on the internet is true about how hard and lonely and difficult it is and that’s all true. I wouldn’t want to do it any other way, but people who don’t understand that, people who want to start off with someone else’s money and start off spending money on like what they envision as like this office with the right couch cushions, that’s just not how you start a company. But if you’re frugal enough and you’re mean enough, you can fight through it, then everyone’s got a chance here.

Wes Ashworth (45:03)

Yeah, words of wisdom and I agree completely. I do think like you need to be hardwired for that obviously, because it’s difficult, it’s hard, it is not for everybody. If you’ve got that itch inside, that passion to where you just can’t do anything else, like go for it. It’s probably the right space for you, but yeah, certainly not easy.

Mike Silvestrini (45:29)

Yeah, you can shoot me an email if any startup guys with visions of getting into the solar energy space, happy to share my thoughts.

Wes Ashworth (45:53)

Yeah, love it. Final question. Any other just parting words of advice, things you didn’t get to share, things you want to leave the audience with?

Mike Silvestrini (45:59)

No, other than that is log into Energea.com, throw $100 bucks in, give it a shot, see what your thoughts are. And if you love it, then maybe you’ll invest some more.

Wes Ashworth (46:07)

Absolutely great way to end it, and I’ll link all that in the show notes as well. You can go check that out. Mike, this has really been such a fun, grounded conversation that we’ve had and thank you for pulling back the curtain on how this segment of the industry really works. I think it’s something that people don’t know a ton about, so I love that.

For listeners out there. Thank you for tuning in. Again, check those show notes for some important links to go check out Energea. and others. If you enjoyed this episode, please subscribe to Green Giants on your favorite podcast channel. Leave us a rating and share this episode with your network, and with that, we will see you soon.