The ability to secure financing is critical to the successful deployment of renewable energy projects. In project finance, lending decisions are usually based solely on a specific project’s risks and future cash flows. Generally, lenders have no claim beyond the asset itself, so accurate projections and valuations are crucial.
But wind and sun are volatile. Not only day-to-day but month-to-month, year-to-year, and site-to-site. This, in addition to the highly technical nature of the asset, makes financial modeling of renewable energy projects highly complex.
Mike Reynolds and Teasha Feldman-Fitzthum, founders of EverVest (formerly known as Cardinal Wind), believe that investors need better tools to analyze financial risk and properly value assets. Overly-conservative underwriting means viable projects have a higher cost of capital and require more equity to be funded. They also believe that the analysis and financial modelling is too complex for Excel-based models to handle.
Mike and Teasha met at MIT in a class called Energy Ventures. Teasha, a researcher at MIT’s Computer Science and Artificial Intelligence Lab, invented a machine-learning algorithm to better predict wind resource at a project. Mike, a former Goldman Sachs investment banker, attended the class as a MBA student. The company started around Teasha’s patented wind prediction algorithm technology, but quickly expanded its focus to analyze all of the drivers of asset cash flow. A patent has been filed for the prediction algorithm.
At EverVest, Mike and Teasha have developed a web-based financial modelling and risk analysis platform for banks, developers, and managers of renewable energy assets. They saw that by incorporating the technical and engineering data behind a renewable energy project directly into the financial model, they could more accurately evaluate the future cash flow of a site. Mike and Teasha saw that helping institutions invest in these assets with greater confidence and transparency could help bring more capital to the industry.
Operating at the intersect of cleantech, fintech, big data, and machine learning, they are utilizing a richer technical dataset, applying a superior risk analysis framework, and standardizing the way investors quantify and compare risk in renewables. What Intex does for the ABS market, EverVest does for renewable energy finance: powerful cash flow analytics for transparency, accuracy and better decisions.
Mike and Teasha and their team are in the midst of rebranding as EverVest and adding the ability to track portfolio financial performance and analyze solar power assets to their platform.
Earlier this year, they received a grant under the Massachusetts Clean Energy Center’s Catalyst program. They recently launched their product in private beta with select customers, some of which are the largest players in the industry.
Q. Mike, what is the opportunity that you and Teasha see here?
A. It is simple: investors in structured finance (such as ABS, CMBS, and even municipal bonds) use software tools to analyze cash flows, measure risks and build financial structures. The investor community typically coalesces around the same software platform in order to streamline communication amongst institutional investors, banks and issuers. A product of this nature does not yet exist in renewable energy financing, even though these assets are much more complex and highly structured in nature. Our product is a powerful cash flow analysis engine that allows investors to spend more time analyzing risk instead of auditing Excel models.
Q. According to Deutsche Bank, more money is being invested today in renewable energy than in fossil fuel and nuclear power plants combined. How much money are we talking about on an annual basis?
A. Global investment in renewable power was $270BN in 2014 (according to Bloomberg). This is estimated to increase as renewables become more cost effective and cheaper compared to other energy sources. The vast majority of the capital in renewables is allocated via project financings. Most of these assets are financed on a 3rd party basis with banks and institutional capital that is secured by the cash flows and returns generated by the asset. Renewables are uniquely complex because economics to investors can be in the form of cash or tax benefits.
Q. Why aren’t alternative energy projects properly underwritten today?
A. I wouldn’t say that assets are not properly underwritten. Wind and solar have seen a tremendous influx of capital over the past few years given the low rate environment and the maturation of the asset class. But there is room for improvement in terms of the risk analysis, performance forecasting and tools used by investors.
Particularly in wind power, you see investors typically apply conservatism to their financial forecasts (what we like to call “haircuts” to the numbers). This is due, in part, to some growing-pains experienced by the investor community over the past 10 years as large wind projects underperformed their pre-construction estimates and experienced equipment performance issues. The science behind wind and solar forecasts has improved over time yet the investors still employ a lot of conservatism to their models, which are simplistic and limited in their functionality and transparency. They also employ a very limited set of inputs to drive financials that don’t give a complete picture of future performance.
Q. Tell me more about what your platform offers.
A. Our platform allows investors to build robust cash flow models for their renewable energy assets. This includes evaluating downside scenarios, building cash flow waterfalls for capital structures, and comparing multiple iterations side-by-side.
We also provide complete transparency to our platform so that there is no miscommunication and no ‘black box’. All results can be downloaded by the user and we provide extensive explanation about the calculations behind the scenes. Customers are surprised when we offer them 100% transparency regarding the details behind our analytical framework and Monte Carlo approach. We greatly value their trust and they see us as a partner to help them reach their objectives.
While we are currently launching our product for single asset evaluation, we are building the platform to allow for risk management at the enterprise level. This allows portfolio operators, banks, and investors to analyze multiple assets in their portfolio assets simultaneously. Instead of decentralized Excel models for each asset, our platform will allow risk managers to roll-up all of the assets in their fleet into a single analysis.
Q. What kind of data do you need and where do you find these inputs?
A. Most of the data is in possession of the investor. This includes the specifications of the asset, types of equipment, and contractual obligations in place. We also integrate datasets into the product that enhance the investor’s model, such as historical weather data and equipment performance characteristics.
Q. Who is your target market?
A. Our market has a buy-side and sell-side. Buy-side includes banks, insurance companies, hedge funds, PE funds, and other institutional investors who finance projects and portfolios. For the sell-side, we sell to developers, installers, and the owners that operate and finance assets.
Q. You have several pilot programs going. What can you say about them?
A. We’ve been working with a number of pilot partners over the past few months as we built the user interface and features of the platform. We are currently launching our beta with customers on the buy- and sell-side, including some of the largest developer / owner / operators in the industry. We are also working with the National Renewable Energy Lab (NREL), a government-sponsors lab that focuses on renewable energy research.
Q. What is the revenue model?
A. We provide access to the platform through a monthly subscription. We also charge a fixed fee for transactions where counterparties use our system for due diligence.
Q. What are your plans for Europe? European governments have set ambitious renewable energy development targets. I know that Denmark already generates 40% of its energy needs from wind. I imagine that project finance for alternative energy projects in Northern Europe is quite advanced.
A. Europe has a well-developed base of installed renewable energy assets. The EU has led the way in terms of support for renewable energy to displace coal and other dirty sources of energy generation.
Our initial focus is in North America, but we will be expanding to new markets in the future. A few of our North American customers are owned by EU parents or have major operations in the region already. We don’t see huge barriers to penetrating the market. The great thing about renewable energy is that, from an asset perspective, a project in the US is similar to installations in other locations (the wind is the wind and the sun is the sun). The main differences are in the energy market regime and the financial structures used by investors. For our platform to expand to the EU and beyond, we will be adapting the capital structure analytics and other features to those markets.
Q. Have you considered raising a fund and financing alternative energy projects yourselves?
A. Not at this time, although we get asked this question a lot. We are focused on deploying our analytics to a broad set of investors in the industry and becoming the platform-of-choice for the buy- and sell-side to communicate risk internally and with one another. Once we achieve this, we see a great opportunity to expand the platform to enable new forms of capital to participate in the asset class.
Q. What impact does the volatility of the price of oil have on renewable energy financing?
A. In most developed economies, very little. The price of electricity is primarily influenced by natural gas, not oil prices. Renewables offer one of the lowest costs of energy to utilities and can serve as a way to diversify the grid away from fossil fuels, especially coal.
Oil-based generation is typically seen in remote locations such as island economies. This is why you see places such as Hawaii adopting renewables at a faster pace because electricity prices for them are much higher and volatile based on oil prices.
Q. What drove your decision to rebrand as EverVest?
A. We decided to re-brand based on the feedback we received from our customers that our product would have great potential in markets beyond just wind power. We have our sights set on solar, storage, and other alternative energy assets in the future.
Q. You are putting real emphasis on the elegance of your user interface, something that is often ignored in software developed for the institutional market. Why is that?
A. Having worked on Wall Street, I know how addictive a sophisticated financial modelling product can be to a bank, investor or issuer. Building an elegant and intuitive interface allows us to deliver confidence to our customer from day 1.
If you saw an Excel financial model for a renewable energy project, you would understand why UI/UX is a focus for us. Most of these models can only be navigated by the author (or someone who has spent hours learning the structure of the model), and tremendous time is required just to audit the formulas to ensure it is accurate. We want our customers to spend more time running numbers, analyzing multiple scenarios and measuring risk as opposed to auditing formulas, checking for errors and building graphs.
Q. You started by analyzing wind projects, and are now expanding into solar. How does analyzing solar differ from analyzing wind?
A. Wind projects are very large and require tens-of-millions in investment for a single project. In solar, assets are much smaller in size, sometimes down to the thousands of dollars for a rooftop installation. While there are large utility-scale installations in solar, most of the assets are financed and analyzed in portfolios. While the performance of a single solar installation is easier to predict, an investor must analyze thousands of smaller assets in a single portfolio (similar to a securitization). Rooftop portfolios introduce counter-party risk of the borrower/lessor of the asset, so we integrate credit risk as an added layer to the analysis for solar.
Q. Do you intend to be a one stop shop for alternative energy risk and cash flow analytics?
A. Yes, although our focus is as a software provider for financial analytics. We do not provide risk scores, opinions, ratings or evaluations. We are not consultants or advisors. That is a much different business and relationship with the customer than what we are going for. Investors know what they are doing and, honestly, don’t really want our opinion. But they love using our products and feel much more efficient in their jobs when using our platform. We’ve already spoken with industry consultants and advisors interested in using our product with their customers. If our customers are climbing a mountain, we are the gear for the journey, not the guide.
Q. You have not participated in any FinTech accelerator programs. Is this something you have considered? Is this something you might do in the future?
A. We have looked at a few but have not seen the need given our focus and traction to date. We do not have a need for any financial data that isn’t already publicly available and easily accessible to us. We are currently in the CleanTech Open business competition as a semi-finalist.
Q. You did participate in the MIT Global Founders’ Skills Accelerator in ’14. What can you tell me about that program?
A. The GFSA accelerator was perfect for us coming right out of MIT and transitioning into full-time founders. We were very ‘green’ while in that program, and it really helped us find our narrative and refine our pitch. It was also a big reason for our customer discovery progress that has led to the development of our platform.
Q. What’s next for EverVest?
A. We are focusing on delivering our beta for our lead customers this Fall and gearing up for a commercial launch in 2016. Our current customers represent a significant opportunity from a revenue as well as platform validation perspective.
Q. Are you hiring?
A. Yes. We are always looking to speak with bright, energetic and passionate candidates who have a vested interest in what we are building. We like to meet people that are excited about what we are doing because, frankly, we think it is very important. We look at EverVest’s mission as having a major impact on the world and our future. Not all companies can say that.
Right now we are looking to speak with software engineers with a passion for data analytics and problem solving.
Q. How should people contact you if they want to see a demo?
A. You can reach out to us here: www.evervest.co/contact.html.
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