How a Startup is Filling the Shoes of Big Financial Capital
“This is coming up in everyday conversation.... Why didn’t anyone else do this?... It feels like this should have been addressed, especially on a global market with so many customers... it feels like a totally missed blue ocean.”
Insider’s Guide to Energy Podcast hosts, Chris Sass and Johan Oberg, are talking about insurance, and the critical role it will play in the global energy transition and decarbonization. Energetic Insurance COO & Co-Founder, Jeff McAulay; sat down for episode 76 to discuss the role of insurance in appropriately allocating risk and return in green transition project finance – and how Energetic Insurance has become the leading provider of demand-side renewable energy and efficiency insurance. The episode is available here.
Launched with the goal of accelerating and expanding the market for renewable energy, Energetic Insurance offers data-driven risk-management solutions via novel credit insurance.
“We're doing that by … more efficiently shift[ing] risk from a sponsor or a debt balance sheet to an insurance balance sheet” says McAulay.
Often when folks think about insurance in energy, they think about production risk – whether the sun is going to shine. They may also think about property damage and technology risk – panel longevity and warranties. These risks are well covered today. What holds back the market significantly is demand-side credit risk – concerns about whether or not offtakers will reliably pay their electricity bills, and if new offtakers will be readily accessible if needed in the future. This is the problem Energetic Insurance solves for.
Energetic Insurance is an insurtech startup that simultaneously provides a financing solution. Their business model is that of a Managing General Agent/Underwriter (MGA/MGU). The company developed a novel insurance product and rigorous underwriting guidelines, backed by sophisticated proprietary data sets and technology tools – including underwriting software, actuarial models, and electricity price models. They assess, underwrite, and price risks, and have partnered with a large global reinsurer with a correspondingly large balance sheet.
When it comes to credit, Energetic Insurance sees electricity “a fundamentally different type of obligation than other traditional forms of credit. It is the last bill that gets paid, so we have a different thesis on the probability of default as evidenced by many businesses [that] keep paying for electricity through bankruptcy [or] restructuring.”
Further, they view electricity as a fungible, tradable commodity that is valuable to practically all business, regardless of purpose. Coupling this understanding of the nuances of electricity as a commodity with electricity market models and offtaker diligence, Energetic is able to lower the credit curve and reach more of the market.
So far, the company has unlocked opportunities for developers willing to invest in the renewable energy sector but facing credit risk issues. There is huge demand outside the Fortune 500 for clean energy and efficiency solutions. Unfortunately, the demand from this market is not being met. 90% of commercial and industrial (C&I) entities do not have investment-grade (IG) ratings or have no credit rating at all, despite having strong offtaker profiles.
“We hear from our customers that credit increasingly is a binary issue. You can either get the deal done or you can’t - you can either get the debt or you can’t, and it’s less of sliding scale... we turn a ‘no’ into a ‘yes’.”
Developers and financiers spend significant time seeking creative credit enhancement solutions like parental guarantees, loan loss reserves, and letters of credit. They spend time pulling levers – adjusting DSCR, loan-to-value, and interest. Energetic Insurance provides a simpler, cleaner, and faster solution. They help developers get projects financed and access the best levered IRR. They help financiers get past credit committee and deploy more capital. It’s truly a novel off-balance sheet financial product, taking the form of insurance.
Energetic is also helping deliver much-desired standardization to the clean energy and efficiency industries. While already-existing APIs exist within the renewable energy ecosystem, the industry lacks the standardized platforms and tools needed to enable push-button diligence, capital provision, and project execution. Energetic helps accelerate this process, providing a playbook for how to get deals penciled, fast.
Success stories range from small-scale 50kW projects to utility-scale and multi-site portfolios. Projects across the US are at sites you may frequent – like a retail shopping center north of Los Angeles which was able to install solar panels on a parking canopy, helping to shade cars and facilitate EV charging on a major thoroughfare.
“Not only are we taking a good risk – we are making that site more creditworthy because the solar is enhancing value for that site in multiple ways.”
Energetic’s founders applied their energy backgrounds to the insurance world. Developing an insurance product came with some challenges, but their outsider’s approach has yielded an innovative product, unmatched in the sector. The company was able to quickly build the tools they needed to get to market, notably thanks to support from the DOE’s Sunshot program and forward-looking investors.
Getting the product to market required building a team with expertise in data science, software engineering, credit analysis, and underwriting. They are now growing and expanding the applicability and geographic reach of their product – keep your eye on energy efficiency, Spain and the European market, and more.
Ultimately, though capital tends to be very competitive – McAulay takes a hopeful approach to the future of investments in renewable energy, and is excited about the value insurance adds, especially as economic turbulence manifests.
Thank you to the hosts of IGTE for featuring Energetic Insurance. We strongly recommend a full listen to learn more about traditional insurance and trade credit, energy policy and incentives, the impact of rising interest rates and widening spreads on renewable energy investments, and the versatility of Energetic Insurance’s policies – they are multi-asset (solar, storage, energy, micro grids, VPPAs, energy efficiency, EV charging stations, and more) and multi-structure (from single-site to utility-scale retail energy, portfolios and wraps, refinancings).
Have questions on how Energetic Insurance can help you get more projects done with competitive economics? Click "connect" in our main menu.
This article does not constitute and is not intended by Energetic Insurance to constitute financial advice or a solicitation for any insurance business.