September 7, 2015
Interviewed by: Mike Straka
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Solar Energy Bright in Commercial Market

Many PE investors have gone dark on solar, but True Green Capital’s Panos Ninios says there is tremendous opportunity for the energy subsector in the commercial market and in partnering with the real estate sector.

Many PE investors have gone dark on solar, but True Green Capital’s Panos Ninios says there is tremendous opportunity for the energy subsector in the commercial market and in partnering with the real estate sector.

Solar Energy Bright in Commercial Market
With Panos Ninios of True Green Capital

Mike Straka, Privcap: Welcome to Privcap. We’re joined by Panos Ninios of True Green Capital. Thank you for joining us today.

Panos Ninios, True Green Capital: Thank you for having me.

Straka: First of all, tell us about what you guys do at True Green.

Ninios: True Green Capital is a specialized asset-management firm. We’re focusing on distributed power generation of all forms, but mostly solar because we think solar is the investable technology right now.

Straka: What is the thesis behind that?

Ninios: The thesis behind distributed power generation has many legs. One is that we’re in a place that is actually a lot cheaper to build small power plants across the distribution system, which is basically when we consume power. If you think about the historical model, you build a very big power plant in the middle of the desert, build transmission lines to some demand center and deliver power.

At this point, the economics of solar and other distributed power generation make it easier to actually build the power plants where the demand is. And that saves you in transmission, cost-effectively.

Straka: You’re really focused on one little section with your solar plants. You would build a plant on top of a shopping mall, for instance?

Ninios: Correct. Our typical investment is a power plant of a shopping mall or a supermarket, a warehouse or an industrial building.

Straka: How does that work when it comes to the real estate? That power plant you’re building—is it flexible? Can you move it if it’s no longer needed there? Or, if you don’t own the building, if someone sells the building and they don’t want it on top of their building anymore, can you—

Ninios: Yes. From a physical mechanical point of view, it is moveable if you look at these investments—again, that’s a big change versus the historical part generation—where you have big power-plant turbines with fuels and chemicals. What we have is very simple—it’s a racking system, which is a piece of metal and a solar panel on top of it connected to an inverter. With inverter technology, every building has several inverters.

So, we can definitely move it. However, from a legal point of view, we set up these power plants to be there for 20 years. So, typically, we own the power plant, we sign the power-plant agreement with somebody who takes the power and we sign a lease agreement for the space. Typically, they are 20-year agreements. From a legal infrastructure point of view, we have all the appropriate real estate documentation, like easements, etc. Again, to put this in perspective, we have set this up in a way we can actually project finance. These are bankable assets and we’ve done this now across the portfolio.

Straka: So, it’s unique—it’s an energy play but it’s also real estate play?

Ninios: It is a real estate play, in the sense of the mechanics to make the investments look and feel more like real estate than energy. As a matter of fact, part of our team comes from the real estate world. We have them specifically to do this. When we are looking for an investment, which is effectively looking for a rooftop, you need to look at it is the same as if you are making a real estate investment.

Straka: Where is the opportunity for renewable energy?

Ninios: We see the opportunity mostly in the commercial space and, if you step back, there are three buckets. One is the residential, which is very large still, but a lot of people are attacking it. Solar city is the best example. Recently, we had the Vivant acquisition by Sun Power—[it was] last week, actually. So, this is a very active space and it’s…institutional and it’s happening now in the public markets. The acquisition adjustment is $2.2 billion.

Then, there is the commercial space, which is where we are. Again, the typical investment we make is on top of very large buildings. As you said, this is more…like a real estate investment. The issue is [that] the complexity in every investment is slightly different. And, like there is density of space where effectively it is the same, you get the mobile phone contract, right? The residents alone cannot change the contract. Our contracts in commercial space are all slightly different.

So, it requires a lot of work. Then, there is a third bucket, which is what I call the big power plants in the middle of the desert. A lot of them got built in California. We think that space is largely competed away at this point, so we are not focusing on this at all. We are focusing on commercial, which we think is a massive area. Goldman came up with another support maybe a year ago, where they looked bottom up how much you can actually do on commercial and it looks like $500 billion over the next 10 years.

Straka: You said you started this four years ago—you’ve obviously had some returns for your investors, so what are your expected returns?

Ninios: Let me actually start with yield. These are assets—people pay their electricity bill. These are assets where we have cash flow every month. Our existing assets—we have about 32 [megawatts?] of operating assets today, in about eight different states. They’re yielding, depending on the action, between 8% and 12% a year.

The largest one we’ve built is 12 megawatts—this is on top of military housing at the Maguire Air Force base in New Jersey. If you look at it, [this] looks like a residential. It’s 547 residential units but it’s actually one project, from our perspective.

So, we know what the [corner?] are. We can actually NPV them back to the day, so it goes back to the fact that we’re making infrastructure investments. And we can figure out…the value of the portfolio. In our fund 1, we expect to have gross returns at around 21%. In our fund 2, we expect more like 29%. That is actually on investments we have done today with actual contracts we can discount to today.

Straka: There is also an environmental aspect to your business. Renewable energy is good for the environment.

Ninios: Absolutely. And I am laughing because, a few years ago, that was the main pitch of solar. Right now, we don’t even mention it because it just makes money and it’s a great investment. Clearly, there is an important environmental aspect—everybody in True Green Capital feels good about this and we feel we are doing something good for our kids living this way. But that’s not what the investors are focusing on right now.

Straka: We’ve interviewed many impact investors and they say you can’t make change without making money. So, there’s got to be some profits along with the impact.

Ninios: Absolutely.

Straka: Who is investing in your funds—sovereign wealth funds, public pension funds? Who are your investors?

Ninios: In our second fund, we had the first closing in January and the last closing in May. We actually have a variety of groups. We have a very large insurance company, we have a foundation, we have fund to funds. We have several family offices starting from very large—we have a $5-billion family office—to much smaller, on the order of $100 million. What we have found is that family offices love the business. And it goes back to the economics. We have a situation where we have contracted physical assets.

There is still on the ground where people can go visit it—we return the capital very quickly. So, from the point of view of capital preservation, the way they feel they are getting their capital back very quickly. Then, we have significant upside and we have yield.

Straka: When you do build a plant on top of a building, are you just servicing that building or can you plug that power into a grid and then service a larger area?

Ninios: The answer is it depends on the state. From a technical point of view, you are always connected to the grid. So, technically, you can always push power into the network. From a regulatory point of view, there are states that you sell the power to the utility: Vermont is one of them, California is another. Then, there are states that you have to sell to the building: New Jersey is an example of that. Then, there are states that you can sell everywhere in the network—it’s called virtual net metering. Massachusetts is set up that way.

The reality is that, technically, you cannot always sell to everybody in the network.

Straka: Your latest fundraiser you said you closed in May—that was $113 million. How do you plan on using that? Are you going to build more? Are you going to do Capex improvements on what you currently have?

Ninios: We’re actually investing in new power plant. As a matter of fact, we always try to maintain a pipeline of projects ahead of the capital, so we put out the capital very quickly. We’re 100% committed on this fund and we have already called 70% of the capital. And it’s all rooftop-type power plants we described before.

  We are mostly in the northeast. Part of it is that we like to control the projects. What I say jokingly is I would like to be able to drive to the assets because, remember, we’re doing construction, so we need to know what’s going on on the sides.

We are expanding to California; we have our first California project under construction and we also have an Idaho project under construction. What’s happened here is the market has become bigger and bigger—more U.S. states are actually coming into the system. But part of our thesis is that we want to be there, so we’re actually hiring people on the west coast.

Straka: It’s kind of a weird question, but as a total layperson who knows nothing about solar and how it works, does the sun in California being hotter than it is in New Jersey affect the amount of power in a plant?

Ninios: That’s a good question. It’s not hotter but it’s longer, if you like. What we call “irradiation” is the amount of sun that heats the panels—there’s probably 20% more irradiation in California than you get in the northeast. So, it definitely helps and it helps from a returns point of view. When we look at the returns, we are looking at really two big factors. One is irradiation and one is electricity prices. Even the northeast has less irradiation than California; electricity prices are actually higher, [which is] why the northeast makes as much sense as California.

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