Latest / Clean Power Hour / Unlocking Capital for Distributed Energy Projects with Tooraj Arvajeh | EP275

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Unlocking Capital for Distributed Energy Projects with Tooraj Arvajeh | EP275 · Clean Power Hour

• 0:51
  Tooraj Arvajeh: When you have high interest rate or when you have growth uncertainty, optionality is valuable, and there is a price premium, and so you know if, if you're looking at like VR assets, an investor is willing to pay twice the amount. That's $1 per watt compared to utility scale. If there is optionality for incremental investments, because you're dealing with high interest rates and you're dealing with some uncertainty around growth or demand, are
• 1:21
  intro: you speeding the energy transition here at the Clean Power Hour, our host, Tim Montague, bring you the best in solar, batteries and clean technologies every week. Want to go deeper into decarbonization.
• 1:31
  intro: We do too. We're here to help you understand and command the commercial, residential and utility, solar, wind and storage industries. So let's get to it together. We can speed the energy transition
• 1:47
  Tim Montague: today on the Clean Power Hour financial infrastructure for speeding the energy transition. My guest today is toraj arvaje. He is the co founder and CEO of Perl Street. Welcome to the show.
• 2:01
  Tooraj Arvajeh: Thank you so much, Tim for having me.
• 2:02
  Tooraj Arvajeh: Appreciate it. I've really enjoyed
• 2:04
  Tim Montague: getting to know you a little bit, and there's a lot to a lot to unpack here, so I would just encourage my listeners to buckle up and but this is, this is a very interesting platform that covers a very broad swath of infrastructure related to the energy transition. And before we get into Perl Street, though, toraj, tell us a little bit about your background and how you came to co founding Perl Street.
• 2:36
  Tooraj Arvajeh: Absolutely.
• 2:36
  Tooraj Arvajeh: Thanks. Tim, so I started my clean energy career back in, you know, 2005 so this was, you know, pretty much long time ago.
• 2:46
  Tooraj Arvajeh: And even before, you know, Al Gore's movie inconvenient truth came out. I became a sustainability engineer working for large EPC firms in Canada, in Australia and us. And so my job was to develop energy efficiency and clean energy projects. I was mostly working for large mining manufacturing companies at the time, and I witness many engineers like me, while proficient at designing projects technically, we, you know, lack the financial expertise to make them bankable for deployment and investments.
• 3:31
  Tooraj Arvajeh: So back in 2013 14, I co founded Ed, you know, a FinTech, a startup in New York called Block power. And we were backed by, you know, VC and asset management funds. And, you know, first hand, back in 2014 15, I learned that it was very difficult to actually finance and deploy distribute energy assets at scale that is needed to kind of generate the financial returns for unlocking larger scale capital. And these experiences led me to launch tall Street, which, you know, finances and builds the our platform business models to scale up for deployment.
• 4:15
  Tim Montague: Cool, so remind me, I know about block power, but I can't remember exactly what was the niche that block was targeting.
• 4:27
  Tooraj Arvajeh: Yeah, so we were targeting mostly low income neighborhoods in New York. And to start with, yeah, and so we were, you know, part of the technology company was around building the project, origination and asset management, but part of it was really raising the money from large institutional funds like Goldman Sachs, in order to actually deploy capital at scale into, you know, building electrification, heat pumps, upgrading, you know, old buildings, old houses of warships, to become a lot more efficient. And in, you know, so that also later on, they can become compliant with local line 97 that was also a driving force later on in New York. Yeah.
• 5:17
  Tim Montague: Okay, but so the the, the basic premise there is reducing the carbon footprint of the built environment. Was there, was there a specific technology that block is leaning into?
• 5:31
  Tooraj Arvajeh: So we, you know, my primary role at the time was really looking at the heating systems in these old houses of warships, and really upgrading the, you know, the boilers, air air conditioning systems with a much better heat pump technologies, okay, and make them a lot more efficient.
• 5:51
  Tooraj Arvajeh: Information.
• 5:51
  Tim Montague: So building electrification, that's right, that's right, yeah, okay, that
• 5:55
  Tooraj Arvajeh: process obviously becomes very complicated when you're looking at the large pipeline of projects and and so you need to have a proper, you know, so FinTech platform to really manage that process end to end.
• 6:06
  Tooraj Arvajeh: And that experience led me to launch Bell Street,
• 6:09
  Tim Montague: gotcha. Gotcha.
• 6:09
  Tim Montague: Yeah, yeah, I like this diagram.
• 6:12
  Tim Montague: So, so we're going to talk about Perl Street now, and go to perlstreet.com, P, E, R, L, and go to the About Us. And you'll see this diagram, and it's got machines, projects, portfolios and financial products and and then you are the you are the glue that makes all of this work more efficiently. Theoretically, right?
• 6:39
  Tooraj Arvajeh: That's right. So essentially, like, if you look at machines, EV charges, heat pumps, you know solar you know solar panels, they need to become projects. So that's the first step to become infrastructure as a service, whether it's lease PPA ESA, but then, when you're looking at these small projects, you have to actually bundle them into portfolios in order to make them ready for the capital market to underwrite and to actually unlock, you know, funds towards it. And so that's when it comes portfolios. So building those aggregation and portfolios is really what you're also focusing on. And, yeah, so we're basically doing, you know, this, this diagram, as you just described, yeah.
• 7:23
  Tim Montague: And so if I'm a IPP, like King energy, we, we had King energy CEO on the show recently, thanks to you, you know, and King is, is developing solar projects on third party owned real estate. These are malls and warehouses, very important part of the commercial real estate segment, because it's 90% of the real estate on the market, and something that was very hard to tackle for solar historically, because the the tenants were not incentivized to upgrade the facility. But tell us, how does Perl Street help a company like King that is building this fleet, a massive fleet of distributed energy projects across the country.
• 8:21
  Tooraj Arvajeh: Absolutely, yeah, as as you know, as you perfectly said, So King energy is one of our customers, and they're essentially building a, you know, a large portfolio of these commercial rooftop solar assets. And so, you know, if you look at the financial operations, it involves origination, capital deployment and an asset management. And so, King energy, they are pretty much, you know, doing this at large scale for many, many small you know projects. And so what they need a software platform to in order to consolidate and normalize all of these financial data into portfolios and and so every you know and every project has its own project finance model. And typically, finance teams usually use Excel spreadsheets. Is there is, you know, Excel is known to be the, you know, the language of, you know, programming language of finance and our software. What it does, it actually doesn't replace our customers complex Excel spreadsheets with some standard templates or black box software codes. Instead, what we do, we work with it, and we are able to read and parse these etc spreadsheets and make them into a database that now our customers use to do all kinds of sophisticated, you know, equity debt financing, Tax Equity structures, workflows and waterfall calculations, all kinds of project insights and accounting that is needed. And, you know, we also have very you know, a suite of what we call integration features. So we work with major brands of solar inverters and batteries in order to actually get the data for risk management, variance analysis, as well as, you know, CRM and ERP systems in order to really make sure that the data is, you know, consistent across all of the software products that our customers use.
• 10:22
  Tim Montague: So let's, let's just break down what's going on in solar and battery storage finance, deployment, asset management. What is the state of the state in the US, and where do we need to get better in order to get the energy transition done faster? That's really it's no there's no question. I. Taraj, if the energy transition is going to happen, it is happening. It is going to happen. It's just a question of how quickly, right.
• 10:59
  Tooraj Arvajeh: That's right.
• 10:59
  Tooraj Arvajeh: That's right. I think if you look at project life cycle, right, the starting point is really, how do you achieve, if you think about scalability in this you know, in this space like, Okay, how do we make this faster and larger scale? The the key point that we have to address first is what we call project development. That is the study, right? And and so in the D, R, S space, if you look at behind the meter assets, mostly for residential or commercial buildings, is generally done by contractors, energy engineers, facility managers. These are the folks that are pretty much at the forefront of identifying the right opportunities for the real estate asset and, and, I think, you know, the you know, the first you know, point of attack, you know, you know attack is really looking at how to equip these, these professionals at the real estate level to really become, you know, project developers like, almost act as ESCOs, right? And really, you know, become part of these, what we call energy services companies. Like, how do you develop these bankable projects?
• 12:21
  Tooraj Arvajeh: So that is the first, the story of the ER, and if you actually look at the evolution of it, and this is why the role of these professionals is very important is that initially VR it starts as almost like a retail, you know, green premium product, like, if you look at Teslas as EVs, green premium product that people just loved it and bought It Nest thermostat was actually before that, right before Tesla was like a, you know, very good looking nicely designed thermostat that people love. But then later on, it actually became part of virtual power plants, right? And so initially it starts as a as a retail product that people pay for, but then when you tap that market, then it becomes what we call real estate investment. This is where, essentially, you're looking at the finance heavy asset focused more model that the product is not sold as a green premium, but as a green discount. Now you're looking at energy savings or improved no on for real estate assets now, financing these assets really is much closer to real estate investments, as opposed to, like, larger scale energy projects. So pace is a good example of that. Pace is pretty much like a real estate, you know, a structured finance and and so when you have this stage before you get to the energy infrastructure, which is where the yours become, you know, virtual power plants, or they, you know, defer, you know, transmission and distribution investments, you really need to build the pipeline of these projects at the real estate level. And I think the first point of, you know, attack is really to enable these energy managers contractors to become seasoned ESCOs and, you know, project developers. And so that's one of the tools that we have on our platform, which basically looks at all kinds of risks associated with real estate investments, like, what are the environmental title, credit risks. It provides tools how to price these projects as a service, if you want to do it as an ESA or PPA, how to price it properly. And that makes the you know, the contract is a lot more you know, intelligent and informed in terms of how to identify the right opportunities that could become investment opportunities.
• 14:57
  Tim Montague: The Clean Power Hour is brought to you by CPS America, maker of North America's number one three phase string inverter with over eight gigawatts shipped in the US. The CPS product lineup includes string inverters ranging from 25 kW to 350 kW, their flagship inverter, the CPS, 350 KW is designed to work with solar plants ranging from two megawatts to two gigawatts. CPS is the world's most bankable inverter brand and is America's number one choice for solar plants now offering solutions for commercial utility ESS and Balance of System Requirements, go to chintpowersystems.com or call 855-584-7168, to find out more. Yeah. I mean, as. I'm famous for saying, you know, 90% of rooftop solar projects die on the vine. This is in the commercial world because of things like roof condition. The roof is too old to solarize, but perhaps too young for the owner to go, Oh, I'm gonna put$500,000 into putting a new roof on my building that could last for 10 more years.
• 17:06
  Tooraj Arvajeh: That's right.
• 17:08
  Tim Montague: And, but, but, but it's very, it's very kind of niche and specific to the facility. And so, yeah, I'm just curious. Like this seems I'm just, I'm just being completely transparent here, what, what you're doing at Perl Street, seems to me to be very ambitious, and I am not afraid of ambition. But is, is it like where the rubber meets the road, like with King energy? Is that, is that a place where you are getting lots of traction, or is it that you're getting a little bit of traction in a lot of different places?
• 17:52
  Tooraj Arvajeh: So right now, are we are getting a lot, a lot of traction in various specific markets of the R especially with third party owners and asset managers, okay? Because when you are a third party owner, right?
• 18:06
  Tooraj Arvajeh: As opposed to, like a real estate company that owns bunch of rooftop solar, when you own bunch of rooftop solar, those are not revenue generating assets for you, really. They're, you know, the assets that you know maybe create some savings, but they are not a revenue generating assets. But when you move to the third party ownership structure now, you are talking about assets that are supposed to perform at certain level, and you also have institutional investors behind you that are counting on, you know, reliable information about these assets and and so we're getting a lot of traction in that space of third party ownership of the your assets, because there is mandate and there is velocity to deploy capital at larger scale, but also perform much better than, let's say, utility scale projects, because with these assets, you generally have shorter lead time. So you develop, you know, rooftop solar within like 12 months, versus put a larger scale utility might take like three to five years, right? And so there's shorter lead time. There is diversification of, you know, assets, because now you're building a portfolio, and that creates a lot of financial benefits. So the returns expectations would be, your assets actually higher. And so that's why technology becomes very useful, as opposed to, like, just, you know, having a lot of overheads and a complexity in operation. Yeah,
• 19:41
  Tim Montague: yeah. So when you're I'm curious, like, how do you, how do you propose the value proposition, if I'm an IPP, you know, using some more standard, you know, old school approach of of spreadsheets and and Dropbox to, you know, doing my business, so to speak, before versus after. And, yeah, so how do you, how do you, how do you frame that value proposition?
• 20:26
  Tooraj Arvajeh: So the value proposition for, you know, the, you know, the ER or solar rooftop company, a comes into three things. One is a scale like you want to get into gigawatts of assets under management, because that's how you can attract much better, you know, cost of capital from large institutional investors. So number one value proposition is a scale. Number two is, well, you don't want to scale at all cost. You need to have returns.
• 20:59
  Tooraj Arvajeh: So number two is return, right?
• 21:03
  Tooraj Arvajeh: Return is eventually what matters the most. You want to, you want to generate good IRR on these projects, right? 15% 20% IRR. This is, you know, what makes it attractive for the your assets, and the third is essentially a standardization and unification. So what we want to do, we want to make it very easy as possible for an investor or a lender to look at, let's say, hundreds of 500 KW solar rooftop projects, as they would, you know, for like a 150 megawatt largest skeletivity project, right? So those are the three things that we offer to our COVID. Customers as as value props, yeah,
• 21:46
  Tim Montague: and this comes at a cost, of course, right? I assume this is like a subscription model. And if I'm a, if I'm a, a small scale IPP, with an ambitions to become a medium scale IPP, what is, what is the, what is the buy in, or the length of contract, so to speak, that I'm making to onboard Perl Street. And how long does that take? Like, what is that onboarding process?
• 22:19
  Tooraj Arvajeh: Yeah, onboarding for us generally takes about a month to three months, depending on how, I guess, complicated the existing, you know, data architecture is, and so our solution, you know, in terms of the return on investment for our customers, is about reducing the labor cost for both project development and asset management. And let's say, if you're looking at, you know, a 50, you know person, solar, you know developer, generally, you know, on average, I would say at that size, they spend about a $5 million for project developments per year, and about a million dollars for just Asset Management and servicing. And so we can pretty much reduce those cost by, you know, 1 million, 1 million and a half annually. And so even with a subscription fee that we charge, let's say, 100k 150k year, we still improve the net margin of the operation by about 18% that the cost. The kind of customers that appreciates our return on investments are the high growth customers, because they see lots of growth without actually, you know, adding a lot of overheads, and that improves the net margin significantly.
• 23:43
  Tim Montague: Well, what else?
• 23:43
  Tim Montague: What else should our listeners know about Perl Street and how you see the world? I'm curious like, how big is the opportunity that you are chasing? And what else should we know? Yeah,
• 24:00
  Tooraj Arvajeh: I think you know. DR is, as you mentioned in the evolution is going through a very interesting, you know, stage, which is now it's becoming part of what you know from a real estate investment is now becoming part of energy infrastructure, another part of the critical infrastructure, right? So they provide resilient solutions such as backup power.
• 24:27
  Tooraj Arvajeh: They also, you know, address the growing need for local energy infrastructure without much you know, missions and you know policy sort of impacts. And so the interesting phase that we are right now seeing is that the ours or distributed energy resources are getting aggregated into virtual power plants to meet peak demands. They also provide very cost effective hedging strategies for energy retailers, right? If you look at, for instance, Texas Air cut energy prices are very volatile.
• 25:07
  Tooraj Arvajeh: And so, you know, for energy retailers, dr, is actually a hedging mechanisms. And we see similar examples of that in Australia, which is very similar to, you know, Texas from an electricity market perspective.
• 25:17
  Tooraj Arvajeh: So now you have this evolution of the ER that, okay, this is a very valuable critical infrastructure that can attract a lot of, you know, private equity funds, real estate funds, that that can get really good returns. So the the the opportunity here for folks is to really take advantage of this and really looking at building large portfolios and and, you know, as we mentioned, there is the there is optionality involved. And this is, this is what the investors are looking for when they come, when they compare, let's say, utility scale projects to a smaller scale Dr assets. Is that when you have high interest rate or when you have growth uncertainty, optionality is valuable, and there is a price premium, and so you know if, if you're looking at like Dr assets, an investor is willing to pay twice the amount. That's$1 per watt compared to utility scale. If there is optionality for incremental investments, because you're dealing with high interest rates or you're dealing with some uncertainty around growth or demand, and you know, they generate the same sort of NPVs, if you look at, you know, these two types of investment strategies, even though there's a premium to pay for the ER, so these are the things that these are. The opportunities that investors are seeing, and investors are pretty much coming to Pell street, looking for, you know, portfolios to invest in or to acquire. And if we work with developers and contractors and installers and enable them to actually aggregate these projects, they can and, you know, very good amount of income by by origination of these projects,
• 27:06
  Tim Montague: everybody wants to save money, that's the only guarantee in life. Really. Check out all of our content at cleanpowerhour.com Please give us a rating and a review on Apple or Spotify. Follow us on YouTube, reach out to me on LinkedIn. I love hearing from my listeners, and look forward to seeing you at one of the energy shows coming up. You know, so many great energy shows around the country. I'll be going to inner solar in February. And with that, taraj, how can our listeners find you?
• 27:42
  Tooraj Arvajeh: Yes, they can find me at perlstreet.com, P, E, R, L street.com and there's a link to my calendar. They can book your time with me, and my email is to ranch at perl Street. Com,
• 27:56
  Tim Montague: fantastic. Well, with that, I'll say, let's grow solar and storage. I'm Tim Montague. The Clean Power Hour is brought to you by CPS America, maker of North America's number one three phase string inverter with over eight gigawatts shipped in the US. The CPS product lineup includes string inverters ranging from 25 kW to 350 kW, their flagship inverter, the CPS 350 KW is designed to work with solar plants ranging from two megawatts to two gigawatts. CPS is the world's most bankable inverter brand, and is America's number one choice for solar plants, now offering solutions for commercial utility ESS and balance of system requirements go to chintpowersystems.com or call 855-584-7168, to find out more, you.