Great to chat with Gabriel Phillips, CEO at Catalyst Power, Catalyst Power is an integrated provider of commercial energy, connected microgrid solutions, and Community Solar! We discussed decarbonizing the commercial and industrial middle markets, what makes a good acquisition, the connected micro-grid, incentivizing energy customers and more!

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James

The unedited podcast transcript is below

James McWalter

I’ll tell you’re speaking with Gabriel Phillips Ceo at Catalyst Power Holdings, welcome to podcast Gabriel, great to start with. Could you tell us a little bit about catalyst.

Gabriel Phillips

Thanks for having me James. Absolutely ah catalyst power exists to decarbonize the middle market commercial and industrial end user. We focus in the northeast. We are a retail energy supplier that brings to bear. Other decarbonizing energy supply options for our customers in a combined offering that’s novel and we use the retail energy supply as our entry point into understanding the customer’s needs better than other standalone distributed generation developers or. Efficiency. Ah, ah players for instance because we have better insight and better access to customer data. We could be more effective in offering decarbonizing solutions for the customer. So yeah, um.

James McWalter

And when you say Middle Market What what does that that exactly mean I guess so.

Gabriel Phillips

I think the easiest way to describe the middle market customer is sort of what what they are not. You know they are not residential mass market or consumer. They are not hyper sophisticated you know energy buying end users that have a. Procurement team and you know have implemented their own nonsite measures and so forth. They’re sort of everybody in between typically a privately held. Ah you know corporate entity. We frequently find ourselves pitching multi-generational families multi-generational companies excuse me and. You know and other entrepreneur owned companies and so yeah, it’s everybody that’s in between the 2 bookends you know the 2 bookends are really well covered right? residential and small commercial both energy supply and renewable options are a particularly crowded space. There’s lots and lots of opportunity.

Gabriel Phillips

Um, on the more sophisticated side the Microsofts the home depots the walmarts have every option from every developer under the sun on ways to decarbonize themselves in a cost-effective fashion. It’s the folks in between that get left out because they’re hard to get to more difficult to educate. Their decision set is more. You know it’s more diverse. They’ve got a lot more on their plate typically smaller teams and you know keep getting and keeping their attention for reasons other than price is a tough one and so I’ve found that a lot of these privately held businesses that we address. The owners have more options for renewable energy supply at home than they do at their business. So we we viewed that as perverse I wanted to shoot that gap.

James McWalter

Yeah,, it’s so interesting within the kind of energy Space. We’re seeing more and more of a you know, slicing up of specific offerings to specific use cases whereas before you had a you know pretty broad broch of residential or mega and starting to see this kind of. You know offerings that are very very tiered to or to a specific group I think are going to become more and more common and more and more powerful I guess was ketlows power always focused on that market or has there been kind of an evolution in its History. So.

Gabriel Phillips

Well since the history isn’t all that long. It has always been focused on this particular customer segment and but that really you know comes from my my background and my my experience in my previous company and and prior to that. So I saw this gap before and I and I. Set out to to try to fill it. You know for the last several years before I Even form Cattle’s power.

James McWalter

And so you saw that gap and I guess what were those kind of steps to start to? yeah start catalyst and then also kind of what were the kind of early ideas for different types of product and we’re doing kind of pivots along the way. So.

Gabriel Phillips

Um, the goal has always been to. You know, find a way to finance onsite distributed generation and decarbonizing measures for this this particular customer segment. Um, and I figure the way to do that would be starting with the customer relationship. So. Um, acquire retail energy providers. You know that are already in that position of ah you know being the trusted energy supplier and advisor to the end-user. Um, even though you know the commercial sector is you know heavily energy advisor focused or or brokered the supplier does have that hook directly into the customer and that. Access to data that even the brokers don’t have just by virtue of being a licensed retail supplier you have access to utility data from a customer gives you permission and that just immediately gives you so much power. Um, you know to be able to show them the value of different distributed measures very quickly so that was my first step I you know found a couple of Target. Acquisitions and figured I had to raise some money to do that and and you know took the show on the road and it was very fortunate preco to ah to meet bp energy partners out of Dallas that bp stands for Boone Pickens not burns petroleum helpfully quadify for everybody.

James McWalter

Sure.

Gabriel Phillips

They’re a private equity fund focused on you know on energy. However, they really had a focus of late on the energy transition. So it was a really natural fit. Um, you know in the midst of our negotiations and getting into exclusivity on funding covid did happen and so our closing dragged on. Beyond the timeframe that any of us wanted because the world was quite uncertain but we ultimately closed in the summer of 2020 so hats off to the team over there for seeing through you know through covid to what things might be like somewhere on the other side and then it was worth pursuing this business opportunity which involved us. Ultimately going on site to customers to build things. It wasn’t you know, purely ah a hands-off you know type of ah a customer proposition. So I think the beginning of covid that that took a lot of guts to to support that. Um, sorry.

James McWalter

Yeah, no absolutely and you know I guess the you know so many companies have their kind of founding stories in the you know the months right before during or as we’re kind of coming out of the pandemic and it really kind of. Drills in certain kind of principles within the kind of company culture and and the kind of overall approach um have you found that for CAtalyst Power. So.

Gabriel Phillips

Well I do like to tell people that our plan was to be fully remote before covid now is just less weird so that didn’t change too much about how we were working with 1 another and where we are like it did for many others like that was a big pivot point from many other entrepreneurs or. Even you know, existing businesses you know throughout covid and because of covid that that wasn’t our story and the reason that we wanted to do that was you know in my previous business which was a startup I hired a a lot of twenty two year olds out of college you know taught them how to get up in the morning go to work till it was dark out and then go home and I knew like.

Gabriel Phillips

Couldn’t do that again because my picture of entrepreneurship did not involve my being chained to a desk or an office I was very fortunate growing up. My father was an entrepreneur is an entrepreneur and worked out of our house and I wanted to have a catch at two Pm He could put it down and come outside and then get back to work and.

Gabriel Phillips

Was wanted to have that for my own life in my family and I didn’t in my last business that I started because I hired a lot of people who required and you know and rightly so they they needed the coaching you know from an experience Management Team. So The physical proximity was really key this time around I decided I’m going to hire adults folks with deep experience and. Distributed Generation Wholesale Energy Market and Retail Energy Market Industry. You know corners of the industry and as I was executing on that covid it happened and all of a sudden you know, even my geographies opened up a little bit and everyone’s comfort with being fully remote nowhere near where the you know the home team is or whoever the. Is in charges you know started to feel reasonable. Um, yeah.

James McWalter

Yeah, it’s it’s ah so interesting. Kind of the reaction to you know, previous work. So for myself I’ve actually been remote for about 6 years on on the lead up to covid and then now I’m like with my own startup Likere. We’re having an office. It’s like been a very long time you know, kind of yeah out of ah you know back back room. Of an apartment. Um, and.

Gabriel Phillips

I think it would have been the the feeling of isolation would have been very moderated had we been able to have our plan to team offsites more frequently. But every time we planned one like a new variant kicked up and then we couldn’t have hits so we’re finally having our first next month but on ah.

James McWalter

Absolutely.

James McWalter

Ah, that’s exciting. Where are you going.

Gabriel Phillips

You said you’re from upstate New York going to Buffalo. Yeah.

James McWalter

Are you going to buffalo. Okay, very good. Ah yeah I will like I lived very barely upstate but people properly upstate. Don’t say Pokesie and what waingers are not really upstate, but for a lot. Absolutely.

Gabriel Phillips

Yeah, that that still counts as downstate New York and in our in our book. Yeah, so you know I so I hooked up with bp in the summer of twenty. We had an acquisition target that didn’t pan out and then the first one did close in February of 21 and that company was out of Buffalo. So we’ve got some key teammates up there. You’ve grown the team in the area. A little bit. It’s a funny corridor of the of the energy industry in that area of New York it was you know early days of deregulation. Yeah, um, you know, kind of that that area had a lot of telecom and a lot of sales focused businesses and so it it it got. Became a bit of a hotbed for retail and then also demand response and a few other niche corners of the energy industry and so you know the fact that we acquired a company there and I’m now found additional talent in the area wasn’t too shocking. Um, but you know that that’s why we’re going to Buffalo for our first team offsite. Yeah.

James McWalter

Ah, absolutely and this model of kind of starting with acquisitions I think is somewhat unique in terms of the different entrepreneurs and people from different startups that we’ve spoken to on the podcast. What makes a good acquisition.

Gabriel Phillips

Um, my answer to the you know to that question. Well that for me, it was you know that the the business was focused on our customer segment. Um, you know that was that was the my first criteria the second was. Um, you know that the price was right honestly because these are typically what I’ve been executing on are smaller acquisitions so you know a little bit off the radar. Um the bid ask spread you know between seller and buyer is pretty wide. Typically there’s no real good benchmark to point to you know for where valuation ought to be.

James McWalter

Right.

Gabriel Phillips

And frankly, the the plan postclos and any of the acquisitions that we’ve made has been to alter the way that the business operates so significantly that its historical history. You know historical performance wasn’t a great metric for valuation. You know so we needed to make sure that there was an entity with either a culture or at least a blank slate. We could affect our changes seamlessly so those were my criteria for our acquisition targets at least initially in the retail world and and you know we were thankful to find you know sellers that that you know were happy to transact with us that got us our first beach ed for the business in New York so first was the company in Buffalo us energy partners. Second was the downstate New York operating entity of a company out of Texas called Apg and E New York that got us our operational footprint in downstate New York and customers there and then we expanded organically into New England and now also into the pgm the mid-atlantic footprint. We didn’t find any acquisition targets that made sense for us there. We did acquire a broker entity in Upstate New York more recently that was back in this past February and really like you know the way I’ve viewed. Um you know how we continue to be acquisitive is that anything that we find that’s you know going to get us closer to these customers to help to decarbonize them. Is a good candidate for us to consider as an acquisition. No then they.

James McWalter

That’s so interesting and and I guess how do you think about? let’s say you know you you touched on kind of geography and then you also touched on um, function or business model. You know you have micro-grids and community solar boat mentioned on on your website. Mentioned these different to kind of geographic areas and kind of getting coverage and so you know I’d imagine the first couple are just like you basically just kind of complete the you know blue ocean to to kind of select from. But then as you add more. It’s like okay is this ah additive to what we’re doing versus something that is actually like duplicating our you know work that we’ve done elsewhere. And so as you kind of move along does it become more difficult does every kind of marginal acquisition um have a you know need more due diligence.

Gabriel Phillips

Um, well on the geography concept First and foremost you know because we deal in retail and we deal in renewables and combined them. We are subject to the regulatory whims on both a local state iso and federal level. So for us geographic diversification is a very important risk management tool for the business. You know, ah renewable incentives open in 1 state while they close in another right? That’s a sort of cascading effect that you know that takes place over time and this is sort of whack-a-mole right? on you know where you want to point your efforts. And the same thing is true in the in the retail market. You know whether you can deliver value to a customer relative to their alternatives that also shifts and changes with time markets mature at different times. The rules for operation change and so forth. So the the geographic expansion either via acquisition to you know do that with with speed or organically.

Gabriel Phillips

Um, is key for the businesses risk management for all all facets now in terms of like the additional effort of integrating new acquisitions. Um, you know depends on if the acquisition is like more like a tuck in you know, ah existing geography. The same building System. You know any other sort of ah overlap or similarities also depends on whether or not there’s a significant amount of people coming along with it in in our last instance we acquired assets. Um, you know, not people we expect that you know to happen sort of on and off in the in the coming year as well in our new acquisition Targets. You know the. The acquisition of a team definitely requires a lot more care time and effort you know than integrating you know, just a platform of customers and some other technology you know so it’s it’s not ah, not an easy answer on whether future acquisitions take more or less effort or more or require more or less scrutiny.

James McWalter

And when you say you required assets are those like literal distributed engine resources like solar Farms Community solar that kind of thing.

Gabriel Phillips

Um, it really depends on each instance.

Gabriel Phillips

In that particular instance it was customer contract assets and hedges along along with them. Not the physical power generation assets so on the cross so you know our focus of you know, crosssowing these decarbonizing solutions to the customers where you know we were stepping through sort of our our planned path right? and the first was. Get into retail use that as our springboard next was start to crossell something to the customer the first and easiest thing and most successful thing at this moment that we’ve been able to cross-ell to our customers have been community solar subscriptions that’s sales cycle is relatively short.

Gabriel Phillips

So guaranteed to be an asset for the customer in the long term like there’s no risk of a fixed price ppa being out of the money or something like that. There’s no physical infrastructure or change happening at their premises. So it’s the lowest touch decarbonizing solution that we can offer to a customer and so that’s been our you know our first cross sellll next. Is what we only recently really kicked up marketing on is our what we’re calling our connected micro-grid which is essentially just our distributed generation solutions at the moment that is standalone solar which we own and operate and then offer to a customer under a power purchase agreement a ppa the other flavor of that.

Gabriel Phillips

Same thing with you know, with still cni solar is renting or leasing our customers’ roof to develop either small community solar projects in areas where we have other customers who want them or depending on the state selling the output of the asset to the utility or some other regulatory-d drivenve revenue model. And then lastly we are offering a a gas firered backup generation service even though our goal is to decarbonize customers. You have to do that safely and continue to provide you know, direct resiliency to the grid and gasfire generation is the at the moment the most efficient way for me to see anybody doing that. And so we’re only offering that as a backup solution not as continuous duty I don’t want to put more gas onto the onto the stack but those are the the ways in which we’re we’re offering connected micro-grid solutions to customers Today. We do plan to incorporate batteries. Just. Working on understanding the economics and how we you know maintain warranty compliance while dispatching them and stuff like that. So you know, please stay tuned that would be coming but we call that a connected micro-grid rather than what I think a lot of people view the classical definition of a micro-grid as something that’s islanding the customer. We maintain their connection to the utility system to the broader grid for a bunch of reasons you know our plan is to try to build something that’s undersized for their needs. You know so that the customer has the option of implementing some other distributed generation solution in the future that none of us have dreamt up yet. That’s. Cheaper to implement and more decarbonizing if possible so you’ll keep that option open but also so that the customer doesn’t feel as if they’re putting all their supply eggs in one basket. You know if you build a piece of equipment on site and it’s going to produce all of your needs or maybe even more you’re subject to the sellback price. There’s risk involved with that.

Gabriel Phillips

And then if you made a bad decision on you know on the contracting because things got cheaper in the future. You kind of you’re wedded to it. You don’t have any any way of continuing to diversify your exposure.

James McWalter

That’s that’s fascinating I Guess to dive a little bit deeper into I Guess the sales motion and you know these kind of Middle Market customers I’ve spent over a Decade. You know so selling different things to to enterprises who is like the typical you know person of final decision. Is it. C-suite. Is there a director of facilities and energy that you’re tackling who already you know, presumably one of the acquisitions has that direct relationship and then as you said you’re doing some crossselling or upselling of these other solutions or there might be a better solution wood in your portfolio that is already kind of relevant for that given customer. And yeah, what is the kind of sales motion of of those kind of conversations I, so I’m fascinated by the kind of sales motion of different types of segments within market and so I spent.

Gabriel Phillips

Ah, yes to all I think is the easiest answer I mean yeah, again because the customer segment that we address has such a wide berth of look and feel and sophistication at times we’re dealing with the director of facilities at times we’re dealing with a sustainability manager more often than not. We’re dealing with. 1 of the owners perhaps their family their Cfo which may also speak family. You know there’s just a lot of in these independently held businesses that are you know the owners got their finger in every you know in every decision that’s made and so we you know we we do find ourselves pitching and then closing you know.

Gabriel Phillips

Up and down the spectrum of the corporate ladder. Um, yeah, but we are digital first. Um, and and I think that’s key because the retail industry you know is really still somewhere. You know a couple decades ago in terms of marketing and sales and so I think is the distributed generation world. At least you know when addressing you know this particular customer segment. Um, you know we have taken the tack that you know the the decision makers you know would prefer to educate themselves so we put as much information as we can on our website we’re trying to make. Process for our customers to engage with us as seamless and easy as possible and something that ah that is as much self-serve as possible. So right now like for instance on our website a customer could go on there and get a custom price for retail electricity in the markets that we serve. That’s you know any term from you know 3 to 36 irty six months no other retail energy supplier focused on commercial customers has done that to date. You’ve also given our customer the ability to step through a diligence process I’m a solar project entirely online. No one else has done that in my view for the customer either. They have applications and platforms that are focused on you know, selling agents or channel partners which we also have to address.

Gabriel Phillips

Clearly too because they’re a very important part of our sales channels. But um, you know trying to empower the customer in any way that we can using technology is is key for our long-term plans short-term Um, you know we find ourselves either via the acquisition relationships with our customers. Or our channel partners or our internal direct and you know old fashioned and digital sales channels that we are talking to everybody up and down the corporate chain when making the decision.

James McWalter

I’d also love to kind of hear your thoughts on what is driving the decision-making of the middle market to decarbonize their energy. So the kind of typical kind of residential customer like that’s very much a kind of of values and emotional decisions like you know I’m concerned about climate and my tripin’s future. All those kind of things. So I want solar panelund my roof and then on the kind of mega enterprise fortune 500 you know they have seen what the blackrock investment letter from a few years ago around coal has done and that’s you know the recent kind of changes for esg rules from thecc and it’s like okay we we actually have to do this from? Ah, you know the Cfo now cares about this kind of thing. Um, at those kind of large kind of corporation level and the middle market I guess what is kind of driving the you know the ah the kind of need to decarbonize energy. You know through those organizations please.

Gabriel Phillips

So I have some strong feelings about this. Unfortunately you know the the middle market commercial you know customers still very much coin operated. It’s got to have. Easy to understand direct and nearly riskless economic value to them to make a decision to host an asset on site or to adopt some sort of decarbonizing measure. Even if they’re not the 1 putting up any sort of capital expenditure. Um, you know there are non-monetary benefits to going solar whichever. Or you know becoming decarbonized right? We you you and I in the industry. We all take that for granted and obviously so do much larger corporates that are public and getting pressure from either their investment. You know their investors or the public markets or the scc like you suggested but these privately held corporate entities. They could put a sustainability page on their website. But. Don’t necessarily have to act on it and in order to act on it. They have to have a direct line of sight to that action and economic value. So community solar is like the easiest one because that provides them with a bill credit. That’s always going to be a guaranteed benefit the commitment typically is relatively short or if it is long term. It’s. Ah, commitment long term to something that provides them a discount There’s no risk of it being a premium to what they’re they were already going to be spending at the time onsite solar you know has flavors like that. But it’s clearly like much more of a commitment to them in their eyes. Both you know, physically at their premises and you know, maybe it. Hinders their ability to sell their company or to sell their building or creates an additional hurdle for that flexibility that entrepreneurs and independent business owners. Highly value I’ve been an entrepreneur for 12 years I’ve never signed an office lease for longer than 2 years I understand why a 20 year power purchase agreement is a difficult decision for a business owner to consider committing to.

Gabriel Phillips

Even though the discounts that we show are positive. You know there’s there’s there’s economic benefit. They need to figure out how to have direct line of sight to the ah to valuing the non-monetary aspects nondirect monetary aspects of going going Greener. So if there was more data on you know. Customers are willing to pay a premium for a product if there’s a solar adoption happening at the premises or they would would be able to garner a better valuation on a sale or get more interest from investors like in in their industry and their tier of that industry then it’d be easier for them to say yes and so right now the customer that says yes to.

Gabriel Phillips

Posting those things either has to have ah you know a very clear expectation of the economic value to them So the discount to their current rates has to be very steep. You know some? It’s a no-brainer or they’ve got to be pushed from some external source into you know.

Gabriel Phillips

Into decarbonization and and those are not a high proportion of the middle Market commercial and industrial customer right now.

James McWalter

Yeah I think there’s this kind of interesting ah parallel track that’s happening with ah carbon accounting or sustainability measurement software. So you have percephony and ah watershed and a couple of these kind of companies some of which we’ve had on the podcast in the past. And they’re definitely focused on those very large megacorporations who have that particular set of you know, external factors for why they want to kind of measure their carbon and then you know set a 20 year Target or 15 year target to decarbonize as those opportunities for those kind of software companies fill up right? Like as. You know you have some winners in that space you in inevitably have other folks try to move down market and try to start measuring things and if you know if it’s a 50 to $100 a month subscription for a middle market company. That’s probably not that expensive to try to start getting a grasp on their kind of carbon impact and really you start. Do you actually have to have the measurement for the metrics to that and kind of lead from that that would say okay, not only is this our kind of the level of our depluting elements of our business but to your point how does that actually connect to will we create more sales with that data right? if we are at level. You know 10 for you know, carbon emissions if we get to level 7 will that produce a 1% 10% 8% increase in sales increase in some other kind of dollars and sense element and honestly and until I think we have like just better. You know transparency around that and I think that is the responsibility of software companies to kind of come in and and find that opportunity as long as the price isn’t too high but then also having to connect that to the actual sales of that organization. Otherwise you’re not going to get too far.

Gabriel Phillips

You know I think the most mature data set around that is in the real estate sector I’ve seen a lot you know a lot of reporting around that um you know, but for every other industry. It’s It’s a big black hole of information right Now. So and I don’t think that’s going to get filled in for a very long time.. It’s just. Too disparate right? There’s too many different industries that we’re talking about you know, like’ you know I’ve been talking to you know folks about marketing and sales on our end or and you know investment team and stuff like that and you know we talk about you know, attending industry conferences. But what industry conference should I go to our customers in every industry.

arbtonic_admin

Right? Sure Love live out of a suitcase. Yeah.

Gabriel Phillips

Can’t pick one so like but but you know right? It’s like you know just I’m not like in the manufacturing industry. So I just go to manufacturing conferences right? I’m not in yeah I’m in the energy business but I can address every kind of customer under the sun that exists in the in the territories that we care about so that.

James McWalter

Sure.

Gabriel Phillips

Each one is going to have to have a bespoke understanding of whether or not there’s a benefit for them. That’s non-monetary that translates into some economic benefit and I don’t know I’m not going to bet on that that information gap being filled anytime soon because we don’t have that kind of luxury right now you know I don’t think we have that luxury for the world I don’t mean us as a company I mean the world doesn’t have that luxury.

James McWalter

So right.

Gabriel Phillips

So like I’m just in a rush and so I think that I need to find ways to incent the customer that speaks directly to them in only the way that they care about which is dollars and cents and to get them to make 20 year commitments what I have found is that they just need the economic benefit today to be a screaming absolute no-brainer. So guarantee. It never causes them any issue with the funnggibility of their business down the road or their flexibility or the discount today is so screaming huge thirty forty percent relative to their current cost that it makes them. Ah, ah you know a real impact on their bottom line today and something that happens frequently that I’ve written a little bit about you know in a couple of bylines is that. Um, you know folks in the renewables world like to trumpet that renewables are at parody with other types of Fossil Fuel generation and I and I think I see a smile on your face because you must know that that’s just highly inaccurate. But um, you know it just drives me bananas because what will regulators think.

Gabriel Phillips

When they hear that message Besides oh great, it’s time to sunset some incentives that is the opposite of what’s needed in order to address this particular customer segment who’s got such a difficult time valuing the non-monetary thing So The cheaper the incentive the the more lucrative the incentive for the solar developer. Means that we’ll be able to penetrate this customer segment more you know there’s lots of like special dispensation in the incentive structures for like the residential customer class. Um, but nothing in this sort of this this no man’s land of customers and and I think that the the middle Market Commercial End User. Needs a special incentive class from each state that cares about adopting solar because they are being overlooked right? They don’t have the the sophistication to make the investment themselves or the Bandwidth typically so they needed to be easier for them to say Yes, the way that we’ve made it so easy for residential solar to say yes. And there’s endemic. There’s going to be endemic challenges that you cannot ignore with the privately held company like credit analysis right? that we have to do that is so much simpler with residential customers and with public companies. So If you’re going to have a harder nut to crack. And it’s a necessary set of rooftops that we got to cover with solar in order to meet our goals for decarbonization like in the world we got to make it easier for them to say yes and that means more incentives not less so stop telling the world that where I could parody guys renewables are not and they need more incentives not less.

James McWalter

Absolutely there’s a couple kind of threads I want to pull on there. So one is I think it’s often like oh like you know, solar. It’s kind of old school all this kind of thing. It’s like guys. It’s 4% of the energy mixing. It’s right. It is a tiny tiny tiny proportion of what’s happening now. It’s you know. With solar and wind. It’s close to 100 % of all new build. But in terms of what is actually in the energy mixing United States right now. Um, solar is below 5 % today and so starting to remove um incentives and other ways of speeding up the transition when you’re at 4% just obviously doesn’t on it. The face of it doesn’t make a ton of sense. We’re already seeing that right? So what’s happened in California over the last six months where you know Pg and e and some of the other utilities try to remove some of the incentives for rooftop solar being like oh we have so much roofop solar installers like it must be a healthy industry and it is a somewhat healthy industry. Although the margins are not great and I’ve talked to some of those folks who. Do rooftop solar installation in California but basically California has proven a model for the rest of the country to follow and it’s not like California is done with rooftop solar again. They’re probably still only ten percent of the penetration needed for that state to hit their kind of own clean energy goals. Um, and so it is this kind of fascinating thing. It’s like okay we get to parody and it’s like oh should we just slow everything now. It’s like no, it’s like not only do we have to like blow past that when as we electrify pretty much every part of society. We actually need 3 times larger energy produce on the grid anyways and so it’s like parody is like okay well we actually need to get 1% of the cost of. What parody is today.

Gabriel Phillips

Um, yeah, and I and I um, yeah, sorry, it’s ah it’s a frustration for me because I just in reading industry you know publications that is just a constant theme. That’s that’s trumpeted and it’s just it’s it’s giving the wrong message to the regulator and to the the public who might vote for a particular. You know, elected official who might push a policy in one direction or the other like if they want their kids to have a nice place to play one day and you know, clean water to drink and clean air breathe then we certainly cannot take our proverbial foot off the renewable gas here and that was a lot of mixed metaphor but we need to we need to continue to move that ball forward with. More velocity not less and it’s a huge frustration that you know I think a lot of developers are gravitating towards you know larger projects that are utility scale in nature versus distributed you know because a lot of the same effort goes into a large project that goes into a small project. There’s a lot of efforts that are duplicated. There’s a lot of costs that are you know that are static and most people have the mantra that you know, ah ah one hundred Megawatt solar project is the same amount of work as a ten megawatt solar project which is the same amount of work as a one but we we got to find ways to make these smaller projects easier and more lucrative to build. Because we don’t want to take up some of our green space with more solar I don’t think I mean if we don’t have to there’s already so many commercial and industrial rooftops that are providing 0 value to the world. Besides you know, collecting heat for their buildings. We we should leverage that every you know commercial industrial rooftop should be. Plastered with solar and then we’ll have to use that much less of our open land to accomplish the same goal.

James McWalter

Yeah, and we we haven’t talked about this offline but ah audience probably are familiar that my own kind of startup is around finding the best places for climate positive projects right? So should it be solar should be wind. Should it be left as agricultural land should it be dense, commercial and residential and. A lot of it. Ah, right now we’re going to. We have a lot of land in a lot of places to build these kind of things but that’s not always going to be the case you know for any sort of kind of societal level Decarbonization. You’re going to start to have real fights between should this be a biomass Drivenn Fuel should this be food should this be solar. And you can’t triple use the land right? and in the next five to 10 years. Those arguments have going to become ever louder and anything that’s already built on right? like can you put panels on yeah on buildings as you mentioned, um, can you. You know Cover Roads. You know there’s all these different elements where it’s like okay where can we get double and triple use of the land to be a generating asset or some other kind of climate positive asset.

Gabriel Phillips

Anywhere that cars go can be covered with a you know a canopy right? But you know there’s ah, there’s a lot of other economic considerations as to why? that’s difficult at the moment you know steel Prices are pretty nuts and that makes things challenging but you know.

James McWalter

Get some shade.

Gabriel Phillips

Ah, stronger incentive that was unique to a solar canopy. For instance, if we you know could get that granular from a regulatory standpoint then we would be able to see more of that. Um, you know, Ah, ah, an issue I have frequent frequent regulatory you know issues are. The lack of granularity you know or specificity that Regulators bring to the discussion. You know there there is a way to incentivize the right behavior that that we all care about you Just got to get into the weeds and too frequently. A broad brush is used to paint you know either an incentive or. Particular Market design that I deal with like on the wholesale or the retail level and more granularity and specificities always needed and that that typically comes from not bringing in like enough stakeholders and enough you know industry participants to get that feedback and and and Regulators don’t always have a luxury of time to do that. You know they get political pressure to make them. You know to do something and. Or you know literal Laws. You know require of them to go and move forward with you know, putting together some regulatory Framework. They don’t have the time or the resources necessary to get it as granular as it could be and that’s unfortunate. Um, you know for my person.

James McWalter

Yeah, so I was actually talking to somebody who represents an industry group for different utilities and they are trying to work with those utilities to get some better data around the the interconnection queue right? So we’re generating capacity should be produced and suppose the the utilities we’re complaining to this. Intermediary who I was talking to about it’s like these developers are just trying to build everywhere and as I was saying the intermediary is like tell us where to build like you know if you want us to build and by us I mean people building generating assets in particular places you know where exactly your transmission capacity is, but. For varying reasons some of which are are valid around data security and and infrastructure security and some are less valid. It’s like you could just tell us where those things to build and we wouldn’t have like this kind of a massive issue with you know the opaqueness of these processes to your point and so I guess then like you know because you you mentioned having this kind of Geographic. You know this. Diversity across your assets from a kind of risk management point of view from the regulatory point of view I mean would you want to see a you know more positive for distributed energy resources kind of regime. That’s a bit more even or is it actually still valuable to have experimentation across different Geographic entities. Um. You know where some areas can move faster in some areas. It might be moving slower but you actually do see it some experimentation at the regulatory level that might be interesting for a company like yours.

Gabriel Phillips

I Like um, um, ah, um, all fornov innovation whether it’s on you know Incentives or um, you know the regulatory regulatory framework within which we operate but Simpler is better for the development world and a consistent regime across the entire country would be the Holy Grail for us all. If There was a federal incentive that you know made up the entire gap that solar or solar plus batteries or other distributed measures needed then you know we’d be able to operate in 50 states instead of just a handful and that that would be really valuable for the decarbonization goals of our country. And our country’s a pretty big energy consumer so it would probably make a pretty nice dent in the world’s issues that we have right now as well and I know that you know the current administration would like very much to prioritize it and is challenged in doing that right now in a lot of ways. So The public has to voice their opinion and I.

Gabriel Phillips

Seen some of that you know seen some letters to you know to congress and I’ve seen some letters to the Biden administration coming from various trade groups. Both you know, renewables and non but we need more of that trumpet from the hilltops that. Um yeah, we are in need of making this easier for us to build solar. We are in need of our. You know, prospective customers also understanding the value to them that goes beyond just the dollars and cents today. So. There’s an educational gap. There’s a ah incentive gap. Um, you know and then also just we need you know much more patient capital to come into this space. You know, thankfully there’s a lot of capital moving into the space but patience is key there because the sales cycle and education gap. You know, filling process are long and this is not a short-term story. Unfortunately I wish it would it was it was easy to say you know they’re gonna flip a switch in all fifty states arerenna go sole or just watch but that’s not the key. It’s Goingnna be a grind and. You know we hope to make it easier. We’re we’re trying to you know cut that sales cycle by putting it all online by digitizing it by delivering clear and easy messages for our customer base to understand and by finding them online where they’re doing their research. You know that’s again, weird pivots that others aren’t making.

James McWalter

Sure.

Gabriel Phillips

Um, that we hope to lean into and see success and have seen some and we’ll continue to see success from. But I think you know if there was a way to see more support for that then I think everybody needs to raise their hand and say yeah we want this.

James McWalter

And on the financing side especially as we’re moving into a world of increasing interest rates and and that’s just a world that yeah I’m a yeah young lad in his ah late 30 s but I haven’t seen any world of of kind of very high interest rates I think there’s actually a huge opportunity to come up with new financing models. We we often have this kind of people working on these kind of resources caught between 2 stools right? So you have like project financing um that has a certain type of structure and then you have venture capital and the amount of companies I’ve seen who are using you know equity venture capital self financing to fund projects that clearly should be debt because these are going to be physical assets in a ground. Have a twenty third year lifespan and have some sort of you know, rate of return over that time period is kind of remarkable and it was just the nature of so much cheap money around that that was even allowable. But that’s just not going to be possible anymore like valuations are going to tighten up. Ah debt is going to change and and the kind of what debt you can get is going to change. And so one of the things that when I talk to people on the financing side mostly in in venture but sometimes in private equity as well. It’s like what are some new financing models that could be come up with that are still great for the investor but also have a little bit more reflection of the types of assets that these are that they will be around for multi-decades. Um, but they do need some sort of technological element or some sort of clever way of capturing a lot of customers that might make more sense from a kind of a venture perspective and how do we combine those 2 elements right.

Gabriel Phillips

Um, I mean I think you you know, pointed out that you know there are 2 sort of tranches of financing that enter the space. There’s project finance and there’s corporate finance right? and I think that the private equity and venture funds that have moved into the corporate side of it. Um, are now the the lines between them are being blurred even in my case, you know Bp Energy Partners is a private equity fund but when we closed it was just me and a small team. We didn’t have any operating company yet being that they’re private equity and wired to you know to buy operating companies. We went. You know to acquire the cash flow as we needed to build out the company around it. You know at scale. Um, but that was still a venture type of play. Um, and I think that you know venture funds are also now looking at more mature businesses and seeing the lines blurred between you know themselves and private equity in ah in a new way. But I don’t think that at least I’m seeing any real shift in the the flavors of project finance availability. You know the and you know it sounded like you got a crystal ball when you said the availability of yeah debt I community. Um, but but.

James McWalter

Oh I’m hope I’m it’s more hope than of all I would say.

Gabriel Phillips

Like yeah, my view is less is less certain than that I do think that. Um we’re actually kind of in an unfortunate position for project finance and renewables because of the Itc. Not as a direct pay incentive. It’s just this sort of cottage industry has developed around you know tax equity that. Adds cost and complexity to being able to finance renewables that I wish wasn’t there. Um, and if that were to change then I do think you’d see a lot of financial innovation. There has been some innovation to get me wrong like I’m aware of a you know a couple one is solar reit for instance that. You know, has you know levers a reach structure to buy down you know land leases for solar and there’s other innovation I’ve seen like that out there that I find you know great and and that does drive down the cost of capital to a certain extent but the biggest hurdle is the you know the ability to to use the investment tax credit for a renewable developer. And so I think until that big shift occurs you’re going to see pretty much a lot of the same instruments available for project finance. Um now whether companies are using their corporate equity that they’ve raised for project equity. You know and blurring those lines I feel like those lines have always been blurred. Um i.

James McWalter

Sure. Okay.

Gabriel Phillips

And I think that ultimately once a project is contracted and its reliance on merchant revenue typically is low then the ability to back lever is what most you know investors have you know, have that’s the path most investors in project finance and renewables have taken I’ve done that you know my my past I’ve helped others do that at my last company and. You know help get the revenue contracts in place so that they have financialanable revenue streams and can backlaver something that they built or developed on balance sheet and I don’t I don’t think that that blurring of you know the use case of that capital is all that novel of a thing. Um, but I I really think that in order to see a big shift there we have to have a big shift in the incentive structure. The Itc has to become a direct pay mechanism. Otherwise we’re going to sort of be stuck in this world. Um, you know where the fairly fairly limited menu of financing choices are available.

James McWalter

I call congress that is the main way we we’re going to get that Itc changed um Gabriel Phillips this has been absolutely fantastic I really enjoyed the conversation. Um, before we finish off is there anything I should have asked you about but did not.

Gabriel Phillips

Um, well, um, you know if you would ask I guess a little bit about our process for qualification customer you know and and and who’s eligible I think would be would be of interest. Um you know and for us.

James McWalter

Please please.

Gabriel Phillips

Honestly. Ineligible customer is anybody who is responsible for their power bill and has control of their own building either a very long-term lease or they own and occupy the building and they pay their own power Bill. That’s a candidate even if their credit. Um, you know is difficult to underwrite. We have a process that’s seamless for us to do that. Even if their building is complex in its operations and they don’t want us to alter the way they you know they they experience their day-to-day. Our approach involves no effort from them aside from providing us with the information that we need. It’s seamless to the customer and that’s on purpose. We do not want our customers to feel as if it was a high-touch solution. And so I think eligibility like if somebody is thinking to themselves in listening to this and oh I’m not eligible for whatever reason, try me like give us a call There’s a way for us to decarbonize you whether it’s ah even if you don’t own your building and you have a short-term lease. Maybe your landlord wants to discuss this with us and there’s value for them in the equation as well. We are bringing the solutions that typically get structured and are bespoke for the very large sophisticated customer in the c and I world down market to those who have not had those accessible to them before and now that those those various flavors are available to them I think we have to.

Gabriel Phillips

Just get through this brief educational process where they realize that they are eligible for some decarbonizing solution whereas previously. They thought that they weren’t They don’t live in a no man’s land. They just have to call Catalyst power.

James McWalter

So absolutely and we’ll include all those contact details in the show notes. Thank you Gabriel Phillips! thank.

Gabriel Phillips

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