Podcast Transcript: Solar for Everyone with Nathan Jovanelly

Speaker 1 (00:00:03):

Welcome to another episode of The Solar Podcast. Today David is talking with Nathan Jovanelly, head of business development at Enerflo, who also has a long history in renewable energy. They talk about the future of solar sales, debate PPAs and leases for panels, and discuss the recent Inflation Reduction Act of 2022, which entails tax co provisions that will be huge for the solar industry. Let's get right into it on The Solar Podcast.

Dave Anderson (00:00:31):

Well, Nate, want to welcome you to this episode of The Solar Podcast. We're thrilled to have you on today. Today my guest is Nate Jovanelly, and he's coming with us, most recently he's working with Enerflo, but he has a long history of working in the renewable space. And given some of the information that's come down, probably those that watch this episode or watch this podcast have been following some of the ITC. And I guess, what's the new tax code called that they're, what are they calling it? The anti inflation bill? Is that what they're calling it?

Nathan Jovanelly (00:00:59):

The Inflation Reduction Act of 2022.

Dave Anderson (00:01:05):

So formally it's a lot of the same things that would've been in the Build Back Better program, or a few other programs that have existed. We're obviously not going to dive into all of the intricacies of it, but certainly we're going to be talking a lot about that today, but again, thrilled to have you on the podcast today, Nate, and I'd love for our listeners to get a little bit more of a background on you. Not just the time that you've had, short time you've had with Enerflo the software company, but your previous experience working within the renewable space as well.

Nathan Jovanelly (00:01:32):

So my background is, I got started in renewables, it's been a little over nine years ago now. So I don't know if that puts me quite in like the super old school status. I started my career in, actually doing consulting. I was a chemical engineer by trade and always interested in the environmental piece. In fact, I was able to take a few graduate level environmental courses as part of my chemical engineering degree, did a report actually on the use for solar thermal back before really solar PV had any traction at all as a college thesis. And again, it was something I was always interested in. I wanted to do environmental engineering and my brother actually talked me into chemical. So when I graduated, I consulted for companies like Leidos and had clients for everything from NASA to like Harley Davidson, Mott's Applesauce, Utz Potato Chips was an awesome client, Pfizer.

So I did a lot of things in the environmental realm and eventually went and worked and led a team of engineers for water and sewer infrastructure throughout the country. It was a large publicly traded company and it was a great job, but the travel was killer, I had three kids so it was time to move on. And I had an awesome opportunity to come work for IGS Energy, which is the largest privately held energy company in the country. So they're a retailer of gas and electric. It's owned by Scott White in the White family, multi-billion dollar company. I think they're the third largest residential supplier in the country. So a lot like an NRG or Constellation. And what I got hired to do actually was combine heat and power, as a gas supplier that made a lot of sense on a lot of levels. And I think there is a real need for that technology.

For just a super high level for those that don't know, it's basically a boat engine. It literally is a boat engine, in most cases, or a turbine that you would put in somewhere that has a high heat load, like a hospital. And the number one byproduct of making electricity, running natural gas through an engine or a turbine is heat. So if you can capture that heat and recycle it at a high level, you can get super high efficiency and lower your overall cost. And also have the ability to island, if you're, again, if you're a hospital and everyone loses power, you could still have power at your facility. So we got into that. There was four of us that started that group. And I think we were maybe three, four months in and we went to PV America at the time up in Boston. And we had our little combined heat and power booth, you know, talking about natural gas and everyone else is talking about solar.

And they're like, "You guys, are you at the right show? You're in the wrong spot." We quickly realized that there was a huge opportunity, especially for a privately held company to get into solar in a big way. So we started doing that mid-market stuff less than 500 KW and started quick aggregating assets, buying distress assets, working with companies like SunEdison that weren't financing those, doing nonprofits that aren't credit rated. And we would run them through a moody shadow rating to get them so we could actually put them on balance sheet and if we ever wanted to sell those portfolios, we could. And that was a great success. We did that for a long time, taking those projects, getting our foot in the door. And then when SunEdison imploded, we had some opportunities to do some of the first Amazon projects and ended up being the largest client or customer of IGS. So we own over a hundred megawatts or did own over a hundred megawatts of Amazon projects.

I've done projects for Unilever, FedEx, but as we got bigger and bigger, I realized my passion was really more in the residential space. I liked the small stuff. I've been trying to figure out LMI personally for a long time. So ended up pivoting and ultimately running all business development for IGS in the residential space, where we deployed well over a billion dollars. We had worked with many of the largest turnkey installers and turnkey, I mean, we seemed to have more success with those that had their own sales team. So fully integrated, little bit different than your model, Dave, and there's reasons for that we can get into if you're interested, but we had great success there and we just built portfolios over time, ended up deploying about seven funds.

And I think the key to our success was that we didn't have the front end, that a lot of the other large TPO or third party owner providers have, when I say TPO, I mean a lease or a power purchase agreement. So a lot of the big publicly traded guys kind of have that box that you have to play in. And a lot of the larger mega regional solar installers wanted to use their own proposal. They wanted to use their own design, and we enabled them to do that. But as we grew, we knew we needed a front end, but we also knew if we build it that we weren't going to build the best design tool that no, you're never going to get consensus from everyone on the best CRM, and design tool, and scheduling tool. Go down the line, bring in Enerflo. So I met Enerflo in March of last year and started talking about them to have a really awesome integration for a TPO product, where these installers could bring any tool they wanted and Enerflo is the platform that since underneath.

So if you think about the average installer has eight to 12 pieces of software they use, again, I just named a bunch of them. And a lot of times they don't talk to each other. So Enerflo goes very wide at the bottom. Think of it instead of like one giant Lego or one closed ecosystem, like maybe a Salesforce, it's made up of a bunch of small Legos and you can customize your own configuration. And if you want to change your design tool, you don't have to change your whole process because you can just swap one out for another. So that's what attracted me to Enerflo and why I wanted to use it during my time at IGS. And ultimately after getting to know the two co-founders Pat and Spencer, whom I know you know, I just found that we were very aligned missionally, and that is to lower the cost of solar for everyone on the planet. So I made the very tough decision in December to resign from IGS. I started Jovanelly LLC, and of that I lead business development for Enerflo. So that's what got me here today.

Dave Anderson (00:07:51):

Well, that was a pretty concise nine years of your career summed up there. So that was a nice job. We should jump into a few of those components though. So IGS, truth is you guys have been, or IGS have been players in the PPA market for a long time. Have had some really, I think fantastic partnerships, have deployed a lot of PPAs currently. IGS, their strategy was to own all of those, own all of the paper internally, correct?

Nathan Jovanelly (00:08:20):

Correct. Yeah.

Dave Anderson (00:08:21):

And so your funds were a lot simpler, which created some pricing advantages as well. Right? So you were your own tax equity, you were your own equity capital. I mean you could obviously leverage and go out and get debt, but the funds were exclusively IGS funds, correct? Or were you guys raising tax equity as part of those funds as well?

Nathan Jovanelly (00:08:40):

Yeah, so actually all seven were a little different with different tax equity structures, different cash equity structures, but all of them basically had the same debt. So we did get debt against them all. And there were times where we used our own tax, which is a huge advantage in some ways, I don't know how technical you want to get on the finance side, but because if you sell the tax to like a Bank of America or U.S. Bank, big banks and big tax players out there, you can step up the cost of that system. So if I pay Complete $3 to build the system, but my independent auditor says that the system's worth $4.50 because of where it's at and there's a whole bunch of ways to figure that out. And it's different by utility really, mostly state, but also utility.

Then I can sell the tax to one of these big banks at $4.50 and what that enables me to do is then be more competitive and pay a installer more. So it's not like we pocketed that extra money, we used that to be able to pay the installer more. I think in the early days, some of our advantages were in how we treated SREX and we were able to underwrite the whole 15 years of SREX using the tremendous backend of IGS Ventures, the parent company to backstop those, which is obviously a very cash strong company. So that gave us a leg up, because a lot of people were only underwriting SREX for as long as you could sell them. And typically in the auction to buy power, the utilities are buying in three year intervals. So they're only buying SREX in three years.

So that means if you're some of the large publicly traded companies, they would only assume three years of SREX because that's all they could get debt against where we could go out and get debt against 15 years. So it's no surprise that New Jersey was by far our strongest state when we started, with Massachusetts probably as a close second. Eventually we restructured and we're always redoing these funds to try and maintain a competitive edge. But I would say definitively that it's really hard to compete in pricing with both just Sunrun and Sunnova, just to name them so we don't have to keep saying large publicly traded companies, but they don't have a long track record of being profitable. I mean, it's no secret. They each lost over $200 million in 2020. And I don't know the exact numbers from 2021.

So we were trying to, we were profitable from day one and trying to maintain that profitability. So we competed more on the simplicity and that's why I think we appealed mostly to the large turnkey installers. Because when you get into the sales orgs, they don't have to deal with the backend as much. So I think it had less value to them because they want to sell for the highest price to capture the highest spread. And there's nothing wrong with that. That makes total sense to me, and that's probably how I would do it if I was running that business. But the large installers that had their own sales organization under it saw some additional advantages in terms of higher pull through rates with IGS because we were faster, simpler, easier to transact with. And what I always say is we did the 95% really well.

So when they would come and ask us like, "Why don't you do trusts, or LLCs, or ground arrays?" Which now they do all those things. But at the time they didn't, it was like, because we want to be the best at the majority of the jobs. And if you need to go sell some of those others to other players and they can have them, we don't want to distract from our mission. The other thing I think that we end up doing really well was, and I don't know if this has evolved with some of the other players in the space, but we did a soft credit pull, never a hard pull. And it was, we ran it through all three bureaus so we gave the customer the best chance of passing. And as you know, I mean, especially in the last five years, the default rate for solar even through COVID was very low.

I mean, you can see there's a lot of data out there from different publications, but it's less than half a percent in a lot of the newer portfolios. So I don't think that default, I think they're really correlated to the quality of the install. And a lot of times, like if someone's not paying you, it's a result of they're angry at the installer or they felt misled in part of the sales process. So we're constantly refining that to get that down. And this is a topic we can rabbit trail on forever, but I think one of my missions is to continue to bring solar access to everyone and should be, it shouldn't matter what your income level is or what your FICO score is, because I don't think that's indicative of whether you're going to pay your electric bill or not.

Dave Anderson (00:13:27):

Well, there's some things as part of this new bill that maybe address some of that actually. And we should talk about that a little bit too, but unpacking a few things, I might actually, going back to just the structure of a PPA, or a power purchase agreement, or any third party owned product. So sometimes they're called power purchase agreements and they operate by selling a cost per kilowatt hour to a end consumer or to a purchaser of the power. And sometimes they operate as an operator, as an operating lease where the, where you're leasing the use of the equipment, ergo you get the benefits of the production of the system that's on your roof. And technically there are, there is a difference, but to the end consumer, they essentially perform the same. You're paying a monthly fee that's generally reduced or almost always reduced as a fund requirement relative to what they would pay to the utility company.

So the question here is, and I'll ask you and put you on the spot a little bit, but why is it that solar, these PPAs and these leases have a history of being, of having such a big percentage of the market? And I'll precursor that by stating typically a homeowner, if you're looking at a 20 year or a 25 year cash flow model, does better by owning it with a, with either using their own money, just paying for the system upfront, or using either an unsecured or a secured line of credit. Most of those are provided pretty liberally from solar companies at this point. Why is it that PPAs and leases have continued to exist in the marketplace? And I'm not saying that they're bad or they're good, but they do and have had a huge percentage of the market share for a very long time.

Nathan Jovanelly (00:15:08):

Yeah, I think so this might be my favorite question I've ever had on a podcast, because I always want to debate this point, is that I still believe that a PPA is the best product for most customers. And I know we could talk, we could do four episodes on this.

Dave Anderson (00:15:25):

I'll say that's a little bit of a controversial take for most people that would come on the podcast.

Nathan Jovanelly (00:15:30):

Oh, for sure it is. If you look at what the high for, I'm just going to call it generically TPO again, it's third party ownership, meaning the homeowner doesn't own the array, whether it's a lease, an operating lease, it's a PPA and there's advantages even more, I think a PPO over a lease. And we can talk about that too, if you want. But at the height, and I think this was like the solar city heydays, it was like it was 72% in 2014 of solar finance projects was TPO. And now in 2021, which is the most recent data I have, it's 23%. So why is that? I think there's a few reasons and not all of them are good. So first of all, I think what you're doing with a lease is that you have historically low interest rates, right? But also like when IGS got in the market for TPO, a lot of leases were 15 years, now they're 25 years.

It's really hard to compete with a 25 year loan because the customer can save a lot of money. And the other, I think advantage of a loan is that you can roll in other products and services. You can put a roof on, right and attach that, or insulation or whatever, energy efficiency measures. There's lots of different things you can do. So I do think that loans have advantages. For TPO, generally because of that capital stack we just talked about, you have to give the customer savings, and it goes back to perception of default rates. So you might be able to sell, what we would call a bill swap in the industry, so in other words, I'm going to put solar on your roof and you're not going to, you're going to break even.

You're not going to save any money year one, but your power that you're paying for the solar is not going to increase, it's going to stay it's 0% for 25 years. So that's, you can do that, but generally a PPA, and I would say what people would say against it is, well, they have a 2.9% escalator, which again is no different than the interest rate of loan, but it has a 2.9% escalator so if you do the math, if you start at a 10 cent rate today and pick it just, it could be all over the place depending on your market. But if you're at a 10 cent PPA today, in 25 years, it's roughly going to double, you're going to be at 20 cents. And to sell that product and to be able to get debt on that product and have funds, you generally have to offer the customer savings.

So there's some states just right off the bat, just aren't going to work because you can't offer the customer savings. The 0% product is a lower fair market value, which we talked about the implications that has on tax equity. So it is, it's tricky business, right? But the advantages are there's zero out of pocket cost, there's zero maintenance. You don't need tax appetite, going back to serving anyone with a 650 credit score can get it. I think it should be lower, but that's what it is right now for most of the major TPO providers. I think the biggest one that people overlook, and I don't think they even consider, is that it's transferable. So technically if you move within five years, I think that could potentially cause you problems with the ITC. So if you think you might move and the average person only lives in their home for seven years, PPA often can be a better option. Also strictly with a PPA, not a lease, there's no production risk.

And what I like about the product, just what I like about all partnerships, is that the company that is selling you electricity has a vested interest to make sure that solar system is operating. So they're going to operate and maintain it for you, and it's really a no worries system. Now, worst case it breaks and you have a TPO provider that's not paying attention, which I don't think that happens very often with who's left in the market. But if it did, you're only paying for the power generated. So your default is you're paying a little bit more for electricity, just like you didn't have solar at all, but you're not, you're not losing money, you're maybe losing a little bit of savings. So for all those reasons, I think that TPO is an undervalued product in a lot of markets.

I'll also say just that it's artificially capped too based on how all the companies come up with their cost per watt to the sales organization. So you can only sell up to a certain amount, because like I said, you have to have 20% savings. So let's say the rate to compare for your utility is 12 cents, and just to keep the math easy, you get a 10 cent PPA. If that caps out the sales order installer at $3 a lot, they can't sell higher. Now for a loan, you can sell as high as you want and generally you're just trying to beat the utility bill. So in some areas you could sell that same system at $4. So I would say that for customers that go with TPO, they have an artificial cap on what their actual system costs is going to be, even though they're not paying for it, which keeps their rate generally low and guarantees them that at least year one savings.

Dave Anderson (00:20:36):

Yeah. So thinking about the reason, and by the way, those are all valid points and I think those are all the reasons that people should consider a third party owned or a TPO product, either a PPA or a lease. And I, like you, believe that there's a very strong place in the market for the TPO product. And couple things to think about with it though. So the first question that I'd asked you was, why have they risen to such prominence? Right? So typically if you were going to add something to your home, a service, any construction project, you would want to own it. And that's the general mindset of people. And yet the product has been sold, you mentioned that one point probably 70% market penetration, maybe it was as high as 80% or higher actually, depending on the market.

Now it's probably, you hear different numbers, but let's just say half or less than half products are sold currently are the TPO products. And so then the question is, is why do they exist? What is it that makes it, I mean, the businesses like SolarCity, and now Sunrun, and you said Sunnova, and then there are other players, obviously IGS Energy. There are other smaller funds that exist as well that people have heard of, or haven't heard of. And so it's that capital stack. And so just maybe going into it, and the reason that I want to go into it a little bit in the simplest terms that we can, is because so much of what has happened with yesterday's announcement of this new bill is impacted by that. We're in an industry, all industries, we had a guest on last week that talked about how, basically what they do is they're, he's a venture capitalist, they do impact investing, and he says all industries have risk. And that's true, but this is an industry that has some particularly interesting regulatory risk.

If you don't believe me, just take a look at the solar stocks that are all up 30% in the last 24 hours, right? One person goes out and says, "Hey, we're going to renew this ITC, this investment tax credit." And all of a sudden end phases were $10 billion more today than they were two days ago. That's the kind of impact that, regulatory impact that the government has on our industry specifically. But anyway, going back a little bit and talking about the capital stack. So typically in any of these funds, you'll usually have a component, what you call your equity sponsor or your equity partner. And those are the people that are putting up hard money that are saying, "I'm going to buy solar assets and I just want a reasonable or responsible return on my money."

And then usually there'll be some component of debt, so that's your leverage. So some debt component, and then you'll have a tax credit investor, an investment tax credit. And then you also create this structure entity where you might have someone like a complete solar that's selling these products. And then Sunrun might, if I were going through Sunrun, for example, Sunrun would pay me something and then Sunrun would turn around and sell that asset again to another fund. And each time they do that, there's a step up in the basis so that they can take a higher tax credit. So essentially before the system is ever commissioned, the end owner of it is going to be a fund that will be able to take advantage of the tax attributes at a higher basis than what a typical consumer could. And that if whomever it is that's listening to this, didn't follow that, you are in the majority of company that don't understand it as well.

But the point is, is that there's a fairly complex fund structure that allows businesses to optimize or maximize the amount of tax, or of tax benefit that they can take by doing these PPAs and these leases. And it should be stated as well, that because it's a business entity, throughout the period of time over the last 12 years. So I've been in renewables for 12 years, you've been in for nine, and you can go back even further, probably 2007 when SolarCity and Sunrun started writing these PPAs and leases, and SunEdison even before that, on the commercial side. The reason that these PPAs and leases really rose prominence was because there were other tax attributes that don't exist today that were even better.

And these were relating to the depreciation of an asset that typically homeowners can't take. Although there are lots of CPAs out there right now that are teaching homeowners how they can own the asset in a way that they can actually take the tax attributes outside of just the ITC, the investment tax rate. They can also take the appreciation. Now, I don't want to unpack all of that stuff. There's a lot going on there. But the point is, is that there's a complicated fund structure that exists because of some specific tax code, and that might be changing a little bit. So you said you'd taken some notes. I'd love to get your take on some of the recent announcements that have come down regarding this, and what did we call? It's the, I keep want to say anti inflation, but that's not what it is.

Nathan Jovanelly (00:25:34):

It's the Inflation Reduction Act of 2022. I believe that's what it's called.

Dave Anderson (00:25:39):

And as with every bill that goes through the government, they pack a bunch of stuff that's probably not related to do it to anything about inflation.

Nathan Jovanelly (00:25:46):

Exactly.

Dave Anderson (00:25:47):

So it's a lot of provisions that existed in Build Back Better that are making it into this bill that has a more palatable and friendlier name that's probably going to be able to get through the Senate.

Nathan Jovanelly (00:25:57):

Yeah. So just to close that last conversation, so you're right, there's a lot of advantages of a TPO product that homeowners don't even know, but even more importantly, it's just simple, right? You don't have, they don't have to understand the tax credit because they're not taking it. They don't have to understand what a solar renewable energy credit is, which we don't have to get into. But it's just, it's very easy. It's no money out of pocket, saving money from day one, and you have no maintenance obligation. So it is, some people want to, I always liken it to owning a car versus leasing a car. Some people like to own cars and they don't like leasing cars, some people want to lease cars. So it's, do you want to own your solar or do you want to lease it? Have somebody else own it for you.

And I think there's always going to be a need for both of those, but so the anti or the, I just, the Inflation Reduction Act of 2022, I haven't read the whole thing yet because it just came out. I just got a copy of it this morning. But for those that want to follow along, on page 344 is the provision for the federal investment tax credit. And how I read it is, is that it extends the federal investment tax credit at 30% starting January 1st for 10 years, through 2033. So right now the tax credit's at 26%, it was scheduled on January 1st to go to 22%, and then the following year effectively zero for residential. But now this new provision would extend, would raise it back to the 30% for 10 years and then phase it out at 26% in 2024 and 22% in 2025.

Dave Anderson (00:27:36):

2034, 2035.

Nathan Jovanelly (00:27:38):

Sorry, yes, 2034 and... Thank you. But yeah, I think that the interesting thing is, is this good for the industry? And I know everyone's excited about it. I could debate on both sides, honestly. I think that I'm happy it got extended obviously, but I also think that it, until solar breaks free of anything that would be considered widely as a subsidy, I think there's always going to be this stigma around it. I do like some of the provisions they put in, although I didn't see the direct pay in there and maybe I'm wrong because I didn't read the whole thing yet. So you still need to have a tax appetite. There is, I think, a carve out for storage only, which is nice. So your solar, your battery doesn't have to be attached to your solar to get the ITC and that's a whole nother conversation.

But there is some margin obviously in that customer acquisition cost. I listened to your episode recently with Brian Lynch, who I know and really like, and he was talking about all this in the customer acquisition cost. And I think the last number I saw from SEIA is that like 64% of the residential solar installs soft costs. And again, that's one of the reasons why I came to Enerflo. We're trying to reduce that soft cost, and there's a lot of ways to do that, but I don't know if going back to 30% forces discipline that I think we definitely need in the solar industry.

Dave Anderson (00:29:10):

Yeah. I would, I tend to agree with that. So as a general statement, I usually say I don't like it when the government's choosing the winners and losers, and you obviously saw there was a big swing in the stocks as a result of this new policy. And you certainly could make the argument, and there's a lot of validity to it, that these subsidies sort of prop up bad companies and maybe don't force us to be as inventive as we need to be as an industry. We're competing on a world scale to purchase modules. We talk about supply shortages all the time. Well, right now in Australia, people are buying modules for significant, or not not buying modules, excuse me, getting systems installed for less than two bucks a watt, where as a wholesaler, I can't even compete with that.

There's no shot I could compete with that, because of how many soft costs we have here in the United States. The local bureaucracies, the local authorities having jurisdiction, our cost per acquisition, all of these things continue to keep the costs artificially, I say artificially high, because we already have precedent where Australia has 30% market penetration and they install for a fraction of what we do it here. And so there's obviously precedent, so there's something to be said about that. I will say, generally speaking, that I would say that there's a lot of positive things. So I do think direct pay, which you referenced, which we should just talk about what that is, I think that is actually a component of this, although the final wording isn't, I think, all the way out and passed through the Senate.

And it also, so a few things about it, one, the idea is, is it's trying to lower energy costs for Americans. That's actually one of the thesis statements, is we're trying to make energy more affordable for everybody. And our antiquated grid, if we continued on that system forever, we would have ridiculously high energy costs. That's just a fact. And so local microgrids using solar and other renewables is actually a better way to provide electricity to homeowners, and this bill and this plan admit that. People could debate whether that's true, but I actually think that's actually a math problem that's easily solved. It's not really a philosophical argument. It's just math. It's so much less expensive to generate electricity for a homeowner by doing it on your roof than it is to use this macro grid, ask any Californian or any person in Hawaii specifically, but across the country.

The second thing it does is it increases the American energy security. So the idea is, is that we become energy independent. That's something that's fairly important. We're trying to decarbonize all sectors, so it does reach into other renewables. So there is a tax advantage and a tax benefit for other renewables. But one of the things that this bill is trying to do as well, is it's trying to bring manufacturing into the United States. In fact, while it is a 30% tax credit, a lot of that, at least for the TPO products, is going to require, and it's really more like a 6% tax credit with a plus plus plus plus component to it. So in order to be able to get the full 30% as a corporation or as a business, how and where you source materials, for example, is going to matter. And there's a lot of other provisions.

And probably, I don't fully understand them yet either because this is late breaking news, but each of those things are critically important for people that are now putting these TPO products together, is understanding how direct pay works, how to take advantage of the full tax credit. So there's lots of components, and as with every other bill, it's overly complicated and it talks about a lot of other things, but one of the last things that it does address as well, that I think is great, is the direct pay makes it so that solar has been, in some ways, a luxury of the rich for a long time. The PPA and the lease have made it so that people that didn't have, and you called it tax appetite, but essentially if you don't have a tax, if you don't have taxes that you're offsetting, you can't take advantage of the tax credits associated with solar.

So essentially if you're part of the 50% of Americans that have enough tax write offs already to offset your tax liability, meaning you don't actually ostensibly pay taxes, or federal taxes anyway, you pay sales tax, and gas tax, and taxes in lots of other ways. But if you're offsetting 100% of your tax liability that your employer is withholding, and you're getting a return that offsets 100%, you wouldn't actually be able to benefit from the solar tax. And so this direct pay now would allow homeowners and consumers that put solar panels on their roof to actually get a payment that would be equal to the credit that someone that's offsetting their taxes would receive.

So there's, again, I think there's still some debate as to whether that's going to happen. It might be direct pay goes to people like nonprofits, and churches, and organizations like that. But yeah, I don't think that the final verbiage is all the way set here. I think that the general layout is in place. There's some consensus around it. It looks like this is going to make it to the Senate floor, and probably as early as even August is what I'm hearing. So anyway, that's compiling a bunch of information from a bunch of places. Sorry, go ahead, Nate.

Nathan Jovanelly (00:34:14):

I agree. Yeah, it's definitely going to change. And I do think there's merit to the direct pay. And I think this is, just to be clear, like I said, I could argue both sides of, but I think this is a big win for the environment. I mean, certainly I support that. That's why I want to lower the cost of solar for everyone on the planet, regardless of income level. So anything that does that I'm in favor of. And I think that we can continue to lower the cost of solar through, the low hanging fruit in my mind is, reducing the customer acquisition cost and lowering soft costs. I do agree, and actually, it's funny, I was talking to Spencer, who is the co-founder of Enerflo before this.

And I was like, "Hey, I'm about to go on with your buddy, Dave. And is there anything you want me to talk about?" He's like, "We need more manufacturing in America." Is not what I thought he was going to say. So I figured I'd plug him for that. Because you just said the exact same thing. I think part of the challenge is, if I remember from, again, referencing the episode you had with Brian, who's definitely an expert in supply chain. I thought he said like a bulk of the lithium still is controlled by China though. So you could still hit some major, if that's true, you could still hit a major hurdle in getting the materials needed to make the panels, even if there was manufacturing here, but I don't disagree with your thesis.

Dave Anderson (00:35:39):

Yeah. Well, so what this bill does is there's some provisions for, and sometimes when you hear about these, the government only speaks in billions and trillions now. They don't even speak in terms of millions or thousands, so it sounds like funny money numbers, but there's provisions that the government will actually make money on. So for example, there's going to be loans that they're going to be able to issue for people that want to bring manufacturing. And that could be for HVAC products, that could be for solar modules, that could be lots of different things. So access to capital to prop up a manufacturing facility is actually something that's really important to a business. And again, I'm not saying that the government should be in the lending business, but it's not just a bunch of handouts here, there's I think, some sound basis for how some of these things have been put together to enable some onshore manufacturing.

There are also something in the order of, I don't know how many billions, but there's a few billion dollars in actual grants that are going to go to manufacturers as well. People that are retooling, specifically on the auto side I think, if you retool your facility to be able to build electric or more renewable type cars, there are actual grants available for that. And that's actually, again, to try to promote decarbonization here in the U.S., and really across the world as the biggest users of cars per capita, certainly is here in the United States. And so, yeah, there's lots of provisions in here. Most of them are a win for the environment, if you believe in decarbonization, which I think is our general majority at this point, which is great.

Nathan Jovanelly (00:37:13):

Yeah. And renewables are, they are winning. It's just fact, much to the chagrin of some folks on the other side. But if you just look at, I posted on LinkedIn, this article from, I think it was the Energy Industry Administration, or the Information Administration, the IIA, that 100% of power production that came online domestically in the us in March was from renewables. And if you extrapolate that in Q1, even with all these headwinds, and tariffs, and supply, everything that's already been mentioned on this podcast, solar was up, I believe 11% in Q1 for generation and installs coming online, and batteries were up almost 200%. It was like 174% or something to that effect. So if you look at the total now amount of renewables that are contributing to the grid in the United States, it's, I think it's 26.4% of the total U.S. generation, while coal's 18.2, nuclear's just over 8%, and still predominantly natural gas at around 44%, but that's shifting.

And we're seeing that, we're seeing the cost of solar come down over time. I'm sure in your time it's dropped a ton, from back from one panels for $2 a lot just for the panel. I mean, you talk about getting below $2 a lot to build, right? I mean, you can get there in some markets. I do agree that having a, one of the best things you could do is having a streamlined policy for permits, in super quick permits, regardless of the jurisdiction. Because as you know better than anyone, it can be mind numbing. I mean, you could have hundreds of jurisdictions just in two counties. So that certainly makes it difficult from an installer standpoint. But I think we're continuing to make strides in the right direction, and hopefully this bill just is part of that. Time will tell. And when we look back, have the benefit of being able to look back in history, then I think we'll ultimately find out.

Dave Anderson (00:39:23):

Well I'll say that one one of the last things that I do support about this bill is that where people have been fairly advantaged, and I don't want to say it's been an absolute luxury for the rich, because that's certainly not the case. Solar has been accessible to an increasing, to more and more demographics. The TPO products make that possible. But if you're a renter, for example, because you can't afford to buy a house, you essentially are beholden to whatever prices you can get from the grid, and your neighbor who owns his house in California literally might be paying a third for the cost of power through his solar than what you're paying for your energy by purchasing through one of the major three utilities there, PG&E, Southern SCE or SDG&E, and that's unfortunate.

And so, and these ITC, these investment tax credits, the way that they work are fairly restrictive about, and because of the complicated fund structure you were talking about at IGS, how you wanted to be very good at what you were very good at, why I guarantee putting PPAs on rental homes was not one of those things you guys were trying to be really good at, and nobody has. And so there are a lot of these underserved communities that would certainly benefit from less expensive energy, and what I'm hopeful for, and I haven't gotten all the way through the bill, is that some of the provisions that are being put in place are going to directly impact those communities.

And certainly it's part of the thesis statement of the bill, whether or not in practice, it comes to fruition I think we got to see. And again, anytime there's a tax subsidy, there's someone that's going to figure out how to maximize and optimize it. And hopefully it's worded and written in such a way that these, some of these traditionally underserved communities are going to be able to benefit from renewable energy. That's would be something that I'd be thrilled to see, but there is going to be a significant investment through this bill that's made, either through direct pay or into communities that traditionally have been underserved in the renewable space, which is good, which I'm equally passionate about.

Nathan Jovanelly (00:41:29):

What's what's interesting is, IGS actually would do a rental home as long as the person on title signed the contract. So we did have people that would have a contract for their main home and for their rental home. That's be beside the point. That's not the point you were making, but I totally agree. And in fact, I tried to develop 100 low income, low/moderate income homes in Maryland. I got pretty far down the line and I was going to own them personally, because it's something I believe in, and ended up, Sunnova ended up getting that deal. They just did a press release on it about a month ago, but I feel like I structured that and I made it happen, so it makes me feel good at least. And it was a great experience and something I'm going to continue to strive to be a part of, because I'm just sick of waiting around, you know?

And I think if you look at it, and I was in Florida in Tallahassee when the bill came up to destroy net metering. And just super high level for those listening, net metering is basically like roll over minutes. So you produce a lot of energy if you have solar in your home when the sun's at its peak, and maybe you're not consuming it all the entire time, you're not using it all. So the utility will give you credit for that power when you come home in the evening, or whenever you use it. So Florida was trying to repeal that, which I don't consider a subsidy. They throw around the word subsidy. In fact, I think there's lots of studies, even done by utilities, that show that net meter, that solar on the grid actually does have tangible benefits. And I'm not talking about feel good stuff.

I mean, that it lowers during the peak. Now there is a threshold, that once you cross, like in California, but I also don't want to pretend that if you have solar on the grid in a small, we're 3% penetration in most places, even lower in some. But nationally, it's about right, with California really propping that up. But I guess my point is, I think they said in Florida was about 10% where it starts affecting the rates of other customers and they're nowhere near that. So to introduce a bill to get rid of net metering seems very premature. And I would not want to deploy solar at the detriment to low income households. That's why I'm trying to figure that out. I think that community solar's a great option for renters. In other words, having a solar array out in a farm that you own a share of, it's not distributed, which I would prefer for a whole bunch of reasons, but it is becoming an option across the country.

And I agree that it could be considered a regressive tax, but we're not there yet. And I think that there's going to be people like you and myself that are going to solve this problem before we get to that level of penetration. At least maybe I'm just super optimistic, but I don't think we're going to get the level of penetration where low income folks are really seeing energy prices go up more because of solar than because of gas prices, right? Natural gas and other things. So luckily there's a lot of passionate people in this industry, I love being a part of it, that are working on these problems every day. And every time I see one that I don't think is solved yet, I'm just, I'm at the point in my career, in my life where if no one else is going to do it, I'm going to do it.

I feel the same, I know we talked about this in the pre-interview, so about direct to consumer. I mean, a lot of the soft cost is in, it comes in the form of sales commissions, and I'm not saying that get rid of every sales rep, you're going to need sales reps. I just bought, literally the other day, bought pest control from someone coming door to door. He was great and I had a wasp nest so I'm like, "Perfect timing." So there's going to be people that buy that way. But I also know that the next generation of homeowners get anxiety talking to people on the phone, there's studies out there, you can look it up. They don't want somebody to come to their house. They are used to buying things online. You can buy homes online, cars online, you can buy cars out of giant vending machines. It's a matter of time to get to that next level, to get to the early majority as a country, again, you can look at Hawaii or California, but I'm just talking generally. I think we have to have a mechanism to buy solar online and that is going to naturally bring the cost down.

Dave Anderson (00:45:48):

Yeah. So part of those soft costs, to your point that we talked about earlier, are dealing with the permitting offices and how well you know flow down that the permitting office matters a lot. And the people that you have to employ to go through the rigorous engineering, structural, electrical stamps that are required in certain markets. In some places you can get an over the counter permit for free, because the community really believes in embracing solar. And in other places you're going to spend, like in New York City, it costs you around $3,000 to get a permit for solar. So if you just wanted to put solar panels, you owe $3,000 to the city before you can even start in the boroughs in New York. And so those are substantive and material costs that artificially inflate what you should be paying for your electricity.

And so those costs exist. But outside of that, it's what you're talking about, is these customer acquisition or these creation costs is, right now, solar remains a little bit of an enigma to most homeowners, and they feel like they need someone to guide them through. And I don't think that's necessarily going to change completely to your point, but when you have utility costs as high as they are in some markets, when some well spoken person comes and helps you put solar on your roof and beats your rates by 10%, that's great. That's fantastic. But in some instances that same homeowner maybe could have had a reduction of 20%, 30%, 40%, or even 50% off of their electricity rates relative to utility company. And so one of the things that Complete Solar works really aggressively at is working with the many different partners we have.

We have hundreds of partners, literally, trying to make sure that in every market, we're not only pricing to make sure that their businesses can be successful, but we're trying to be socially responsible about how we price to the end consumer as well. And in some instances, that means that we're below really what they could have charged. And that's pretty untenable for most business owners, to charge less than they can charge. But as part of our broader goal of trying to make solar accessible to many, we're trying to say, "Hey, listen, we're in this for the long game."

And yeah, you might make a little bit less on this consumer, but in the whole, and in the long run, when you install the 100 neighbors and that live in and around that person's house, and you turn it a little bit more into a volume game, like Australia has, and you get some of the cost advantages that you get when you get 30% market penetration, the people that are really in it for the long game that are thinking about it like that, I think are going to be the real winners. And frankly, it's the right thing to do as well. So that's where solar's in kind of a tricky spot right now, and people that would argue against this solar tax credit would say, "We should be able to survive at 30% reduced costs." And maybe would even have a point, if you were going to compare us to other world markets.

Nathan Jovanelly (00:48:43):

And I don't disagree with you. I don't, just to be totally clear so I'm not misrepresented, I don't think sales orgs are going to go away.

Dave Anderson (00:48:52):

Never.

Nathan Jovanelly (00:48:52):

I just think that there is a large subset of customers that just won't answer the door, so they'll never get that shot. I don't think it's even competitive with them, because it's a different customer base. And I hear that all the time from my like, "You answered the door for this guy?" Like half of my neighbors wouldn't even come to the door and we're older than what the new generation that's coming in. Right? Like I joking with my kids, the joke about it's true, they use, of a nine and 11 year old and they can use the iPhone better than I can. I have to call my daughter for tech support.

I mean, that's just the world that, they grew up with that in their hand. Right? So they get it. And I think that if you look at the things, again, most people don't, not most, but there's a new era where people aren't even buying, you know get groceries delivered, you have Amazon, right? Like why would you ever need to leave your house? I'm not saying that's a good thing. That's not a philosophical debate. I'm just simply stating the obvious that I think that there are companies out there that are doing it. Tesla did it, I think it was kind of half-hearted, but you can sell solar for less than $2 a lot if it's a cash deal and it's just done strictly online.

Dave Anderson (00:50:12):

Yeah. And very much so, to get on the record, I don't think sales organizations are going away either. In fact, I think they're going to 10X over the next 10 or 12 years. I think there are going to be more of them and they're going to be bigger.

Nathan Jovanelly (00:50:12):

Totally.

Dave Anderson (00:50:24):

And that's because we're at 3% market penetration and there are a lot of people that need to be handheld and ushered into this new energy revolution, and that's why we're thrilled to do what we do. We work with the partners we work with. We just want to make sure, when we work with our partners, we're always trying to be as socially responsible as we can. And the truth of the matter is, is that anyone buys solar, if they paid $5 or $6 a watt today, in all of the markets, many of the markets we're working in, they're far better off than waiting for some time down the road when they might be able to get it for $3 or $2 even. And so now is the right time to go solar and most of the people that are out selling it or are trying to do it the right way.

We work with some really fantastic sales partners, thousands of sales reps represented across the country that are doing it, we believe, absolutely the right way. We're just trying to, we want this to be an every man product and we want their job to actually be made more easy by, you take care of customers in a really spectacular way, you're going to have more customers. I just truly believe that. And as a business, we're trying to make sure that every customer has a fantastic experience. And I think we're partnered with sales organizations that also believe that and are aligned with us as well, and that's why they're successful and growing. And that's why we're bringing on more, and more, and more organizations that work within complete solar all the time. So we're thrilled about it.

Nathan Jovanelly (00:51:44):

Yeah, you're definitely doing it right, and I agree. I mean, I think the, and who knows how accurate these predictions are, but I think they're predicting 13% of homes will have solar by 2030. I mean, if you just look at jobs, jobs are, the job growth in solar, and even if you want to throw wind in there, is 5X the national average for new additions. And I think it's up 160%, 170% year over year. And if you just look at some of the mandates, not even state, but just nationally, I think that in order to even come close to them, they're going to have to install three times the amount of solar that's been installed already just in the next five or 10 years. So I definitely agree.

I mean, solar has a bright future, no pun intended, but I think it's going to, I don't even think we're, we're just at the base of the hockey stick, and that was some of the, why I rattled off some of those percentages earlier, because I think solar already has a, as in terms of total production capacity in the U.S., is probably greater than what most people think. And with the inclusion of batteries now and the battery technology really coming along, and the electrification of everything, you're going to need something to keep those costs down. And solar's an awesome alternative for those that it works, right? Depending on if you rent, or own, or whatever.

You have to be a homeowner, you have to face a certain direction. Not always, but can't have mom's Oak tree in the front yard blocking the system. So there's a few hurdles to get over, not everyone is qualified, but certainly I think it's more and more mainstream. I mean, I see, it's a large percentage of my neighbors have solar now, I'm in Pennsylvania, five years ago that would've been unheard of. And I see it more and more, our rates are up, I think 38% just in the last six months. So I can, I expect that trend to continue, and it's not, it's getting more mainstream. It's not like, "Oh, look, that house has solar." I've had solar in my house for years now, I have LG panels, funny, I was like, "Oh, these are going to be the greatest ever."

Dave Anderson (00:54:01):

They are great panels, but they just exited the space. Yeah. But they are good panels.

Nathan Jovanelly (00:54:06):

But so yeah, I put LG up and I've had solar in my house for years, and I can't tell you how many of my close friends and family, other than me talking about it, never knew I had solar, or somebody comes to my house, they don't even notice it anymore. So I think that, to me, that's anecdotal evidence on some level that it's more mainstream.

Dave Anderson (00:54:27):

Yeah. No, it certainly is. I was, so I've lived in California for 12 years with my family until just recently where we moved here to Salt Lake and there are two different mindsets in that market compared to this market, certainly it was very mainstream in the community I lived there in California, no one battered their eye about panels. Although if you were at the kitchen table, people would always talk about how concerned they were with the aesthetic of it, things like that. But once they're on the roof, nobody ever talks about it. And nobody ever hears complaints from anyone saying, "Oh, those solar panels..." Or whatever, but don't look good, or are out of place, or whatever. It's very, very, very mainstream.

Here in Utah, it's first thing I did when I came here to Utah, put solar panels on my house and I think that there's a general curiosity here. My neighbors ask me about solar quite a lot. And of course I'm happy to talk about it. So that's one of the things that I love about solar, is most people are curious and they're just looking for someone to help them answer a handful of questions. And then their curiosity usually turns into them doing something about it. That's been my experience at least here in Utah. And it was certainly an experience early days in California as well. Yeah. Anyway, I love all the things you'd kind of mention, so obviously Nate, or excuse me, obviously, Brian Lynch on a previous podcast, for those that want to go and look that one up, really fantastic guests one of the smartest guys you'll talk about, about supply chain.

And some of the challenges we were actually talking about back then, which we're still going to be talking about, but that was the tariff and the tariff situation. That isn't all the way resolved. And we also had previously on the show, just after governor DeSantis had shut down the bill that was challenging the net energy metering program in Florida, we brought a couple of the FlaSEIA people, which is an organization down in Florida that was really strongly helping to advocate against that bill, which was going to be very destructive to many jobs and to the energy space, generally. Florida's such a fantastic solar market, to think that their energy, that that market was going to be challenged the way that it was is just a travesty. So we're really glad that governor DeSantis made the decision he did to veto that bill and shoot that down.

That was a big win for solar across the country, frankly, but certainly it was a big win for Floridians. The people of Florida were huge winners when that happened. I can say that very definitively. So Nate, I know that it'd be regretful if we didn't talk a little bit about what you're doing right now, you're now working with Enerflo. Enerflo is a software platform program. You gave a great description of it. And you mentioned that you were pretty aligned with pat and with Spencer, what are some of those philosophies that are guiding you now and why you think Enerflo is helping to solve some of those problems, or helping you to meet your philosophical ideology?

Nathan Jovanelly (00:57:10):

Yeah. I think, like I said, our mission, our stated mission, or I think our unstated mission, I don't know, but is to lower the cost of solar for every person on the planet. And we think that if there there's no one size fits all solution for installers, as you know, we talked about just the challenges in permitting, but then imagine having to have all these CRMs that aren't built for solar. And we don't, you can use Enerflo as a CRM. You can use it for a lot of things, but really it's truly the only open platform that I know of. And that's what drew me to it, because you could pick and choose what design tool you want, or what knock tool, or how you get leads, or if you want Salesforce or NetSuite, or all these different components that can make it difficult to run a business.

We could do a business process analysis for you and streamline that, make it so everything talks to each other. If a customer calls in, you're going to know exactly where their job is. In fact, one of the things that I really like about that, I don't think a lot of people at Enerflo talk about enough is our customer portal. And the reason why I like it, because I've seen firsthand on the financing side, the amount of cancellations that happen. Because again, that maybe then someone can't tell the customer where their job is, or the customer just assumes nothing's happened, because it sits in permits for a month full circle, right? Back to permits. And what we do at Enerflo is that the moment that lead is created, no matter how it's created, however it comes into you, whether it's a door knock, whether it's buy in lead, or a phone call, that customer gets a link that's unique to them, they can click on, can upload their power bill.

We're starting to run credit and do, pull their home attributes through title top of funnel. So you don't get through and find out they're not approved for the whole system amount or you can't do it because it's on a, a rental home is a good example. So we'll know all that up front so that the reps are empowered to make the best decisions for that customer. And our goal is just to really, again, increase pull through and increase efficiency and having that customer engaged. So as soon as they sign a contract, they get what we call, is a pizza tracker. If you've ever ordered a pizza you know, like, "We're making your pizza. It's being delivered." Same thing. We match those milestones specifically to that installer so that the customer can see their journey and they know that things are happening.

And if they have questions, they can just chat right in, in their Enerflo customer portal, it'll go directly to the rep or the appropriate ops person depending on the status of their job. And we feel that that level of engagement we've seen through our data, that it increases the pull through rate and anything you can do to lower that customer acquisition cost, I think, is a real game changer. So having all your data not siloed in one concise spot, this was something that, while I was at IGS, that my partners talked to me a lot about, like, it'd be great if you had a solar specific this or that on the front end to help us manage these projects so that we can go sell more, or go build more. And that's exactly what Enerflo does.

And where we end up five years from now, that's the exciting part, still relative startup. Although this year we'll have well over $4 billion of signed contracts go through our platform, which I think is a tremendous accomplishment in a very short amount of time, we were about $1.5 billion last year. So that's not leads, that's sign contracts. We lose a little bit of visibility into the pull through rate of those and which ones get installed. But we are actively working on coming up with a really, really slick backend project management system that'll be custom. So we're excited about that in the future. And hopefully next time I see you, we can talk about that and all the things that's doing for the industry as well.

Dave Anderson (01:01:10):

Yeah. Well Spencer and Pat, I mean, they're both great minds. They work on very different wavelengths, for sure. But I'm glad to consider both of them friends. Pat, I think he's got a great business mind and a fantastic development mind, and Spencer is, he's definitely one of those guys that has big, and wonderful, and huge ideas. So I too was interested, or I found it curious that he said we need to bring manufacturing to the United States, but I think that's true and that's what this bill is going to do. So we love the team over at Enerflo. For those that are listening to the podcast that are interested, they can obviously reach out to the team over there and get some more information about the product.

It work people that are installers, it works for people that are sales only. It works for many different types of people. And we're happy to know the Enerflo team, been very impressed with them, and have done some work collectively between our companies as well. So Nate, genuinely appreciate you coming on and talking about some of the crazy things that are happening in the solar space right now, actually happening really in the country, but affecting the solar space, and the renewable space, and the decarbonization of the United States, and the decarbonization of the world really. Fantastic background and we'd love to have you come back on again. And I know that you guys were accomplishing great things over at Enerflo but love your hot takes on just the things that are happening generally in solar. So thank you so much for coming on. It's been an absolute pleasure to visit with you.

Nathan Jovanelly (01:02:45):

Yeah. It's been an honor. Appreciate it. Next time I'm in Utah or California, I'm going to look you up and we got to meet up, or otherwise, I'm sure I'll see you in SPI if you're going this year. So I look forward to meet you in person. It's odd that we've never met after all this time. I'm surprised.

Dave Anderson (01:03:01):

It is crazy. Yeah. Yeah. Well, I will be out there for all of the listeners. So I'm going to be spending some time, we're actually going to do a live podcast from Solar Power International. And I think, what are they calling it? What do they call it now? RE+ or something now? So they're rebranding the name of it. Whatever-

Nathan Jovanelly (01:03:19):

Oh, yeah. Sorry. I have to get used to that.

Dave Anderson (01:03:22):

Thanks for coming on, Nate. So appreciate it.

Speaker 1 (01:03:25):

Thanks for listening to the solar podcast. Please don't forget to rate, review, and share us with your colleagues and friends who are passionate about solar, renewable energy, and the future of the environment. Until next time.