Solar & Wind Recap: Tech will build better project finance standards
Technology has the power to not only transform the way the renewable energy industry does business but also play a critical role in creating the standards and best practices it needs to thrive.
That was the case Alyssa Spagnolo, Banyan Infrastructure’s head of growth and strategy, made at a panel discussion with renewable industry technologists last week in Phoenix, Arizona. The conversation occurred at Infocast’s 2024 Solar and Wind Finance and Investment Summit, where developers and financiers from across the sector gathered to discuss how technology is identifying opportunities, optimizing systems, and bringing innovation to every facet of the industry.
With a flood of new players entering the renewable energy market — not to mention an influx of capital thanks to the Inflation Reduction Act — there are big questions about how the industry will standardize its processes and align stakeholders to scale up capital deployment and in turn, project development.
“Using technology to set that standard is a really interesting and exciting prospect,” Alyssa told the audience, particularly when it comes to project finance. “What will the ‘Bloomberg Terminal’ be for this industry, and how will we all transact? I think technology has a role to play in that.”
The timing is right, too, as the market appears to be reaching an inflection point. For years, Alyssa explained, the renewable energy industry has wrestled with “false starts.” Either the market was ready, but the tech wasn’t, or vice versa. Today, software, in particular, has grown by leaps and bounds, “and the market’s ready,” she said. “The curiosity is there for things like, how do I use AI? And so we're at a really exciting point where that match can be made” between market demands and the tools and innovations to address those needs.
Crawl, walk, run: Building a digital strategy for project finance.
Still, project financiers must learn to crawl before they can walk. In a sector still working with outdated platforms, Alyssa explained, developers and financiers need to digitize their assets — not just on Excel spreadsheets or in a Google Drive, but in organized, accessible platforms where stakeholders “can get a full view on what's going on at the loan level, the deal level, and the portfolio level.”
“This is so important for renewable energy in particular because there is such a volume of data being generated with each deal,” she said. We used to transact on $1 billion, $2 billion coal plants, and now we're transacting on $100-million solar farms.” If there are, say, 10 of those smaller solar farms, that’s “10 times the data that we're trying to aggregate and better understand.”
Financiers may be inclined to keep “doing things the way they've always been done,” Alyssa added, but the payoff of a digital strategy is immense. For funds and lenders scaling up their capital deployment, the introduction of technology is far easier — and less expensive — than scaling up their human resources in an effort to match the historic wave of clean energy financing currently underway, including the forthcoming $27-billion Greenhouse Gas Reduction Fund set to deploy this summer. Centralized data rooms eliminate the need to spend hours combing through multiple spreadsheets and emails to find a needle in a data haystack. Employees are then empowered to spend their time on more meaningful work, potentially even harnessing digital tools for “automation and optimization and stripping out overhead costs,” Alyssa explained. “Your projects can be more profitable, you can underwrite smaller deals because you don't have the same amount of time going into each deal. It also allows you to make better decisions when you have a full picture of your data, and you know exactly what you're investing in.”
More data-driven decision-making and thoughtful strategy around capital deployment are critical to the success of renewable energy’s rapid growth in coming years. The prospect of using digital tools to develop the necessary standards for streamlining these systems is exciting, Alyssa said. If players in the project finance ecosystem were to adopt and use a centralized platform for deal data and transactions, they could one day even “get to a point where you have something like a FICO score because you really understand what your key performance indicators are for a particular type of investment.”
Embracing industry-wide project finance innovation.
Therein lies the opportunity: Embracing a digital strategy is transformative for individual funds and developers. However, on an industry-wide scale, this has the potential to set standards and define best practices that can optimize not only one investor’s deal flow but an entire ecosystem of project financiers, developers, owner-operators, community lenders, and more. Creating a shared space for market players to do business — and to learn from one another — is in everyone’s best interest.
But there’s still work to do: “There's a huge onus on us as technology providers to provide implementation services, best practices, and being the organization to create a new blueprint for how this can be pulled out is really important,” Alyssa said.
To seize this golden opportunity, technologists need to educate renewable infrastructure players on the ways software platforms can work for them. That means identifying pain points in their deal flow, explaining how technology can address these issues, sharing insights like Banyan Infrastructure’s recent project finance software report, and responding to market needs and challenges with new features like cash flow waterfall and collaboration tools.
Seamless, streamlined standards and processes are possible — even probable — as technology ramps up in renewable energy project finance. It’s just a question of how fast we get there.